It's doomsday for delta-8, THC seltzers as federal judge tosses part of NJ hemp law
A court ruling that has attorneys, business owners and lobbyists scratching their heads ultimately will not change the effect of the state's new hemp law.
As of Saturday, Oct. 12, intoxicating hemp products must be pulled off the shelves across the state.
In an opinion issued Thursday, federal Judge Zahid Quraishi overturned parts of the new hemp law he determined gave an unfair advantage to in-state hemp businesses, which flies in the face of a 2018 federal law that legalized hemp nationwide.
The amended hemp law, signed by Gov. Phil Murphy last month, established new regulations for intoxicating hemp products, including delta-8 and THC-infused seltzers, and required manufacturers and retailers to obtain a license by the New Jersey Cannabis Regulatory Commission. That regulating body is already charged with overseeing the state's legal weed and medical marijuana industries and markets.
The cannabis commission will be charged with drafting rules and regulations for intoxicating hemp products, such as testing and labeling standards. Separate standards will be created for liquor stores who want to sell intoxicating hemp beverages.
But the commission has six months to draft those rules before licensure even begins. Until then, any manufacturer or retailer making or selling such products would be in violation of state law.
"Everybody's kind of in this holding pattern, trying to figure everything out and understand what the intent is," said Philip Petracca, owner of THC drink startup Bella Ray Beverage, based in Asbury Park. "Financially, it's devastating. We're $1.5 million into this thing and now everything's on hold. You have 33 farmers, 1,500 mom-and-pop businesses through the state and we're losing our businesses, we're losing our livelihoods."
No favors for NJ hemp industry
Hemp was federally legalized as part of the 2018 Farm Bill, which draws a legal distinction between marijuana and hemp, which must contain less than 0.3% delta-9 THC. The farm bill led to a booming CBD market. But soon, shrewd manufacturers realized they could create products that would get consumers just as intoxicated as marijuana with only the trace amounts of THC.
In essence, it became possible to grow, manufacture and sell legal weed without jumping through the hoops licensed cannabis businesses must follow, such as age restrictions or testing standards. They could be even be sold in towns that specifically opted out of allowing any legal weed businesses within their borders.
And unlike legal weed, which is still illegal on the federal level, intoxicating hemp products could be sold across state lines.
Quraishi's decision on Thursday left those in the cannabis and hemp spaces with many questions.
The lawsuit's plaintiffs, a group of hemp businesses, had sought for the entire law to be overturned. But Quraishi only agreed with their arguments that the law regulated intoxicating hemp products manufactured in New Jersey and outlawed those manufactured in or transported from other state. The law violated the dormant commerce clause, legal doctrine prohibiting states from placing burdens on interstate commerce, Quraishi said.
But the regulatory language included in the bill was valid. Now, out-of-state intoxicating hemp products are also subject to regulation by the Cannabis Regulatory Commission, a potentially massive undertaking for a commission that cannabis entrepreneurs have criticized for taking too long to approve license applications.
Now, they're tasked with taking on hemp without any additional funding from the Legislature, which has entrepreneurs spooked.
"They don't have the resources to handle what they currently have on their plate, so everybody's in a holding pattern," Petracca said.
Another potential issue left unaddressed in Quraishi's decision is the law's unique "total THC" standard, which takes into account cannabinoids beyond delta-9, including THC-A. Any product with more than 0.5 milligrams per serving or 2.5 milligrams per package of concentrated total THC is covered by the law under the purview of the Cannabis Regulatory Commission.
That standard might be strict enough that many hemp cultivators and processors focused on non-intoxicating products, like CBD, might be grouped in with those companies creating the intoxicating products. In that case, they would have to cease operations until obtaining a license.
"I don't think this did any favors for the hemp industry," said Joshua Bauchner, an attorney representing cannabis and hemp clients across New Jersey. "What we have now is that the whole hemp industry is going to be subject to the CRC."
What's next for NJ hemp law
The push for the state to address intoxicating hemp products changed dramatically over time, morphing from an effort to simply ban such products or at least prohibiting their sale to children to a three-way tug-of-war between the cannabis, hemp and liquor industries.
Cannabis stakeholders believed it was unfair for any retailer to sell products without also following the Cannabis Regulatory Commission's myriad regulations, especially by liquor stores. Murphy echoed those concerns in his statement accompanying the bill, calling on commissioners to adopt regulations for alcohol licensees that are "comparable" to those adopted for cannabis businesses.
Liquor interests hoped to protect their new cash cow, the THC seltzers that already make up about 10% to 15% of all liquor sales in the state, while still adhering to the same regulations from the Division of Alcoholic Beverage Control they've always been governed by.
And hemp business owners who followed safety standards on their own accord, for instance, such as not selling to children and only selling products that underwent testing, believed they were collateral damage as legislators targeted less scrupulous retailers.
"When you rush a bill through, when you don't allow the discourse to happen, you end up passing a bill that falls short," said Petracca, also a cofounder of Source Farmhouse Brewery in Colts Neck. "As quickly as they rushed this bill through, there should be that same sense of urgency to fix this."
That fix could be coming soon. Quraishi's ruling has sped up talk of a clean-up bill clarifying many of the issues cited by hemp stakeholders and Murphy himself, who included a lengthy statement criticizing the bill's "technical questions" upon signing it.
Senate Majority Leader Teresa Ruiz, D-Essex, said she was "committed to working with the administration and the assembly to clarify any technical details that are necessary.
"While I am pleased that the court order upheld the ban on selling intoxicating hemp products to minors, we must recognize that, without comprehensive regulation, these substances will continue to present a significant threat to the health and well-being of our communities," she said. "Other states have been successful in this pursuit, and New Jersey should be no different."
