In the evening of October 27, 2020, the New York Department of Health released the long-awaited proposed hemp regulations.[1] The regulations are codified at 10 NYCRR Part 1005, titled “Medical Use of Marijuana & Cannabinoid Hemp.”  A summary of the comprehensive draft regulations is set forth below.

Cannabinoid Hemp Processor & Retailer Licenses

The regulations create two license application formats, one for cannabinoid hemp processors and one for cannabinoid hemp retailers.

The Department created one application form for all hemp processors, whether they will be extracting cannabinoid hemp or just manufacturing it.  Processors will be required to retain a third-party auditor to provide proof of good manufacturing practices (“GMP”) according to federal standards within six months of license approval, at the latest, and verify that the applicant has the “experience and competency” to undertake processing activities. Processors will be required to test a statistically significant number of cannabinoid hemp products per batch/lot at a third party testing laboratory certified by the Department, and maintain all testing records.  Processors will also be required to submit data of monthly sales during the reporting period, and are permitted to conduct intra-state sales of hemp provided the seller maintains a “certificate of analyses” indicating the extract contains less than .3% tetrahydrocannabinol (THC).  Processors must safely dispose of any product containing more than .3% THC.  Processors are prohibited from selling their product directly to retailers (i) without a separate retail license; and (ii) without having processed the hemp into a consumable product.

The Department may be anticipating a backlog of applications, as the regulations allow it to “provisionally” approve of processing applications, authorizing processors to begin extracting and/or manufacturing before receiving their license.

The Department regulations set strict guidelines on what retailers can sell, applicable to in-state retailers and online vendors selling to customers in New York.  Cannabinoid hemp sold at retail cannot contain any alcohol, cannot be in the form of an injectable, transdermal patch, inhaler, suppository, or flower product, must be pre-packaged and not added to any food, beverage or other consumable at the point of sale, and cannot be sold to consumers under the age of twenty-one.  Food and beverages cannot contain any more than 25 mg of cannabinoids per product.  The regulations set even tighter requirements for inhalable hemp products (like a vape pen), prohibiting any flavor or flavoring agent additives.

The Department’s ban on the sale of hemp flower products is news to the industry, and will restrict the ability of retailers to sell cigarettes, pre-rolls, or cigars containing hemp.  The Department’s requirement that cannabinoid hemp be pre-packaged at point of sale will also restrict retailers from offering hemp additives to food and beverages over the counter.  For example, under the draft regulations, customers will not be able to add a “CBD Shot” to a health smoothie, coffee or other food or beverage at the point of sale.

Again, the Department may be anticipating a backlog of retailer applications, allowing retailers who submit completed applications before April 1, 2021 to sell hemp products at retail before actually obtaining their license.

The Department will consider any false representations, failure to supply requested information within thirty days, conviction of any crime or sustained charges of administrative violations related to the growing, manufacturing, processing or selling of hemp or marijuana as factors necessitating denial of the licensee’s application.  The Department will prioritize review and approval of applicants already holding a research partnership with the Department of Agriculture and Markets. For both licensees, the regulations give the Department broad authority to conduct random product sampling and unannounced, on-site inspections during normal operating hours.

Notably, neither license is transferrable to another licensee without approval by the Department of Health. According to the draft regulations, “[a] change in majority ownership or controlling interest in the license or person holding the license shall constitute a transfer” requiring Department approval.

The application fee for an extracting and manufacturing license is $1,000, $500 for a manufacturing license, only, and $300 for a retailer license.  License fees are more substantial, with extractors and manufacturers charged $4,500 per location, manufacturers (only) charged $2,000 per location, and retailers charged $300 per location.  Processor licenses are valid for two years and retailers one year, respectively, from the date of issuance.  Applications to renew either license must be received at least ninety days, and no less than thirty days, before expiration.

The regulations also establish a “cannabinoid hemp permit”, allowing a permittee to (i) distribute cannabinoid hemp products manufactured out of state to in-state retailers; (ii) deliver hemp products from a retailer to consumers; (iii) sell hemp products for a limited duration; and (iv) continue operations for persons holding a CBD processor research partnership agreement, for a maximum period of one-year or less, as determined by the Department.  Those seeking a permit must submit an application to the Department with an accompanying $100 fee.

NY Hemp Product

The regulations define a “NY Hemp Product” as a cannabinoid hemp product grown and processed in New York, and authorize the Department of Health to establish standards and requirements above and beyond what is included in the draft regulations to approve a product as such. It is not clear from the regulations what, if any, benefit processors or retailers may receive for manufacturing or distributing NY Hemp Products.

In the meantime, the regulations do permit inter-state transfer of hemp products, however, as long as the products are fully enclosed and accompanied by proof of origin and a certificate showing the hemp extract contains less than .3% THC.

Laboratory Testing

As indicated above, manufacturers will be required to test a statistically significant number of cannabinoid hemp products per batch/lot at a third party testing laboratory certified by the Department.

To be recognized as a cannabinoid testing lab by the Department of Health, the lab must maintain ISO/IEC 17025 accreditation for the testing of cannabinoids, heavy metals, microbial impurities, mycotoxins, residual pesticides, residual solvents and processing chemicals, and terpenes.  In addition to testing for harmful pathogens, the laboratory shall confirm that the THC concentration for each batch does not exceed .3%.  If a product fails, it can be re-extracted, but if it fails a second time, must be disposed of.

All testing laboratories must be able to produce a “certificate of analyses” to the processor describing its analytical testing and results.

Packaging & Advertising

Under the regulations, cannabinoid hemp product packaging must include a nutritional/supplement fact panel, an expiration date, lot/batch number, name of the cannabinoid hemp processor or out of state manufacturer, scannable bar code or QR code linked to a downloaded certificate of analyses from the testing laboratory, and a means for reporting any negative side effects.

All packaging shall also include conspicuous health and safety warnings, and the Department may require retailers to keep cannabinoid products separately from other tangibles and out of the reach of children.  Advertising for cannabinoid hemp products cannot contain any claims that the product is intended to diagnose, cure, mitigate treat or prevent any disease or condition, cannot target persons under the age of twenty-one, and cannot lead a “reasonable person” to believe that the product is marijuana or medical marijuana.

Starting on June 1, 2021, inhalable cannabinoid hemp products must include a conspicuous Department approved symbol of some kind.

Penalties & Violations

Failure to comply with the proposed regulations and corresponding Public Health Law shall result in a $1,000 fine for the first violation, $5,000 fine for a second violation committed within three years, and $10,000 fine for third violation and each violation committed thereafter within a three-year period.

If a licensee willfully violates, refused or neglects to comply with the Department’s requirements, the Department may limit, suspend, revoke or annul the licensee’s license at its discretion, after providing notice and an opportunity to be heard.  However, if a licensee negligently violates the Department’s requirements at least three times within a five-year period, he/she shall be ineligible for a license for a period of five years beginning from the date of the last violation.

The draft regulations will be posted in the New York State Registrar on November 10, 2020.  The Department will accept public commentary on the proposed regulations through January 11, 2021.

This alert does not purport to be a substitute for advice of counsel on specific matters.

Harris Beach has offices throughout New York State, including Albany, Buffalo, Ithaca, Long Island, New York City, Rochester, Saratoga Springs, Syracuse and White Plains, as well as New Haven, Connecticut and Newark, New Jersey.

[1] Although the Hemp Bill passed by the New York State legislature and signed by Governor Cuomo authorized the Department of Health and Department of Agriculture and Markets to release draft hemp regulations, the Department of Health is the only administrative agency to do so as of the date of this article.