Upcoming THC Drink and Gummy Restrictions Raise Cannabis Industry Alert

Earlier this month, Gov. Gavin Newsom proposed new emergency restrictions on California’s cannabis 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 to produce a marijuana high.

While many agree that some changes are necessary, some business owners and consumers fear the governor’s new rules are too strict and will cripple a growing industry before it can become widespread.

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

These offerings—from mild CBD sleep gummies to potent THC-infused drinks—are becoming increasingly popular. While they may have similar effects, these cannabis-based products are different from the cannabis-derived THC products sold in many licensed dispensaries.

Cannabis products are widely available at alcoholic beverage outlets, gas stations and tobacco shops, which the governor cited as one of the main reasons for his decision.

Newsom announced the state’s proposed emergency regulations on Sept. 6, after a bill to regulate the hemp industry died in the state Legislature. The regulations are still under administrative review; if passed, they would make it illegal to have any “detectable” amount of THC in hemp products.

The proposed rules also ban a list of about 30 “comparable” compounds known as cannabinoids, some of which are naturally occurring substances and others synthetic, that mimic the effects of THC (tetrahydrocannabinol).

Most cannabis industry advocates agree that regulatory changes are needed to ensure products are safe and available only to adults, but they say Newsom has gone too far with his zero-tolerance approach.

Among those interested are Jacob and Lindsey Dunn, owners of Sow Eden Organics, which operates out of a small space in La Verne. They produce, package and ship a range of industrial hemp-infused gummies and tinctures that shoppers consume to help them sleep better or find relief from pain, anxiety and other ailments.

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

For example, each of Sow Eden’s popular sleep gummies contains 2.5 milligrams of the compound. Many recreational cannabis products contain 5 to 10 milligrams or more.

“It’s a completely family-owned, small business,” Lindsey Dunn said Monday. “It’s hard to say whether we can introduce new products right now. … It’s a huge deal. It’s a huge expense.”

Newsome’s office and the state Department of Cannabis Control referred questions to the California Department of Public Health, which said the emergency rules are in response to “an increase in health incidents related to intoxicating cannabis products that state regulators have found are being sold across the state.”

The agency said it has received “an increasing number of complaints about illegal, intoxicating industrial hemp products in retail stores.”

If approved by the state Office of Administrative Law, the emergency rules would remain in effect for at least 180 days. The governor said products found to be in violation would have to be removed from sale immediately after the changes are made.

Both cannabis and THC remain tightly controlled under federal law. But hemp — a lower-THC variety of the cannabis plant that has long been used to make commercial products like paper and rope — got a boost from the 2018 Farm Bill, which eased federal restrictions.

State governments across the country are considering how to best deal with the surge in interest in edibles containing hemp-derived THC.

Some states have embraced the trend. In Minnesota, one estimate is that cannabis beverages could eventually generate $200 million in annual sales. The state has introduced registration and testing requirements. A cannabis beverage festival in Minneapolis in June allowed members of the public to sample dozens of brands. “No smoking,” the flyer read.

Supporters of this approach argue that it limits access to services for adults while allowing the industry to continue to grow and prosper.

In Missouri, a lawsuit helped the state reverse Gov. Mike Parson’s executive order regulating cannabis products less than two months after it was announced. New restrictions in New Jersey are also facing legal challenges.

Cannabis companies say strict bans are wrong.

“For a lot of people, this is a disaster,” said Christopher Lackner, president of the Hemp Beverage Alliance, a Colorado-based trade group.

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

Ajay Narain, CEO of Beacon Beverages, based in Campbell, near San Jose, said his company transitioned from making alcoholic drinks to making non-alcoholic cocktails infused with hemp-derived THC and CBD in February.

Business started slowly at first, but gained momentum when Beacon’s non-alcoholic lime margaritas and gin and tonics hit shelves in major retailers like BevMo and Total Wine & More.

Now Narain says he fears Newsome’s “absurd” new regulations will effectively “kill the industry” across the state.

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

In 2021, Newsom approved a state law that would limit the total THC concentration in cannabis-infused foods, beverages and cosmetics to 0.3% and would also mandate how such products would be tested and labeled.

But Newsom and members of his administration say many companies are exploiting “legal loopholes” that allow them to sell products with intoxicating THC content in places where minors could buy them.

On a recent Tuesday evening, at the end of an alley near the front of a BevMo store in Torrance, an assortment of cans of various flavors, including lemon-lavender and an Old-Fashioned, were on display. Under each row of drinks were bold signs reading “THC INFUSED.”

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

“Unlike their hemp-based counterparts, these products… can be produced, distributed and sold with minimal legal hurdles, making them a highly desirable commodity,” the report reads.

Some players, like the California chapter of the National Organization for the Reform of Marijuana Laws, Cal NORML, say Newsom is right to restrict sales at brick-and-mortar retail locations.

But they are critical of the harm the proposed legislation could do to people with health and mental health problems who use non-narcotic products that would also be made illegal.

“We fully support keeping intoxicating cannabis products out of the retail market … but they’re overreacting. They’re targeting non-intoxicating cannabis medicines that have been widely used for years,” said Cal NORML Director Dale Gieringer.

Ted Whitney, chief beverage officer for Danville-based Cheech & Chong Global Holding Company, which sells recreational cannabis products as well as cannabis-infused products, said that without the upcoming changes, the cannabis industry could reach nine figures within a decade.

Whether the state can realize that optimistic forecast remains to be seen. The recreational market, undermined by illegal traders and stifled by high taxes and bureaucracy, has struggled compared with some states.

Whitney argued that the intoxicating marijuana plant is safer than other popular products such as tobacco and alcohol. The best way to keep children 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 situation, not a lose-lose situation.”