Is this the end for intoxicating cannabinoids like Delta-8? Probably not. In some states, yes. But everywhere. No. 2023 is definitely off to a rough start, though.
Intoxicating cannabinoids became the hottest ingredient in the unregulated cannabis market in 2021 and 2022. We’ve talked about it before. What are intoxicating cannabinoids? These are products that are made from hemp. So they’re legal on the federal level, and in most states. And they have an intoxicating effect. How is that possible? The 2018 farm bill basically said that hemp products under 0.3%, Delta-8, THC limits are legal. What wasn’t anticipated is that lots of other cannabinoids like Delta-8, Delta-10, HHC and products made from them would become popular. What also wasn’t anticipated is that these products, while legal at the federal level, would get you high, much like the traditional high-THC products that we’re used to, or marijuana.
Why did these products become extremely popular in 2021 and 2022? One, They’re cheaper. What are they cheaper then? They’re cheaper than the high-THC regulated cannabis market. So let’s say you’re living somewhere like California, Colorado, Any of the 36 states that have now in some way made high-THC cannabis legal. Those products, one, often have to be purchased from a dispensary and two, they tend to be more expensive than products you can find in the unregulated market.
They’re cheaper and they’re easier to find. You don’t have to go to a dispensary to buy most of these products. You can buy them at gas stations or convenience stores. And the last way that differentiates them from high-THC cannabis products is you can buy them online. Through that, they became very popular for consumers, especially those that don’t live in states where high-THC hasn’t been regulated like North Carolina.
Especially in North Carolina
You can’t get access to cannabis in North Carolina right now. So here, Delta-8 products, Delta-10 products, AGC products are very popular. So last year, several states Texas, Virginia, they all tried to regulate or completely ban these products and they were pretty much unsuccessful. Some states like Colorado were successful and regulate them. But most of the time, any bans or anything that would have significantly hindered this section of this industry didn’t pass or was stayed in Texas. We’ve been watching a an injunction go through the press for a while now. That’s all changed already in 2023. We haven’t even gotten through quarter one, and it’s not a great year for the alternative cannabinoid space.
Legislation is Trying to Ban or Regulate These Products
Starting January 5th in states all across the country, we saw lawmakers file legislation that will either completely ban these kinds of products or heavily regulate them. Why? Unfortunately, we had some stories come out towards the end of last year of children getting a hold of these types of products and being injured. In fact, one child even died in Virginia. Children dying is always something that’s going to push lawmakers to regulate an industry. So starting January 5th, we saw bills filed in Virginia, Texas, Maryland, Tennessee, Georgia, Florida, Minnesota, Washington, Louisiana and Utah. And some have already passed. No such bills have been filed in North Carolina yet, but I’ll be watching this year and anticipate that very likely something’s going to come up.
What do the vast majority of these bills seek?
One is a change from just the Delta nine standard of 0.3 percent, Delta nine THC or less to what we call a total THC standard. That means that the total THC is going to have to come in under a limitation. That means that all these Delta-8 products, Delta-10 products, HHC products are currently that have been operating in a way that where they’re complying with the Delta nine THC limitation, but have huge amounts of other types of THC in it, are not going to be able to do that anymore.
You’re not going to see any hundred milligrams Delta-8 THC products anymore to the milligrams per package limits. Some of these are pretty drastic. Some of these states are trying to make it so that you’re not having any more than 1.5 milligrams of total THC in each package. That really, really cuts down on the ability to put these intoxicating cannabinoids in a package and is going to cause most product lines that are currently out there to either significantly change their product line or they’re just not going to exist anymore.
There’s a hugh push among a lot of states to require childproof packaging of all of these types of product labeling standards. The industry itself has been calling for labeling standards for three years. So this is a good thing in a lot of ways. And shouldn’t be that much of a burden for most producers. But what it does is it creates a way that an agency can regulate you in every state, because the last thing that’s very common is that almost all these states are also requiring that every company register in their state.
Registering PER State
So even if I’m a North Carolina based cannabis product company, any state that I want to sell into, I’ve now got to register my company in and that registration has to comply with that state’s regulations. So it’s going to look a lot like what high-THC cannabis companies have to do. So that’s why it gets more complicated, because your labeling standards in North Carolina, of which there are none right now, are not going to look like you’re labeling standards in Kentucky are not going to look like your labeling standards in Texas.
So the compliance aspect of this becomes definitely more complicated. Why is this a problem? Overall, it creates two issues the cost of new regulations, meaning changing your operating procedures, your operating standards, paying for childproof packaging, paying for new labels, paying for new marketing. It’s going to require more money spent on your actual goods to make sure you’re in compliance.
It’s also going to require more money spent on compliance. You’ve now got a lot more to monitor, a lot more agencies to be in compliance with. You’ve got to register your products in advance. You may have to renew that registration every year. That’s a heavy compliance burden for a company of five people. For a company that has been operating without these kinds of standards so far, and what happens if you aren’t in compliance?
A lot of these statutes, a lot of these proposed regulations come out with not just fines, but the ability to reject your product from the state and potentially permanently ban you from having products in their market. In addition to that, some of them come with criminal liability. So you fail to comply. You’re not only going to get a civil fine.
Potential Criminal Charges
You could potentially be charged with criminal action, not to mention not complying opens you up to consumer liability. If a consumer gets sick or is somehow injured from your product, they can add as a cause of action to their claim that you’re in compliance with the state regulations, which shows negligence. So what do you need to do? Number one, you have to stay informed so you can get ahead of the changes and make a plan to pivot because most likely in 2023, some of this industry, maybe a lot of this industry, especially in the alternative cannabinoid space or intoxicating cannabinoid space, is going to have to pivot.
You need to know what’s in the works, what the potential timeline of the changes are and how you are going to adapt. You need a strategic compliance partner to help you do this, because unless you’re a large team, you’re going to have to outsource some of this compliance work. At Davis Legal, we do a lot of that. We can help you know what’s happening in your market and in your target markets to keep abreast of the changes that are coming and help you come up with a plan to pivot.