The Governor of New Jersey signed into law Senate Bill No. 3235 (the “Intoxicating Hemp Law”), designed to regulate the production and sale of certain intoxicating hemp products. At a high level, this law would limit the manufacture and sale of these products to those already licensed by the New Jersey Cannabis Regulatory Commission (“CRC”), albeit with a limited carveout for beverages that may be sold by licensed liquor stores regulated by the New Jersey Alcoholic Beverage Control (“ABC”). Moreover, the law would impose a penalty and enforcement structure, empowering both state and local law enforcement to take action – including through seizure of products – for any non-compliance parties.
Hemp Products verse Intoxicating Hemp Products
The law both defines and differentiates between “hemp products” and “intoxicating hemp products.”
At a starting point, both hemp products and intoxicating hemp products are defined in relation to “total THC,” i.e., “the total concentration of all tetrahydrocannabinols in hemp or a hemp product, including delta-8, delta-9, delta-10, tetrahydrocannabinolic acid and other chemically similar compound, substance, derivative, or isomer of tetrahydrocannabinol, regardless of how derived or manufactured, and any other cannabinoid, other than cannabidiol, identified by the [CRC], in consultation with the Department of Agriculture and the Attorney General, as causing intoxicating.”
In turn, otherwise lawful (and lightly regulated) hemp products are defined as those hemp derived products with a total tetrahydrocannabinol (inclusive of) concentration of more than 0.5 milligrams of total THC per serving and 2.5 milligrams of total THC per package. Conversely, the law defines “intoxicating hemp product” to mean “any product cultivated, derived, or manufactured [in New Jersey] from hemp [regulated pursuant to the 2018 Farm Bill and/or New Jersey Farm Bill] . . . that is sold in [New Jersey that has a concentration of total THC greater than 0.5 milligrams per serving or 2.5 milligrams per package.” The law also makes clear that “[i]t shall be unlawful to sell or distribute a hemp product or cannabis item that is not derived from naturally occurring biologically active chemical constituents.”
These products, in turn, face different regulation by different regulators, as well as different consequences and penalties for sale.
Overlapping Regulatory Oversight
The Intoxicating Hemp Law also makes clear who can make and sell intoxicating hemp products, pursuant to regulation adopted by which regulatory body.
The law makes clear that it is a prohibited activity to sell or distribute any intoxicating hemp product unless:
- The entity is licensed by the CRC.
- The entity is licensed by the New Jersey Alcoholic Beverage Control (“ABC”) as a plenary wholesale license or plenary retail license (but approved to sell intoxicating hemp products by the CRC).
This prohibition applies not only to in-person sales of intoxicating hemp products, but also applies “to any online retail sale of an intoxicating hemp product sold in [New Jersey].”
Moreover, any entity licensed by the ABC (liquor stores) to sell intoxicating hemp products is limited only to sales of “intoxicating hemp beverages,” i.e., intoxicating hemp products in beverage form, and no other form of intoxicating hemp product.
Rule Making Process for Implementation
To be clear, the lawful sale of intoxicating hemp products must await rulemaking by both the CRC and ABC.
This fact is especially important with respect to the sale of intoxicating hemp beverages (currently sold in many liquor stores statewide), given that “[u]pon the effective date . . . the holder of any valid and unrevoked plenary wholesale license or plenary retail distribution license shall not sell any intoxicating hemp beverages.” Liquor stores only reobtain the right to sell intoxicating hemp beverages “[u]pon the adoption of rules and regulations by the [CRC],” and only then following submission of an application to and approval by the CRC.
CRC rulemaking comes first. Specifically, the CRC, in consultation with both the New Jersey Department of Agriculture and the New Jersey Attorney General, is authorized to adopt regulations within 180 days of the effective date (March 11, 2025).
The ABC is thereafter required to adopt regulations no later than 12 months after the effective date (September 12, 2025).
The rules and regulations adopted by the CRC and ABC must address, at a minimum:
- Packaging.
- Labeling.
- Product Testing and Safety Standards.
- Tetrahydrocannabinol amounts permitted in intoxicating hemp beverages.
- Number of intoxicating hemp beverages that may be sold to a customer at any given time.
- A fee to be charged by the CRC to cover the reasonable costs of administering these provisions.
Notwithstanding the preceding, the CRC is authorized to “take any anticipatory administration action in advance as shall be necessary for the implementation” of the law. Thus, in theory, and similar to action taken by the CRC with respect to edibles (whereby a waiver process was adopted prior to the final implementation of regulations), nothing precludes the CRC from commencing a waiver process to implement these provisions sooner than the 180 day timeline identified under the law.
Additional Taxes Imposed on Intoxicating Hemp Derived Beverage
Perhaps in recognition of the onerous taxes imposed on cannabis operators, intoxicating hemp beverages are subject to their own unique taxing structure.
For instance, in addition to the imposition the sales and use tax, municipalities are also entitled to impose a similar version of the local cannabis transfer and user tax to the sale of intoxicating hemp beverages. Thus, provided a municipality passes an ordinance in conformity with the law, it can impose a transfer and use tax of up to 2% on the gross receipts of all sales and/or transfers between licensed entities in the supply chain, as well as a 2% local tax on all sales to consumers.
Penalties for Non-Compliance
The Law also provides penalties for non-compliance.
The CRC is empowered to adopt civil fines and penalties associated with any non-compliance.
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” shall 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.
Importantly, any official authorized by statute or ordinance to enforce these provisions, or the State or local health code or consumer protection laws, or a law enforcement officer having authority in that municipality, is authorized to issue a summons for violation of these provisions, and may serve and execute all process related to the enforcement of these provisions.
Additionally, local law enforcement, health officials, or other government officials from an agency with oversight related to the Intoxicating Hemp Law “may confiscate any intoxicating hemp product, hemp product, or cannabis item that is sold, offered for sale, or distributed in violation” of the law.
Finally, any business found to have committed more than two violations or found to have committed a third or subsequent violation, at any individual location within one year shall be deemed a public nuisance. Thereafter, a municipality will have the power to impose restrictions on the operation, including closure, of any business determined to constitute a public nuisance under the law.
Governor’s Statement Upon Signing
The Governor issued a statement upon signing identifying both certain perceived shortcomings of the law, as well as his reasons for signing.
First, the Governor recognized the underlying problem. Specifically, the Governor addressed the “proliferation” of intoxicating hemp products that “are sold outside of the regulated market for cannabis even though they can have similar effects [to cannabis], may contain harmful chemicals and other contaminants, and often are sold without appropriate testing and labeling.” The Governor also identified that “these products are readily available to minors,” and stating that “[t]he status quo is untenable.” The Governor stressed that one of the reasons he signed the bill is to “ensure that the [cannabis] market is not disrupted by the entry of businesses that are not required to play by the same rules,” and that any rules adopted by the CRC are premised “on compliance with regulations comparable to those that apply to similarly situated cannabis businesses.”
The Governor also expressed certain concerns related to the bill, including:
- Overburdening the CRC with a new regulatory program for alcohol licensees, without providing them adequate resources necessary to establish it.
- Material changes to the definition of “intoxicating hemp products” between the time the bill was presented and ultimately passed by the Legislature, noting that the “late amendments to the bill introduced the words “in this State.”
- The Governor emphasized that he “invite[s] the Legislature to work with [his] Administration on clarifying the legislation.”
Notwithstanding that, the Governor made clear that “the status quo poses an immediate risk to health and safety, as these unregulated intoxicating hemp products are widely available to minors,” ultimately concluding 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.”
Conclusion
New Jersey is just the latest in a number of states seeking to regulate intoxicating hemp products. While further rulemaking (and the ever possible threat of litigation) will delay the ultimate implementation of this law for several weeks if not months to come, a robust regulatory infrastructure will certainly provide opportunities for both businesses to operate in, and consumers to have faith and transparency in, this burgeoning hemp derived marketplace.
