Crackdown on loophole allowing some stores to sell THC products draws complaints

The hemp cannabinoid industry fired back that new regulations approved by the Office of Cannabis Management are causing more harm than good to small businesses.

Cannabis products are seen on display at the Union Square Travel Agency cannabis store on August 08, 2023. A crackdown on a loophole that allowed some stores to sell THC products has drawn complaints from the hemp cannabinoid industry.

Cannabis products are seen on display at the Union Square Travel Agency cannabis store on August 08, 2023. A crackdown on a loophole that allowed some stores to sell THC products has drawn complaints from the hemp cannabinoid industry. Michael M. Santiago/Getty Images

As the adult-use cannabis market continues to struggle in New York – with a recent court injunction putting licensing on hold – the state Office of Cannabis Management has been cracking down on what some consider a loophole that allowed some stores to sell products with THC, the psychoactive chemical in cannabis. But small business owners compliant with state and local laws said emergency regulations approved in July needlessly hurt their businesses while making it even harder to get the cannabis industry off the ground in New York. 

The office approved emergency regulations in late July that greatly curtailed the sale of hemp-derived THC. The practice was legal under both federal and state law thanks to a technicality in the 2018 federal Farm Bill. If the THC is distilled from hemp that contains low-levels of THC, as opposed to the cannabis, which has much higher levels of THC and remains illegal federally, the product is considered legal under federal law. New York legalized cannabis in 2021, but has had a licensed cannabinoid hemp program since before then. 

Under the new regulations, retailers in New York can no longer sell hemp-derived THC edible products with more than 1 milligram of THC per serving. Any products must also have a 15:1 ratio of CBD, a non-intoxicating cannabinoid derived from hemp, to THC. The regulations have had a major negative impact on businesses that had been operating legally under state law up until that point. “Since they’ve gone into effect, we’ve had to pull about, I want to say, 40% of our products,” said Nhi Kha, co-founder of the Buffalo-based hemp cannabinoid business Sativa Remedy. “We’ve faced a decrease in sales as well while trying to navigate and prepare for adult-use licensing… These regulations came fast and they really put a damper on things for our business.” 

Kha said she and other members of the hemp cannabinoid industry expected the state to enact new regulations to address what she called “intoxicating hemp cannabinoids” as other states had begun to make moves on the issue. But the speed with which the office moved took them by surprise. “This round, with these emergency hemp regs… we weren’t allowed to comment on the emergency hemp cannabinoids, we were just expected to be compliant,” Kha said. The Office of Cannabis Management approved the regulations on July 19, and businesses had only 10 days to comply.

Other states that have implemented new regulations on hemp cannabinoids have taken different approaches. Minnesota, for example, recently legalized cannabis, but included in the legislation regulations that allowed up to 5 milligrams of hemp-derived THC per serving in products. The state established a hemp cannabinoid market last year, with the new law implementing additional regulations and taxation but largely leaving already operating businesses alone. Kha used Minnesota as an example of a state New York could have used as an example for its hemp regulations. 

Virginia also recently passed hemp regulatory laws, which garnered significant debate, attention and amendments before they ultimately became law. New York’s new regulations, approved as an emergency measure with no public comment period, are similar to those approved in Virginia, where cannabis has been legalized but lawmakers have not established a legal market framework yet. Under the new Virginia law, products can have only 2 milligrams of hemp-derived THC per serving, making New York’s law slightly more restrictive. But products can contain more if they meet a 25:1 CBD to THC ratio, one of the amendments added by Virginia Gov. Glenn Youngkin meant to prevent the total collapse of the cannabinoid hemp market. (CBD products contain trace amounts of THC and the 2 milligram limit could have unintentionally banned most CBD-based products.)

Officials with the Office of Cannabis Management argued that “the proliferation of intoxicating cannabinoid hemp products in the marketplace requires the (Cannabis Control) Board’s response to protect the health and safety of cannabinoid hemp consumers” in a resolution the board approved to enact the new regulations. But advocates for the hemp cannabinoid industry say that the new regulations will do more harm than good. “The intent of the (Marihuana Regulation and Taxation Act) was to end prohibition and improve consumer safety of cannabis,” David Carlucci, a former state senator who now lobbies on behalf of hemp industry clients in Albany, said in a text. “However, (the Office of Cannabis Management’s) ‘Just Say No’ strategy on federally legal hemp puts consumers at risk and contradicts the state’s original philosophy. (The office) should reconsider its hemp regulations and be a leader for other states to follow.”

Jody McGinness, executive director of the Hemp Industries Association, said the state should be doing more to help those who are operating legally under federal regulations rather than hindering those businesses as the adult-use cannabis market continues to flounder. “It's sad to see a progressive state like New York is thinking in such a narrow way about the subject and essentially recriminalizing something that was made legal on the federal level,” McGinness told City & State. He said that the 15:1 ratio will leave wiggle room to prevent the eradication of the entire hemp cannabinoid market, but that the effects of the regulations will be negatively felt throughout the industry. “We've seen the same thing in states across the country that have gone with legalizing adult use marijuana,” McGinness said. “Hemp has been essentially swept into that bucket, and disadvantages hemp operators in a number of ways.”

A spokesperson for the Office of Cannabis Management sent an affidavit from Patrick McKeage, the office’s first deputy director, in response to a lawsuit over the regulations. In the affidavit, he pointed to studies that showed that 2.5 milligrams of THC is when intoxicating effects begin in healthy adults and that 5 milligrams is the “standard dose that causes impairment.” The affidavit also noted that Colorado enacted a 15:1 ratio of CBD to THC combined with a 2.5 milligram THC limit and that Vermont enacted a 20:1 ratio. 

The emergency regulations are set to expire on Nov. 24, and a permanent version of are currently open to public comment.