Governor Phil Murphy’s signing of Senate Bill 3235 on September 12, 2024, represents a significant shift in the regulation of intoxicating hemp products in New Jersey. The original intention of the bill was to restrict sales to those under 21 years of age. However, lobbyists turned this simple exercise into a bill better reflecting Frankenstein’s monster.
This new legislation introduces stricter oversight for cannabinoids such as Delta-8 and Delta-10 THC, with the goal of enhancing public safety and addressing regulatory gaps. Key provisions include an immediate ban on sales of these products to minors, a requirement for all sellers to obtain licensing from the State Cannabis Regulatory Commission (“CRC”), and the development of new rules for intoxicating hemp beverages. These measures aim to enforce rigorous standards on hemp products, thereby mitigating associated risks.
Not surprisingly, the law was immediately challenged in a federal court proceeding on a number of bases; including that it interfered with the interstate transport of hemp and resulted in disparate treatment between hemp produced in-state and out-of-state. On October 11, 2024, the Court struck those provisions, leaving the restriction on sales to minors. The next day, reflecting its own concerns about the bill, the CRC issued statement advising that it would not enforce any other provision.
At signing, the Governor expressed concerns about several late amendments that may complicate the implementation of the law in a three-page statement — but signed it anyway. Among his concerns:
- Resources for the CRC: Governor Murphy questioned whether the CRC has the necessary resources to create a new regulatory program for alcohol licensees selling intoxicating hemp beverages. The law requires the CRC to establish and enforce these regulations, but it does not provide additional funding for the CRC to expand its oversight capabilities.
- Regulatory Discrepancies: Another concern is the disparity between the regulations governing cannabis businesses and those for alcohol licensees. Currently, alcohol licensees are not required to meet the same rigorous standards as cannabis retailers, such as employee training and compliance with local ordinances. Governor Murphy emphasized the need for additional legislation to ensure that all businesses selling intoxicating hemp products adhere to the same standards.
- Ambiguity in the Definition of Intoxicating Hemp Products: Governor Murphy also pointed out a significant ambiguity in the definition of Intoxicating Hemp Product,” specifically the added the phrase “in this State.” This phrase has created confusion about whether the law applies only to products cultivated or manufactured in New Jersey or if it applies to all intoxicating hemp products sold in the State, regardless of origin. Governor Murphy called for further legislative clarification to resolve this issue.
Fundamentally, the original concern was over the sale of intoxicating hemp products to minors. The bill simply could have outlawed those sales and stopped there. Instead, the law includes numerous, new stringent regulations of hemp-derived cannabinoids, risking government overreach and decimating New Jersey’s emerging hemp industry.
Indeed, the implications for small, often family-owned businesses, many of which are minority-owned, are profound. These businesses will face significant challenges adapting to the new regulatory framework. The expanded responsibilities of the CRC could stretch its resources thin, leading to potential delays in regulation implementation and enforcement, which already hinder the nascent Adult-Use marijuana program. Such delays could disadvantage smaller operators, who may struggle to comply more than larger companies with the new requirements.
Additionally, the law’s ambiguity regarding the definition of “Intoxicating Hemp Product” introduces further uncertainties. This vagueness will lead to confusion and legal disputes, particularly affecting smaller businesses that might not have the capacity to manage complex legal interpretations and compliance issues. There is also concern about unreasonable enforcement actions due to these ambiguities and potential resource constraints within the CRC. Small, family-owned operators could face disproportionate penalties and operational disruptions, straining their already limited resources.
The legislation’s approach to regulating intoxicating hemp products intersects with and potentially violates the Interstate Commerce Clause, presenting potential enforcement complications. The law targets products manufactured or derived from hemp in New Jersey and sets specific THC limits, but it does not differentiate between in-state and out-of-state sales. This focus on in-state production creates challenges for enforcing standards on out-of-state products and sales, as the law only addresses what is found onsite. Consequently, businesses involved in interstate commerce might face difficulties in ensuring compliance, and enforcement may struggle with inconsistencies due to the lack of clear guidelines for handling out-of-state products and sales. This could lead to regulatory uncertainties and challenges for both in-state and out-of-state hemp businesses.
The law also targets intoxicating hemp beverages by limiting their sales to liquor stores and licensed marijuana stores. Liquor license holders will be able to apply for permits to sell intoxicating hemp beverages, but they must comply with regulations similar to those that apply to cannabis businesses. As the CRC and the Division of Alcoholic Beverage Control (“ABC”) work to implement and refine these regulations, addressing these challenges effectively will be crucial. Ensuring adequate funding for the CRC, achieving consistency in regulatory standards, clarifying legal definitions, and navigating the implications of the Interstate Commerce Clause will be essential for the successful implementation of the law. While the immediate provisions, such as the prohibition on sales to minors and the framework for intoxicating hemp beverages signify progress, ongoing adjustments will be necessary to balance public safety with industry needs. The future of New Jersey’s hemp market will depend on how these issues are resolved and how effectively the law is enforced, especially concerning its impact on smaller, family-owned businesses.