Much of the discussion this past legislative session focused on the legalization (or expanded decriminalization) of "adult-use" cannabis. However, one piece of cannabis legislation flew under the radar. A bill establishing a new regulatory framework for one of the state's fastest growing industries successfully navigated its way through both houses of the New York State Legislature. But unlike adult-use cannabis, this type of cannabis will not get you "high." We're talking about hemp, of course, and hemp-derived cannabinoids—the most recognizable of which is cannabidoil or "CBD."

On the final day of New York's legislative session, the Legislature passed bill A7680-A/S6184-A. If signed by Governor Andrew Cuomo, this legislation will establish one of the most comprehensive regulatory frameworks for hemp and hemp extracts in the country. The legislation was introduced this past January as part of Cuomo's proposed budget and sponsored by State Senator Jennifer Metzger (D-42) and Assembly member Donna Lupardo (D-123). As of the date of this article, the legislation has not yet been delivered to the governor for his signature or veto.

If enacted, bill A7680-A / S6184-A could significantly impact the burgeoning hemp industry in New York by adding new regulatory requirements. Here's a summary of some of the legislation's more notable provisions.

License Requirements

First, the legislation requires all cannabinoid growers, manufacturers and extractors to obtain a license through the New York Department of Agriculture and Markets (the department). The legislation also requires a license for any cannabinoid products intended for "human or animal consumption or use," the latter term not being defined. The cannabinoid extractor license is the most comprehensive, permitting the licensee to acquire, possess, manufacture and extract hemp for products intended for human and animal use. Licenses will be renewed on a biennial basis, and licensed premises are subject to random inspection by the department.

Manufacturers and growers will also be required to contract with an independent laboratory approved by the commissioner for routine testing, and all testing reports will need to be made available to the department. Applicants for a license will be required to submit evidence of "good moral character," experience, competency, and if requested by the department, fingerprints of each researcher, principal or officer.

Notably, the department has broad authority to deny licensure, as it has the authority to consider "whether it is in the public interest to grant [the application]."

Similar licensing requirements existed under New York's Industrial Hemp Agricultural Research pilot program previously overseen by the department (the pilot program). Under the pilot program, three licenses were available to a pool of limited research partners: (1) a license for growing industrial hemp; (2) a non-CBD processing license; and (3) a CBD processing license.

The pilot program will continue under the bill, but will be subject to the same regulations as hemp processed for non-research purposes, with minor compliance exceptions.

Permit Requirement for Retailers

One of the most notable provisions imposes a permit requirement on retailers, wholesalers, and manufacturers selling "cannabis products derived from hemp extracts" whereby sellers of such products will be required to apply for a cannabinoid permit. This has far-reaching implications for businesses such as the local gas station, bodega, national pharmacy or retailer. As of this article, there are still open questions as to the potential scope of products covered by this definition, and how onerous the permitting requirements may be. Both issues will presumably be clarified in future regulations by the department.

I Love NY

Some of the more controversial provisions in the legislation relate to the preferential treatment of New York hemp, and barriers to entry for out-of-state hemp. More specifically, the legislation permits the sale of beverages containing no more than 20 milligrams of CBD per 12 ounces of, but only if the hemp extract was grown, extracted and manufactured in the state of New York. This provision in particular has caused some hemp industry groups to claim the legislation is "unconstitutional," and "protectionist," and could be considered the first shots in a "trade war" between states.

Other sections of the legislation specifically prohibit the sale of out-of-state hemp extract intended for human and animal consumption grown, unless the product meets New York standards and regulations to be promulgated in the future. Until regulations are promulgated, this section could be interpreted as prohibiting all out-of-state hemp products.

Labeling

The legislation also amends the Agriculture & Markets Law to establish a framework for the packaging and labeling of hemp extract products. All hemp extracts will have to be labeled in accordance with department standards, include a supplement fact panel where applicable, and must display a QR Code setting forth the applicable serving size, concentration, and growing region of the product. Consistent with guidance and warnings from the U.S. Food and Drug Administration, hemp extract labels cannot claim that hemp treats, cures or prevents any disease.

Workgroup

Finally, the Bill requires the Commissioner to establish a "New York State Industrial Hemp and Hemp Extract Workgroup" made up of researchers, producers, processors, manufacturers and trade associations. The Workgroup is charged with making recommendations for the program, developing state and federal policy initiatives, and discovering new opportunities to promote and market industrial hemp.

Next Steps

While the legislation has passed both houses of the New York State Legislature, it has not yet been delivered to the Governor for his signature or veto. Both supporters and opponents of the legislation have been lobbying for changes to be made to some of the more controversial provisions. Whether these changes are included in chapter amendments or next year's legislative session is yet to be seen.

If signed, New York State will be taking a significant step in the regulation of a rapidly growing industry. And with significant policy decisions deferred to future regulations, the department has a significant role in shaping not only New York's hemp industry, but the nation's. With hundreds of millions of future dollars at stake, New York will continue to be the focus of the hemp and cannabis industry for months to come.

Mitchell Pawluk is a member Harris Beach in the firm's government compliance and investigations practice group and leads the firm's cannabis industry team. Meaghan Lambert is a member of the firm's cannabis industry team.