Major changes are in store for Connecticut cannabis and hemp businesses in 2024. Four bills passed both Houses at the close of the legislative session on May 8th, and three have been signed into law by the Governor. This article will summarize some of the most significant changes and their potential impact on businesses in the state.
Public Act 24-76 (HB 5150)
Public Act 24-76, "An Act Concerning Cannabis and Hemp Regulation," was the primary bill containing amendments to the cannabis statute. It was signed into law on May 11, 2024. The bill was heavily debated and revised several times, leaving industry stakeholders scrambling to keep up. Here is a summary of where we landed, and some projections about how these changes will affect businesses.
New Product Categories: Infused Beverages & Moderate-THC Hemp
PA 24-76 further refines the way that federally legal CBD products that contain some THC are treated under Connecticut law. Last year, the legislature created the High-THC Hemp product category in an attempt to safeguard consumers from hemp-based products that had concentrated amounts of THC that were federally legal and not subject to the state cannabis regulatory scheme, but were nonetheless potentially intoxicating or deceptively marketed. However, this change also had the effect of reclassifying many full-spectrum CBD products -- that were previously produced and sold lawfully in the state -- as cannabis, which could not be produced or sold without a cannabis license. This meant that hemp producers and retailers had to significantly modify or eliminate certain product lines, with a significant detrimental impact on their business.
High-THC Hemp is currently defined by the volume of total THC in milligrams, rather than by dry weight as it is under the federal Farm Bill. The 2023 amendments differentiated among four product categories and set the following total THC thresholds.
- Edibles, topicals, and transdermal patches: 1 mg/serving and 5mg/container;
- Tinctures: 1 mg/serving and 25mg/container;
- Concentrates including vapes, waxes, and shatters: 25mg/container;
- Flower or trim: 0.3% by dry weight.
Any product exceeding these total THC thresholds is classified as "High-THC Hemp" – i.e., cannabis – and is illegal to produce, distribute, or sell without a cannabis license.
The new law further modifies the definition of High-THC Hemp by collapsing the product categories previously created and creating two new product categories: Moderate-THC Hemp and Infused Beverages. These changes go into effect on October 1, 2024. As of that date, High-THC Hemp is defined as follows:
- All manufacturer hemp products including edibles, topicals, tinctures, and concentrates that have a total THC content of more than 0.5mg/serving or 5 mg/container
- Hemp flower or trim with a total THC exceeding 0.3% by dry weight
- Excludes Infused Beverages (discussed below).
Moderate-THC Hemp – PA 24-76 creates a new product category called Moderate-THC Hemp, in an apparent effort to provide hemp producers and manufacturers with some acceptable full-spectrum CBD products. Moderate-THC Hemp is defined as a manufacturer hemp product with between 0.5 mg to 5 mg of total THC per container, excluding Infused Beverages, which are discussed below. As of 1/1/2025, only cannabis establishments and those holding a certificate of registration from DCP can sell Moderate-THC Hemp products. Businesses can apply for such certificates beginning on 1/1/25 for a fee of $1,000 - $2,000. A certificate of registration to permit a vendor to sell Moderate-THC Hemp products will only be awarded to businesses who demonstrate that at least 85% of average monthly gross revenue was derived from the sale of Moderate-THC Hemp products and it is reasonably likely that at least 85% of average monthly gross revenue will be generated from the sale of Moderate-THC Hemp products going forward.
In addition to the administrative difficulty of tracking and proving such sales thresholds, this requirement will effectively bar sales of most full-spectrum CBD products (which fall within the new definition of Moderate-THC Hemp products) from being sold at health food stores, farmer's markets, and large retail chains in the state. Moreover, while PA 24-76 permits the transport of High and Moderate-THC hemp products through the state, it does not regulate the transmission of such products through the mail (with the exception of Infused Beverages), potentially allowing the very products into the state that DCP is trying to prohibit through indirect and even less regulated means. This will have the effect of shifting sales from in-state licensed hemp producers to out-of-state producers. On the retail side, while PA 24-76 opens some avenues for CBD/hemp retailers, it imposes significant administrative burdens, creates even tighter total THC-limits, and limits the types of retail establishments where such products can be sold. Overall, the amendments contained in PA 24-76 will likely make it even more difficult for hemp producers and retailers to do business in the state.
Infused Beverages: PA 24-76 also created a new product category for non-alcoholic beverages containing some THC up to 3 mg per 12-ounce container. In addition, each package cannot contain more than 4 containers. Infused Beverages may only be manufactured with a license from DCP, and may only be sold by licensed dispensaries or cannabis retailers, or package stores holding a state permit. Cannabis establishments and beer wholesalers must charge a fee of $1/container of Infused Beverage sold, which is payable to DCP. These changes go into effect on October 1, 2024. Under federal law, beverages containing some THC are legal, so long as they do not exceed 0.3% Delta-9 THC by dry weight. In fact, it is common to see beverages containing up to 5 mg of THC per 8-ounce container sold in stores and shipped by mail. However, PA 24-76 would preclude many of these drinks from being produced or sold in the state without a cannabis manufacturer license. Existing licensed cultivators, micro-cultivators, and cannabis food and beverage and product manufacturers may manufacture Infused Beverages under their current licenses with written permission from DCP on or after 10/1/2024. Those seeking to manufacture Infused Beverages may apply to DCP for a license for a fee of $5,000, though the statute does not specify when this license application period will open. Manufacturers cannot sell directly to package stores, but must go through permitted beer wholesalers.
In terms of beverages containing THC currently being manufactured or sold, referred to in the new law as "Legacy Infused Beverages," all such manufacturing must cease before October 1, 2024. Those currently manufacturing beverages that would be classified as Infused Beverages under PA 24-76 may continue to manufacture such beverages for the time being, but must complete all manufacturing operations and may not conduct any manufacturing operations as of 10/1/2024. No Infused Beverages may be sold as of 10/1/24, except in licensed cannabis dispensaries, retail facilities, and permitted package stores. Further, no Infused Beverages may be sold by indirect means, including by mail, as of July 1, 2024. Licensed dispensaries, retailers, and package stores, may sell off their stock of such beverages between the period of July 1, 2024 to September 30, 2024, with permission of DCP, but must (a) take inventory of all such containers and report such inventory to DCP, and (b) pay a fee of $1/container to DCP by June 15, 2024.
The statute creates some confusion as to how licensed cannabis cultivators, micro-cultivators, and manufacturers can manufacture Infused Beverages without having such beverages automatically classified as cannabis by virtue of DCP's policies and procedures which state that hemp products are deemed cannabis once received by the cannabis establishment. (Section 21a-421j-26). Further, the amendments in PA 24-76 prohibit manufacture of Infused Beverages "intended to be sold or offered for sale in this state" without a license from DCP, but do not necessarily prohibit manufacture in the state for beverages intended to be sold out of state.
Project Labor Agreements
PA 24-76 makes significant changes to the requirement that cannabis establishments enter into a Project Labor Agreement ("PLA"), for the construction or renovation of a cannabis establishment in the amount of $5 million or more. Ambiguities in the original PLA provisions led to uncertainty regarding the required contracting parties. The new law (1) requires that labor unions be signatories to the PLA (which has been happening in practice but was not previously required), and (2) includes entities affiliated with the cannabis business (i.e., entities under common control, as that term is defined in the statute) in the PLA requirement and as parties who can be sued for violating the PLA requirement. There remains uncertainty as to how the common control element will be applied.
Including affiliated entities is a significant change since many cannabis operators have such affiliates, and will need to examine whether these affiliates are swept into the PLA requirement under the new law.
Advertising
Cannabis establishments cannot engage in advertising or marketing that includes offering a promotion price or discount to induce purchasing, unless that advertising takes place solely within the dispensary or retail establishment, through a delivery service, or on the facility's website. This prohibition does not apply to medical marijuana products.
This prohibition may have a significant effect on a retail establishment's ability to compete on price and market their products, particularly given the strict limitations on packaging and advertising that already exist under Connecticut law. However, the website carveout provides an avenue for such competition. Many business owners already struggle to make their products and services stand out amid Connecticut's stringent regulations on packaging, branding, and advertising, which are some of the strictest in the country. The prohibition on advertising discounts is yet another hurdle for retailers to navigate. It will also make the location and customer volume of the retail facility that much more important since retailers can advertise discounts in store.
Section 149 "DIA" Cultivators
Section 149 Cultivators will not be permitted to partner with hemp manufacturers, as contemplated by prior iterations of the bill, but can convert to micro-cultivation for a fee of $500,000 and can create one Equity Joint Venture ("EJV"). However, converted micro-cultivators must obtain a final license and have the operation up and running before they can apply for the EJV. This closes a loophole that exists under the current law whereby Section 149 cultivators can apply for and open cannabis EJV establishments without a final license for cultivation. The new law also puts a 12/31/25 deadline on obtaining the provisional license for full cultivation if the applicant chooses to retain that license. The goal of this change is to provide a pathway for Section 149 cultivators struggling to fund their operations to operationalize the license. This should result in additional cultivation facilities obtaining a final license later this year or next year, increasing product supply and allowing for increased product sales across the state.
EJV Ownership
The SEA backer of a Section 149 cannabis cultivation license will be able to have an ownership interest in both EJVs sponsored by the cultivation entity. This change clears up confusion around ownership limits on the social equity partner who is the 65% owner of the cultivation operation and allows that partner to participate and potentially profit from both EJVs.
Public Act 24-115 (HB 5235)
PA 24-115, or the "DCP Bill," makes several additional changes to the cannabis statutes, some of which include:
- Prohibiting "synthetic cannabinoids" by requiring the Department of Consumer Protection (DCP) to classify them as Schedule I controlled substances under Connecticut law (i.e., a drug with no current accepted medical use and a high potential for abuse) and removing them from the statutory definition of "cannabis" and "marijuana." The bill also prohibits cannabis establishments as well as hemp producers from manufacturing or selling synthetic cannabinoids. Synthetic cannabinoids are defined as "any substance converted, by a chemical process, to create a cannabinoid or cannabinoid-like substance that (i) has structural features which allow interaction with at least one of the known cannabinoid-specific receptors, or (ii) has any physiological or psychotropic response on at least one cannabinoid-specific receptor," but does not include manufactured cannabinoids.
- Empowering DCP to adopt regulations, policies and procedures to effectuate the cannabis laws, including setting appropriate dosage, potency, and serving size limits; requiring clear demarcation of single serving sizes of cannabis edibles and beverages; requiring that if cannabis serving sizes cannot be clearly separated or marked, each edible or beverage product shall not contain more than 5 mg of THC per unit; and imposing additional packaging and labeling requirements.
- Specifying that the laws concerning hemp and CBD do not prohibit hemp/CBD that is lawfully produced under federal law from being shipped or transported through the state, even if it does not conform to CT law regarding THC limits. This provision, along with the new restrictions on hemp and CBD, may have the effect of favoring out-of-state producers, who can manufacture their products out of state and sell them in state at dispensaries and cannabis retail facilities, or attempt to sell them indirectly through the mail.
Public Act 24-95 (SB 200)
PA 24-95, An Act Concerning Social Equity Applicants, Infused Beverages and Moderate-THC Hemp Products, establishes a task force to study, among other things, the effects of allowing Section 149 cultivator applicants to partner with hemp producers whose facilities may be located outside of Disproportionately Affected Areas ("DIAs"). Allowing Section 149 / hemp producer partnerships was considered – and rejected – in prior iterations of PA 24-76. The task force established under PA 24-95 must report on its findings no later than January 1, 2025.
PA 24-95 also makes changes to PA 24-76, passed on the same day, concerning Infused Beverages and Moderate-THC Hemp Products. Significantly, it specifies that no business, other than a licensed dispensary, hybrid retailer or retailer (with authorization from DCP) may sell infused beverages or legacy infused beverages on or after July 1, 2024. Under PA 24-76 as originally passed, any retailer who had such beverages could sell off their stock between July 1, 2024 and September 30, 2024. However, all retailers who are not licensed cannabis retailers must now sell off such stock before July 1, 2024, and may only do so if they take inventory and pay the fees as described in PA 24-76.
In addition, PA 24-95 clarifies that no retailer shall sell Moderate-THC Hemp Products in the state without a certificate of registration from DCP. This requirement does not apply to wholesale or commercial distribution of Moderate-THC Hemp Products. In addition, the law makes clear that the minimum sales threshold required for a certificate of registration to sell Moderate-THC Hemp Products is not required for licensed hemp manufacturers who want to sell their own products to consumers at retail.
HB 5524
Finally, HB 5524, An Act Authorizing and Adjusting Bonds of the State and Concerning Provisions Related to State and Municipal Tax Administration, General Government and School Building contains additional provisions affecting cannabis businesses. This bill passed in the House and Senate, but has not been signed by the Governor as of the date of this publication. Some of the key provisions include the following:
- Section 149 Cultivators may have the opportunity to begin cultivating with less than 15,000 square feet of grow space. This section allows cultivators to obtain final licenses for cultivation starting at 5,000 square feet with a plan to expand to 15,000 square feet over the next two years. Approval to pursue this pathway would need to be obtained from the DCP on or before 12/31/25. This change will provide a lifeline to certain cultivators who had paid the $3 million fee but who are struggling to fund the buildout of the currently required 15,000 square feet of grow space. However, it is a bit of a double-edged sword. This section also allows for fines to be incurred if the cultivation goals are not achieved.
- This bill imposes additional mechanisms of oversight and control on the Social Equity Council (SEC), including (i) the addition of members to the Social Equity Council appointed by the Black and Puerto Rican Caucuses; (ii) identifying a pathway for removal of the SEC's Executive Director if deemed necessary; and (iii) mandating reporting of progress, productivity, and impact of the Social Equity Council.
- The bill also requires that Social Equity Plans need to be approved or denied within 30 days of receipt. Many cannabis businesses have seen delays in approval of their applications due to delay in the review and approval/rejection of social equity plans, so this change should help keep the approval process on track and add some measure of predictability for businesses. Notably, however, there is no corresponding requirement for Workforce Development Plans.
Overall, the changes from the 2024 legislative session are consistent with the state's approach of heavy regulation of cannabis and hemp products. As with any law, there are some who benefit and some who do not. DCP will need to take a look at its current policies and procedures to harmonize them with the cannabis amendments, particularly in the areas of hemp and Infused Beverage manufacturing and sales. We will be tracking these changes closely with an eye towards answering some of the questions the new bills leave open.
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