Ready, Steady Go! Empire State Set to Establish Closed System For Cannabinoid Hemp Products Including CBD

Cannabidiol (“CBD”) products are everywhere.  They are sold in pharmacies, as well as grocery, health food and convenience stores, and over the Internet.  To protect its citizens in the absence of federal requirements governing CBD and hemp-derived products for human consumption, the New York Department of Health (“DOH”) announced the issuance of proposed regulations that if implemented would create new requirements for how those products are manufactured and sold there.   The proposed regulations would establish a closed, cradle-to-grave distribution system for cannabinoid hemp products.   Cannabinoid hemp processors (extractors and manufacturers) and retailers would have to obtain licenses issued by DOH and products would have to comply with stringent manufacturing, testing, packaging and labeling requirements.  New York’s proposed regulations may become a model for how the U.S. and other jurisdictions regulate CBD and hemp-derived products for human consumption.

Comments on the proposed regulations can be submitted until January 11, 2021.

Cannabinoid Hemp Products

The proposed regulations apply to “cannabinoid hemp products,” defined as hemp or any product manufactured or derived from hemp, that include hemp-derived terpenes in its final form “used for human consumption.”  Cannabinoid hemp products “used for human consumption” are products intended by the manufacturer or distributor to be used for their cannabinoid content or “used in, on or by the human body for its cannabinoid content.”  Cannabinoid hemp products expressly exclude cosmetics and, consistent with the Drug Enforcement Administration’s (“DEA’s) August 2020 Interim Final Rule, would also exclude synthetic CBD.

Cannabinoid hemp products sold at retail cannot:

• Contain more than 0.3% total Δ9-Tetrahydrocannabinol (“THC”) concentration;
• Contain tobacco or alcohol; or
• Be an injectable, transdermal patch, inhaler, suppository, flower product including cigarette, cigar or pre-roll, or any other form disallowed by DOH.

Products sold as a food or beverage product cannot contain more than 25 mgs. of total cannabinoids per product while supplements cannot contain more than 3,000 mgs. of  cannabinoids per product.

Cannabinoid hemp products will need to be labeled with the quantity of cannabinoids in the product and quantity per serving.  If the product contains THC, the label must state the THC quantity per serving and per package.  Products must have a scannable code linking them to a certificate of analysis.  Packaging must list consumer warnings and cannot be attractive to underage consumers.

Processors will have to test cannabinoid hemp products at a laboratory approved to test medical marijuana or that meets minimum requirements, including ISO/IEC 17025 accreditation and validation methods used for testing.  The regulations will establish which analytes will be tested and establish limits for cannabinoids, heavy metals, microbial impurities, mycotoxins, residual pesticides, residual solvents and processing chemicals.  Cannabinoid hemp products containing levels of analytes deviating from allowable limits will be considered adulterated and must be destroyed.

The regulations would establish advertising requirements for cannabinoid hemp processors and retailers, including prohibiting false or misleading statements and medical claims that they can or are intended to diagnose, cure, mitigate, treat or prevent disease.  Advertising cannot lead anyone to believe the cannabinoid hemp product is marijuana or medical marijuana.

Hemp Processors

Extractors and manufacturers of cannabinoid hemp products in New York would have to obtain a processor license from DOH.  Applicants must describe the products they intend to make, and submit proof of product liability insurance, evidence of Good Manufacturing Practices (“GMP”), organization documents and non-refundable $1,000 application fee, or $500 application fee for applicants seeking only to manufacture, not extract, cannabinoid hemp.  If approved, hemp processors will follow-up with their facility’s certificate of occupancy, evidence of a GMP audit, and license fee of $4,500 for extracting or $2,000 for manufacturing.  Processor licenses would be valid for two years.  Licenses will be non-transferable except with prior DOH approval.

Processors will have to maintain records demonstrating that all hemp and hemp extract they use was grown, derived, extracted and transported in compliance with applicable laws and licensing requirements where they were sourced.  Processors will have to maintain qualified third-party GMP certification.  They will also have to retain extraction and manufacturing process records documenting:

• Source of hemp or hemp extract;
• Calibration and inspection of equipment or instruments;
• Disposal of hemp extract or hemp by-product;
• Tracking and documentation of THC; and
• Testing of samples from lots or batches.

Processors procuring hemp from out-of-state will have to maintain records of the non-resident grower’s registration or license in the jurisdiction where they are located.  Processors will have to maintain records for five years and produce them to DOH upon request.

In addition, processors would have to comply with security and sanitary standards including prohibiting access by unauthorized individuals to their premises to ensure safe and sanitary conditions.  Unlike DEA’s unworkable prohibition, the New York regulations would allow sales of in-process hemp extract containing up to 3.0% THC concentration between licensed processors in the state.  This allowance more realistically reflects how the regulated industry transfers in-process hemp extract exceeding 0.3% THC concentration with safeguards against diversion from legitimate licensees.

Cannabinoid hemp processors will be limited to whom they sell their products.  They will not be able to sell cannabinoid hemp products directly to consumers unless they obtain a cannabinoid hemp retail license and can only sell cannabinoid hemp extract in New York to cannabinoid hemp processors or registered organizations in the DOH’s Medical Marijuana Program.  Distributors of cannabinoid hemp products manufactured outside New York to cannabinoid hemp retailers within the state, would have to obtain a permit from DOH.

DOH will be authorized to conduct unannounced random sampling and testing of hemp, hemp extract, and cannabinoid hemp products during licensees’ normal business hours.

Hemp Retailers

Everyone selling cannabinoid hemp to consumers in New York would have to obtain a retailer license from the DOH.  Applicants would have to describe the type of cannabinoid hemp products they intend to sell, name and state or country of origin of the manufacturers they intend to procure products from and proof of certificate of authority from the state Department of Taxation and Finance.  A refundable $300 license fee for each retail location must accompany applications.  Retailer licenses would be valid for only one year.  Retailer licenses, like processor licenses, will be non-transferable without DOH approval.

Retailers who submit a retail license application prior by April 1, 2021, will be allowed to sell cannabinoid hemp products before the DOH approves or denies their license if they comply with all proposed regulatory requirements.

Retailers can only sell cannabinoid hemp products manufactured, packaged, labeled and tested that comply with prescribed standards.  They cannot sell inhalable cannabinoid hemp products to underage consumers.  Retailers will have to maintain records of the cannabinoid hemp product’s source, including the name of the hemp processor and the wholesaler or distributor.

DOH will have authority to inspect cannabinoid hemp retailers, take samples of cannabinoid hemp products to ensure compliance and require display of cannabinoid hemp products separately from other products.

Penalties

Proposed penalties for noncompliance include graduating civil penalties that increase with each violation.  The first violation could incur a fine up to $1,000; the second violation within a three-year period, a fine of up to $5,000; the third violation or any additional violation, a fine of up to $10,000.  DOH would also be able to limit, suspend, revoke or annul a license.  Violating regulations three times within five-years may result in the licensee being deemed ineligible to manufacture or sell cannabinoid hemp products for five years.

Conclusion

There are significant changes on the near horizon for cannabinoid hemp product processors and retailers in New York, and those outside the state who supply hemp and hemp extract into New York.  We reiterate that retailers selling hemp cannabinoid products must apply to continue sales by April 21, 2021, cease sales, or face potential civil fines and future administrative sanctions.  FDA and other jurisdictions are watching closely what transpires in New York.