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With strict adherence to regulatory requirements and a commitment to producing safe and effective products, THC-infused beverage companies can take advantage of interstate commerce, standard banking and payment processing solutions, and e-commerce marketing tools.
In the May 7, 2024 edition of The Legal Intelligencer, Justin Serianni wrote, “High Hopes for Hemp Derived THC-Infused Beverages.”
Beer sales are at a 25-year low and the downturn shows no signs of recovery. As consumers explore alternatives, beverages infused with hemp-derived delta-9 tetrahydrocannabinol have emerged as crossover products attracting both the canna-curious and those seeking an alternative to alcohol with no morning-after side effects. These beverages can be enjoyed socially without the stigma associated with combusting dry flower or vaporizing distillate or liquid cannabis resin. It is estimated that one billion dollars in cannabis beverages were sold in 2022; projections for 2030 are approximately $3.9 billion.
With strict adherence to regulatory requirements and a commitment to producing safe and effective products, THC-infused beverage companies can take advantage of interstate commerce, standard banking and payment processing solutions, and e-commerce marketing tools.
The legal footing for hemp-derived THC-infused beverages lies in the Agricultural Improvement Act of 2018 (the 2018 Farm Bill), which defines “hemp” as “the plant Cannabis sativa L. and any part of that plant, including the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with a delta-9 tetrahydrocannabinol concentration of not more than 0.3 percent on a dry weight basis.” 7 U.S.C.A. Section 1639o(1). “Hemp” is excluded from the Controlled Substances Act’s definition of “marihuana.”
To determine whether the 0.3% Δ-9 THC threshold is met, samples are collected from the plant not later than 30 days before crops are harvested. See 7 C.F.R. Section 990.26(a). Harvested lots testing under the threshold may enter the stream of interstate commerce. See 7 C.F.R. Section 990.26(d). Finished lots of these extracted and processed compounds undergo additional processing to produce emulsifications and powders that can be combined with ready-to-drink base liquids such as seltzers, teas and beers. These emulsifications and powders are tested by a third-party analytical laboratory to identify the composition of the compounds and contaminants before they are released into the market. The Farm Bill’s threshold focuses exclusively on delta-9 tetrahydrocannabinol (Δ-9 THC) and omits reference to its chemical precursor, tetrahydrocannabinolic acid (THCa), which decarboxylates to Δ-9 THC in the drying process that occurs after the crop is harvested.
That which meets the definition of “hemp” may legally enter the stream of interstate commerce. “Marihuana” may not, under federal law, unless it meets the Food and Drug Administration’s criteria for Schedule 3 prescription drugs. A certificate of analysis provided by a third-party analytical testing laboratory establishes whether the material is under or over the 0.3% threshold. It is critically important that the cultivator’s analytical testing laboratory meets the highest industry standards, and that beverage producers implement a secure document retention system to retain the certificates of analysis.
Beverage co-packers for hemp-derived THC-infused beverages apply the same health and safety standards as any other beverage sold in a supermarket. Beverage co-packers formulate cannabis beverages, source and mix base liquids, emulsifications, and powders, can the beverage, provide nutrition fact panel information, and, in some cases, provide logistics and fulfillment solutions. Prominent co-packers in the cannabis beverage space have earned accreditations such as safe quality food (SQF) and operate good manufacturing practice (GMP) certified facilities. Moreover, these facilities are continually audited to ensure compliance with industry safety program standards. Finished product lots may undergo additional analytical testing before they are released to the market. A THC-infused beverage company should view its relationship with its beverage co-packer as a strategic partnership; counsel should nurture the relationship by ensuring that mutual expectations are clearly communicated, achievable, and aligned with the client’s growth objectives.
While cannabis products can only be purchased in state-regulated dispensaries, hemp-derived THC-infused beverages have gained entry into the beer and alcohol industry’s three-tier distribution model—products are delivered from the co-packer to a distributor or wholesaler, and then distributed to retailers. Alternatively, THC-infused beverages can be sold directly to consumers via e-commerce channels utilizing standard payment processing systems. The principal risk for hemp-derived THC-infused beverages would be the elimination of hemp “derivatives, extracts, cannabinoids, isomers” from the 2018 Farm Bill’s definition of “hemp.” The $867 billion 2018 Farm Bill was set to expire in 2023; it has been extended via spending measures due to political gridlock. To date, neither Congress nor the Biden administration has signaled an intent to alter the definition of “hemp.” In light of recent developments on rescheduling cannabis, the economic benefits of the hemp industry, and the broad bipartisan support for legalization of marijuana—according to a November 2023 Gallup poll, 70% of Americans support legalization with no significant differences among political identifications, gender, race, or education.
Risks also arise at the state level. Some states have banned sales of hemp-derived products to consumers. Often, these bans are protectionist measures to safeguard state-level cannabis programs facing the simultaneous headwinds of softening demand, supply glut, and price compression. Others have focused on the absence of a defined regulatory scheme to ensure public health. Some states have determined that intoxicating products run afoul of their controlled substances acts. Any operator entering this space must understand that the territories may shift. However, even if states change their position on the sale of hemp-derived THC-infused beverages there remains an opportunity to operate within regulated state-level cannabis programs (assuming beverages are an accepted product form).
In general, and with exception, states evaluate hemp-derived products utilizing four criteria: the cannabinoids in the product; the product forms; whether they can be sold in brick-and-mortar stores; and whether they can be sold online and mailed to the consumer. This being the marijuana industry, the rules and their interpretation are subject to change quickly, without warning, and often with immediate effect.
The absence of industry standards and clearly defined regulatory schemes could present additional opportunities for risk. THC-infused beverages may reach the market without appropriate testing and quality verifications, creating a situation akin to the 2019 vaping lung illness outbreak that adversely impacted the vaping sector of the cannabis industry. Vigilant counsel should also set guidelines for and monitor representations made to consumers in marketing material concerning the composition of the products, their potency, and recommended dosing. Because the hemp-derived THC-infused beverage market is self-regulating, counsel’s role in maintaining standards is imperative.
Justin Serianni has been active in the cannabis industry since 2017. He has stood up cannabis operations on the East Coast, provided operationally focused counsel to growth-stage companies, and served as general counsel for a multistate operator. Serianni is of counsel at Kang Haggerty, where he provides outside general counsel services. Contact him at jserianni@kanghaggerty.com.
Reprinted with permission from the May 7, 2024 edition of “The Legal Intelligencer” © 2024 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-257-3382 or reprints@alm.com.