The Office of Administrative Hearings recently dismissed a notable case involving allegations of unlicensed cannabis sales, offering valuable insights into the evolving regulatory landscape for licensed hemp retailers. On January 16, 2024, the ruling brought clarity to compliance expectations and underscored the importance of due process and evidentiary burdens in enforcement actions. The case centered on a retailer with a cannabinoid hemp license accused by the Office of Cannabis Management (“OCM”) of selling marijuana products without the required adult-use license. The allegations arose from an inspection conducted on August 6, 2024, during which investigators claimed to have identified non-compliant hemp products on the premises. However, the respondent argued that all such products were removed from the sales floor and securely stored in a locked area, following issuance of the December 2023 regulations, which changed the definition of Total Delta-9 THC concentration redarning permissible product unlawful.
After reviewing the evidence, the Administrative Law Judge ruled in favor of the respondent, citing gaps in the OCM’s case. Investigators failed to provide proof that the products were being offered for sale at the time of the inspection. Testimony revealed uncertainty about the initial location of the items, as they were removed from the secure area and displayed for inspection photographs. Furthermore, the judge found that the non-compliant products were stored in a locked room, inaccessible to the public, in line with regulatory guidance issued after the changes to the cannabinoid hemp regulations in December 2023. The investigators also could not substantiate claims that the products in question were non-compliant under previous regulations, lacking crucial documentation like certificates of analysis or detailed invoices.
Read the decision here.
This decision serves as a reminder of the importance of robust compliance practices for hemp retailers. Maintaining thorough documentation, securely storing non-compliant products in a secure area away from the sales floor, and training staff to comply with a dynamic regulatory environment are essential to mitigate risk. The ruling also highlights the need for clear, precise regulatory guidance from authorities to help businesses navigate the complexities of compliance effectively. While the case involved only one confirmed non-compliant product, a CBD inhaler, it did not violate Article 4 governing adult-use cannabis, but fell within the purview of Article 5 governing hemp. That distinction alone is the difference between a sealing order and tens of thousands of dollars in fines, and dismissal, as here.
The dismissal of this case reinforces the importance of evidence and the burden of proof in regulatory enforcement and provides valuable lessons for the cannabis industry. Hemp retailers are encouraged to stay proactive by reviewing their compliance protocols and ensuring alignment with current regulations. As the industry continues to grow and evolve, fostering a transparent and cooperative relationship between businesses and regulators will be essential for success. This decision not only offers relief to the respondent but also sets a precedent for how similar cases may be handled in the future, emphasizing fairness and due process in compliance disputes.
