On December 9, New York Governor Andrew Cuomo signed into law a bill that creates a comprehensive regulatory system governing the state’s industrial hemp and CBD markets. It brings to end a period of ambiguity as to the status of hemp products generated and sold outside of New York’s industrial hemp program, but still leaves much uncertainty.

Following the federal 2014 Farm Bill, New York created an industrial hemp program within the Department of Agriculture and Markets (DAM) that provides for licensure of hemp producers and hemp processors. The program quickly became a favorite of the administration, which eliminated licensing caps, made state funding available to licensees, and showcased it as a means of revitalizing the depressed upstate farming industry. However, the State’s control over the hemp and CBD markets was limited to program licensees, and left all products generated and sold outside the program in a regulatory vacuum.

In January 2018, Governor Cuomo telegraphed that the door to legalizing THC cannabis could be opening when he announced that his administration would study how legalization in surrounding states could impact New York. Pivoting, the Department of Health (DOH) released a report at the end of the summer concluding that the positive effects of legalization of New York’s own market would outweigh the negative effects. The Governor accepted the report and in early 2019 included the Cannabis Regulation and Taxation Act, the “CRTA,” in the proposed state budget.

The CRTA consisted of three sections: (1) changes to the medical market, (2) legalization of the adult-use THC-cannabis market, and (3) a separate regulatory system for CBD. After the CRTA dropped out of the budget and it became apparent that the legislature’s subsequent comprehensive legalization bill might fail, a stand-alone bill to regulate hemp and CBD emerged. It passed both houses in June. The version of that bill which the Governor signed six months later retains some elements of the original but contains significant changes.

The new law splits regulatory authority between DAM and DOH

Most critically, the new law splits regulatory authority between DAM, which will regulate industrial hemp, and DOH, which will regulate CBD. Second, the new law eliminates the numerous license categories in the legislature’s bill, and leaves three types. A hemp grower’s license, awarded by DAM, covers the spectrum of activities from growing hemp through harvesting, curing, and sale, but excludes the processing of hemp into “cannabinoid hemp” or “hemp extracts” for human consumption and excludes their retail sale. DOH can award a cannabinoid hemp processor license to process and package hemp into products for human consumption and a cannabinoid hemp retailer license. A hemp grower can process or sell CBD at retail only if licensed by DOH. DOH can also issue temporary permits for activities in the CBD market.

Each agency will have extensive regulatory authority over all aspects of the market. For example, DOH is authorized to establish the qualifications for licensure, reporting requirements, procedures for determining when cannabinoid hemp and hemp extract are acceptable for sale, provisions governing modes and forms of ingestion, procedures for determining whether cannabinoid hemp and hemp extracts produced outside of New York meet New York standards, restrictions governing advertising and marketing, the nature of warnings that must appear in labels used by cannabis hemp processor and restrictions on health claims, and testing requirements. An applicant for any type of license must show evidence of the good moral character of the individuals responsible for its operations, evidence of experience and competency, and that it has the facilities to perform under the license, but beyond that the agencies are virtually unlimited in what they can require from applicants.

None of the licenses are transferable without written consent of the regulatory agency, but there are no caps on the numbers of licenses. Although it’s not clear from the text of the law, it appears that a CBD retailer licensee can be an ordinary retail establishment, e.g. a supermarket or pharmacy, as opposed to an entity created for the sole purpose of selling CBD products.

There are provisions in the law that leave great uncertainty or otherwise pose challenges to the industry. Among others, there is potential for confusion arising from the overlapping definitions “cannabinoid,” “cannabinoid hemp, “hemp extract,” and “hemp” (which includes “cannabinoids” and “extracts”), that are split between the industrial hemp and CBD parts of the law. Another one that could have far-reaching effects on the market – if it survives a Constitutional challenge—is the requirement that industrial hemp and CBD produced outside of New York meet New York’s standards before they can be sold here.

There is a major intentional omission from the law: the law passed by the legislature in June contained provisions governing hemp (including cannabidiol) in food and beverages, but the new law specifically states that the definition of “hemp extract” does not include food or food additives. CBD-infused edibles are a significant and popular part of the market but are not permitted by the FDA or under New York’s existing industrial hemp program. The State declined the opportunity to provide protections to the businesses producing and selling CBD-infused food products.

The law doesn’t provide any dates by which the regulatory agencies must promulgate regulations, which will include the specifications for license applicants. However, there is a bigger consideration, which is how the law will interact with a THC-cannabis legalization bill in 2020. It may be that the new law is a placeholder until the Governor and the legislature introduce their competing legalization bills in the new year and regulation of the industrial hemp and CBD markets will be back in play.

The Governor has announced a “hemp summit” in January. That may be a good time to demand clarity and improvements to New York’s new law.

by Noah Potter, Esq.