New Intoxicating Hemp Law Will Dramatically Affect New Jersey Cannabis, Hemp, and Liquor Industries

New Intoxicating Hemp Law Will Dramatically Affect New Jersey Cannabis, Hemp, and Liquor Industries

On September 12, 2024, Gov. Phil Murphy signed controversial legislation that will dramatically alter New Jersey’s cannabis, hemp, and liquor industries. The new law aims to regulate the influx of intoxicating hemp products into the marketplace by bringing them under the purview of the New Jersey Cannabis Regulatory Commission (CRC). That means that edibles, THC-infused beverages, and other hemp products, which are currently sold at convenience stores and liquor stores across the state, will soon be subject to much more stringent oversight.

“These products are sold outside of the regulated market for cannabis even though they can have similar effects, may contain harmful chemicals and other contaminants, and often are sold without appropriate testing and labeling,” Gov. Murphy said in a statement. “Too frequently, these products are readily available to minors. The status quo is untenable and this bill will put an end to it.”

Evolving Hemp Regulation

While marijuana remains a Schedule I substance under the Controlled Substances Act (CSA), hemp is also now legal under federal law. Pursuant to the 2018 Farm Bill, cannabis plants and derivatives that contain no more than 0.3% THC on a dry-weight basis are no longer controlled substances under the CSA. There are also no limitations on the sale, transport, or possession of hemp-derived products, provided that such products are produced in accordance with the law.

In the wake of the Farm Bill, intoxicating hemp-derived cannabinoids (IHDCs), a new type of psychoactive cannabis product, have flooded the market. IHDCs, including hexahydrocannabinol (HHC) and delta-8 THC, are psychoactive compounds. However, because they are extracted from hemp rather than cannabis, they are technically legal under federal law.

New Definition of “Intoxicating Hemp Product”

New Jersey is one of several states that has taken action to close the “loophole” that allows intoxicating hemp products to be sold with little regulatory oversight. Under Senate Bill 3235, so-called “intoxicating hemp products,” defined as those with a concentration of total THC greater than 0.5 milligrams per serving or 2.5 milligrams per package, would be regulated by the Cannabis Regulatory Commission (CRC), while lower total concentration hemp products would remain under the regulation of the Department of Agriculture.

Intoxicating Hemp Product Oversight by CRC

Under New Jersey’s new intoxicating hemp law, entities would be prohibited from selling or distributing an intoxicating hemp product unless they are licensed by the CRC (or a liquor store approved by the CRC to sell intoxicating hemp beverages), and the product complies with the Cannabis Regulatory, Enforcement Assistance, and Marketplace Modernization Act (CREAMMA). The prohibition on the sale of intoxicating hemp products also applies to any online retailer selling an intoxicating hemp product in the State.

The CRC is tasked with enacting regulations related to the sale and purchase of such intoxicating products. Under such regulations, entities would be required to be licensed as a Class 5 Cannabis Retailer in order to operate a business in which any intoxicating products are sold. Retailers would also be limited to selling products to persons 21 years of age or older.  

Senate Bill 3235 also amends the New Jersey Hemp Farming Act to set limits on the amount of THC that can be sold in hemp or (non-intoxicating) hemp products.  This limit is set at a total THC concentration of not more than 0.3 percent on a dry weight basis and additionally, for a hemp product, not more than 0.5 milligrams of total THC per serving, and 2.5 milligrams of total THC per package.

 New Rules for Intoxicating Hemp Beverages

The new law authorizes the CRC to permit liquor stores and wholesalers licensed by the New Jersey Alcoholic Beverage Control (ABC) as a plenary wholesale license or plenary retail license to sell intoxicating hemp beverages. However, they must obtain approval from the CRC pursuant to forthcoming regulations. A liquor store or wholesaler that currently sells intoxicating hemp products is required to stop the sale of the products until properly licensed.

Once CRC approval is received, the liquor store or wholesaler may resume the sale of intoxicating hemp beverages. Entities licensed by the ABC may only sell intoxicating hemp products in beverage form. The sale and distribution of other intoxicating hemp products are strictly limited to entities licensed by the CRC.

The sale of intoxicating hemp beverages will be subject to additional new regulations that must be drafted and adopted by the CRC, in consultation with both the New Jersey Department of Agriculture and the New Jersey Attorney General, within 180 days of the law’s effective date, which is March 11, 2025. The ABC is subsequently required to adopt regulations no later than 12 months after the effective date, which is September 12, 2025.

The new requirements must address packaging, labeling, product testing, and safety standards, THC amounts permitted in intoxicating hemp beverages, and the number of intoxicating hemp beverages that may be sold to a customer at any given time. The CRC is also authorized to charge a fee to cover the reasonable costs of administering these provisions. Additionally, the sale of intoxicating hemp beverages by a holder of a plenary wholesale license or retail distribution license will be subject to the sales tax imposed on cannabis, as well as the same local cannabis transfer and user tax imposed on cannabis by a municipality.

Enforcement of New Intoxicating Hemp Law

Under New Jersey’s new hemp law, the CRC is authorized to impose civil fines and penalties for any non-compliance. Specifically, any person who sells offers for sale, or distributes any intoxicating hemp product or a hemp product “that is not derived from a naturally occurring biologically active chemical constituent” may be liable for the following fines/civil penalties: $100 for the first violation; not less than $1,000 for the second violation; not less than $10,000 for the third and each subsequent violation.

The new intoxicating hemp law also provides that a law enforcement officer, local health official, or other government official from an agency authorized to enforce its provisions may confiscate any intoxicating hemp product, hemp product, or cannabis item that is sold, offered for sale, or distributed in violation of the law. Also, a business found to have committed more than two violations of the law or found to have committed a third or subsequent violation at any individual location within one year will be deemed a public nuisance, and a municipality will have the power to impose restrictions on the business’s operation, including closure.

What’s Next?

Gov. Murphy expressed reservations about several provisions of the bill but ultimately concluded that the positives outweighed the negatives. “Unlike many issues, the status quo poses an immediate risk to health and safety, as these unregulated intoxicating hemp products are widely available to minors,” he said. “Because the bill would address this present danger, I have concluded that the wiser course is to sign the bill now and commit to working with the Legislature to address the technical issues and other challenges in separate legislation.” Whether the New Jersey Legislature will enact a “clean up” bill remains to be seen.

Assuming there are no major changes, implementation of the new law requires the CRC and the ABC to complete significant rulemaking. The CRC is, however, authorized to “take any anticipatory administration action in advance as shall be necessary for the implementation” of the law. Therefore, it could adopt a waiver process as was used for edibles, which would allow provisions of the law to take effect prior to the 180-day deadline.

As New Jersey’s latest law makes clear, the hemp and cannabis industries remain in flux, and the legal framework is still evolving. Scarinci Hollenbeck’s Cannabis Law Group has been at the forefront of the industry since its inception and remains dedicated to helping our clients navigate the challenging regulatory landscape. We encourage impacted entities to contact us with any questions.