'No Companies Will Invest': How California's Hemp Rules Could Hurt Cannabis Businesses

California's hemp industry is facing a potential shakeup as Governor Gavin Newsom moves forward with emergency rules that would impose strict limits on hemp products.

The proposed regulations, driven by concerns over public safety and pressure from the regulated cannabis market, have sparked debate across the state. These restrictions could reshape not only the cannabis market in California but also have ripple effects nationwide.

Impact On The California Market

Bryna Dahlin, partner at Benesch Law, chair of the firm's cannabis industry group, and upcoming speaker at the Benzinga Cannabis Capital Conference weighed in on how these proposed restrictions could affect California's cannabis market. According to Dahlin, the financial struggles of many regulated cannabis companies have contributed to the pressure for more stringent rules on hemp.

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"Newsom's emergency rules are the result of pressure from regulated cannabis companies in CA that have been in a financial vortex for years for a variety of reasons," Dahlin said. The introduction of cheaper hemp products has added further strain on businesses already struggling to stay afloat. Dahlin noted that the state's "culture" of being the birthplace of cannabis in America may also play a role in this protectionist stance, aiming to preserve the legacy of cannabis over hemp.

However, Dahlin highlighted the irony of this move, noting, "It's the same plant—Cannabis Sativa L—, so it flies in the face of CA's culture to prohibit it, rather than regulate it when they were the first state to legalize medical cannabis."

Broader Implications

California's potential hemp restrictions also raise questions about how other states may respond and whether these changes could impact national regulations. Dahlin pointed out that the hemp and cannabis industries are closely intertwined, and this move could limit growth opportunities for both markets.

"All the MSOs are getting into the hemp game now with versions of their best sellers that are infused with hemp-derived THC… so CA is making a move that limits their cannabis businesses," Dahlin explained.

She also emphasized the importance of THC-infused beverages, which are popular in markets like Minnesota, where they are sold alongside alcohol. "THC beverages are the safest way to consume THC… they do very well when they are in liquor stores and treated like alcohol," Dahlin said.

However, The restrictions in California may lead to the collapse of this growing market segment. "No CA cannabis companies will invest in THC beverages, and any existing beverage manufacturers in CA will have to leave the state and go elsewhere to produce and sell their products," she added.

Local Differences in Regulation

Dahlin stressed that the hemp and cannabis industries in the U.S. are largely shaped by state politics and culture, leading to vastly different regulatory environments across the country. She pointed out that states like Texas, Kentucky, and Illinois each have distinct biases toward hemp or cannabis based on how they entered the market. "I doubt you'd see KY and TX wanting to emulate CA's laws," Dahlin said.

As the Benzinga Cannabis Capital Conference approaches, Dahlin's insights will be critical to understanding how California's decisions could influence broader cannabis policies. With hemp and cannabis regulations continuing to evolve, the industry will be watching closely to see how this plays out across the U.S.

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Photo: Courtesy of Kyrylo Vasyliev via Shutterstock