California Legislature Fails to Legalize CBD Products in 2019

The California Senate Appropriations Committee failed to move AB-228 out of the committee during its final hearing of the 2019 legislative session on August 30, 2019. The Committee’s action means that the sale of CBD products will remain illegal in California until at least the 2020 legislative session.

Currently, cannabis licensees may only sell CBD products that are extracted from cannabis rather than industrial hemp. Although CBD products are widely available in California, the California Department of Health issued a guidance in 2018 that prohibited the sale of CBD as an approved food, food ingredient, food additive, or dietary supplement until the US FDA determined that CBD products can be used as a food or California made the determination that CBD was safe.

California’s Department of Finance opposed the bill as the cost of implementation, which is estimated to be around $6.7 million, was not included in the 2019 budget. The failure to pass AB-228 is not the only challenge that the industry faces in California. Local governments are adopting regulations to prohibit or regulate the industrial hemp and CBD industries.

Over half of the counties in California have implemented ordinances to prohibit the cultivation of industrial hemp, and others are regulating hemp like cannabis. Also, individual cities have adopted ordinances to prohibit hemp cultivation include Blue Lake, Furtuna, Hollister, Lake Forest, Pittsburg, and San Jacinto.

This week alone the cities of Sacramento, King City, and Lynwood will hold public hearings on ordinances that temporarily prohibit industrial hemp cultivation and industrial hemp CBD business activities. King City will also regulate hemp manufacturing activities.

We expect that the list will increase until more information is available on the impact that hemp cultivation has on local communities and whether effective buffering zones can mitigate the pungency of hemp odors and cross-pollination concerns raised by existing cannabis cultivators.

As the new hemp and CBD market evolves in California, municipalities may see hemp and CBD as another revenue source and a means of reducing taxes for the cannabis industry. We expect that the hemp and CBD industries in California will face challenges that are similar to the cannabis industry including limited real estate due to zoning restrictions, higher operating costs due to local regulatory requirements, and educational hurdles. CBD brands will need to absorb these costs in order to obtain access to the largest market in the US.

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