Hemp States to Watch in 2022: California

By David Kramer

Feb 7, 2022

This is the first post in VS’s hemp-focused "States to Watch in 2022" series. For a federal hemp legislation outlook, read this

Continuing our look over the hemp horizon and keeping a close eye on key states to watch in 2022, California is hoping that this will be the year that its hemp industry emerges from the shadows and takes its place among the nation's hemp leaders. This is because AB-45, which Governor Newsom signed into law in October 2021, finally permits California operators to manufacture and sell hemp-derived products—including hemp-derived food and dietary supplements. (Read more about AB-45.)

But for California's Industrial Hemp Compliance Program to thrive, stakeholders will need the help and cooperation of California's Department of Public Health (CDPH), the state agency tasked with regulating hemp products and hemp manufacturing activities. In this article, I'll outline what hemp operators should expect from the CDPH, and the program generally, in the coming months.

First and foremost, the CDPH must begin issuing industrial hemp product registrations (IHPR) to operators interested in manufacturing, packing, or holding industrial hemp products. IHPRs are the linchpin of the program and AB-45. As of now, IHPRs are not yet available. We're hopeful that the CDPH will reveal additional details—and release applications for IHPRs—very soon. 

At present, it remains questionable whether a hemp manufacturer may operate in California without an IHPR: although AB-45 provides a 90-day grace period for hemp manufacturers to operate in California without obtaining an IHPR (provided that such operators otherwise comply with AB-45 and follow good manufacturing practices), that 90-day period has since expired. Moreover, the CDPH released a December 16, 2021 FAQ stating that operators must have an IHPR to manufacture hemp products beginning January 7, 2022:

"Can I start manufacturing and selling products now?
You may manufacture and sell industrial hemp products or raw hemp extract now, without complying with CDPH licensing and/or registration requirements including IHPR, if you operate in good faith compliance with AB 45 requirements. However, you will need to comply with licensing and/or registration requirements starting on January 7, 2022." 

Obviously, January 7, 2022 has come and gone, but the CDPH has not made IHPRs available. Per the plain letter of AB-45 and the CDPH's FAQ, hemp manufacturers cannot technically operate until CDPH makes IHPRs available. This situation has operators in limbo.

Second, operators are hopeful that the CDPH promptly retracts the problematic language regarding out-of-state manufacturers and products in its FAQ. For example, in a move that caught California's hemp industry (and AB-45's proponents) by surprise, the FAQ states that hemp food products manufactured outside of California cannot be sold in California:

"I'm based outside of California and want to manufacture IH products. Can I obtain an IHPR to sell my products in California? 
No. California only licenses out-of-state industrial hemp extract manufacturers. Currently, manufactured food products containing industrial hemp made outside of California are prohibited from entering interstate commerce by federal law."

This FAQ is not only inconsistent with the spirit of AB-45, but also mischaracterizes applicable federal law. 

We understand that stakeholders, including some of the forces behind AB-45, are working with the CDPH to correct this statement and to clarify that: 1) hemp-derived products lawfully produced outside of California will be permitted for sale within California, and 2) out of state manufacturers will be eligible to register for IHPRs. The CDPH has already requested funds to begin licensing and inspecting out-of-state manufacturers—a move that belies its own FAQ. 

Third, the CDPH is expected to issue significant hemp regulations in 2022. Such regulations will govern a broad range of key subjects and activities, including manufacturing practices, permissible THC concentrations of raw hemp extract, age requirements for hemp products, serving size, cannabinoid concentrations per serving size, recordkeeping, and testing regulations. It is unknown when the CDPH will release these regulations, but we expect that the CDPH's initial regulations will not cover all the preceding topics.

Finally, in addition to the CDPH's efforts to launch California's program, it is important to note that additional measures are underway to effectuate the intent of AB-45. Integrating California's hemp supply chain into California's cannabis supply chain is one priority. Assemblymember Cecilia Aguiar-Curry, AB-45's primary sponsor, has already introduced a bill (AB 1656) to help facilitate this objective. As currently drafted, the bill states that cannabis licensees are not prohibited 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…" In addition, per AB-45, the California Department of Cannabis Control is obligated to "prepare a report to the Governor and Legislature outlining the steps necessary for the incorporation of hemp cannabinoids in the cannabis supply chain." This report is due by July 1, 2022. 

Stakeholders are also working to develop a tax on inhalable hemp products. The passage of such a tax is necessary to permit the sale of inhalable hemp products in California. (Although AB-45 permits California hemp manufacturers to manufacture inhalable hemp products, until the California Legislature establishes a tax on such products, they can only be sold outside of California.)

We're hopeful that big things could happen in the world of California hemp in the coming months. Stay tuned for California hemp updates and the next post in our "States to Watch in 2022" series!

For more state-by-state hemp and cannabinoid information, consider subscribing to the VS Hemp & Cannabinoid Compliance Guide. This comprehensive and affordable compliance solution is easy to use and can be tailored to your company's specific needs.

David Kramer is a partner in VS's California office and a leader in the firm's hemp and corporate practices.

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