By Jared Schwass, Matthew R. Kittay, and Michael R. Herz
Hemp and hemp-derived cannabidiol (CBD) products have seen an increase in demand over the last few years, but the legal and regulatory structure behind those products has been unclear and confusing. One reason behind the confusion is that there has been a lag in the implementation of a thorough regulatory scheme after the passage of the Agriculture Improvement Act of 2018 (commonly referred to as the 2018 Farm Bill).
The 2018 Farm Bill was signed into law in December 2018. Once signed, hemp was removed from the definition of marijuana in the Controlled Substance Act (CSA), which, in effect, declassified hemp and CBD as a Schedule 1 drug and legalized the crop and its derivatives. The 2018 Farm Bill defines hemp as cannabis (Cannabis sativa L), and its derivatives, with concentrations of delta-9-tetrahydrocannabinol (THC) equal to or less than 0.3% on a dry weight basis. While legalizing hemp and its derivatives, the 2018 Farm Bill delegated the U.S. Department of Agriculture (USDA) and the U.S. Food & Drug Administration (FDA) the authority to regulate the production of hemp and its derivatives. While the USDA has issued guidance and regulations on the cultivation of hemp, the FDA has lagged in providing clear guidance and regulations regarding the production and sale of CBD products. That lag has resulted in states creating a patchwork of regulatory actions across the country.
States like Idaho, Iowa, and South Dakota do not allow any CBD products to be sold in their State. However, other States, such as Oregon, Illinois, and New Jersey, have not implemented any restrictions on CBD products.
On December 9, 2019, New York passed one of the most comprehensive laws to regulate the manufacturing and sale of hemp and CBD products in the United States (s.6184-A). That law required hemp cultivators, producers, and retailers to obtain licenses before conducting any commercial hemp and/or CBD activities and was originally scheduled to become effective on March 8, 2020. Given the impact of the new licensing requirements under the law, the March 8, 2020 effective date proved to be an overly ambitious deadline to implement a new regulatory scheme and on January 23, 2020, the New York legislature amended that law and pushed the effective date to May 1, 2020, and extended the licensing requirements for processor and retailers to January 1, 2021. The amendment also clarified the licensing requirements for the cultivation, processing, distribution, and retail of hemp and CBD products by providing guidance on the specific licenses that will be required for each type of operation.
Under the new law, the regulation of hemp cultivation in New York remains controlled by the New York Department of Agriculture and Markets (NYDAM). Additionally, Article 29 of New York’s Agriculture and Markets law (formerly Growth of Industrial Hemp) was repealed and replaced, and renamed the “Growth of Hemp.”
Below is a summary of key highlights from the Growth of Hemp:
In addition to changing the laws regarding the cultivation of hemp, the New York legislators also enacted the Regulations of Cannabinoid Hemp and Hemp Extract, which added Article 33-B to the New York Public Health Law. Parts of Article 33-B became effective May 1, 2020, such as the testing requirements and providing NYDAM the authority to regulate the processing, distribution, marketing, transportation, and sale of CBD and hemp extracts used for human consumption; however, the processor and retail licensing requirements are not effective until January 1, 2021.
Below are key highlights from the Regulations of Cannabinoid Hemp and Hemp Extract:
As of the date of this article, the NYDAM has not issued its regulations found under Article 33-B and they are currently not accepting any applications for hemp processor or retailer licenses. Companies that produce or sell CBD products in New York will need to keep a close eye on the progress and implementation of New York’s comprehensive hemp law, including the promulgation of any licensing procedures and the opening of the license application process, to ensure they are not prohibited from entering New York’s huge CBD market once the licensing requirements go into effect on January 1, 2021.
About the Authors
Jared Schwass is an attorney at Fox Rothschild LLP who advises businesses entering and operating in the legalized marijuana market on regulatory compliance, risk mitigation and business transactions. He can be reached at [email protected].
Michael R. Herzi s an attorney at Fox Rothschild LLP who works with businesses in the cannabis sector that encounter financial difficulties, offering advice on alternatives to traditional bankruptcy. He can be reached at [email protected].
Matthew R. Kittay is the Co-Chair of the Mergers & Acquisitions Practice Group and Chair of the New York Corporate Team at Fox Rothschild LLP. He has handled major structuring deals and secured private equity and venture capital for a number of companies in the cannabis sector. He can be reached at [email protected].
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