The Control, Regulate and Tax Adult Use of Marijuana Act of 2016 (AUMA), an initiative measure approved as Proposition 64 at the November 8, 2016, statewide general election, authorizes a person who obtains a state license under AUMA to engage in commercial adult-use cannabis activity pursuant to that license and applicable local ordinances. The Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA), among other things, consolidates the licensure and regulation of commercial medicinal and adult-use cannabis activities and requires the Department of Cannabis Control to administer its provisions.

Existing law governs the cultivation of industrial hemp in this state and establishes a registration program administered by county agricultural commissioners and the Department of Food and Agriculture for growers of industrial hemp, hemp breeders, and established agricultural research institutions, as defined.

The Sherman Food, Drug, and Cosmetic Law, among other things, regulates the labeling of food, beverages, and cosmetics and makes it a crime to distribute in commerce any food, drug, device, or cosmetic if its packaging or labeling does not conform to these provisions. Violation of the Sherman Food, Drug, and Cosmetic Law is a misdemeanor. Existing law also requires hemp manufacturers who produce specified products that include industrial hemp or who produce raw hemp extract, as defined, to complete a registration process, under the State Department of Public Health, and to meet various requirements for testing and labeling on products.

Existing law exempts industrial hemp, as defined, from the definition of cannabis and from MAUCRSA, but requires the Department of Cannabis Control to prepare a report, on or before July 1, 2022, to the Governor and the Legislature outlining the steps necessary to allow for the incorporation of hemp cannabinoids into the cannabis supply chain.

This bill would state that MAUCRSA does not prohibit a licensee from manufacturing, distributing, or selling products that contain industrial hemp or cannabinoids, extracts, or derivatives from industrial hemp, if the product complies with all applicable state laws and regulations. The bill would revise and recast the provisions with the Sherman Food, Drug, and Cosmetic Law, regulating industrial hemp to redefine certain terms, expand the prohibition that raw hemp extract not exceed 0.3% of a tetrahydrocannabinol comparable cannabinoid, and prohibit the manufacture, distribution, or sale of an industrial hemp product that contains a cannabinoid that is not present in nature in commercially meaningful quantities, unless authorized by the department in regulation. The bill would require an out-of-state hemp manufacturer who produces an industrial hemp product that is a food or beverage for sale in this state to register with the department. By creating a new crime, this bill would impose a state-mandated local program.

The Control, Regulate and Tax Adult Use of Marijuana Act of 2016 (AUMA), an initiative measure approved as Proposition 64 at the November 8, 2016, statewide general election, authorizes a person who obtains a state license under AUMA to engage in commercial adult-use cannabis activity pursuant to that license and applicable local ordinances. The Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA), among other things, consolidates the licensure and regulation of commercial medicinal and adult-use cannabis activities and requires the Department of Cannabis Control to administer its provisions.

Existing law governs the cultivation of industrial hemp in this state and establishes a registration program administered by county agricultural commissioners and the Department of Food and Agriculture for growers of industrial hemp, hemp breeders, and established agricultural research institutions, as defined.

Existing law also requires hemp manufacturers who produce specified products that include industrial hemp or who produce raw hemp extract, as defined, to complete a registration process, under the State Department of Public Health, and to meet various requirements for testing and labeling on products.

Existing law exempts industrial hemp, as defined, from the definition of cannabis and from MAUCRSA, but requires the Department of Cannabis Control to prepare a report, on or before July 1, 2022, to the Governor and the Legislature outlining the steps necessary to allow for the incorporation of hemp cannabinoids into the cannabis supply chain.

This bill would state that MAUCRSA does not prohibit a licensee from manufacturing, distributing, or selling products that contain industrial hemp or cannabinoids, extracts, or derivatives from industrial hemp, if the product complies with all applicable state laws and regulations.

SENATE COMMITTEE ON

Senator Anthony Portantino, Chair

2023 - 2024 Regular Session

AB 420 (Aguiar-Curry) - Cannabis: industrial hemp

Bill Summary:

AB 420 provides that the Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA) does not prohibit a cannabis licensee from manufacturing, distributing, or selling industrial hemp products, including cannabinoids, extracts, or derivatives of industrial hemp, if the product complies with all applicable state laws and regulations. AB 420 also makes updates to the industrial hemp program under the California Department of Public Health (CDPH), as specified.

Fiscal Impact:

• The CDPH reports total costs of approximately $1,776,000 over the next three years, and unknown ongoing costs to process out-of-state registrations, carry out educational and outreach efforts, and enforce regulations for out-of-state industrial hemp manufacturers (General Fund).
• The Department of Cannabis Control (DCC) reports unknown but likely significant one-time and ongoing costs ranging into the millions of dollars. The DCC notes the fiscal impact of the bill is ultimately indeterminate at this time, as it is unknown how hemp will enter the regulated cannabis market. DCC would, at a minimum, need to amend regulations that prohibit the incorporation of industrial hemp, develop new procedures for hemp integration, and modify the California Cannabis Track and Trace system. This will likely require additional staff resources to address an increase in administrative and enforcement workload.

Background:

In California, SB 566 (Leno, Chapter 398, Statutes of 2013) established the Industrial Hemp Farming Act, which established a regulatory framework for the cultivation and processing of industrial hemp that would go into effect upon legalization by the federal government. SB 566 required growers of industrial hemp for commercial purposes to register with the county agricultural commissioner of the county in which the grower intends to engage in industrial hemp cultivation among various provisions. Several years later, the 2018 Farm Bill removed industrial hemp from the Controlled Substances Act and put it under the purview of the United States Department of Agriculture as an agricultural commodity. The Farm Bill lists hemp as a “covered commodity” under crop insurance and allows the states to regulate the industry. Since then, industrial hemp production in the United States has seen a resurgence in the last few years.

By federal and California law, industrial hemp is defined as C. sativa plants, which have low levels of the THC (under 0.3%); the primary psychoactive component of medicinal and recreational cannabis, which commonly contains levels ranging from 15-40% THC. C. sativa plants grown for commercial purposes found to have THC levels over this limit are required to be destroyed.

Further, AB 45 (Aguiar-Curry, Chapter 576, Statutes of 2021) established a regulatory framework for food, beverage, and cosmetic products containing industrial hemp or cannabinoids, extracts, or derivatives of industrial hemp under the Sherman Food, Drug, and Cosmetic Law. AB 45 was enacted to clarify and expand the framework under which industrial hemp and cannabidiol (CBD) derived from industrial hemp can be included in dietary supplements, food, beverages, cosmetics, or pet food. AB 45 required manufacturers of dietary supplements and food that includes industrial hemp products to register with CDPH and demonstrate that their products meet all state and federal guidelines, including consumer safety standards. In addition, AB 45 prohibited manufacturers, distributors, or sellers of industrial hemp products from advertising unsubstantiated health-related statements regarding industrial hemp and CBD.

CDPH currently has regulatory authority over industrial hemp products. Businesses engaged in the manufacturing, packing, or holding of industrial hemp products are required to register with CDPH. However, for those that grow industrial hemp as a crop, they are under the jurisdiction of the California Department of Food and Agriculture. No part of hemp regulation in California is conducted by the DCC, however, testing laboratories issued a licensed by the DCC are authorized to test hemp products, as specified.

Proposed Law:

• States that MAUCRSA does not prohibit a cannabis licensee from manufacturing, distributing, or selling industrial hemp products, as defined, or cannabinoids, extracts, or derivatives from industrial hemp, if the product complies with all applicable state laws and regulations, as applicable.
• Defines “cannabinoids produced through chemical synthesis” or “chemically synthesized cannabinoid” to mean a substance that is created by chemical reaction that changes the molecular structure of any substance derived from the plant Cannabis sativa L. A chemically synthesized cannabinoid does not include any of the following:
  • A naturally occurring chemical substance that is separated from the plant by a chemical or mechanical extraction process;
  • Cannabinoids that are produced by decarboxylation from a naturally occurring cannabinoid acid;
  • Any other chemical substance approved by the CDPH in regulation.
• Adds to the definition of “industrial hemp product” or “hemp product” that contains any part of the plant Cannabis sativa L., including naturally occurring cannabinoids or extracts.
• Adds “comparable cannabinoids” to the definition of “total THC”.
• Clarifies that a comparable cannabinoid concentration or lower amount of 0.3 percent of THC in final form is eligible to be manufactured or distributed in California, as specified.
• Prohibits a person from manufacturing, distributing, or selling an industrial hemp product that contains a cannabinoid that is not present in nature in commercially meaningful quantities in the plant of Cannabis sativa L., unless explicitly approved by the CDPH in regulation.
• Requires an out-of-state hemp manufacturer who produces an industrial hemp product that is a food or beverage for sale in this state to register with the CDPH.
• Repeals the authorization for a hemp manufacturer or retailer who is operating prior to the implementation of AB 45 to manufacture or sell industrial hemp products or raw hemp extract without authorization for three months after effective date of the requirements for the regulation of hemp.
• States Legislative intent to enhance the viability of cannabis licensees in the marketplace by pursuing measures to relieve tax and regulatory requirements, and to authorize licensees to manufacture, distribute, and sell hemp and CBD products in compliance with current law.
• Makes other technical and clarifying changes.

Related Legislation:

AB 1656 (Aguiar-Curry, 2022) would have provided that MAUCRSA does not prohibit a cannabis licensee from manufacturing, distributing, or selling industrial hemp products, as defined in state law and including cannabinoids, extracts, or derivatives of industrial hemp, if the product complies with all applicable state laws and regulations. AB 1656 died on the Senate Inactive File.

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SENATE COMMITTEE ON HEALTH

Senator Dr. Susan Talamantes Eggman, Chair

BILL NO: AB 420

SUBJECT: Cannabis: industrial hemp

SUMMARY:

Specifies that the Medicinal and Adult-Use Cannabis Regulation and Safety Act does not prohibit a cannabis licensee from manufacturing, distributing, or selling industrial hemp products if the product complies with applicable laws and regulations governing industrial hemp. Strengthens the prohibition against industrial hemp containing chemically synthesized cannabinoids by furthering the definition of “chemically synthesized cannabinoid,” and by prohibiting the manufacture, distribution, or selling of an industrial hemp product that contains a cannabinoid that is not present in nature in commercially meaningful quantities in the plant of Cannabis sativa L., unless explicitly approved by the California Department of Public Health (CDPH) in regulation.

Existing law:

1. Enacts the Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA) to establish a comprehensive system to control and regulate the cultivation, distribution, transport, storage, manufacturing, processing, and sale of both medicinal cannabis and cannabis products, and adult-use cannabis and cannabis products for adults 21 years of age and over, regulated by the Department of Cannabis Control (DCC). [BPC §26000, et seq.]
2. Defines “cannabis,” for purposes of MAUCRSA, as all parts of the plant Cannabis sativa Linnaeus, Cannabis indica, or Cannabis ruderalis, the seeds thereof, the resin, and every compound, manufacture, salt, derivative, mixture, or preparation of the plant, its seeds, or resin. Excludes “industrial hemp,” as defined in the California Uniform Controlled Substances Act (UCS Act), from the definition of cannabis for purposes of MAUCRSA. [BPC §26001 (f)]
3. Defines industrial hemp, under the UCS Act, as an agricultural product, whether growing or not, that is limited to types of the plant Cannabis sativa L. and any part of that plant, including the seeds of the plant and all derivatives, extracts, the resin extracted from any part of the plant, cannabinoids, isomers, acids, salts, and salts of isomers, with a delta-9 tetrahydrocannabinol (THC) concentration of no more than 0.3% on a dry weight basis. Excludes industrial hemp from the UCS Act, and from MAUCRSA, and instead requires industrial hemp to be regulated by the California Department of Food and Agriculture (DFA), as specified. [HSC §11018.5]
4. Establishes a regulatory structure for the cultivation of industrial hemp, and an Industrial Hemp Advisory Board, under the DFA. Requires a grower of industrial hemp for commercial purposes to register with the county agricultural commissioner. [FAC §81000, et seq.]
5. Establishes a regulatory structure in the California Department of Public Health (CDPH) for food, beverage and cosmetic products containing industrial hemp, and limits these products to containing no more than 0.3% concentration of THC. [HSC §111920 et seq.]
6. Defines “industrial hemp,” for purposes of food, beverage, and cosmetic products, as having the same definition as in the UCS Act above, and additionally specifically prohibits industrial hemp from including cannabinoids produced through chemical synthesis. [HSC §111920(f)]
7. Defines “THC or comparable cannabinoid,” for purposes of the regulatory structure for industrial hemp products, as including, in part, any THC, including Delta-8, Delta-9, and Delta-10, and any other cannabinoid, except cannabidiol (CBD), that CDPH determines causes intoxication. [HSC §111920(l)]
8. Restricts a licensed cannabis retailer, in addition to cannabis goods, to selling only cannabis accessories and the branded merchandise of any licensee. However, permits a licensed retailer who operates a consumption area on the premises to also sell prepackaged, non-cannabis-infused, non-alcoholic food and beverages if the applicable local jurisdiction permits such sales. [4 CCR §15407]

This bill:

1. Specifies that MAUCRSA does not prohibit a cannabis licensee from manufacturing, distributing, or selling products that contain industrial hemp, or cannabinoids, extracts, or derivatives from industrial hemp, if the product complies with all applicable state laws and regulations, as specified.
2. Defines “cannabinoids produced through chemical synthesis” or “chemically synthesized cannabinoid,” for purposes of a provision of existing law that prohibits industrial hemp from including cannabinoids produced through chemical synthesis, as a substance that is created by a chemical reaction that changes the molecular structure of any substance derived from the plant Cannabis sativa L.
3. Excludes from the above definition of “chemically synthesized cannabinoid” the following:
   1. A naturally occurring chemical substance that is separated from the plant by a chemical or mechanical extraction process;
   2. Cannabinoids that are produced by decarboxylation from a naturally occurring cannabinoid acid; and,
   3. Any other chemical substance approved by CDPH in regulation.
4. Revises the definition of “industrial hemp product,” for purposes of provisions of law governing industrial hemp, by requiring an industrial hemp product to contain any part of the plant Cannabis sativa L., including naturally occurring cannabinoids or extracts.
5. Revises the definition of “total THC,” for purposes of industrial hemp products, as the sum of all THC or comparable cannabinoids, rather than the sum of THC and Tetrahydrocannabinolic acid (THCA), as these are defined.
6. Prohibits an industrial hemp product from being manufactured in California, in addition to existing law prohibitions on the distribution or selling, if the industrial hemp product is not in conformity with state law.
7. Clarifies that the existing allowable limit of THC concentration in industrial hemp products of 0.3% or an amount determined by CDPH in regulation, is actually a maximum and CDPH can only lower by regulation, and that it applies to comparable cannabinoids in addition to THC.
8. Prohibits the manufacture, distribution, or selling of an industrial hemp product that contains a cannabinoid that is not present in nature in commercially meaningful quantities in the plant of Cannabis sativa L., unless explicitly approved by CDPH in regulation.
9. Clarifies that the requirement for hemp manufacturers who produce an industrial hemp product that is a food or beverage to registered with CDPH applies to both hemp manufacturers located in this state, as well as out-of-state manufacturers who produce food or beverage products for sale in this state.
10. Makes a legislative finding that the legal cannabis industry faces challenges from a thriving illicit cannabis marketplace, and that it is the intent of the Legislature to enhance the viability of cannabis licensees in the marketplace by pursuing measures to relieve tax and regulatory requirements, and to authorize licensees to manufacture, distribute, and sell hemp and CBD products in compliance with current law.

FISCAL EFFECT:

According to the Assembly Appropriations Committee, DCC states this bill will have costs of a large but undetermined amount, in the millions of dollars (Cannabis Control Fund). According to DCC, the uncertainty is due to the absence of specific provisions detailing how hemp would be allowed to enter the regulated cannabis market. DCC states that, at a minimum, it would need to amend sections of its regulations that prohibit the incorporation of industrial hemp, develop new procedures for hemp integration, and seek modifications to the track and trace system. DCC projects it would also require additional staff to develop new hemp integration programs and processes, as well as for increased compliance and enforcement. 

PRIOR VOTES:

COMMENTS:

1. Author’s statement. According to the author, hemp and marijuana are both members of the cannabis family, but they vary in chemical composition and are regulated differently under state and federal law. Hemp has lower levels of psychoactive compounds and, by law, cannot have more than 0.3% of the intoxicant THC or related chemicals. Since the legalization of industrial hemp in 2018, hemp-derived products containing CBD and other cannabinoids have been widely produced and sold to consumers at grocery stores, fitness centers, and other retail locations. However, commercial cannabis licensees have not been able to participate in the hemp market, even though they produce and sell similar products using cannabis-derived CBD. This bill clarifies that licensees with a commercial cannabis license can manufacture, distribute, and sell hemp products in accordance with existing law. This bill follows the lead of 17 other states to help integrate hemp into the cannabis supply chain and expand the products that the legal cannabis industry can offer.
2. What is CBD used for and is it safe? Hemp-derived CBD has been touted for a wide variety of health issues, but the strongest scientific evidence is for its effectiveness in treating some types of epilepsy, which led to FDA approving the first ever cannabis-derived medicine for these conditions, Epidiolex, which contains CBD. CBD is commonly used to address anxiety, insomnia, different types of chronic pain, and various other ailments, although it is important to note that none of these medical uses have been sanctioned by the FDA. According to the Mayo Clinic, while CBD is being studied as a treatment for a wide range of conditions, research supporting the drug’s benefits is still limited. Though it is often well-tolerated, CBD can cause side effects such as dry mouth, diarrhea, reduced appetite, drowsiness and fatigue, and can also interact with other medications such as blood thinners. The Mayo Clinic states that another cause for concern is the unreliability of the purity and dosage of CBD products. A study of 84 CBD products bought online showed that more than a quarter of the products contained less CBD than labeled, and in addition, THC was found in 18 products. On the other hand, according to a report published in November of 2017 by the World Health Organization (WHO), CBD exhibits no effects indicative of any abuse or dependence potential. The WHO stated that CBD is generally well tolerated with a good safety profile.
3. Federal status of the use of CBD from industrial hemp. After initially being legalized for cultivation for research purposes only in the 2014 Farm Bill, Congress removed industrial hemp from the definition of marijuana in the Controlled Substances Act in the 2018 Farm Bill. This meant that cannabis plants and derivatives that contain no more than 0.3% Delta-9 THC on a dry weight basis are no longer controlled substances, which legalized the cultivation of industrial hemp. However, the 2018 Farm Bill did not eliminate the authority of the Food and Drug Administration (FDA) to regulate cannabis compounds. The FDA has approved Epidiolex, a drug that is 98% CBD isolate, to provide treatment for epileptic seizures. Based on this and other drug applications, FDA has taken the position that CBD is a drug ingredient, and cannot be marketed as a dietary supplement or added to foods without its approval. However, FDA’s enforcement of this position, until recently, had been limited to cease and desist letters to companies that are making health claims. For example, on December 22, 2020, the FDA issued five warning letters to companies for selling products containing CBD in ways that violate the Food, Drug, and Cosmetic Act, with all five warning letters addressing the illegal marketing of unapproved CBD products claiming to treat medical conditions. In addition, the warning letters addressed violations relating to the addition of CBD to food, and the impermissible marketing of CBD products as dietary supplements. More recently, the FDA has sent warning letters related to products containing Delta-8 THC, described in 4) below.
   
   In May of 2019, the FDA held its first hearing on CBD products, as it evaluated the regulation of CBD. According to an article in the Washington Post published on May 31, 2019, during ten hours of testimony, hemp growers, start-up businesses, academic researchers and consumer advocates argued about how FDA should regulate the already booming CBD industry, with some demanding strict oversight, while others lobbied for looser regulation. At the hearing, scientists and consumer advocates warned that for the thousands of CBD products being sold, there is little data to guide dosage levels, expiration dates, and manufacturing protocols to make sure they don’t also contain other elements like THC. The FDA held another stakeholder meeting in July of 2020, and held a multidisciplinary scientific conference in November of 2020. After convening a high-level, internal working group to explore potential pathways for CBD products, the FDA announced on January 26, 2023, that it had concluded that a new regulatory pathway for CBD is needed that balances individuals’ desire for access to CBD products with the regulatory oversight needed to manage risk, and stated it was prepared to work with Congress on this matter. As part of this statement, it also denied three citizen petitions that had asked FDA to conduct rulemaking to allow the marketing of CBD products as dietary supplements. According to the FDA: “Given the available evidence, it is not apparent how CBD products could meet safety standards for dietary supplements or food additives. For example, we have not found adequate evidence to determine how much CBD can be consumed, and for how long, before causing harm. Therefore, we do not intend to pursue rulemaking allowing the use of CBD in dietary supplements or conventional foods.”
   
4. Concern over Delta-8 THC and other artificially derived forms of intoxicating hemp. On February 27, 2021, the New York Times published an article, “This Drug Gets You High, and Is Legal (Maybe) Across the Country.” The article suggested that a form of THC that is permissible in industrial hemp is being touted as an alternative to the psychoactive ingredient in cannabis. Under federal law, psychoactive Delta-9 THC is explicitly prohibited, but the law is silent on Delta-8 THC. The FDA states that Delta-8 THC is one of over 100 cannabinoids produced in the Cannabis sativa L. plant (which is the plant used for industrial hemp), but is not found naturally in significant amounts. Concentrated amounts of Delta-8 THC are typically manufactured from hemp-derived CBD and have psychoactive and intoxicating effects. According to the New York Times article, with Delta-8, entrepreneurs believe they have found a way to take advantage of the country’s fractured and convoluted laws on recreational marijuana use, and have begun extracting and packaging it as a legal edible alternative. The article states that it’s not quite that simple, and that federal agencies, including the Drug Enforcement Administration, are still considering their options for enforcement and regulation. According to the article, “Precisely what kind of high Delta-8 produces depends on whom you ask. Some think it as ‘marijuana light,’ while others are pitching it as pain relief with less psychoactivity.” The article quotes an editor of Leafly.com, a popular source of information about cannabis, as saying that Delta-8 has become “extremely ascendant” and reflects “prohibition downfall interregnum,” where consumer demand and entrepreneurial activity are exploiting the holes in rapidly evolving and fractured law. In May of 2022, the FDA issued warning letters to five companies for selling products labeled as containing Delta-8 THC in ways that violate the Food Drug and Cosmetic Act. The warning letters address the illegal marketing of unapproved Delta-8 THC products by companies as unapproved treatments for various medical conditions or for other therapeutic uses.
   
   Beyond Delta-8, businesses are using chemistry to make other artificially derived cannabinoids, including Delta-10 THC (or THCO), hexahydrocannabinol (HHC), and tetrahydrocannabiphorol (THC-P). According to the Public Health Institute (PHI), THC-P is more than 30 times the potency of traditional Delta-9 THC, making it particularly hazardous. Even more than hemp-derived products containing traditional Delta-9 THC, artificially derived cannabinoid products are often packaged in high doses, including packages that containing hundreds or even thousands of milligrams. PHI states that a single gummy may contain 100mg or more of these artificially derived cannabinoids, easily capable of knocking out a child or adult.
5. Letter from the Cannabis Regulators Association urging federal action on hemp-derived cannabinoid products. On April 17, 2023, the Cannabis Regulators Association (CANNRA), which represents cannabis and hemp regulatory agencies from more than 40 member states and U.S. territories, sent a letter to congressional leaders urging federal action to provide a regulatory framework for hemp-derived cannabinoid products. CANNRA states that these products lack federal manufacturing, testing, and labeling requirements, and they pose consumer safety and public health risks. According to CANNRA, while the 2018 Farm Bill was drafted with a focus on agricultural commodities and non-intoxicating hemp products, its language created a thriving market for intoxicating cannabinoid products that fit within the definition of “hemp.” State regulators have observed several loopholes that businesses are using to justify the manufacture or sale of intoxicating hemp derived products, including the “0.3% loophole.” CANNRA states that while the threshold of 0.3% Delta-9 THC by weight is a small amount of THC in a hemp plant, when applied to hemp-derived products like chocolate bars or beverages that weigh significantly more, 0.3% by weight can amount to hundreds of milligrams of THC. For example, a 50-gram chocolate bar at 0.3% THC would have around 150mg of THC (30 times the standard 5mg THC dose established by the National Institute on Drug Abuse). Another loophole identified by CANNRA is the “derivatives loophole,” because the definition of hemp also includes “all derivatives” of the plant. As a result, many hemp businesses are taking CBD derived from hemp and chemically converting it into intoxicating cannabinoid derivatives like Delta-8 THC, THCO acetates, and HHC). This loophole is resulting in chemically derived compounds that have not been well-studied for human safety. CANNRA stated that federal engagement is urgently needed to support states in the regulation of these products and to protect public health and consumer safety.
6. State regulation of cannabis. In 1996, California first legalized cannabis for medical consumption via Proposition 215, also known as the Compassionate Use Act. Proposition 215 protected qualified patients and primary caregivers from prosecution related to the possession and cultivation of cannabis for medicinal purposes. In 2015, the Legislature passed the Medical Cannabis Regulation and Safety Act (MCRSA), which established a comprehensive, statewide licensing and regulatory framework for the cultivation, manufacture, transportation, testing, distribution, and sale of medicinal cannabis. Shortly following the passage of MCRSA in November 2016, California voters passed Proposition 64, the "Control, Regulate and Tax Adult Use of Marijuana Act,” which legalized adult-use cannabis. Less than a year later in June 2017, the California State Legislature passed a budget trailer bill, SB 94 (Committee on Budget and Fiscal Review, Chapter 27, Statutes of 2017), that integrated MCRSA with Prop 64 to create MAUCRSA, the current regulatory structure for both medicinal and adult-use cannabis. Beginning in 2018, Prop 64 permitted adults 21 years of age or older to legally grow, possess, and use cannabis for nonmedical purposes, with certain restrictions. In 2020, Governor Newsom proposed consolidation of the three licensing and regulatory programs within separate state agencies to form a single department with a goal of streamlining and simplifying access to licensing and regulatory oversight of cannabis, and in 2021, DCC was formally established with both licensing, regulatory and enforcement authority. DCC was designed to centralize and align critical licensing, compliance and enforcement responsibilities to help build a sustainable and successful legal cannabis market by creating a single point of contact for cannabis applicant, licensees and local governments.
7. The legal separation of industrial hemp and cannabis. Supply chains and regulations for industrial hemp and cannabis are kept principally separate in California. DCC, through regulations, prohibits cannabis retailers from selling any non-cannabis goods besides cannabis accessories and branded merchandise, and industrial hemp falls under the category of a “non-cannabis good.” In addition, California law stipulates that industrial hemp may not be cultivated on premises licensed by DCC to cultivate or process cannabis. Finally, CBD products derived from cannabis are regulated quite differently from the same CBD products containing hemp-derived CBD, despite being essentially the same. This bill, in its current form, seeks to clarify that the provisions outlined in the MAUCRSA do not prohibit a cannabis licensee from manufacturing, distributing, or selling industrial hemp products, but does not remove any of the aforementioned separations between industrial hemp and cannabis supply lines and retail.
8. The Hemp Report. AB 45 (Aguiar-Curry, Chapter 576, Statutes of 2021), which established a regulatory structure in CDPH for food, beverage and cosmetic products containing industrial hemp, also required DCC to prepare a report for the Governor and the Legislature outlining the steps necessary to allow for the incorporation of hemp cannabinoids into the cannabis supply chain by July 1, 2022. The Hemp Report was released in January of 2023. The report did not provide a specific framework for including hemp into the cannabis marketplace and instead provided guidance into the areas of contrast in cannabis and hemp regulations and the particular areas that would need to be addressed or reconciled in order to safely and appropriately integrate hemp into MAUCRSA while maintaining alignment with Prop 64, which specifically excluded hemp from the commercial cannabis regulatory framework. The report identified several issues that need to be resolved, including transportation requirements, as all cannabis or cannabis-regulated products may only be transported by a licensed distributor which is not the same for hemp products. Additionally, packaging and labeling requirements for cannabis products are very specific, and do not apply to hemp products. The report also raised issues related to compliance with track and trace; the inclusion of hemp that is sourced outside of California, as cannabis or cannabis products are only to include California-sourced product; market impacts and tax implication; and, necessary time for regulatory updates. Part of the DCC Hemp Report’s conclusion noted the following: “As the statutory and regulatory provisions for hemp and cannabis currently reflect two separate systems and supply chains, the first step in this process must be for policy makers to identify a more specific policy direction, which will in turn inform the development of necessary statutory changes. Once these statutes are enacted and necessary funding is appropriated, the Department would engage in extensive programmatic development, including engaging in state contracting processes that would likely implicate current contracts when feasible and new contracts when necessary to implement specific mandates, including modifications to the California Cannabis Track and Trace system and possibly the Department’s licensing systems.”

As currently drafted, this bill does not provide a specific statutory framework for how hemp would be integrated into the cannabis regulatory structure. It simply provides broad authority for inclusion in the manufacturing, distributing, and selling aspect of cannabis or cannabis products.

1. Double referral. This bill was heard in the Senate Business and Professions Committee on June 26, 2023, and passed with an 11-1 vote.
2. Prior legislation. AB 1656 (Aguiar-Curry of 2022) stated that MAUCRSA does not prohibit a cannabis licensee from manufacturing, distributing, or selling industrial hemp products, as defined in state law and including cannabinoids, extracts, or derivatives of industrial hemp, if the product complies with all applicable state laws and regulations. AB 1656 was not taken up on the Senate Floor.
   
   SB 292 (Wilk, Chapter 485, Statutes of 2021) conformed current state law to the FDA’s Interim Final Rule regarding reporting and testing of industrial hemp.
   
   AB 45 (Aguiar-Curry, Chapter 576, Statutes of 2021) established a regulatory structure in CDPH for food, beverage and cosmetic products containing industrial hemp, and limiting these products to containing no more than 0.3% concentration of THC.
   
   AB 228 (Aguiar-Curry of 2019) would have established a regulatory framework for industrial hemp products that contain no more than 0.3% THC and is a cosmetic, food, food additive, dietary supplement, or herb. AB 228 was held on the Senate Appropriations Committee suspense file.

SB 94 (Committee on Budget and Fiscal Review, Chapter 27, Statutes of 2017) establishes a single system of administration for cannabis laws in California, combining the MCRSA with the Adult Use of Marijuana Act.

AB 266 (Bonta, Chapter 689, Statutes of 2015), SB 643 (McGuire, Chapter 719, Statutes of 2015), and AB 243 (Wood, Chapter 688, Statutes of 2015) were a package of bills that established a licensing and regulatory framework for medical marijuana under MCRSA.

SB 566 (Leno, Chapter 398, Statutes of 2013), allows hemp to be grown in California, upon federal approval, by defining “industrial hemp” to be excluded from the definition of “marijuana”, a Schedule I controlled substance.

1. Support. This bill is sponsored by the California Cannabis Industry Association (CCIA), which states that it has consistently supported the integration of hemp into the cannabis supply chain by cannabis licensees. CCIA states that is has been well documented that California’s legal cannabis market is struggling, while the illicit market is gaining market share. The industry continues to be challenged by a lack of access to legal retail, excessively high and complex taxes, and costly regulatory requirements. CCIA states that the ability to incorporate hemp cannabinoids into its manufactured products could reduce overall product costs by as much as 30%. CCIA states that California is already lagging behind 17 other states that have authorized the use of hemp cannabinoid inputs for licensed operators. It is CCIA’s expectation that this bill will be used as a vehicle for an acceptable supply chain integration solution.
   
   The California Cannabis Manufacturers Association and Kiva Confections also support this bill for similar reasons, arguing that this bill would make necessary improvements to MAUCRSA by stating that it does not prohibit a licensee from manufacturing, distributing, or selling a product containing industrial hemp if the product complies with all applicable state laws and regulations.
2. Oppose unless amended. A coalition, signed by Origins Council, the Humboldt County Growers Alliance, Big Sur Farmers Association, Nevada County Cannabis Alliance, Mendocino Cannabis Alliance, and Trinity County Agriculture Alliance, is opposed to this bill unless amended to include greater consideration of technical, policy, and administrative issues regarding the integration of hemp into the cannabis supply chain. This coalition identified issues, and requesting amendments, regarding restricting the allowability of chemically-converted and intoxicating hemp-derived compounds in the cannabis supply chain, clearly capping the quantity of permissible THC in hemp products by weight, and establishing testing parity between hemp and cannabis. This coalition states that this bill does not incorporate the policy recommendations from DCC’s Hemp Report, and states that the failure of Congress to include any guardrails when legalizing hemp in the federal Farm Bill in 2018 led to hemp markets rolling out in a haphazard fashion across the nation, and a substantial gray market for intoxicating cannabis-like “hemp” products has sprung up in parallel to existing state-regulated cannabis markets.
   
   PHI is also opposed to this bill unless amended. PHI states that at the time of consideration of AB 45 to permit industrial hemp products, the intent was clearly to not permit the marketing of intoxicating products. However, the concerns raised at the time of passage have materialized, and highly intoxicating industrial hemp products are now being sold widely across the state and are freely available to children and youth at a wide range of businesses including smoke shops, vape shops, convenience stores and gas stations, outside the legal cannabis system. More seriously, a wide range of highly intoxicating artificial cannabinoids generally derived from chemical modification of CBD in hemp are also now sold widely. PHI states that CDPH has not yet exercised its regulatory authority to clearly prohibit these intoxicating products or to impose age limits. PHI supports the provisions of this bill that will clearly prohibit artificial cannabinoids, and suggests it be broadened. However, PHI states that most problematically, this bill continues to allow the manufacture and sale of intoxicating hemp products outside of the legal cannabis market if Delta-9 THC is the main intoxicant, because PHI argues that the 0.3% limit does not prevent addition of sufficient compliant extract to much heavier beverages or foods in intoxicating amounts. For this reason, PHI requests an additional hard cap limit of 1 mg per package and no more than 0.5 mg per serving of THC for any type of industrial hemp product. PHI also requests deleting the ability of CDPH to approve industrial hemp products that contain cannabinoids not present in nature.
   
   Youth Forward is also opposed unless amended, and shares may of the concerns expressed by PHI. Additionally, Youth Forward argues that the incorporation of hemp products into the cannabis marketplace represents a violation of the promise made to voters in Proposition 64 that cannabis would be heavily taxed. This bill and AB 45 is bringing hemp into the cannabis marketplace without any additional taxes. Hemp products that are essentially identical to cannabis products should be taxed at the same rates established by Proposition 64.

SUPPORT AND OPPOSITION:

Support: California Cannabis Industry Association (sponsor)

California Cannabis Manufacturers Association

Kiva Confections

The Parent Company (Caliva)

Oppose: Big Sur Farmers Association (unless amended)

Humboldt County Growers Alliance (unless amended)

Mendocino Cannabis Alliance (unless amended)

Nevada County Cannabis Alliance (unless amended)

Origins Council (unless amended)

Public Health Institute (unless amended)

Trinity County Agricultural Alliance (unless amended)

Youth Forward (unless amended)

-- END --

SENATE COMMITTEE ON

BUSINESS, PROFESSIONS AND ECONOMIC DEVELOPMENT

Senator Richard Roth, Chair

2023 - 2024 Regular

Bill No: AB 420 Hearing Date: June 26, 2023

Subject: Cannabis: industrial hemp

SUMMARY:

Provides that the Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA) does not prohibit a cannabis licensee from manufacturing, distributing, or selling industrial hemp products, as defined in state law and including cannabinoids, extracts, or derivatives of industrial hemp, if the product complies with all applicable state laws and regulations, and makes updates to the industrial hemp program under the California Department of Public Health (CDPH), as specified.

Existing federal law:

1. Enacts the 2018 Farm Bill, which removed hemp from the Controlled Substances Act (CSA), which is under the purview of the Drug Enforcement Agency, and put it under the purview of the United States Department of Agriculture (USDA) as an agricultural commodity. The Farm Bill lists hemp as a “covered commodity” under crop insurance and allows the states to regulate the industry. (7 United States Code § 1621 et seq.)
2. Establishes the USDA Final Rule (FR) for the Domestic Hemp Production Program to provide regulations for hemp production in the United States. This program provides requirements for maintaining records about the land where hemp is produced, testing the levels of total delta-9 tetrahydrocannabinol (THC), disposing of non-compliant plants with levels of THC over 0.3%, licensing hemp producers, and ensuring compliance under the new program. (7 Code of Federal Regulations Part 990)

Existing state law:

1. Enacts MAUCRSA to provide for a comprehensive system to control and regulate the cultivation, distribution, transport, storage, manufacturing, processing, and sale of both medicinal and adult-use cannabis and cannabis products. (Business and Professions Code (BPC) §§ 26000 et seq.)
2. Defines “cannabis” to mean all parts of the plant Cannabis sativa Linnaeus, Cannabis indica, or Cannabis ruderalis, whether growing or not; the seeds thereof; the resin, whether crude or purified, extracted from any part of the plant; and every compound, manufacture, salt, derivative, mixture, or preparation of the plant, its seeds, or resin. “Cannabis” also means the separated resin, whether crude or purified, obtained from cannabis. “Cannabis” does not include the mature stalks of the plant, fiber produced from the stalks, oil or cake made from the seeds of the plant, any other compound, manufacture, salt, derivative, mixture, or preparation of the mature stalks (except the resin extracted therefrom), fiber, oil, or cake, or the sterilized seed of the plant which is incapable of germination. “Cannabis” does not mean “industrial hemp” as defined in the Health and Safety Code (HSC) § 11018.5. (BPC § 26001(f))
3. Establishes the Department of Cannabis Control (DCC) within the Business, Consumer Services, and Housing Agency for purposes of administering and enforcing MAUCRSA. (BPC § 26010)
4. Provides for twenty total types of cannabis licenses including subtypes for cultivation, manufacturing, testing, retail, distribution, and microbusiness; requires each licensee, except for testing laboratories, to clearly designate whether their license is for adult-use or medicinal cannabis. (BPC § 26050)
5. Establishes grounds for disciplinary action against cannabis licensees, including failures to comply with state licensing requirements as well as local laws and ordinances. (BPC § 26030)
6. Prohibits the sale of cannabis products that are alcoholic beverages, including an infusion of cannabis or cannabinoids derived from industrial hemp into an alcoholic beverage. (BPC § 26070.2)
7. Defines “industrial hemp” or “hemp” to mean an agricultural product, whether growing or not, that is limited to types of the plant Cannabis sativa L. and any part of that plant, including the seeds of the plant and all derivatives, extracts, the resin extracted from any part of the plant, cannabinoids, isomers, acids, salts, and salts of isomers, with a delta-9 tetrahydrocannabinol concentration of no more than 0.3 percent on a dry weight basis. (HSC § 11018.5(a))
8. Establishes provisions for industrial hemp products under the Sherman Food, Drug, and Cosmetic Law (Sherman Law) administered by the CDPH, under which manufacturers of products containing industrial hemp or hemp products are required to obtain the appropriate registration or licensure for the type of industrial hemp product manufactured and comply with established manufacturing practices. (HSC §§ 111920 et seq.)
   
9. Defines an “established and approved industrial hemp program” as a program that meets any applicable requirements set fourth in federal law regarding the lawful and safe cultivation of industrial hemp. (HSC § 111920(b))
   
10. Prohibits an industrial hemp product from being distributed or sold in the state except in conformity with all applicable state laws and regulations, as specified, and with documentations that includes both of the following:
    
11. A certificate of analysis from an independent testing laboratory that confirms both of the following:
    
    • 1. The industrial hemp raw extract, in its final form, does not exceed THC concentration of an amount determined allowable by the CDPH in regulation, or the mass of the industrial hemp extract used in the final form does not exceed a THC concentration of 0.3 percent;
         
      2. The industrial hemp product was tested for any hemp derivatives identified on the product label or in associated advertising.
         
12. The industrial hemp product was produced from industrial hemp growing in compliance with CDFA requirements if grown within California or licensed in accordance with USDA requirements if grown outside of California. (HSC § 1119251)
    
13. Authorizes the CDPH to adopt regulations imposing an age requirements for the sale of certain industrial hemp products upon finding a threat to public health. (HSC § 111921.3)
    
14. Requires a hemp manufacturer who produces an industrial hemp product that is a food or beverage product to register with the CDPH, as specified. (HSC 111923.3)
15. Specifies that industrial hemp shall not be subject to the requirements of MAUCRSA, but instead be regulated by the California Department of Food and Agriculture (CDFA). (HSC § 11018.5(b))
    
16. Provides the CDFA with responsibility for administering and enforcing laws governing the growing, cultivating, and distributing of industrial hemp. (Food and Agricultural Code §§ (FAC) 81000 et seq.)
17. Establishes an Industrial Hemp Advisory Board under the CDFA to make recommendations to the Secretary of Food and Agriculture on all matters pertaining to industrial hemp seed law and regulations, enforcement, related annual budgets, and the setting of an appropriate assessment rate necessary for the administration of the law. (FAC § 81001)
18. Allows only approved cultivars to grow industrial hemp, unless when industrial hemp is grown by a registered established agricultural research institution or by a registered hemp breeder developing a new cultivar. (FAC § 81002(a))
19. Requires growers of industrial hemp, hemp breeders, and established agricultural research institutions to register with the commissioner of the county in which the grower intends to engage in industrial hemp cultivation. (FAC §§ 81003 – 81005)
20. Requires each registered established agricultural research institution, registered grower of industrial hemp, and registered hemp breeder to report on its hemp production in the state and any changes to the location where it will produce hemp to the Farm Service Agency of the United States Department of Agriculture. (FAC § 81004.6)
21. Imposes limitations and prohibitions on the growth of industrial hemp, including the restriction that industrial hemp shall not be cultivated on a premises licensed by the Department of Cannabis Control to cultivate or process cannabis. Requires each crop of industrial hemp to be tested by a laboratory to determine the THC levels of a random sampling of its dried flowering tops, with exceptions for industrial hemp cultivated by a registered established agricultural research institution or registered hemp breeder, as specified. (FAC § 81006)

This bill:

1. States that MAUCRSA does not prohibit a cannabis licensee from manufacturing, distributing, or selling industrial hemp products, as defined in the HSC or cannabinoids, extracts, or derivatives from industrial hemp, if the product complies with all applicable state laws and regulations, including those outlined in the FAC and the HSC, as specified.
   
2. States that it is the intent of the Legislature to enhance the viability of cannabis licensees in the marketplace by pursuing measure to relieve tax and regulatory requirements and to authorize licensees to manufacture, distribute, and sell hemp and cannabidiol products in compliance with current law.
3. Makes the following finding and declaration: the legal cannabis industry faces challenges from a thriving illicit marketplace.
   
4. Defines “Cannabinoids produced through chemical synthesis” or “chemically synthesized cannabinoid” in the HSC to mean a substance that is created by chemical reaction that changes the molecular structure of any substance derived from the plant Cannabis sativa L. A chemically synthesized cannabinoid does not include any of the following:
5. A naturally occurring chemical substance that is separated from the plant by a chemical or mechanical extraction process;
   
6. Cannabinoids that are produced by decarboxylation from a naturally occurring cannabinoid acid;
   
7. Any other chemical substance approved by the CDPH in regulation.
   
8. Adds to the definition of “industrial hemp product” or “hemp product” that contains any part of the plant Cannabis sativa L., including naturally occurring cannabinoids or extracts.
   
9. Adds “comparable cannabinoids” to the definition of “total THC”.
   
10. Clarifies that a comparable cannabinoid concentration or lower amount of 0.3 percent of THC in final form is eligible to be manufactured or distributed in California, as specified.
    
11. Prohibits a person from manufacturing, distributing, or selling an industrial hemp product that contains a cannabinoid that is not present in nature in commercially meaningful quantities in the plant of Cannabis sativa L., unless explicitly approved by the CDPH in regulation.
    
12. Requires an out-of-state hemp manufacturer who produces an industrial hemp product that is a food or beverage for sale in this state to register with the CDPH.
    
13. Repeals the authorization for a hemp manufacturer or retailer who is operating prior to the implantation of AB 45 to manufacture or sell industrial hemp products or raw hemp extract without authorization for three months after effective date of the requirements for the regulation of hemp.
    
14. Makes other technical and clarifying changes.

FISCAL EFFECT:

According to the Assembly Committee on Appropriations analysis, “DCC states this bill will have costs of a large but undetermined amount, in the millions of dollars. According to DCC, the uncertainty is due to the absence of specific provisions detailing how hemp would be allowed to enter the regulated cannabis market. DCC states that, at a minimum, it would need to amend sections of its regulations that prohibit the incorporation of industrial hemp, develop new procedures for hemp integration, and seek modifications to the track and trace system. DCC projects it would also require additional staff to develop new hemp integration programs and processes, as well as for increased compliance and enforcement.”

COMMENTS:

1. Purpose. The California Cannabis Industry Association is the sponsor of this bill. According to the author, “Hemp and marijuana are both members of the cannabis family, but they vary in chemical composition and are regulated differently under state and federal law. Hemp has lower levels of psychoactive compounds and, by law, cannot have more than 0.03% of the intoxicant tetrahydrocannabinol (THC) or related chemicals. Since the legalization of industrial hemp in 2018, hemp-derived products containing cannabidiol (CBD) and other cannabinoids have been widely produced and sold to consumers at grocery stores, fitness centers, and other retail locations. However, commercial cannabis licensees have not been able to participate in the hemp market, even though they produce and sell similar products using cannabis-derived CBD. AB 420 clarifies that licensees with a commercial cannabis license can manufacture, distribute, and sell hemp products in accordance with existing law. This bill follows the lead of 17 other states to help integrate hemp into the cannabis supply chain and expand the products that the legal cannabis industry can offer.”
2. Background.

State Regulation of Cannabis. In 1996, California first legalized cannabis for medical consumption via Proposition 215, also known as the Compassionate Use Act (the Act). Proposition 215 protected qualified patients and primary caregivers from prosecution related to the possession and cultivation of cannabis for medicinal purposes. In 2003, the Legislature authorized the formation of medical marijuana cooperatives—nonprofit organizations that cultivate and distribute marijuana for medical uses to their members through dispensaries.

In 2015, the Legislature passed the Medical Cannabis Regulation and Safety Act (MCRSA). For the first time, MCRSA established a comprehensive, statewide licensing and regulatory framework for the cultivation, manufacture, transportation, testing, distribution, and sale of medicinal cannabis. Shortly following the passage of MCRSA in November 2016, California voters passed Proposition 64, the "Control, Regulate and Tax Adult Use of Marijuana Act" (Prop 64), which legalized adult-use cannabis. Less than a year later in June 2017, the California State Legislature passed a budget trailer bill, SB 94 (Committee on Budget and Fiscal Review, Chapter 27, Statutes of 2017), that integrated MCRSA with Prop 64 to create MAUCRSA, the current regulatory structure for both medicinal and adult-use cannabis. Beginning in 2018, Prop 64 permitted adults 21 years of age or older can legally grow, possess, and use cannabis for nonmedical purposes, with certain restrictions.

In 2020, Governor Newsom proposed consolidation of the three licensing and regulatory programs within separate state agencies to form a single department with a goal of streamlining and simplifying access to licensing and regulatory oversight of cannabis. The onset of the COVID-19 pandemic delayed these efforts for one year, however, in 2021; DCC was formally established with both licensing, regulatory and enforcement authority.

DCC was designed to centralize and align critical licensing, compliance and enforcement responsibilities to help build a sustainable and successful legal cannabis market by creating a single point of contact for cannabis applicant, licensees and local governments. The goal was to ultimately simplify and centralize state regulatory efforts; improve coordination, including enforcement; reduce barriers to participation in the legal market; and incentivize greater local participation.

Industrial Hemp in the United States and California. Industrial hemp is produced from the Cannabis sativa (C. sativa) plant, which is primarily grown for its fiber and oilseed. Industrial hemp has been a fixture of human agriculture for thousands of years and was introduced to North America in the 16th century. Hemp production reached its peak in the United States in the mid-1800s, but decreased as other fiber crops such as cotton increased in popularity. The Marihuana Tax Act of 1938 ended the legal production of hemp in the United States, and hemp was added to Schedule I of the CSA.

In California, SB 566 (Leno, Chapter 398, Statutes of 2013) established the Industrial Hemp Farming Act, which established a regulatory framework for the cultivation and processing of industrial hemp that would go into effect upon legalization by the federal government. SB 566 required growers of industrial hemp for commercial purposes to register with the county agricultural commissioner of the county in which the grower intends to engage in industrial hemp cultivation among various provisions. Several years later, the 2018 Farm Bill removed industrial hemp from the Controlled Substances Act and put it under the purview of the United USDA as an agricultural commodity. The Farm Bill lists hemp as a “covered commodity” under crop insurance and allows the states to regulate the industry. Since then, industrial hemp production in the United States has seen a resurgence in the last few years.

By federal and California law, industrial hemp is defined as C. sativa plants, which have low levels of the THC (under 0.3%); the primary psychoactive component of medicinal and recreational cannabis, which commonly contains levels ranging from 15-40% THC. C. sativa plants grown for commercial purposes found to have THC levels over this limit are required to be destroyed.

CBD and CBD products. In addition to the cultivation of C. sativa for industrial hemp fiber and oilseed, C. sativa also contains the cannabinoid cannabidiol (CBD). CBD does not produce a feeling of euphoria like THC, and according to the World Health Organization, “In humans, CBD exhibits no effects indicative of any abuse or dependence potential.” Upon the legalization of industrial hemp in 2018, CBD products made from hemp became widely available throughout much of the United States. It is important to note that CBD obtained from cannabis plants intended for medicinal or adult-use, and not from industrial hemp, is still federally illegal. In California, CBD obtained from cannabis plants intended for medicinal or adult-use is still regulated through MAUCRSA.

CBD has been demonstrated to alleviate epileptic seizures in patients, and the drug Epidiolex is the first CBD-containing medicine to be approved by the United States Food and Drug Administration (FDA) for the treatment of epilepsy syndromes. In addition to the role of CBD as an anticonvulsant, studies suggest CBD may reduce anxiety, alleviate insomnia, inhibit inflammatory and neuropathic pain, and assist patients in recovery for substance use disorders. However, more studies are required to verify these findings. Despite these potential therapeutic uses of CBD, there has historically been limited regulation of the rapidly growing CBD market, which has led to concerns regarding the purity and potency of CBD products available to consumers.

AB 45 (Aguiar-Curry, Chapter 576, Statutes of 2021) established a regulatory framework for food, beverage, and cosmetic products containing industrial hemp or cannabinoids (such as CBD), extracts, or derivatives of industrial hemp under the Sherman Food, Drug, and Cosmetic Law. AB 45 was enacted to clarify and expand the framework under which industrial hemp and CBD derived from industrial hemp can be included in dietary supplements, food, beverages, cosmetics, or pet food. AB 45 required manufacturers of dietary supplements and food that includes industrial hemp products to register with CDPH and demonstrate that their products meet all state and federal guidelines, including consumer safety standards. In addition, AB 45 prohibited manufacturers, distributors, or sellers of industrial hemp products from advertising unsubstantiated health-related statements regarding industrial hemp and CBD.

CDPH currently has regulatory authority over industrial hemp products. Businesses engaged in the manufacturing, packing, or holding of industrial hemp products are required to register with CDPH. However, for those that grow industrial hemp as a crop, they are under the jurisdiction of the CDFA. No part of hemp regulation in California is conducted by the DCC, however, testing laboratories issued a licensed by the DCC are authorized to test hemp products, as specified.

The Legal Separation of Industrial Hemp and Cannabis. Supply chains and regulations for industrial hemp and cannabis are kept principally separate in California. DCC presently mandates that licensed cannabis retailers are prohibited from selling any non-cannabis goods besides cannabis accessories and branded merchandise (Title 4, California Code of Regulations § 15407), and industrial hemp falls under the category of a “non-cannabis good”. In addition, California law stipulates that industrial hemp may not be cultivated on premises licensed by DCC to cultivate or process cannabis. Finally, CBD and CBD products derived from cannabis are regulated quite differently from the same CBD products containing hemp-derived CBD, despite being essentially the same. This bill, in its current form, seeks to clarify that the provisions outlined in the MAUCRSA do not prohibit a cannabis licensee from manufacturing, distributing, or selling industrial hemp products, but does not remove any of the aforementioned separations between industrial hemp and cannabis supply lines and retail.

The Hemp Report and AB 1656. Among the creation of the regulatory structure for hemp product production and farming under the CDPH and the CDFA, AB 45 also required DCC to prepare a report for the Governor and the Legislature outlining the steps necessary to allow for the incorporation of hemp cannabinoids into the cannabis supply chain by July 1, 2022. The Hemp Report was released in January of 2023. The report did not provide a specific framework for including hemp into the cannabis marketplace and instead provided guidance into the areas of contrast in cannabis and hemp regulations and the particular areas that would need to be addressed or reconciled in order to safely and appropriately integrate hemp into MAUCRSA while maintaining alignment with Prop 64, which specifically excluded hemp from the commercial cannabis regulatory framework. A few relevant issues, which will need to be resolved, include, transportation requirements, as all cannabis or cannabis-regulated products may only be transported by a licensed distributor which is not the same for hemp products, packaging and labeling requirements for cannabis products are very specific; however, hemp products do not have similar requirements. The report also raised issues related to compliance with track and trace, the inclusion of hemp that is sourced outside of California, as cannabis or cannabis products are only to include California-sourced product; market impacts and tax implications, and necessary time for regulatory updates. Part of the DCC Hemp Report’s conclusion noted the following:

“As the statutory and regulatory provisions for hemp and cannabis currently reflect two separate systems and supply chains, the first step in this process must be for policy makers to identify a more specific policy direction, which will in turn inform the development of necessary statutory changes. Once these statutes are enacted and necessary funding is appropriated, the Department would engage in extensive programmatic development, including engaging in state contracting processes that would likely implicate current contracts when feasible and new contracts when necessary to implement specific mandates, including modifications to the CCTT system and possibly the Department’s licensing systems.”

As currently drafted, this bill does not provide a specific statutory framework for how hemp would be integrated into the cannabis regulatory structure. It simply provides broad authority for inclusion in the manufacturing, distributing, and selling aspect of cannabis or cannabis products.

Last year, this Committee heard and passed AB 1656 (Aguiar-Curry of 2022) which was an almost identical to the provisions contained in this bill. It would have permitted the same integration of hemp into cannabis products as currently proposed by this bill. As consistent with the current version of this bill, there was no framework identified in that bill for how the integration of hemp regulation was to merge with that of the cannabis regulatory framework. At the time AB 1656 was heard, it was likely anticipated that the Hemp Report to the Legislature would be released and would provide guidance on the path forward for integration. At the time this Committee heard AB 1656, the Committee analysis included the following, “The Author states they may amend AB 1656 following the receipt of this report in order to take legislative action to enact the upcoming DCC recommendations to integrate hemp-derived cannabinoids, such as CBD, in the cannabis supply chain.”

However, as noted earlier that report was not released until earlier this year. While the broadness of AB 1656 last year was understood based on the pending report, it is unclear if the author intends future amendments this year to provide a more robust framework for integration based on the current Hemp Report.

CDPH. The CDPH has the oversight authority for hemp manufacturing. Extract manufacturers of hemp within California are required to register with the CDPH in order to lawfully sell their product. Current law provides specific requirements on the amount of THC content included in hemp products and requires specific testing standards of products. This bill makes updates to the CDPH’s current requirements for the regulation of hemp, as specified.

1. Related Legislation. AB 1656 (Aguiar-Curry of 2022) States that the Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA) does not prohibit a cannabis licensee from manufacturing, distributing, or selling industrial hemp products, as defined in state law and including cannabinoids, extracts, or derivatives of industrial hemp, if the product complies with all applicable state laws and regulations. (Status: Died on the Senate Inactive File)

AB 45 (Aguiar-Curry, Chapter 576, Statutes of 2021) established a regulatory framework for industrial hemp under the Sherman Food, Drug, and Cosmetic Law.

SB 292 (Wilk, Chapter 485, Statutes of 2021) conformed current state law to the United States Department of Agriculture’s (USDA) Interim Final Rule regarding reporting and testing of industrial hemp in the United States.

SB 235 (Allen of 2021) would have established a structure for food, beverage, and cosmetic products containing industrial hemp, would have required industrial hemp product manufacturers to register with the CDPH, and would have required industrial hemp to be tested prior to incorporating it into a product. (Status: Moved to inactive file on Senate Floor)

SB 153 (Wilk, Chapter 838, Statutes of 2019) revised provisions regulating the cultivation and testing of industrial hemp to conform to the requirements for a state plan under the 2018 Farm Bill.

SB 94 (Committee on Budget and Fiscal Review, Chapter 27, Statutes of 2017) combined AUMA and MCRSA into one system for the regulation of cannabis, resulting in MAUCRSA.

SB 566 (Leno, Chapter 398, Statutes of 2013) allowed hemp to be grown in California, upon federal approval, by defining “industrial hemp” to be excluded from the definition of “marijuana,” a Schedule I controlled substance.

1. Arguments in Support. California Cannabis Manufacturers Association and Kiva Confections write in support and note, “AB 420 would make necessary improvements to the Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA); this bill would state that MAUCRSA does not prohibit a licensee from manufacturing, distributing, or selling products that contain industrial hemp or cannabinoids, extracts, or derivatives from industrial hemp, if the product complies with all applicable state laws and regulations.”
2. Arguments in Opposition. Big Sur Farmers Association, Humboldt County Growers Alliance, Mendocino Cannabis Alliance, Nevada County Cannabis Alliance

Origins Council, and Trinity County Agriculture Alliance are opposed unless amended and note, “On behalf of Origins Council, representing 800 small and independent cannabis businesses in rural legacy producing counties throughout California, most of whom are homestead and legacy cannabis cultivators, we are writing to respectfully oppose AB 420 unless amended to include greater consideration of technical, policy, and administrative issues regarding the integration of hemp into the cannabis supply chain. These issues include 1) restricting the allowability of chemically-converted and intoxicating hemp-derived compounds in the cannabis supply chain, 2) clearly capping the quantity of permissible THC in hemp products by weight, and 3) testing parity between hemp and cannabis.”

1. Policy issues for consideration.

Timeline for Implementation. As currently drafted, this bill would take effect on January 1, 2024. Hemp would be permitted into the cannabis and cannabis product market with little to no regulatory oversight from the DCC/CDPH/CDFA. It is unclear how any of the issues raised in the hemp report would be addressed. The author may wish to provide a delayed implementation to allow the DCC and other regulators the necessary time to ensure that hemp products are integrated safely and appropriately into the cannabis marketplace and regulatory space, consistent with overall cannabis regulation as directed by Prop 64.

Regulatory Construct. Separate state departments regulate hemp cultivation and product manufacturing; hemp cultivation is under the jurisdiction of CDFA and product manufacturing is under the jurisdiction of CDPH, likely returning a regulatory framework for cannabis and cannabis products to be reliant upon separate regulatory agencies with oversight over different aspects of the product. The author should continue to work with stakeholders and the regulatory departments to ensure this will be appropriate for integrating hemp into the cannabis framework.

Overly Broad. As noted earlier, this bill is similar to AB 1656, which did not provide a regulatory framework for including hemp into MAUCRSA, likely due to the pending nature of the Hemp Report. However, that report was released earlier this year and this bill, as currently drafted, does not include a robust regulatory framework for integration. The author may wish to continue working with stakeholders to ensure this bill does not create an untenable pathway for the integration of hemp into the cannabis regulatory structure.

SUPPORT AND OPPOSITION:

Support:

California Cannabis Manufacturers Association

Kiva Confections

Opposition:

Big Sur Farmers Association

Humboldt County Growers Alliance

Mendocino Cannabis Alliance

Nevada County Cannabis Alliance

Origins Council

Public Health Institute

Trinity County Agriculture Alliance

Youth Forward

-- END --

ASSEMBLY THIRD READING

ATR Bill Id:AB 420

Author:(Aguiar-Curry)

As Introduced Ver:February 2, 2023

Majority vote

SUMMARY

Allows for cannabis licensees to manufacture, distribute, or sell products that contain industrial hemp, as well as cannabinoids, extracts, or derivatives from industrial hemp.

Major Provisions

1. Provides that MAUCRSA does not prohibit a cannabis licensee from manufacturing, distributing, or selling products that contain industrial hemp, or cannabinoids, extracts, or derivatives from industrial hemp, if the product complies with all applicable state laws and regulations.
2. Declares that it is the intent of the Legislature to enhance the viability of cannabis licensees in the marketplace by pursuing measures to relieve tax and regulatory requirements, and to authorize licensees to manufacture, distribute, and sell hemp and cannabidiol (CBD) products in compliance with current law.

COMMENTS

Cannabis versus Hemp. Scientifically speaking, both industrial hemp and what has commonly been referred to as marijuana are members of the same plant species, Cannabis sativa. Under California law, the term "cannabis" typically refers to varieties of the species that contain sufficient levels of the cannabinoid tetrahydrocannabinol (THC) to produce a psychoactive effect, or "high"; this plant and its associated products are regulated by the Department of Cannabis Control (DCC) under MAUCRSA. Hemp, meanwhile, is commonly regarded more as an agricultural plant and has historically been used for products such as paper, textiles, cosmetics, and fabric. By definition, industrial hemp contains less than 0.3% THC, which is considered trace amounts compared to psychoactive cannabis (15-40% THC). Hemp is regulated by the CDFA for agricultural purposes and by the CDPH when it is used in food, beverage, and cosmetic products.

While industrial hemp does not share the same psychoactive properties as cannabis due to its significantly lower amount of THC, both hemp and cannabis contain another cannabinoid known as CBD. According to the National Institute of Health, CBD has pain relieving, anti-inflammatory, anti-psychotic, and tumor-inhibiting properties. Two products, dronabinol and nabilone, are FDA-approved drugs used for the prevention or treatment of chemotherapy-related nausea and vomiting. There are currently over 100 clinical trials of CBD listed on the National Library of Medicine's website. These trials are testing CBD's utility in treating epilepsy, substance use disorders, pain, psychosis, and anxiety, among other disorders and conditions.

Regulation of Hemp. SB 566 ((Leno), Chapter 398, Statutes of 2013) established the Industrial Hemp Farming Act, which provided a regulatory scheme for the cultivation and processing of industrial hemp that would go into effect upon approval by the federal government. SB 566 required growers of industrial hemp for commercial purposes to register with the county agricultural commissioner of the county in which the grower intends to engage in industrial hemp cultivation among various provisions. Established agricultural research institution were exempted from these requirements.

The U.S. Agriculture Improvement Act of 2018 (known as the Farm Bill) federally legalized the growing, cultivating, and the transporting of industrial hemp between states. However, the Farm Bill resulted in CBD containing products that have been approved by the FDA to be removed from the list of Schedule I substances under the CSA and reclassified as a Schedule V drug. This policy was enacted because of the findings that it does not contain any psychoactive or addictive properties and has a very low abuse potential. This separates industrial hemp from marijuana specific cannabis products, which remains a Schedule I drug on the federal level. The Farm Bill also classifies CBD as a food product.

Importantly, the Farm Bill also requires states to devise their own sale restrictions and regulations, of which the U.S. Department of Agriculture (USDA) is responsible for overseeing. SB 153 (Wilk, Chapter 838, Statutes of 2019) revised provisions in SB 566 regulating the cultivation and testing of industrial hemp to conform to the requirements for a state plan under the 2018 Farm Bill. SB 292 (Wilk, Chapter 485, Statutes of 2021) additionally conformed state law to the USDA Interim Final Rule regarding reporting and testing of industrial hemp in the United States.

In 2021, AB 45 (Aguiar-Curry, Chapter 576, Statutes of 2021) was enacted to significantly expand and clarify the framework under which CBD derived from industrial hemp can be used in food, beverages and dietary supplements. The bill revised or added various definitions relating to hemp products and placed new requirements on hemp manufacturers in exchange for more explicit authority to produce manufactured goods containing CBD derived from hemp. In doing so, the bill expressly specified that foods, beverages, dietary supplements, cosmetics, and pet food are not adulterated by the inclusion of industrial hemp cannabinoids.

Integration of Cannabis and Hemp. Notwithstanding the biological and chemical similarities of cannabis and hemp, hemp products are widely considered "non-cannabis goods" for purpose of MAUCRSA. Under Section 15407 of the DCC's regulations, licensed cannabis retailers are prohibited from selling any non-cannabis goods besides cannabis accessories and branded merchandise. (Proposed regulations recently announced by the DCC would further allow for the sale of prepackaged non-cannabis infused and food and beverages, subject to local authorization.) While presumably an individual or entity could both engage in a licensed cannabis business and in a business involving hemp, it is understood that the two supply chains must remain fully distinct.

Whether hemp and cannabis products should be allowed to coexist in a regulatory context has been debated consistently over the past several years. Because both plants contain the same cannabinoids, it is often the case that two essentially identical products—CBD gummies, for example—are regulated and sold differently based on whether the CBD was derived from cannabis or industrial hemp. Many cannabis retailers may wish to also sell products derived from hemp. However, some in the cannabis industry may see hemp as an unwelcomed competitor, and concerns have been expressed that the difference in regulatory systems and consumer safety requirements should keep the two products separated.

AB 45 included language requiring the DCC to prepare a report to the Governor and the Legislature outlining the steps necessary to allow for the incorporation of hemp cannabinoids into the cannabis supply chain. The report is required to include, but is not be limited to, the incorporation of hemp cannabinoids into manufactured cannabis products and the sale of hemp products at cannabis retailers. Language in AB 45 also stated the intent of the Legislature to consider, in light of the DCC's report, "whether and how to take legislative action concerning the incorporation of hemp into the cannabis supply chain."

The DCC published The Hemp Report: Steps and Considerations for Incorporating Hemp Into the Commercial Cannabis Supply Chain and submitted it to the Legislature in January, 2023. The report stated that "incorporating hemp into the regulated commercial cannabis supply chain presents both policy and implementation challenges. From the policy perspective, several determinations would need to be made to move forward with the inclusion of hemp." In the report's conclusion, the DCC summarized its determinations as follows:

"As detailed in this report, the inclusion of hemp into the commercial cannabis supply chain is complex and requires careful consideration of significant policy questions to arrive at an approach that is in the best interests of California. The approach utilized to accomplish this end would directly impact the cannabis industry, hemp industry, standard commercial market, medicinal and adult-use consumers, and the Department and other responsible California state agencies. While this report raises significant policy considerations to inspire and support deliberations between policy makers and stakeholders, it should not be interpreted as containing every single issue that may need to be considered and addressed by policy makers to determine when or if to incorporate hemp into the cannabis supply chain. If California chooses to allow hemp into the commercial cannabis supply chain, irrespective of which approach California adopts, implementation will likely require significant time and resources."

This bill is intended to serve as a vehicle for continuing discussions around how California might integrate industrial hemp into the supply chain for cannabis. Currently, the bill contains a simplistic statement that nothing in MAUCRSA prohibits integration. It is presumed that a much more substantive bill would be necessary to resolve the DCC's concerns and recommendations.

According to the Author

"While both hemp and marijuana are members of the cannabis family, they are uniquely distinctive plants. Hemp-derived CBD is not intoxicating because CBD derived from hemp contains only trace amounts of THC (less than 0.3 percent), the psychoactive component in marijuana products. Consumers seek out hemp-derived CBD because it can provide them with relief from pain, inflammation, anxiety, insomnia, and other conditions. Many people have been purchasing hemp-derived CBD topical products at their local natural foods shops, fitness centers, and health stores for some time. In fact, seniors are a significant portion of the people choosing to use hemp CBD, because they do not want to visit a marijuana dispensary. Further, hemp has become an increasingly important crop. It is easy to grow, can be cultivated without toxic pesticides, and serves well as a rotation crop. This is an opportunity for California to make it easier for its citizens to access a non-intoxicating-alternative product they want, and for farmers to establish themselves in a fast-growing industry."

Arguments in Support

The California Cannabis Industry Association (CCIA) supports this bill. According to the CCIA, "California is already lagging behind 17 states that have authorized the use of hemp cannabinoid inputs for licensed operators. Like California, many of those states utilize METRC for track and trace. None of the above states have incurred a substantial issue that has resulted in removing the authorization. In addition, the country's potentially second largest cannabis marketplace – New York - authorizes dual use facilities. It is our expectation that AB 420 can and will be used as a vehicle for an acceptable supply chain integration solution."

Arguments in Opposition

None on file.

FISCAL COMMENTS

According to the Assembly Committee on Appropriations, the DCC states this bill will have costs of a large but undetermined amount, in the millions of dollars.

VOTES

ASM BUSINESS AND PROFESSIONS: 17-0-1

YES: Berman, Flora, Alanis, Alvarez, Bonta, Chen, Dixon, Gipson, Grayson, Irwin, Jackson, Lee, Lowenthal, McKinnor, Stephanie Nguyen, Joe Patterson, Ting

ABS, ABST OR NV: McCarty

ASM APPROPRIATIONS: 15-0-1

YES: Holden, Megan Dahle, Bryan, Calderon, Wendy Carrillo, Dixon, Mike Fong, Hart, Lowenthal, Mathis, Papan, Pellerin, Sanchez, Weber, Ortega

ABS, ABST OR NV: Robert Rivas

UPDATED

VERSION: February 2, 2023

CONSULTANT: Robert Sumner / B. & P. / (916) 319-3301 FN: 0000518

Date of Hearing: May 3, 2023

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Chris Holden, Chair

ABPCA Bill Id:AB 420

Author:(Aguiar-Curry) – As Introduced Ver:February 2, 2023

Urgency: No State Mandated Local Program: No Reimbursable: No

SUMMARY:

This bill allows cannabis licensees to manufacture, distribute, or sell products that contain industrial hemp, as well as cannabinoids, extracts, or derivatives from industrial hemp.

FISCAL EFFECT:

The Department of Cannabis Control (DCC) states this bill will have costs of a large but undetermined amount, in the millions of dollars (Cannabis Control Fund). According to DCC, the uncertainty is due to the absence of specific provisions detailing how hemp would be allowed to enter the regulated cannabis market. DCC states that, at a minimum, it would need to amend sections of its regulations that prohibit the incorporation of industrial hemp, develop new procedures for hemp integration, and seek modifications to the track and trace system. DCC projects it would also require additional staff to develop new hemp integration programs and processes, as well as for increased compliance and enforcement. 

COMMENTS:

1. Purpose. This bill is sponsored by the California Cannabis Industry Association. According to the author:

Hemp and marijuana are both members of the cannabis family, but they vary in chemical composition and are regulated differently under state and federal law. Hemp has lower levels of psychoactive compounds and, by law, cannot have more than 0.03% of the intoxicant tetrahydrocannabinol (THC) or related chemicals. Since the legalization of industrial hemp in 2018, hemp-derived products containing cannabidiol (CBD) and other cannabinoids have been widely produced and sold to consumers at grocery stores, fitness centers, and other retail locations. However, commercial cannabis licensees have not been able to participate in the hemp market, even though they produce and sell similar products using cannabis-derived CBD. AB 420 clarifies that licensees with a commercial cannabis license can manufacture, distribute, and sell hemp products in accordance with existing law. This bill follows the lead of 17 other states to help integrate hemp into the cannabis supply chain and expand the products that the legal cannabis industry can offer.

1. Background. Hemp products are widely considered “non-cannabis goods” for purposes of the Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA). Under DCC’s regulations, licensed cannabis retailers are prohibited from selling any non-cannabis goods besides cannabis accessories and branded merchandise. (DCC recently proposed regulations to further allow the sale of prepackaged non-cannabis infused and food and beverages, subject to local authorization.) Whether hemp and cannabis products should be allowed to coexist in a regulatory context has been debated for the past several years. Because both plants contain the same cannabinoids, two essentially identical products—CBD gummies, for example—are regulated and sold differently based on whether the CBD was derived from cannabis or industrial hemp. Many cannabis retailers may wish to also sell products derived from hemp. However, some in the cannabis industry may see hemp as an unwelcomed competitor, and concerns have been expressed that the difference in regulatory systems and consumer safety requirements should keep the two products separated.
   
   In 2021, the Legislature enacted AB 45 (Aguiar-Curry), Chapter 576, Statutes of 2021, to expand and clarify the framework under which CBD derived from industrial hemp can be used in food, beverages and dietary supplements. AB 45 placed new requirements on hemp manufacturers in exchange for more explicit authority to produce manufactured goods containing CBD derived from hemp. The bill expressly specified that foods, beverages, dietary supplements, cosmetics, and pet food are not considered adulterated by the inclusion of industrial hemp cannabinoids. AB 45 also required the DCC to prepare a report to the Governor and the Legislature outlining the steps necessary to allow for the incorporation of hemp cannabinoids into the cannabis supply chain. The report is required to include the incorporation of hemp cannabinoids into manufactured cannabis products and the sale of hemp products at cannabis retailers. AB 45 also stated the intent of the Legislature to consider the DCC hemp report, once completed, and determine “whether and how to take legislative action concerning the incorporation of hemp into the cannabis supply chain.”
   
   The DCC published “The Hemp Report: Steps and Considerations for Incorporating Hemp Into the Commercial Cannabis Supply Chain” in January, 2023. The report stated that “incorporating hemp into the regulated commercial cannabis supply chain presents both policy and implementation challenges. From the policy perspective, several determinations would need to be made to move forward with the inclusion of hemp.” In the report’s conclusion, the DCC summarized its determinations as follows:

[T]the inclusion of hemp into the commercial cannabis supply chain is complex and requires careful consideration of significant policy questions to arrive at an approach that is in the best interests of California. The approach utilized to accomplish this end would directly impact the cannabis industry, hemp industry, standard commercial market, medicinal and adult-use consumers, [DCC,] and other responsible California state agencies. While this report raises significant policy considerations to inspire and support deliberations between policy makers and stakeholders, it should not be interpreted as containing every single issue that may need to be considered and addressed by policy makers to determine when or if to incorporate hemp into the cannabis supply chain. If California chooses to allow hemp into the commercial cannabis supply chain, irrespective of which approach California adopts, implementation will likely require significant time and resources.

1. Prior Legislation.
   1. AB 45 (Aguiar-Curry), Chapter 576, Statutes of 2021, established a regulatory framework for industrial hemp under the Sherman Food, Drug, and Cosmetic Law.
      
   2. SB 292 (Wilk), Chapter 485, Statutes of 2021, conformed state law to the United States Department of Agriculture’s Interim Final Rule regarding reporting and testing of industrial hemp.
      
   3. SB 153 (Wilk), Chapter 838, Statutes of 2019, revised provisions regulating the cultivation and testing of industrial hemp to conform to the requirements for a state plan under the 2018 Farm Bill.
      
   4. SB 566 (Leno), Chapter 398, Statutes of 2013, allowed hemp to be grown in California, upon federal approval, by defining “industrial hemp” to be excluded from the definition of marijuana, a Schedule I controlled substance.
      
   5. AB 1656 (Aguiar-Curry), of the 2021-22 Legislative Session, was substantially similar to this bill. AB 1656 died on the Senate inactive file.

Analysis Prepared by: Allegra Kim / APPR. / (916) 319-2081

Date of Hearing: April 18, 2023

ASSEMBLY COMMITTEE ON BUSINESS AND PROFESSIONS

Marc Berman, Chair

ABPCA Bill Id:AB 420

Author:(Aguiar-Curry) – As Introduced Ver:February 2, 2023

SUBJECT: Cannabis: industrial hemp.

SUMMARY: Allows for cannabis licensees to manufacture, distribute, or sell products that contain industrial hemp, as well as cannabinoids, extracts, or derivatives from industrial hemp.

EXISTING LAW:

1. Enacts the Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA) to provide for a comprehensive regulatory framework for the cultivation, distribution, transport, storage, manufacturing, processing, and sale of medicinal and adult-use cannabis. (Business and Professions Code (BPC) §§ 26000 et seq.)
2. Establishes the Department of Cannabis Control (DCC) within the Business, Consumer Services, and Housing Agency (previously established as the Bureau of Cannabis Control, the Bureau of Marijuana Control, the Bureau of Medical Cannabis Regulation, and the Bureau of Medical Marijuana Regulation), for purposes of administering and enforcing MAUCRSA. (BPC § 26010)
3. Provides for twenty total types of cannabis licenses including subtypes for cultivation, manufacturing, testing, retail, distribution, and microbusiness; requires each licensee except for testing laboratories to clearly designate whether their license is for adult-use or medicinal cannabis. (BPC § 26050)
4. Establishes grounds for disciplinary action against cannabis licensees, including failures to comply with state requirements as well as local laws and ordinances. (BPC § 26030)
5. Prohibits the sale of cannabis products that are alcoholic beverages, including an infusion of cannabis or cannabinoids derived from industrial hemp into an alcoholic beverage. (BPC § 26070.2)
6. Required the DCC to prepare a report to the Governor and the Legislature outlining the steps necessary to allow for the incorporation of hemp cannabinoids into the cannabis supply chain on or before July 1, 2022. (BPC § 26013.2)
7. Expresses that state cannabis laws shall not be interpreted to supersede or limit the authority of a local jurisdiction to adopt and enforce local ordinances to regulate cannabis businesses. (BPC § 26200)
8. Defines “industrial hemp” as a crop that is limited to types of the plant Cannabis sativa L. having no more than three-tenths of 1 percent tetrahydrocannabinol (THC) contained in the dried flowering tops, whether growing or not; the seeds of the plant; the resin extracted from any part of the plant; and every compound, manufacture, salt, derivative, mixture, or preparation of the plant, its seeds or resin produced therefrom. (Health and Safety Code (HSC) § 11018.5(a))
9. Exempts industrial hemp from the regulatory requirements of MAUCRSA. (HSC § 11018.5(b))
10. Establishes a regulatory framework for industrial hemp under the Sherman Food, Drug, and Cosmetic Law (Sherman Law) administered by the California Department of Public Health (CDPH), under which manufacturers of products containing industrial hemp or hemp products are required to obtain a process food registration and comply with good manufacturing practices. (HSC §§ 111920 et seq.)
11. Provides the California Department of Food and Agriculture (CDFA) with responsibility for administering and enforcing laws governing the growing, cultivating, and distributing of industrial hemp. (Food and Agricultural Code §§ (FAC) 81000 et seq.)
12. Establishes an Industrial Hemp Advisory Board with members appointed by the Secretary of Food and Agriculture to advise the secretary and make recommendations on all matters pertaining to industrial hemp seed law and regulations, enforcement, related annual budgets, and the setting of an appropriate assessment rate necessary for the administration of the law. (FAC § 81001)
13. Allows only approved cultivars to grow industrial hemp. (FAC § 81002)
14. Requires growers of industrial hemp, hemp breeders, and established agricultural research institutions to register with the commissioner of the county in which the grower intends to engage in industrial hemp cultivation. (FAC §§ 81003 – 81005)
15. Requires each registered established agricultural research institution, registered grower of industrial hemp, and registered hemp breeder to report on its hemp production in the state and any changes to the location where it will produce hemp to the Farm Service Agency of the United States Department of Agriculture. (FAC § 81004.6)
16. Imposes limitations and prohibitions on the growth of industrial hemp and requires each crop of industrial hemp to be tested by a laboratory to determine the THC levels of a random sampling of its dried flowering tops. (FAC § 81006)

THIS BILL:

1. Provides that MAUCRSA does not prohibit a cannabis licensee from manufacturing, distributing, or selling products that contain industrial hemp, or cannabinoids, extracts, or derivatives from industrial hemp, if the product complies with all applicable state laws and regulations.
2. Declares that it is the intent of the Legislature to enhance the viability of cannabis licensees in the marketplace by pursuing measures to relieve tax and regulatory requirements, and to authorize licensees to manufacture, distribute, and sell hemp and cannabidiol (CBD) products in compliance with current law.

FISCAL EFFECT: This bill is keyed nonfiscal by the Legislative Counsel.

COMMENTS:

Purpose. This bill is sponsored by the author. According to the author:

“While both hemp and marijuana are members of the cannabis family, they are uniquely distinctive plants. Hemp-derived CBD is not intoxicating because CBD derived from hemp contains only trace amounts of THC (less than 0.3 percent), the psychoactive component in marijuana products. Consumers seek out hemp-derived CBD because it can provide them with relief from pain, inflammation, anxiety, insomnia, and other conditions. Many people have been purchasing hemp-derived CBD topical products at their local natural foods shops, fitness centers, and health stores for some time. In fact, seniors are a significant portion of the people choosing to use hemp CBD, because they do not want to visit a marijuana dispensary. Further, hemp has become an increasingly important crop. It is easy to grow, can be cultivated without toxic pesticides, and serves well as a rotation crop. This is an opportunity for California to make it easier for its citizens to access a non-intoxicating-alternative product they want, and for farmers to establish themselves in a fast-growing industry.”

Background.

Cannabis versus Hemp. Scientifically speaking, both industrial hemp and what has commonly been referred to as marijuana are members of the same plant species, Cannabis sativa. Under California law, the term “cannabis” typically refers to varieties of the species that contain sufficient levels of the cannabinoid tetrahydrocannabinol (THC) to produce a psychoactive effect, or “high”; this plant and its associated products are regulated by the DCC under MAUCRSA. Hemp, meanwhile, is commonly regarded more as an agricultural plant and has historically been used for products such as paper, textiles, cosmetics, and fabric. By definition, industrial hemp contains less than 0.3% THC, which is considered trace amounts compared to psychoactive cannabis (15-40% THC). Hemp is regulated by the CDFA for agricultural purposes and by the CDPH when it is used in food, beverage, and cosmetic products.

While industrial hemp does not share the same psychoactive properties as cannabis due to its significantly lower amount of THC, both hemp and cannabis contain another cannabinoid known as cannabidiol (CBD). According to the National Institute of Health, CBD has pain relieving, anti-inflammatory, anti-psychotic, and tumor-inhibiting properties. Two products, dronabinol and nabilone, are FDA-approved drugs used for the prevention or treatment of chemotherapy-related nausea and vomiting. There are currently over 100 clinical trials of CBD listed on the National Library of Medicine’s website. These trials are testing CBD’s utility in treating epilepsy, substance use disorders, pain, psychosis, and anxiety, among other disorders and conditions.

Regulation of Cannabis. Consumption of cannabis was first made lawful in California in 1996 when voters approved Proposition 215, or the Compassionate Use Act. Proposition 215 protected qualified patients and caregivers from prosecution relating to the possession and cultivation of cannabis for medicinal purposes, if recommended by a physician. This regulatory scheme was further refined by SB 420 (Vasconcellos) in 2003, which established the state’s Medical Marijuana Program. After several years of lawful cannabis cultivation and consumption under state law, a lack of a uniform regulatory framework led to persistent problems across the state. Cannabis’s continued illegality under the federal Controlled Substances Act, which classifies cannabis as a Schedule I drug ineligible for prescription, generated periodic enforcement activities by the United States Department of Justice. Threat of action by the federal government created apprehension within California’s cannabis community.

After several prior attempts to improve the state’s regulation of cannabis, the Legislature passed the Medical Marijuana Regulation and Safety Act—subsequently retitled the Medical Cannabis Regulation and Safety Act (MCRSA)—in 2015. MCRSA established, for the first time, a comprehensive statewide licensing and regulatory framework for the cultivation, manufacture, transportation, testing, distribution, and sale of medicinal cannabis. While entrusting state agencies to promulgate extensive regulations governing the implementation of the state’s cannabis laws, MCRSA fully preserved local control. Under MCRSA, local governments may establish their own ordinances to regulate medicinal cannabis activity. Local jurisdictions could also choose to ban cannabis establishments altogether.

Not long after the Legislature enacted MCRSA, California voters passed Proposition 64, the Adult Use of Marijuana Act (AUMA). The passage of the AUMA legalized cannabis for non-medicinal adult use in a private home or licensed business; allowed adults 21 and over to possess and give away up to approximately one ounce of cannabis and up to eight grams of concentrate; and permitted the personal cultivation of up to six plants. The proponents of the AUMA sought to make use of much of the regulatory framework and authorities set out by MCRSA while making a few notable changes to the structure still being implemented.

In the spring of 2017, SB 94 (Committee on Budget and Fiscal Review) was passed to reconcile the distinct systems for the regulation, licensing, and enforcement of legal cannabis that had been established under the respective authorities of MCRSA and the AUMA. The single consolidated system established by the bill—known as the Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA)—created a unified series of cannabis laws. On January 16, 2019, the state’s three cannabis licensing authorities—the Bureau of Cannabis Control, the California Department of Food and Agriculture, and the California Department of Public Health—officially announced that the Office of Administrative Law had approved final cannabis regulations promulgated by the three agencies respectively.

In early 2021, the Department of Finance released trailer bill language to create a new Department with centralized authority for cannabis licensing and enforcement activities. This new department was created through a consolidation of the three prior licensing authorities’ cannabis programs. As of July 1, 2021, the Department has been the single entity responsible for administering and enforcing the majority of MAUCRSA. New regulations went into effect on January 1, 2023 to effectuate the consolidation and make other changes to cannabis regulation.

Regulation of Hemp. SB 566 (Leno, Chapter 398, Statutes of 2013) established the Industrial Hemp Farming Act, which provided a regulatory scheme for the cultivation and processing of industrial hemp that would go into effect upon approval by the federal government. SB 566 required growers of industrial hemp for commercial purposes to register with the county agricultural commissioner of the county in which the grower intends to engage in industrial hemp cultivation among various provisions. Established agricultural research institution were exempted from these requirements.

The U.S. Agriculture Improvement Act of 2018 (known as the Farm Bill) federally legalized the growing, cultivating, and the transporting of industrial hemp between states. However, the Farm Bill resulted in CBD containing products that have been approved by the FDA to be removed from the list of Schedule I substances under the CSA and reclassified as a Schedule V drug. This policy was enacted because of the findings that it does not contain any psychoactive or addictive properties and has a very low abuse potential. This separates industrial hemp from marijuana specific cannabis products, which remains a Schedule I drug on the federal level. The Farm Bill also classifies CBD as a food product.

Importantly, the Farm Bill also requires states to devise their own sale restrictions and regulations, of which the U.S. Department of Agriculture (USDA) is responsible for overseeing. SB 153 (Wilk, Chapter 838, Statutes of 2019) revised provisions in SB 566 regulating the cultivation and testing of industrial hemp to conform to the requirements for a state plan under the 2018 Farm Bill. SB 292 (Wilk, Chapter 485, Statutes of 2021) additionally conformed state law to the USDA Interim Final Rule regarding reporting and testing of industrial hemp in the United States.

In 2021, AB 45 (Aguiar-Curry, Chapter 576, Statutes of 2021) was enacted to significantly expand and clarify the framework under which CBD derived from industrial hemp can be used in food, beverages and dietary supplements. The bill revised or added various definitions relating to hemp products and placed new requirements on hemp manufacturers in exchange for more explicit authority to produce manufactured goods containing CBD derived from hemp. In doing so, the bill expressly specified that foods, beverages, dietary supplements, cosmetics, and pet food are not adulterated by the inclusion of industrial hemp cannabinoids.

Integration of Cannabis and Hemp. Notwithstanding the biological and chemical similarities of cannabis and hemp, hemp products are widely considered “non-cannabis goods” for purpose of MAUCRSA. Under § 15407 of the DCC’s regulations, licensed cannabis retailers are prohibited from selling any non-cannabis goods besides cannabis accessories and branded merchandise. (Proposed regulations recently announced by the DCC would further allow for the sale of prepackaged non-cannabis infused and food and beverages, subject to local authorization.) While presumably an individual or entity could both engage in a licensed cannabis business and in a business involving hemp, it is understood that the two supply chains must remain fully distinct.

Whether hemp and cannabis products should be allowed to coexist in a regulatory context has been debated consistently over the past several years. Because both plants contain the same cannabinoids, it is often the case that two essentially identical products—CBD gummies, for example—are regulated and sold differently based on whether the CBD was derived from cannabis or industrial hemp. Many cannabis retailers may wish to also sell products derived from hemp. However, some in the cannabis industry may see hemp as an unwelcomed competitor, and concerns have been expressed that the difference in regulatory systems and consumer safety requirements should keep the two products separated.

AB 45 included language requiring the DCC to prepare a report to the Governor and the Legislature outlining the steps necessary to allow for the incorporation of hemp cannabinoids into the cannabis supply chain. The report is required to include, but is not be limited to, the incorporation of hemp cannabinoids into manufactured cannabis products and the sale of hemp products at cannabis retailers. Language in AB 45 also stated the intent of the Legislature to consider, in light of the DCC’s report, “whether and how to take legislative action concerning the incorporation of hemp into the cannabis supply chain.”

The DCC published The Hemp Report: Steps and Considerations for Incorporating Hemp Into the Commercial Cannabis Supply Chain and submitted it to the Legislature in January, 2023. The report stated that “incorporating hemp into the regulated commercial cannabis supply chain presents both policy and implementation challenges. From the policy perspective, several determinations would need to be made to move forward with the inclusion of hemp.” In the report’s conclusion, the DCC summarized its determinations as follows:

“As detailed in this report, the inclusion of hemp into the commercial cannabis supply chain is complex and requires careful consideration of significant policy questions to arrive at an approach that is in the best interests of California. The approach utilized to accomplish this end would directly impact the cannabis industry, hemp industry, standard commercial market, medicinal and adult-use consumers, and the Department and other responsible California state agencies. While this report raises significant policy considerations to inspire and support deliberations between policy makers and stakeholders, it should not be interpreted as containing every single issue that may need to be considered and addressed by policy makers to determine when or if to incorporate hemp into the cannabis supply chain. If California chooses to allow hemp into the commercial cannabis supply chain, irrespective of which approach California adopts, implementation will likely require significant time and resources.”

This bill is intended to serve as a vehicle for continuing discussions around how California might integrate industrial hemp into the supply chain for cannabis. Currently, the bill contains a simplistic statement that nothing in MAUCRSA prohibits integration. It is presumed that a much more substantive bill would be necessary to resolve the DCC’s concerns and recommendations.

Current Related Legislation. AB 374 (Haney) would authorize local jurisdictions to allow cannabis retailers to conduct business activities unrelated to cannabis on their premises. This bill is pending in the Assembly Committee on Governmental Organization.

Prior Related Legislation. AB 1656 (Aguiar-Curry) from 2022 was substantially similar to this bill. This bill died on the Senate inactive file.

AB 45 (Aguiar-Curry, Chapter 576, Statutes of 2021) established a regulatory framework for industrial hemp under the Sherman Food, Drug, and Cosmetic Law.

SB 292 (Wilk, Chapter 485, Statutes of 2021) conformed current state law to the United States Department of Agriculture’s Interim Final Rule regarding reporting and testing of industrial hemp.

SB 153 (Wilk, Chapter 838, Statutes of 2019) revised provisions regulating the cultivation and testing of industrial hemp to conform to the requirements for a state plan under the 2018 Farm Bill.

SB 94 (Committee on Budget and Fiscal Review, Chapter 27, Statutes of 2017) combined AUMA and MCRSA into one system for the regulation of cannabis, resulting in MAUCRSA.

SB 566 (Leno, Chapter 398, Statutes of 2013) allowed hemp to be grown in California, upon federal approval, by defining “industrial hemp” to be excluded from the definition of “marijuana,” a Schedule I controlled substance.

ARGUMENTS IN SUPPORT:

The California Cannabis Industry Association (CCIA) supports this bill. According to the CCIA, “California is already lagging behind 17 states that have authorized the use of hemp cannabinoid inputs for licensed operators. Like California, many of those states utilize METRC for track and trace. None of the above states have incurred a substantial issue that has resulted in removing the authorization. In addition, the country’s potentially second largest cannabis marketplace – New York - authorizes dual use facilities. It is our expectation that AB 420 can and will be used as a vehicle for an acceptable supply chain integration solution.”

ARGUMENTS IN OPPOSITION:

None on file.

REGISTERED SUPPORT:

California Cannabis Industry Association
California Cannabis Manufacturers Association

Kiva Confections

The Parent Company

REGISTERED OPPOSITION:

None on file.

Analysis Prepared by: Robert Sumner / B. & P. / (916) 319-3301