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Two years after the first legal weed sales took place in New Jersey, a different cannabis market (but not too different) is at the center of yet another piece of complex legislation sitting on the governor's desk.
It's cheap. It gets you high. It's available almost everywhere. And it's even more legal — and unregulated — than cannabis.
At least for now.
In late June, the state Senate and Assembly voted overwhelmingly to pass a bill establishing regulations for intoxicating hemp products that would prohibit their sale to anyone under 21 and allow municipalities to place a 2% tax on their sale within their borders.
If Gov. Murphy signs the bill into law, the New Jersey Cannabis Regulatory Commission, the state authority that regulates the cannabis market, would be charged with drawing up rules and regulations, including labeling, testing and safety standards.
But until those rules are created? All those hemp products would be pulled off the shelves.
The bill sits at the vortex between the cannabis, hemp and liquor industries, each of whom want a piece of what's become a booming market. As a result, what began as legislation designed to get untested products off shelves and prevent their sale to minors gradually became a discussion over how to divvy up the spoils.
Caught in the middle are small business owners on the verge of a major disruption.
"We're good actors. We followed all the federal and state regulations and processes," said Philip Petracca, CEO of Bella Ray Beverage, a THC seltzer manufacturer based in Asbury Park and co-founder of the Source Farmhouse Brewery in Colts Neck. "We were weeks away from production and they pulled the whole rug out from under us.”
What's the difference between cannabis and hemp, anyway?
Cannabis is what you probably think of when you think about smoking weed. It’s still illegal on the federal level, though 24 states, including New Jersey, now allow any adult over 21 to purchase it at regulated and licensed dispensaries. Another 15 states have medical marijuana programs.
Hemp comes from the same cannabis plant. But in a weird legislative twist, it was legalized on the federal level as part of the Agriculture Improvement Act of 2018, known colloquially as the “farm bill.”
Under federal law, any cannabis byproduct that contains less than 0.3% delta-9 THC is not considered illegal marijuana — it’s hemp. (The New Jersey hemp bill's "total THC" standard is more stringent and includes various types of THC cannabinoids.)
In the six years since the Farm Bill, hemp became a huge business — starting with CBD, a non-intoxicating cannabinoid in the cannabis plant.
Not only can you find CBD products at specialty shops, but you can also purchase them online. Because hemp is legal on the federal level, customers and businesses can ship and transport products across state lines, unlike federally illegal cannabis. (Even if you’re traveling across the border between two states with active legal weed markets, like New Jersey and New York, it’s still a felony to bring legally purchased cannabis with you.)
What does any of this have to do with hemp products that get you high?
There are a lot of cannabinoids in cannabis. Even the non-intoxicating cannabinoids can be synthetically rendered as an intoxicating substance. The most common example of this is Delta-8, though it’s far from the only one.
What’s important is this: It’s entirely legal to sell an intoxicating cannabis product with less than 0.3% THC without any of regulations that come with the traditional cannabis products sold at licensed dispensaries.
For starters: There’s no age requirement. A store owner might balk at selling such a product to a child but, technically, they can’t be penalized for doing so.
The Farm Bill came out in 2018, so why is this an issue now?
New Jersey does have hemp regulations, requiring hemp farmers and producers to obtain a state license and submit to state inspections and testing.
But there isn’t such a license for retailers. And the vast majority of products sold in New Jersey are coming from other states, so there’s no guarantee those products have gone through any sort of testing or quality assurance.
Some legislators have tried to pull these products off shelves before, but those bills stalled.
There’s no one big moment that spurred action. It was simply the growth in popularity and availability that led to the political pressure to finally take action.
Senate Majority Leader Teresa Ruiz, D-Essex, said she only became aware of intoxicating hemp products after a call from a Newark police officer asking her if she knew anything about them.
“This has been happening in the state of New Jersey for I don’t know how long,” Ruiz said at a committee hearing on the bill last month. “There’s no clear definition because the feds left it so loosely that there’s a big gaping hole that not only impacts the state of New Jersey but the entire country.”
More than likely, consumers can purchase hemp-derived intoxicating products in almost every municipality in New Jersey. And while the widespread availability may be beneficial for consumers or entrepreneurs, it flies directly in the face of the home rule language of the 2021 New Jersey marijuana legalization laws — which allow municipalities to completely opt out of the cannabis industry.
To date, only 166 municipalities expressly allow legal weed dispensaries.
"Mayors that have opted out of cannabis sales certainly don't want to see a backdoor that allows unregulated sales," said Madison Mayor Robert Conley, president of the New Jersey Conference of Mayors. "And those that opted in don't want to see these products in the hands of minors.”
Why are liquor stores part of the discussion?
Without a doubt, the most rapidly growing sector in the hemp space is beverages.
Walk into almost any liquor store across the state, and you’ll see some kind of THC-infused seltzer. These drinks aren’t traditional cannabis-infused beverages, which make up about 1.1% of the U.S. cannabis market, according to cannabis analytics firm Headset.
Business owners in the New Jersey liquor industry are bullish on hemp-derived THC beverages. The state has seen an estimated $25 million in sales this year alone, with some predicting over $100 million in sales within a year, said Mike Halfacre, executive director of the Beer Wholesalers Association of New Jersey.
Hemp beverages make up about 10% to 15% of all sales at New Jersey liquor stores, Halfacre said — about the same as craft beer.
“There is significant consumer demand for these products, which is why our members want to carry them,” Halfacre said.
These drinks fall under hemp laws. And the bill on Murphy’s desk doesn’t discriminate: Even these massively popular THC seltzers would have to come off the shelves, at least temporarily.
Wait, you mean my favorite THC seltzer will be illegal?
As currently written, all hemp-derived products — including beverages — would be pulled off the shelves until such time as the New Jersey Cannabis Regulatory Commission issues rules and regulations. Those regulations will likely include age restrictions and testing requirements, as well as issues like labeling, security and signage.
But it’s going to take a while. The bill gives the CRC six months to institute these regulations, and an additional six months to specifically iron out regulations for hemp-derived beverages with the Division Alcohol Beverage Control.
Should Murphy sign this bill?
That depends on who you ask.
After an original version of the bill simply outlawed all intoxicating hemp products, the alcohol industry lobbied hard for amendments giving the New Jersey Cannabis Regulatory Commission the power to allow liquor stores to sell them.
Those amendments, in turn, sent stakeholders in the cannabis space into a frenzy. They criticized the Legislature for complicating what was pitched as a simple bill.
“We're a very young industry we are fighting a tremendous number of headwinds including tax regulations,” said Todd Johnson, president of the New Jersey Cannabis Trade Association. “By carving out a product category that can be sold through liquor stores, you’re essentially siphoning off potential revenue and profit opportunities for members of our industry.”
As it stands, both the liquor and cannabis lobbies are tepidly supportive of the bill on Murphy’s desk. If signed, the lobbying won’t stop; instead, the pressure will shift to members of the Cannabis Regulatory Commission.
Even though liquor stores and wholesalers will have to pull THC beverages off the shelves for some time, it still represents progress, Halfacre said.
“Right now, the market is the wild west,” he said. “And nobody likes the wild west. This puts everybody on a level playing field.”
While municipal officials were against the inclusion of the liquor store language, they're still largely supportive because it tackles unregulated sales — not to mention allowing elected officials to levy an additional 2% tax, similar to cannabis.
"Having it in a business that is highly regulated, such as liquor stores, where there's a routine for checking age and making sure products meet certain standards, I think we can be comfortable with that," Conley said.
What about stakeholders in the hemp space?
Simply put: They want Murphy to veto the bill, at least conditionally.
Many hemp business owners believe that the current bill is specifically aimed at shoddily manufactured products sold by unscrupulous retailers — that would, instead, impact everyone else.
There’s little pushback from the hemp and liquor lobby on the most basic issues, such as age restrictions, hemp-specific taxes, childproof packaging and labeling requirements.
Lobbyists in both camps have called for language that would allow liquor stores to sell lower dosages, like the 0.5 milligrams per serving and 10 milligrams per package limits in the bill, while allowing licensed dispensaries to sell higher dosages.
Murphy’s position hasn’t been made clear yet, but he’s at least listening. In one meeting with a group of representatives from the hemp beverage space, including Petracca, staffers in the governor’s office asked “really good questions,” specifically about the feasibility of the state's hemp industry to grow and process enough to meet demand. (The bill's language specifically defines "intoxicating hemp product" as one "cultivated, derived or manufactured in this state.")
"Every legislator I talked to expressed a desire to take these unregulated, untested, synthetic products off the market, but not kill the hemp industry," Petracca said. "But that's what's transpired here. It seems like (Murphy) is taking a close look at this with the clear understanding that there needs to be some changes here. If not, we're just going to kill this whole industry before we even get going."
Beverages are only part of the hemp industry in New Jersey. Even a conditional veto could spell doom for an estimated 1,500 hemp-specific retailers across the state, said Patrick Simpson, who owns a small chain of shops, CBD of Newton, in Sussex County.
There are ways around an outright ban on such products, he said. If the focus is on unscrupulous retailers, create a hemp retailer license through the Department of Agriculture. If it’s a tax issue, then institute a tax.
Simpson has spent the last few years preparing to open Sussex Pharms, which has already received a dispensary license and operating permit from the Cannabis Regulatory Commission. But that exit ramp isn’t available to many retailers, who simply can’t afford to get into the licensed cannabis industry.
“We should be using hemp as a prerequisite for cannabis, especially younger entrepreneurs who don’t have millions of dollars,” Simpson said. “It enables people who have the hustle and the drive to do this legitimately, to do it the right way.”
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