When California Governor Gavin Newsom signed Assembly Act 45 into law in early October, there was a lot of excitement in the state’s cannabis industry, particularly for companies and insurance professionals who specialize in the CBD business.
The law allows for hemp, hemp (such as CBD) and hemp extracts to be included in foods, beverages, supplements, cosmetics, and pet foods, as long as they contain less than 0.3% THC.
It’s a step toward clarifying the 2018 farm law, which legalized cannabis federally.
AB 45 amends the Sherman Food, Drug, and Cosmetic Act, which prohibits the manufacture or sale of adulterated foods, beverages, or cosmetics. Any food, drink, or cosmetic is considered “adulterated” if it contains any toxic or harmful substance that may make it harmful to the health of the person or animal who may consume it.
AB 45 will require the manufacturer of nutritional supplements and foods that include industrial hemp to register with the California Department of Public Health and be able to prove that all parts of the plant used come from an area that has a regulated and regulated industrial hemp program. It also has requirements for advertising.
The law is a good move, but the resulting organizational structure may be much more restrictive than most operators looking to jump right in would like.
In our latest cannabis insurance podcast, we spoke to Ian Stewart, founder and co-chair of the cannabis law practice at Wilson Elser, to find out what AB 45 does and does not do.
Here are the takeaways from that conversation.
A positive aspect of AB 45 is that it paves the way for an industry that can create new products, jobs and opportunities for those looking to provide services to any new businesses that happen to be formed as a result.
“There is still a lot of appetite for these products,” Stewart said. “The cannabis market in particular has been underdeveloped in California. And there is a lot of CBD oversupply there. But I think there are many companies that want to sell products in California, but have chosen not to do so because of the risks surrounding violating state law.”
While Stewart views AB 45 as a “real boon for the cannabis-derived industry,” he cautioned about some aspects of the new law, including strict advertising restrictions.
“So one of the main differences in AB 45 legislation compared to other states is the strict requirements for advertising, marketing and testing,” he said. “So in California, there can be no advertising or marketing aimed at children, but in addition to this, marketing or advertising must be placed in any kind of media where it is reasonably expected that 70% of the audience is at least 18 years of age or older. …and that’s with reliable audience data. So this is an area where some other states don’t really have that requirement on the advertising side.”
Strict testing standards are also something to consider in the new law, which requires that CBD products be tested in the same way that regulated marijuana products are tested in California.
“California already has the most stringent marijuana testing protocols of any state,” Stewart said. “And there is a lot of testing that these products have to undergo. In addition to the cannabis and terpene content, they will have to be tested down to parts per billion, for residual solvents, residual pesticides, heavy metals, microbial impurities, microtoxins consisting of mold and mildew, and the content of humidity, etc.”.
The law directs the California Department of Cannabis Control to prepare a report on the steps needed to integrate cannabis products into the cannabis supply chain, including incorporating cannabis into manufactured cannabis products and then, conversely, selling cannabis products at cannabis retailers.
Once all of that has happened, the way can be cleared for a potentially burgeoning California market. The global CBD market is expected to grow from about $36 billion in 2021 to more than $55 billion by 2028, according to a report this year from Fortune Business Insights.
And an opportunity, Stewart added, “it kind of suggests that there might be an opening for cross-selling to these very different markets right now.”
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