Looming restrictions on THC drinks and gummies alarm hemp industry

Jacob and Lindsey Dunn sitting at a desk with their 2-year-old son

Sept. 21, 2024 3 AM PT

Earlier this month, Gov. Gavin Newsom proposed new emergency restrictions on California’s hemp industry, citing an urgent need to protect children. His concern: a class of loosely regulated products that contain intoxicating levels of THC, the compound known for causing cannabis highs.

While many agree some changes are necessary, a number of business owners and consumers worry the governor’s new rules are too strict and will kneecap a nascent industry just as it’s hitting the mainstream.

Critics say the proposed regulations would effectively outlaw a wide range of popular tinctures, capsules, beverages and other products derived from industrial hemp, including those that contain mostly CBD, a non-intoxicating cousin of THC.

Such offerings — which range from mild CBD sleep gummies to potent THC-filled drinks — are growing in popularity. Though they can have similar effects, these hemp-based products are different from those containing the cannabis-derived THC sold at many licensed dispensaries.

Hemp products are widely available at liquor outlets, gas stations and smoke shops, which the governor has cited as one of the key concerns that prompted his action.

Newsom announced the state’s proposed emergency rules on Sept. 6, after a bill to regulate the hemp industry failed in the state Legislature. The regulations are still under administrative review; if they’re enacted, it would become illegal for any “detectable” amount of THC to be present in hemp products.

The proposed rules also ban a list of about 30 “comparable” compounds known as cannabinoids, some naturally occurring and other synthetic chemicals that mimic the effects of THC, short for tetrahydrocannabinol.

Most hemp industry advocates acknowledge a need to tweak the rules to ensure products are safe and available only to adults, but they said Newsom has gone too far by taking a zero-tolerance approach.

Among those concerned are Jacob and Lindsey Dunn, proprietors of Sow Eden Organics, which operates out of a small space in La Verne. They produce, package and ship an array of industrial hemp-infused gummies and tinctures, which buyers consume to sleep better or find relief from pain, anxiety and other maladies.

When the Dunns, who have a 2-year-old son and a baby on the way, first met a decade ago, Jacob was still operating from his kitchen table, selling CBD capsules to medical dispensaries. They now have around $500,000 in annual gross sales, but Jacob said the new rules could potentially halve that total overnight because so many of their products contain low doses of THC.

Each of Sow Eden’s popular sleep gummies, for instance, has 2.5 milligrams of the compound. Many recreational cannabis products have 5 to 10 milligrams or more apiece.

A close-up of six square, green gummy candies piled on Jacob Dunn's left hand

“This is a full-on, family-run small business,” Lindsey Dunn said Monday. “It’s hard to know whether we can launch new products right now.... It’s a huge deal. It’s a huge expense.”

Newsom’s office and the state Department of Cannabis Control referred questions to the California Department of Public Health, which said the emergency rules were in response to “increasing health incidents related to intoxicating hemp products, which state regulators have found sold across the state.”

The agency said it had received “a growing number of complaints about illegal, intoxicating industrial hemp products in retail environments.”

If approved by the state Office of Administrative Law, the emergency regulations will remain in effect for at least 180 days. The governor has said products in violation would be required to be taken off shelves immediately after the changes are implemented.

Both cannabis and THC remain strictly controlled under federal law. But hemp — a lower-THC variant of the cannabis plant, long used for commercial products such as paper and rope — received a boost from the 2018 Farm Bill, which eased federal restrictions.

Across the country, states are grappling with how best to handle the surge in interest in consumable products infused with hemp-derived THC.

Some states have embraced the trend. In Minnesota, one projection estimates hemp drinks could eventually generate $200 million per year in sales. The state has enacted registration and testing requirements. A hemp beverage festival in Minneapolis in June allowed members of the public to sample dozens of brands. “No smoking,” read the flier.

Advocates say that approach limits access to adults while enabling the industry to continue to grow and prosper.

In Missouri, a lawsuit helped spur the state to roll back Gov. Mike Parson’s executive order regulating hemp products less than two months after they were announced. New restrictions in New Jersey also face legal challenges.

Jacob Dunn reaches into an industrial fridge filled with jugs and bottles

Companies that produce hemp products say strict bans are misguided.

“It’s catastrophic for a lot of people,” said Christopher Lackner, president of the Hemp Beverage Alliance, a Colorado-based trade group.

“Why does this have to be contentious?” he said. “Regulate it, put it on the shelves near beer, wine or hard seltzer, age-gate it, and tax it like an adult beverage, regulate it like an adult beverage. And everybody wins.”

Ajay Narain, chief executive of Beacon Beverages, based in the city of Campbell, near San José, said his company pivoted from alcoholic beverages to mocktails infused with hemp-derived THC and CBD in February.

Business started slowly, but it ramped up once Beacon’s booze-free key lime margaritas and gin and tonics hit the shelves at major retailers such as BevMo and Total Wine & More.

Now, Narain says he is worried Newsom’s “absurd” new regulations will effectively “kill the industry” statewide.

“A ton of businesses are going to close down,” Narain said. “He’s just pulled the rug out from under them. And again, it’s just completely unnecessary. Regulate, don’t eliminate.”

A jar of hemp gummies resting on a bed of cardboard packing filler

In 2021, Newsom approved a state law that capped at 0.3% the total concentration of THC in food, beverages and cosmetics that contain hemp, and defined how such products must be tested and labeled.

But Newsom and members of his administration have claimed that many companies are exploiting “loopholes” that allow them to sell products with intoxicating levels of THC in places where minors have been able to purchase them.

On a recent Tuesday evening, an aisle end cap near the front of a BevMo location in Torrance prominently featured an assortment of cans in flavors including lemon lavender and a mock old-fashioned cocktail. Signs with the words “THC INFUSED” were affixed in bold letters under each row of beverages.

A study released this month by BDSA, a Colorado-based company that analyzes cannabis and hemp industry data, noted that the products have carved out “a lucrative niche that sidesteps many of the challenges faced by the regulated cannabis industry.”

“Unlike their cannabis counterparts, these products... can be produced, distributed, and sold with minimal legal hurdles, making them a hot commodity,” the report said.

Some players, like the California chapter of the National Organization for Reform of Marijuana Laws, or Cal NORML, say Newsom is right to rein in sales at everyday retailers.

But they decry the harm the proposed regulations could do to people with medical and mental health conditions who benefit from nonintoxicating products that would also be made illegal.

“We totally support keeping intoxicating hemp products off the retail market … but they’re going overboard. They’re going after these nonintoxicating hemp medicinals, which have been widely used for years now,” Cal NORML director Dale Gieringer said.

Dale Gieringer holds a cannabis bud while seated in a wooden patio

Ted Whitney, chief beverage officer for Danville-based Cheech & Chong Global Holding Co. — which sells recreational cannabis products as well as products containing intoxicating hemp — said that without the looming changes, hemp could be a nine-figure industry in a decade.

Whether the state can deliver on that optimistic forecast remains to be seen. The recreational market, undercut by illicit dealers and stifled by steep taxes and red tape, has struggled compared with some states.

Whitney argued that intoxicating hemp is safer than other common products like tobacco and alcohol. The best way to keep kids safe and grow the state’s economy, he said, is to take a more measured approach.

“We can improve safety, we can improve regulation, we can improve revenue,” he said. “Let’s make this a win-win instead of a lose-lose. ”