HB 563

There’s new legislation in North Carolina that could pass in this legislative session. Let’s talk about HB 563, the good, the bad and the ugly. Hi, I’m Morgan Davis. I’m an attorney practicing cannabis and business in North Carolina. Let’s talk about how to keep your business protected and thriving. So we’ve talked about HB 563 before. It’s new legislation that was introduced in early session.

Think March of trying to regulate cannabis products. Specifically, hemp and hemp derived products in the North Carolina market. Originally, the legislation was very some good, some bad. Now, in the latest iteration, in the last two weeks, there’s been some language added that makes it a little ugly.

The Good

So let’s talk about that. Let’s start with the good. So good news is the regulations include provisions that a lot of people, including me, would agree are common sense regulations, licensing for manufacturers, wholesalers and retailers. Advertising requirement. It’s standardized warning requirements, standardized testing requirements and a milligram cap that makes sense. It’s a 200 milligram cat per serving, with the milligrams being of the total cannabinoid ratio.

That all makes sense, and I think everybody can agree is a good thing. There’s also requirements like child resistant packaging, which we’ve talked about. Everybody should be implementing child resistant packaging. There’s also a requirement of age gating and licensing for meaning for those selling products. You have to require proof of proof of age through state issued ID. We like all of those regulations.
That’s the good part of HB 563.

The Bad

Here’s the bad part of it. HB 563 bad things would be the fact that there’s criminal liability that’s attached to a failure to comply with the regulations, not just for manufacturers, wholesalers, retailers, etc., but also for the consumer. After if this bill goes through and it passes in the form it’s currently in, can still be amended.

But if it passes in the form it’s currently in products that are not licensed or that violate the MG cap or violate, some provision of these regulations will not be legal products in the state of North Carolina. Therefore, they will be illegal products. Those producing them, those selling them and yes, those consuming them, i.e. you, me and everybody else walking around in the state.

North Carolina, who buys these products can be held criminally liable for them. Why is that a big change? It’s one thing to say that a product is puts you subject to fine or means you could have your license taken away. It’s a totally different thing when you can actually be held criminally liable. You can be charged with a crime for the product.

You manufacture or you purchase, especially if you don’t know that it’s a crime. So this is one to watch and to understand, because once it passes, it’s going to determine what products in North Carolina are legal in which or not.

The ugly part of HB 563

So two weeks ago, maybe a little more now, this bill went through the Judiciary Committee and some amendments were made in the House.’So two weeks ago, maybe a little more now, this bill went through the Judiciary Committee and some amendments were made in the House.

And some of those amendments included a changing of the definitions. So now if you read HB 563 first section under the definitions section, definition seven, and I’m going to read it to you, a hemp derived consumable product, that’s the main thing that this bill is trying to regulate hemp derived consumable products, a hemp product intended for human ingestion or inhalation that contains a Delta-9 tetrahydrocannabinol concentration of not more than 3/10 of 1% on a dry weight basis or any hemp derived psychoactive cannabinoid.

Synthetic

You go to Section 8 where it defines hemp derived psychoactive cannabinoid, a synthetic cannabinoid derived from hemp, including Delta-7, THC, Delta-8 THC, and Delta-10 THC. Why am I reading these to you? Because it’s not clear from this wording, but it is the intention of this act to outlaw to ban synthetic cannabinoids, specifically Delta-7, Delta-8, and Delta-10.

It does so by exempting them from the definition of hemp derived consumable product. If this bill passes, only those hemp derived consumer products that are licensed will be legal. So if these cannabinoids cannot be licensed, they will not be legal. There will be no pathway for them to be sold inside the legal market. So essentially, Delta-8 and Delta-10 will cease to be legal products in the state of North Carolina.

That makes up a huge part of our industry right now. But beyond that, the definition says a synthetic cannabinoid derived from including it doesn’t define synthetic. Which brings us back to the conversation we’ve had before, which is what is synthetic and what is not synthetic. If you think synthetic is anything that is made from synthetic materials, no plant material or plant material, plus synthetic material, then Delta-8 wouldn’t fall in that category.

However, if you expand the definition of synthetic to mean anything synthesized, then what happens to Delta-8? How it’s created in mass by taking CBD and then converting it there a separate chemical process to become Delta-8. Then it’s synthetic. But that means a lot of products, much more than are listed in this act, are synthetic. On the current market.

That means a lot of businesses will have no longer have a product line that has a legal pathway forward in the state of North Carolina, but it’s not defined in the statute. So we don’t know where it’s going to fall and who’s going to be responsible for defining that, who’s going to be responsible for regulating these products? After the passage of this bill, the ALE.

NC Alcohol Law Enforcement

Now the ALE is the arm of law enforcement in North Carolina that most people are familiar with in the alcohol industry. So any time you’ve been if you got an underage drinking ticket at a concert, if you got an underage drinking ticket, period, it was probably ALE that gave it to you. If you’re a bar owner or a convenience store owner, you’re very familiar with ALE because there’s the one.

They are the ones in charge of making sure that your license is in good standing. They and they do all of the what’s the word I’m looking for inspections for breweries, etc., and they go over age, gating all that kind of stuff. They are now going to be responsible for making sure that retailers, manufacturers, wholesalers, everybody who’s required to be licensed under this statute is in fact licensed, that they are following the rules and regulations and for punishing those who are not in compliance.

So up until now, the sort of motto in the state of North Carolina and many other places in the United States is, well, there are rules, but they’re not enforced. So it’s low risk. Low regulation means low risk. After the passage of HB 563, I don’t think that’s going to be the case in North Carolina anymore. I think we’re going to see more enforcement and there’s going to be more risk.

So understanding what’s happening in this bill and how it affects your business is extremely important for the next 12 to 24 months of the life of your business. Give me a call today and let’s talk about HB 563 and how it affects you.