Are New York’s Regs a Model for the Industry?
On March 31, New York became the 15th state to legalize recreational marijuana – and the second-largest adult-use market by population – by passing a comprehensive bill which included an overhaul of the state’s regulatory attitude toward hemp and cannabidiol (CBD).
As part of the legislation, New York will delegate authority over the state’s hemp flower and CBD markets to a newly created Office of Cannabis Management (OCM). The arrangement has garnered national attention, as it is the first example of a state regulating hemp-derived CBD products under the same body as that overseeing recreational and medical marijuana.
Among the plan’s more notable facets:
- Changing the description of cannabis use from “marijuana smoking” to “cannabis smoking”;
- Centralizing regulations for all cannabinoid extracts, including THC and CBD;
- Creating the new OCMand authorizing it with regulatory oversight regarding hemp flower, CBD, and other minor cannabinoids; and
- Creating pathways for hemp producers and processors to move into high-THC territory.
What will be the consequences under the new regulatory direction? One possibility is that, by housing cannabinoid hemp producers under the same regulatory tent as marijuana, it will reduce or eliminate the barriers between hemp processing and THC processing, allowing a flood of hemp processors to enter the recreational and medical marijuana markets all at once.
Considering the amount of capital expenditures (CapEx) that has been dedicated in New York’s hemp space in order to process CBD, it would seem a highly desirable development for hemp processors. In essence, New York’s processing infrastructure for a recreational marijuana market has already been built by CBD manufacturers, and the only thing preventing them from participating in the THC market has been the legal distinction between marijuana and hemp, which the Empire State’s new legislation appears to blur if not overlap outright.
Fears of oversupply in the THC market similar to that which swamped the CBD market in 2019 are not without merit, but for now it remains unclear exactly which paths – if any – will be open to the THC market for hemp processors.
Notably, under the new law farmers growing hemp for grain and fiber will remain under the jurisdiction of the State Agricultural Department. What is thus far unique about New York’s legislation – which may well wind up serving as a template for the industry at large – is the growing bifurcation between cannabinoid and non-cannabinoid hemp. Increasingly, CBD and minor cannabinoid products are coming under more scrutinizing regulation, while regulatory barriers are dropping for grain and fiber products.
The results of New York’s novel experiment in cannabis regulation will not manifest themselves for some time. Being the 15th state to legalize adult-use cannabis has afforded them with plenty of others’ lessons learned and cautionary tales to draw from. However, whether it ultimately makes administrative sense and proves wise for the state to regulate CBD and THC under the same regulatory body will be determined by the speed and efficiency with which New York’s expansive legal cannabis program is deployed.