Lawmakers in Illinois are calling for increased oversight over the state’s largely unregulated hemp derivatives market. This market ballooned in the years after the 2018 Farm Bill legalized industrial hemp and hemp extracts across the United States under state and tribal programs.
In the wake of this legislation, many businesses took advantage of legal loopholes to process and sell hemp derivatives such as cannabidiol (“CBD”), and delta-8 THC. While these derivatives technically aren’t illegal under federal law, there are few if any federal or state regulations governing their production and sale. As a result, Illinois and other states with hemp programs have seen a surge in hemp products that claim to do everything from alleviating stress and depression to treating physical illnesses.
On top of making misleading claims of the products’ medical efficacy, many players in the hemp derivatives segment don’t exercise high-level quality control, resulting in low-quality products that often contain harmful contaminants. Policymakers are now considering creating a regulatory framework for the state’s hemp sector to rein in the hemp derivatives grey market through two measures: Senate Bill 3790 and House Bill 5306.
Introduced by Representative La Shawn Ford, House Bill 5306 would require that entrepreneurs in the hemp extracts space register their businesses before they can begin selling hemp extract products. Ford notes that few companies come out and ask for lawmakers to regulate and tax their industries, preferring instead for the government to “get out of the way.” However, his measure would ensure the government’s involvement in hemp by mandating hemp businesses to buy a state license and pay taxes on both retail and wholesale sales.
Under Ford’s measure, businesses would have to pay $500 for a state operating license on top of a 10% retail sales tax and a 10% wholesale sales tax, without a limit on the number of hemp businesses allowed to operate in the state. These three taxes would cumulatively earn Illinois $1.5 billion in tax revenue through the next four years. The proposed hemp measure would also institute the testing of hemp products, limit extract dosages and make it illegal to sell hemp products that are designed to resemble nonhemp candies and snacks.
According to Ford, hemp businesses that sell high-dose or unsafe products or sell to underage individuals (under 21 years) could lose their licenses. Although hemp products typically have minimal to low levels of delta-9 THC and are not intoxicating, the measure would limit the sale of hemp-derived products to Illinois residents 21 years of age and older.
The call to license businesses selling hemp products is a fair one because in markets where companies such as Canopy Growth Corp. (NASDAQ: CGC) (TSX: WEED) operate, they acquire licenses that need to be renewed periodically; many feel that hemp businesses should follow similar regulations.
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