Why did California “destroy” its thriving hemp-derived THC industry?

One weekday, a dark-haired man wearing a threadbare flannel coat walked into the Dino Mart convenience store on a busy North Hollywood street. He scanned the shelves before landing on a mini-fridge filled with colorful cans near the chips section.

As he bought the drink and left the store, Esmeralda Reynoso, a supervising agent with the California Department of Alcoholic Beverage Control, looked at him through the windshield of her unmarked sedan parked outside.

Moments later, she received a text from a customer: “THC jars found.”

He was an undercover agent working for Reynoso’s agency, ABC, which issued Dino Mart a liquor license. Shortly after he left, a team of agents swooped in to search the store more thoroughly.

The operation targeted so-called “cannabis intoxicating drinks,” which were banned in September under emergency regulations because they contain THC, a compound known for making cannabis users feel stoned.

Gov. Gavin Newsom said the restrictions, which effectively outlaw any product with detectable levels of THC except those sold in state-licensed pharmacies, are needed to protect the public from drinks, gummies and other products containing hemp-derived THC. , or any other products. about 30 other natural and synthetic chemicals known as cannabanoids. Before the statewide ban, the products could be purchased at small corner stores and large chain retailers, while similar products sold at licensed pharmacies were subject to additional taxes and quality inspections.

Cannabis companies say the governor has cast too wide a net. They say the ban applies to innocuous products, such as drinks containing “microdoses” of just a few milligrams of THC, and products that contain mostly CBD, a non-intoxicating relative of THC popular among pain sufferers and cancer patients.

In the two months since the rules took effect, companies across California and beyond have laid off workers and ceased operations in the state, upending the market for hemp and CBD products that some economic research firms estimate generate more than $1 billion. dollars of annual income. Manufacturers have been forced to destroy thousands of products that are now illegal.

When ABC agents searched the Dino Mart in North Hollywood, they found several cans of Cheech & Chong’s Orange Dream and Cycling Frog’s Ruby Grapefruit THC Seltzer on display, as well as several more cans stacked in milk crates in the storage area.

Agents seized the product, more than 200 cans in total, and gave store manager Augustin Martinez a printed notice of emergency regulations.

“I just found out it’s illegal. Nobody ever sent any notice or anything, so we didn’t know,” Martinez said. “We’ve been selling them for a long time, more than a year.”

Similar scenes have played out repeatedly in recent weeks. From September 24 to November 10, in accordance with According to ABC, state regulators seized 5,318 illegal cannabis products from 102 different stores.

Days after the ban went into effect, an industry group called the US Hemp Roundtable and several companies lawsuit filed v. California Department of Public Health. They argued that the agency had failed to successfully demonstrate an immediate crisis requiring emergency action.

Last month, Los Angeles County Superior Court Judge Steven Gurwitch denied the plaintiffs’ request for a temporary restraining order that would have stopped enforcement of the order, but the case remains pending.

The governor’s office has referred inquiries to ABC about the status of emergency regulations and their compliance. Agency Director Joseph McCullough said in an emailed statement that retailers across the state are “overwhelmingly compliant” with the new rules.

“I am very proud of the work our agents do every day to keep these dangerous products off the shelves,” McCullough said. “I would also like to acknowledge the outstanding work of our team in keeping our licensees informed before we take enforcement action.”

Ajay Narain, chief executive of Beacon Beverages, which specializes in cocktails infused with hemp-derived THC and CBD, said the Bay Area-based company has seen a 35% drop in revenue and laid off four employees since the rules took effect. .

“The loss was significant and truly demoralizing,” he said in an email. “It just baffles me that instead of doing the obvious—requiring consumers to be over 21 to purchase cannabis beverages and ensuring responsible packaging that doesn’t appeal to children—Newsom simply banned it.”

While many in the legal cannabis industry have opposed intoxicating hemp products in the past because they compete for market share, Jonathan Black, CEO of Danville-based industry giant Cheech and Chong’s Global Holdings, said a recent summit in Sacramento led to the proposal legislative decision. with broad support from both sides. They hope to present the idea to state lawmakers in January, when California begins its 2025 legislative session.

“We are working on a comprehensive bill to be presented to the Governor and State Legislature to benefit both cannabis and hemp, increase state tax revenue, ensure we meet compliance standards in both, and at the same time protect the industry. time and protect the consumer,” said Black, whose company is among those suing over the government ban.

Jim Higdon, a member of the U.S. Hemp Roundtable and co-founder of Cornbread Hemp in Louisville, Kentucky, said that until the law changes, California should prioritize eliminating illegal pharmacies and tobacco shops selling illegal high-potency products. THC, and fake chocolate bars with mushrooms and psilocybin.

“If I were in government, my main enforcement focus would be illegal cannabis dispensaries in the illicit market and unlicensed tobacco shops,” he said. “This is where teenagers get these products.”

A Pew Research Center Study A report released in February found that there were about 1,100 illegal cannabis stores operating in Los Angeles County. The sheriff’s department said it raids only two to four illegal stores a month, and that many of them reopen within days of closing.

But at least the heady efforts to enforce cannabis laws have been successful, according to Matthew Haidar, ABC’s deputy chief of staff.

“We’ve seen a pretty steady decline in the number of places that are not compliant” and still selling illegal drinks, he said outside Dino Mart as agents loaded confiscated drinks into the back of a pickup truck. “We have two overlapping goals: keeping the public safe and keeping stores compliant. We’re not here to close stores. … The message should be that this kind of thing is illegal.”

The sudden shift upset Jake Bullock, CEO of Cann, a low-THC beverage maker in Venice Beach. Bullock said his company’s offerings were popular at Erewhon supermarkets before Newsom’s ban. The drinks were sold in all 140 Bevmo stores in California, he said.

Cann has sold millions of dollars of product this year and is on track to hit $15 million in sales in 2025, Bullock estimates.

“We were going to grow significantly in California at the end of this year and next, but that didn’t happen,” he said. “If we don’t change these laws in the coming months, we will be forced out of the market.”

Newsom’s emergency ban only lasts until March, after which the restrictions will be lifted unless they are replaced with a permanent version.

Alexa Steinberg, corporate counsel with the Los Angeles-based law firm Greenberg Glusker, represents several companies in the hemp, CBD and cannabis industries. She said her clients were “holding their breath” to see what would happen.

“If this becomes permanent, it will actually kill a lot of brands,” she said.