Hemp is federally legal but now the number of states banning hemp derived products are on the rise. Cannabis is federally illegal, however, we are now at 40 states with legalized cannabis markets. There is also the growing anticipation for the DEA to approve the reclassification of cannabis from Schedule 1 to Schedule 3, as many look ahead to the DEA hearings scheduled in 2025 in Washington, D.C.

Farm Bill of 2018

When Congress passed the Farm Bill in 2018, the intent was to provide a legal framework for the cultivation of hemp for industrial uses. In 2022, the sales of hemp and CBD products in the U.S. were estimated to be around $5 billion. For 2023 and 2024, projections indicated continued growth at approximately $6 billion. The market has been driven by increasing consumer interest in wellness products, new product innovations, and the expanding availability of hemp-derived items across various retail channels. Overall, the 2018 Farm Bill has opened doors for innovation and research in the hemp industry, benefiting consumers and producers alike.

Unintended Consequence

The Farm Bill was not designed to create synthetic hemp derived products that have the ability to cause intoxication, as an unregulated product, that allow minors to buy products easily available at gas stations and convenient stores. Nor was the Farm Bill designed to compete with products from the highly regulated cannabis industry.

Hemp-derived intoxicating products (HDIP), such as those containing delta-8 THC or other cannabinoids, have found a niche by leveraging their legal status under the 2018 Farm Bill, which allows for hemp products with less than 0.3% delta-9 THC. This legal framework enables them to be marketed and sold in many states where traditional cannabis products remain highly regulated or illegal.

Key Competitive Factors of Hemp vs Cannabis Products:

1. Legal Accessibility: Hemp-derived products can often be sold in a wider range of locations, including convenience stores and online, whereas cannabis products may require specific licenses and be limited to dispensaries.
2. Price Point: These products often come at a lower price than regulated cannabis, appealing to cost-sensitive consumers.
3. Variety and Innovation: The hemp market has rapidly introduced various products, including edibles, vapes, and beverages, catering to diverse consumer preferences.
4. Target Demographic: Many consumers who are curious about cannabis but wary of the higher THC levels in traditional products may find hemp-derived options appealing.

Challenges:

• Regulation and Safety: As the market grows, so does scrutiny from regulators. Concerns about product safety, labeling, and quality control can affect consumer trust.
• Market Confusion: The overlap between hemp and cannabis can create confusion among consumers regarding the legality and effects of different products.

The insurability of unregulated hemp-derived products, such as those containing delta-8 THC or other cannabinoids, presents several challenges:

1. Lack of Regulatory Standards:

• The absence of uniform regulations for hemp-derived products can make insurers wary, as there may be variability in product quality and safety.

2. Inconsistent Labeling and Testing:

• Many products lack third-party testing for potency and purity. This inconsistency increases the risk of legal claims related to mislabeling or contamination.

3. Legal Ambiguity:

• The legal status of some hemp-derived cannabinoids varies by state, leading to uncertainty about liability and compliance for manufacturers and retailers.

4. Consumer Safety Risks:

• Without strict regulations, there are potential health risks associated with unregulated products, which can lead to consumer harm and subsequent lawsuits.

5. Limited Market Data:

• Insurers often rely on historical data to assess risks. The hemp-derived market is still relatively new, and there is insufficient data on claims and losses, making it challenging to determine appropriate premiums.

6. Reputation and Brand Risk:

• Companies in the unregulated space may face reputational risks, which can affect their insurability. If a brand is associated with negative consumer experiences, it can lead to increased claims.

7. Evolving Legislation:

• Rapid changes in laws and regulations regarding hemp and cannabinoids can create uncertainty for insurers regarding coverage requirements and risks.

8. Product Liability:

• Insurers may be concerned about potential product liability claims, especially if products lead to adverse health effects or if consumers experience negative reactions.

Due to these challenges, companies dealing in unregulated hemp-derived products may find it difficult to obtain insurance or may face higher premiums and more stringent underwriting requirements.

As both markets evolve, the competition will likely lead to further innovations and changes in consumer preferences, but more importantly has led to a response from Congress and from a variety of states who are acting to change regulations and/or ban hemp derived products, putting the hemp industry and consumers who use hemp and CBD products as medicine at risk.

State by State Regulatory Response

States such as New Jersey, Virginia, Georgia, California and New York are contemplating changes or have already made changes to hemp laws to restrict and/or regulate sales. Please see links below for more state specific responses and information. 

New Jersey

• Gov. Murphy signs controversial bill restricting sales of hemp products

• Hemp businesses sue to stop New Jersey law that restricts hemp sales

Georgia

• Here’s what you need to know about Georgia’s new hemp law that just took effect

California

• California Bans Hemp Products With Any Amount Of THC

• California sued by hemp advocates Cheech and Chong over controversial hemp THC ban

Virginia

• Hemp Product Enforcement

New York

• Cannabinoid Hemp Regulations Guidance for Licensees

Conclusion

There are many complexities to the Farm Bill of 2018, and there are complexities of each state’s highly regulated cannabis market. It is believed there can be a balance and existence of both the cannabis and hemp and CBD market. At the end of the day, anyone can order hemp, CBD products via e-commerce due to federal laws. There are manufacturers who are good actors and some who are bad actors, as always, “Caveat Emptor”.