Takeaways from Our Conversation on California’s New CBD Law

November 10, 2021 by Don Jergler

When California Gov. Gavin Newsom signed Assembly Bill 45 into law in early October, there was a lot of excitement in the state’s cannabis industry, particularly for businesses and insurance professionals specializing in the CBD business.

The law allows for the inclusion of hemp and cannabinoids (such as CBD), and extracts of hemp, in food and beverages, supplements, cosmetics, and pet food, as long as they contain less than 0.3% THC.

It’s a step toward clarifying the 2018 Farm Bill, which legalized hemp federally.

AB 45 amends the Sherman Food, Drug, and Cosmetic Law, which prohibits the manufacture or sale of adulterated foods, beverages, or cosmetics. It considers any food, beverage or cosmetic to be “adulterated” if it contains any poisonous or deleterious substance that may render it injurious to the health of a person or animal who may consume it.

AB 45 would require a manufacturer of dietary supplements and food that includes industrial hemp to register with the California Department of Public Health and to be able to demonstrate that all parts of the plant used come from an area with an established and regulated industrial hemp program. It also has requirements for advertising.

The law is a good step, but the resulting regulatory structure that comes from it could be far more restrictive than most operators looking to jump right in will like.

In our latest Insuring Cannabis podcast, we talked to Ian Stewart, founder and co-chair of the cannabis law practice at Wilson Elser, to find out what AB 45 does and doesn’t do.

Following are takeaways from that conversation.

One upside of AB 45 is that it paves the way for an industry that could create new products, jobs, and opportunities for those looking to provide services to any new companies that happen to be spun up as a result.

“There’s a lot of appetite still for these products,” Stewart said. “The hemp market in particular has been lagging in California. And there’s a lot of excess supply of CBD out there. But I think that there are many companies that would love to sell products in California, but have chosen not to because of the dangers around violating state law.”

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While Stewart views AB 45 as “a real boon to the hemp-derived cannabinoid industry,” he cautioned about a few aspects of the new law, including strict advertising restrictions.

“So one of the main differences in the AB 45 legislation compared to other states are the strict requirements on advertising, marketing and testing,” he said. “So in California, there can be no advertising or marketing targeted towards children, but in addition they have to have marketing or advertising placed in any kind of media where at least 70% of the audience is reasonably expected to be 18 years of age or older. And that’s through reliable audience data. So that’s an area where, some other states don’t really have that requirement on the advertising side.”

Tough testing standards are also something to take note of in the new law, which mandates that CBD products be tested the same way that regulated marijuana products are tested in California.

“California already has the most stringent marijuana testing protocols of any state,” Stewart said. “And there are lots of tests that these products are going to have to undergo. In addition to the cannabinoid and terpene content, they’ll have to be tested down to the parts per billion, for residual solvents, residual pesticides, heavy metals, microbial impurities micro toxins which is mold and mildew, moisture content, et cetera.”

The law instructs the California Department of Cannabis Control to prepare a report on the necessary steps for incorporating hemp products into the cannabis supply chain, and include the incorporation of hemp cannabinoids into manufactured cannabis products, and then conversely the sale of hemp products at cannabis retailers.

And once all of that happens the way could be cleared for a potentially booming market in California. The global CBD market is projected to grow from around $36 billion in 2021 to more than $55 billion by 2028, according to a report out this year from Fortune Business Insights.

An opportunity that, Stewart added, “it does kind of signal that there may be an opening for cross-selling of these currently totally different markets.”

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