BY JASON MINARD ESQ. (HSG LEGAL COUNSEL)
HSG CBD HEMP FLOWER BAN STATEMENT
Comments from Hempire State Growers on the NY State Flower Ban
New York State’s proposal for an all-out ban on flower sales is a serious threat to the success of the fledging New York hemp industry and will be detrimental to farmers. On October 27, 2020, the New York State Department of Health (DOH) published proposed regulations regarding the manufacture, sale, and use of extracts from hemp, focusing in large part on the popular cannabinoid CBD. The long awaited regulations are part of the DOH's new Cannabinoid Hemp program, stemming from A.7680/S6184A, landmark legislation crafted by Assemblywoman Donna Lupardo, D-Endwell, Broome County, and Sen. Jen Metzger, D-Rosendale, chairwomen of their respective agricultural committees. Gov. Andrew Cuomo signed their bill last December, after it passed in the summer of 2019.
Unfortunately, among the prohibitions contained in the 63 pages of recently released rules, is a ban on the sale of hemp flower. The smokable form is among the most popular and fastest growing segments of the CBD market, and the prohibition cuts off the only practical and lucrative avenue for growers. This move flies in the face of the intent of the 2018 Farm Bill and the purpose of the New York regulations “to protect the farmers.” Governor Cuomo himself described the intention of the regulations in glowing terms:
"These regulations are the next step toward
regulating the growing hemp industry in New York
in a way that protects consumers and helps ensure
the industry's long-term viability. Establishing the
State's Cannabinoid Hemp Program to regulate
production and sale of hemp and hemp extract will
help protect both consumers and farmers."
Thus, contrary to New York State’s attempts to rejuvenate the state’s farming industry through hemp, they are regulating farmers out of business. According to Maire Ulrich, of the Cornell Cooperative Extensions agriculture program, it will likely take at least two years for the new state regulations to begin paying off for local farmers. New York hemp farmers need to sell premium smokable hemp flower to survive.
The Smokable Flower Ban Must be Removed for New York to Have a Thriving Hemp Industry
The fact that the regulations against flower sales were announced just as farmers were harvesting their hemp flower and preparing product for sale is a cruel irony. The timing could not be worse. These regulations impact farmers who have invested hundreds of thousands of dollars in growing, harvesting, and curing their flower, which is exponentially more costly than growing for biomass. Regrettably, the regulations will expose them to significant monetary losses by limiting both product and marketplace and restricting how they sell their crop, specifically as high end, smokable hemp flower.
In order to make hemp farming profitable, hemp farmers must sell their high-end smokable flower at several hundreds of dollars per pound vs. selling biomass for CBD extraction at a loss due to oversupply and lack of federal regulation. The price per percentage point of CBD per pound of hemp plummeted to less than $.45 currently from a high of $4 as recently as summer 2019. According to data collected by Hemp Benchmarks, as of July the price for a pound of smokable CBD hemp flower was nearly 20 times that of a pound of hemp biomass, assuming a CBD potency of 10% for the latter. With rates for CBD hemp biomass eroding dramatically and fewer processors willing to pay cash for such raw material, smokable hemp flower has become a more prevalent production target among growers seeking higher commodity prices.
The all-out ban on the sale of smokable flower must be removed for New York to have a thriving hemp industry. If not removed from the proposed rules, the ban will push small and craft farms out of the industry, as well as farmers with hundreds of thousands, and in some cases millions, of dollars invested. It is not just the larger farms that will suffer. Growing for flower is the easiest entry point into the market for small farms with no processing systems. Those who grow on a small scale have better chance of success if they can sell flower.
The ban fails to capture the bill's intent to allow for a thriving industry for growers, consumers, and processors and to protect the farmers. Even Senator Metzger, who sponsored the original bill, hopes the state DOH will revise the regulations to permit the sale of smokable hemp flower.
Hudson Valley farmers planted upwards of 1,500 acres of hemp last year. In that same year, nearly 20,000 acres were planted statewide, up from 3,500 acres in 2018, according to state estimates. Yet, local farmers planted a small fraction of that hemp acreage this year. This is not the way to grow the industry, but a sure way to destroy it.
Flower Should Be Legal and Available for Sale Under the Same Strict Testing and Labeling Requirements as Other Ingestible CBD Products
In many states there is a vibrant smokable hemp flower industry, doing a brisk business both in stores and online. In Vermont and Colorado, the industry has the full support of those state governments, and state agencies have created rules for testing and labeling smokable hemp products. It would be sensible for New York to follow the success of Colorado and Vermont in this regard.
The proposed regulations do fill a regulatory void and create a system allowing for the use of hemp-derived cannabinoids in certain foods, beverages, topicals, and dietary supplements. All cannabinoid hemp products must be manufactured using good practices based on the end product's intended use. The label must contain the total number of cannabinoids in the product and per serving, a nutritional or supplement fact panel, information about whether the product contains THC, and appropriate warnings. Additionally, cannabinoid hemp products are required to be laboratory-tested before entering the market. The testing must cover the product’s cannabinoid profile as well as screen for heavy metals, microbial impurities, mycotoxins, pesticides, and residual solvents. This information must be retrievable by the consumer in the form of a QR code or corresponding link on the product label. Under those testing and labeling requirements, which apply to all other legal CBD products, flower can and should be legal.
Why the Ban on Flower Does Not Make Sense (Vapes are in, Flower is Out)
The New York ban on sale of hemp flower hurts all the state’s approximately 700 hemp farmers, but particularly the smaller growers. Many sell directly to customers and had hoped the new rules would allow them to expand their business to licensed retailers and shops. Flower is the best product for profit-margins. There’s a demand for it and it’s the fastest growing segment of the industry.
The DOH put out a statement to justify the ban. According to public information officer Jill Montag, the regulation is “[i]n line with the Department of Health’s efforts to reduce tobacco and smoking consumption for all New Yorkers….” She goes on to claim that “the proposed cannabinoid hemp regulations prohibit the sale of hemp flower by licensed cannabinoid hemp retailers to discourage the use of this product form due to the negative health effects associated with combustible products.” It is not difficult to find the flaws in this line of reasoning. Since the regulations allow for vape products, which are not natural and contain additives and toxins, and given the fact that cigarettes and other forms of tobacco are legal, broadly marketed, and consumed throughout the country despite the Surgeon General’s warnings, how is concern for the health effects of smokable hemp products a plausible claim?
The ban on flower will likely drive smokable hemp flower onto the black market. This black market will eliminate any tax benefits from flower sales that could have benefitted New York State during a challenging time for its economy. Most importantly, consumers of the black-market hemp would not be afforded the protections provided when products are regulated strictly for quality control—the same protections mandated by New York for other hemp products.
The ban is also counter-intuitive given that New York is expected to move toward the legalization of adult-use marijuana in 2021.
Hemp Flower Is the Only Segment of The Industry Where Decent Profit Margins Still Exist
Because of the requirement that all manufacturers be cGMP certified, the New York regulations will certainly lead to a safer more consistent hemp and CBD product. Still, becoming cGMP certified will be costly for NY processors and manufacturers and drive up the cost of goods sold. Until the FDA comes out with regulations and mandates that all CBD sold be produced pursuant to cGMP standards, New York regulations put producers in our state at a disadvantage in the national marketplace when competing with sellers in other states that don’t have such strict requirements.
The flower ban effectively locks New York farmers out of a premium market. The biggest consumer demand is for cut and trimmed (i.e. smokable) hemp flower, not CBD oil. Because of high demand and the fact that flower yields the greatest return on investment in the hemp industry, the new rules against selling it in New York means our farmers are in trouble. They must be allowed to diversify their operations to include selling flower.
The Ban on Hemp Flower Is Ripe for a Legal Challenge
Nationally, there are only six states (North Carolina, Texas, Iowa, Massachusetts, Louisiana and Indiana) where legislatures have attempted to ban the possession and sale of smokable hemp. New York is now part of that minority.
When Texas passed a law banning the sale of smokable hemp, four companies filed suit. They argued that the ban is unconstitutional and punitively targeted Texas’ small business owners during a time of economic contraction. Their request to the court to allow companies to produce and sell in-state resulted in an injunction that lifted the ban until trial. Activists celebrated the win and see it as a sign that the ban will be indefinitely removed as the case moves forward.
In 2019, a group of Indiana-based companies challenged a law that criminalized the manufacture, financing, possession, and sale of smokable hemp. Just days before the law was to go into effect, they filed a federal lawsuit calling for a temporary injunction. They were successful: the U.S. district court judge granted a preliminary injunction against the smokable hemp ban in Indiana. The judge ruled that the 2018 Farm Bill removed hemp from the federal list of controlled substances and redefined the plant as an agricultural commodity. States cannot pass laws that interfere with the right to transport lawfully produced hemp in interstate commerce. Notably, the district court held that the 2018 Farm Bill showed a clear intent on the part of Congress to legalize all forms of low-THC hemp and that the plaintiff hemp flower sellers had shown that they might be able to prove that the Indiana law criminalizing smokable hemp frustrated Congress’s intent. The state appealed that decision, and the Seventh Circuit became the first federal appellate court to consider the smokable hemp issue. Unfortunately, the Seventh Circuit ruled unanimously that the lower court’s injunction was too broad and that Indiana could enforce its ban against smokable hemp.
Conclusion: How can you help?
Do you agree with us that banning hemp flower and not permitting it to be sold in the largest retail hub in the nation is beyond the pale and detrimental to the New York hemp industry?
You can help by making your voice heard.
There is a 60-day comment period to persuade the state to allow the sale of hemp flower. Comments on the new regulations will be accepted by the Health Department from Nov. 10, 2020, through Jan. 11, 2021 — meaning they could take effect as soon as early next year, following time for revisions and more public notification.
If you are interested in stopping the flower ban, please email your comments about the new state regulations to email@example.com, call 518-473-7488 or write to NY DOH Bureau of Program Counsel, Regulatory Affairs Unit, Corning Tower, Empire State Plaza, Rm. 2438, Albany, New York 12237-0031. Feel free to use any part of this document in your comments.
The legal positions expressed in this article are not intended to be, and should not be construed as, legal advice.