How to ensure state compliance in a market filled with gray areas
With the ever-changing legal landscape that governs products containing hemp cannabinoids, it can be a daunting task for retailers to sell such products in state markets throughout the United States.
Hemp became federally legal through the passage of the Agricultural Improvement Act of 2018, but the law does not specifically address the legality of products containing hemp cannabinoids intended for human consumption. That void is being filled by various provisions of existing federal law and evolving state law, which oftentimes differ from each other.
The sale of products containing hemp cannabinoids is covered by both federal and state law, but let’s focus exclusively on state law considerations. Here are four questions that every retailer should ask before selling hemp-derived products into a state market.
1. Are product sales permitted within the state?
The growing popularity of hemp products containing cannabinoids throughout the country has led several states to address the legality of such products. Certain states have directly addressed the issue by passing laws, promulgating regulations or issuing interpretive guidance as to the permissibility of hemp-derived products under existing state law. Others have not fully addressed the issue directly, which has created a legal gray area in those states.
For states that do permit sales of products containing hemp cannabinoids, the analysis does not end there. It is becoming increasingly common for states to ban or restrict certain types of hemp cannabinoids, notably those that have an intoxicating effect. What is considered an intoxicating cannabinoid, however, differs between states. It may be determined by the definition of tetrahydrocannabinol (THC), whether the cannabinoid is naturally occurring, as opposed to synthetic, or simply left to the discretion of the applicable state agency.
Furthermore, while a product containing hemp cannabinoids may be permitted in one form, a state may prohibit it in another form. Generally, states categorize products by method of administration — such as ingestion (food, beverages or dietary supplements), inhalation (flower), or topicals — and determine permissibility of products accordingly. Thus, not only is it important to understand the state’s position on hemp cannabinoids, but also whether the form of the offered product is permissible or not.
2. Are the products tested in compliance with applicable state law?
Generally, states that regulate hemp-derived products require them to be sold with accompanying documentation — usually in the form of a certificate of analysis (commonly known as a “COA”) — from an independent laboratory, confirming compliance with testing requirements of applicable state law.
To ensure retailers are dealing in hemp, as opposed to federally illegal marijuana, the COA should confirm that the product contains a delta-9 THC concentration of no more than 0.3%. There are various other state testing considerations, however. First, with the growing popularity of cannabinoids from the THC family, such as delta-8 THC and delta-10 THC, certain states have expanded the testing requirements of hemp products to include all types of THC cannabinoids to determine whether the product is lawful or not.
In addition, because many of the products are intended for human consumption, states require testing of various contaminates such as pesticides, residual solvents and heavy metals, among others, to ensure products are safe.
Finally, it is becoming more common for states to require testing of the quantity or potency of cannabinoids marketed in a particular product to ensure representations about the product are accurate.
3. Are the products packaged and labeled in compliance with state law?
States that regulate hemp products containing cannabinoids are increasingly establishing packaging and labeling requirements specifically for these products. There are commonalities among state packaging and labeling requirements, such as barcodes or quick response (QR) codes that link to important information about the product, batch or lot numbers comprising of the hemp extract, and the amount of cannabinoids per package or serving.
Retailers should also be mindful of requirements that are unique to a particular state. Some of the state-specific packaging and labeling requirements include warnings/disclosures, licensing and sourcing information, marketing restrictions, font requirements and universal symbols.
4. Does the state require the company or its products to be registered?
For the growing number of states that regulate the sale of products containing hemp cannabinoids, retailers are required to register with the applicable state agency. Registration requirements may extend to companies operating beyond a state’s borders, including out-of-state companies that are exclusively conducting online sales.
Additionally, a certain number of states also require product registration before beginning sales. As part of the registration process, state agencies may seek materials regarding the products offered for sale, including the types of products, their ingredients and the proposed packaging and labeling of the products, to ensure they comply with applicable laws and regulations.