What’s going on with that Cannabis beverage lawsuit against NY regulators?

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What’s going on with that Cannabis beverage lawsuit against NY regulators? Here’s an update

Cannabis Beverage Companies Optimistic in Legal Battle Against New York THC Limits.

Representatives of cannabis beverage companies currently suing New York regulators over strict limits on hemp-derived THC believe they will prevail in their push against rules that amount to a de facto ban on their products.

Four hemp companies sued state officials in August, after New York’s Cannabis Control Board proposed emergency regulations – which the board adopted in October – that capped the THC content allowable in legal cannabinoid hemp products to a 15-1 ratio of CBD to THC, and a limit of 1 mg of THC per serving.

Plaintiffs enjoyed a brief victory in November, when Albany County Supreme Court Judge Thomas Marcelle blocked regulators from enforcing the emergency regulation. Since then, the CCB has codified the rules as official policy, but litigants say they’re cautiously optimistic about their long-term chances – considering state regulators seemed unable to demonstrate public health risks that existing cannabinoid hemp products pose to the public.

“The reason that they’re giving [for limiting THC content] is consumer protection, but they didn’t show any real emergency,” said Jessica Wasserman, who heads up regulatory initiatives for Cycling Frog, a Washington State hemp company that makes hemp-derived THC seltzers, among other products.

“The judge said there’s nothing but anecdotal evidence that there’s any harm from this product … the reality is these aren’t dangerous products,” Wasserman said.

Hemp companies have been operating legally in New York since Congress passed the 2018 Farm Bill, which legalized hemp products with THC levels of 0.3% or less on a dry weight basis.

The federal statute has allowed companies to distill THC from hemp and sell products containing intoxicating levels of the compound, while still technically remaining compliant.

Cycling Frog began making and selling seltzers containing hemp-derived THC in early 2022, and the market for weed-infused beverages has grown in the two years since, Wasserman said. A study by Future Market Insights found the nationwide market for cannabis beverages could be worth $8.3 billion by 2032, based on growth trends in the sector.

When CCB members approved the emergency hemp regulations July 19, Cycling Frog had four truckloads of seltzers heading to locations in New York State for delivery, said Dylan Summers, the company’s VP of government affairs.

The rules, which banned legal sales of Cycling Frog’s seltzers, cost the company about $1 million in pending sales, Summers said. When accounting for sales the company has missed since, the loss is much larger, he added.

“At the time of the emergency regulations, the velocity of those products was really promising,” he said. “Most of the people that are interested in these beverages are folks you wouldn’t necessarily expect – mostly middle-aged folks … young professionals, and professional people in general looking for an alternative to a nightly libation.”

Cycling Frog, along with Sarene Craft Beer Distributors, Hemp Beverage Alliance and One Stop Brew Shop, filed suit against regulators on Aug. 4. The plaintiffs alleged the CCB illegally adopted emergency regulations without demonstrating that hemp-derived THC posed a genuine health crisis for New Yorkers.

“Not only were the Emergency Regulations not well thought out, they were ramrodded through on an emergency basis without employing the usual rulemaking procedures, including public notice and comment, despite the lack of any true emergency,” attorneys representing the plaintiffs wrote in their complaint.

Plaintiffs also alleged in court filings that state cannabis regulators may have passed the new rules for cannabinoid hemp products in an effort to diminish the sector’s market share, and make room for companies within New York’s adult-use cannabis program.

In response, lawyers from state Attorney General Letitia James’ office said, in court filings, that regulators followed proper procedures to impose emergency regulations, and denied the assertion that part of the goal for the new hemp rules was to advantage adult-use cannabis companies over cannabinoid hemp businesses.

“The regulations do no such thing,” attorneys wrote. “To the contrary, the Office’s analysis shows that the majority of hemp products currently on the market are already compliant with the regulations.”

But Judge Marcelle agreed with the plaintiffs and, on Nov. 13, issued an injunction preventing regulators from enforcing the emergency regulations. The victory was short-lived, however, because the CCB formally adopted the rules as official regulations in a meeting just four days later.

In short, the injunction only applied to the emergency rules and because the THC limits for cannabinoid hemp are now official regulations that went through the proper rulemaking process, regulators may legally enforce them.

However, Marcelle’s written comments in his decision to enjoin the emergency regulations give plaintiffs and their attorneys hope that efforts to overturn the rules will prevail.

Marcelle found that regulators failed to demonstrate a public health basis for passing emergency regulations, rather than following normal procedures. But he also appeared amenable to plaintiffs’ argument that state officials passed the rules in an effort to protect adult-use cannabis market share, rather than health concerns.

“Petitioners posit that respondents adopted the emergency regulations not for public health motives, but to protect and advantage New York licensed cannabis vendors – which has the altogether pleasant externality of enhancing tax revenue,” Marcelle wrote. “Respondents are less than bashful about this, they admit that petitioners’ intoxicating cannabinoid hemp products undermine the adult-use cannabis market, which they license.”

One of the attorneys representing the plaintiffs – Joseph Polito of Davidoff Hutcher & Citron – said he was heartened that Marcelle appears sympathetic to the idea that regulators issued strict rules for hemp companies due to business concerns, rather than worries for public health. However, because the regulations are now official, the injunction did little to help plaintiffs.

“We’re happy with the outcome, but disappointed that it took the court so long to get there,” Polito said.

The lawsuit remains active, but there haven’t been any case filings since the Nov. 13 injunction decision. Now, Cycling Frog is weighing its options for how to move forward, Summers said.

The company is currently involved in lobbying efforts in New York and other states to reduce regulations that make it difficult to sell hemp beverages and other products, Wasserman said. These efforts appear to be picking up steam lately, as beer and wine distributors – which are increasingly carrying THC beverages – have joined hemp companies in pushing for lighter regulations.

“It’s not just us alone in New York, the beverage wholesalers are engaged, and some other hemp companies,” Wasserman said. “We’re all coordinating and trying first to focus on the governor’s office and the executive branch.”

Cycling Frog also believes the judge’s comments in his injunction ruling suggest legal vulnerabilities in the official hemp regulations, Wasserman said. However, litigation is expensive, and time consuming for young companies in the still-developing cannabinoid hemp industry.

“We think they are vulnerable,” Wasserman said about New York regulators. “We believe we’d win, honestly, but we’re a new industry.”

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