The Bass, Berry & Sims Government Advocacy & Public Policy team of Erica Vick Penley, Jacob Baggett, and Mallorie Kerby are pleased to announce the passage of SB378/HB403. With Governor Lee’s signature expected but pending, the most substantial market-based cannabis legislation in Tennessee history will soon be in effect. In short, the new law brings consumer protection regulations to the hemp-derived product industry while allowing it to thrive and cement itself as a sustainable and substantial source of state revenue.
When Congress passed the Agriculture Improvement Act of 2018 (2018 Farm Bill), it legalized all hemp-derived cannabinoids and removed hemp-derived delta-8 and delta-10 THC from the federal list of controlled substances. However, without any parameters in state law, Tennessee found itself with a completely unregulated product market rife with false advertising, consumer misuse, and a sustained spike of non-lethal overdoses.
In 2022, a bill was filed by Senator Richard Briggs (R-Knoxville) and House Majority Leader William Lamberth (R-Portland) to completely prohibit the sale or possession of hemp-derived cannabinoids and make possession of such products a felony. Our public policy team was retained by Cultivate Tennessee, a newly founded organization of industry manufacturers and retailers from across the state, to block the prohibition effort and instead suggest and implement commonsense market guardrails.
Fairly quickly, the industry’s two greatest opponents became two of its greatest allies. Senator Briggs and Leader Lamberth quickly amended the prohibition bill to focus on the regulation and taxation of hemp-derived cannabinoid products, but the 2022 session ended before the measure could pass. The 2023 session, however, provided the necessary runway.
With the same sponsors focused on passing a consumer protection bill, the effort had even greater traction than in the previous year. In January 2023, they filed a new version of the bill, outlining stronger protections for Tennesseans. Over initial objections from the Tennessee Department of Agriculture, local law enforcement officials, the Tennessee Department of Safety, and the Tennessee Bureau of Investigation (TBI), substantial collaboration was eventually achieved, and the bill passed 92-3-1 in the House and 30-2 in the Senate.
New Consumer Protections
The new consumer protections are numerous. Some of the most essential protections include:
- Must be at least 21 years old to purchase.
- Products must be behind the counter in stores that are not 21 and up.
- Criminal penalties for bad actors selling to those under 21.
- Childproof packaging.
- Prohibiting cartoon or animal-shaped products if the product is intended for human consumption.
- List of ingredients.
- QR codes for batch dates and full panel reports on every product.
- Expiration date must be listed on the package.
The State Regulators: Departments of Agriculture & Revenue
The law establishes two new license types, the issuance of which will be overseen by the Department of Agriculture. The first, a “supplier” license, essentially encompasses those engaged in either manufacturing or wholesaling, and the “retailer” license covers those acting at the consumer point-of-sale. Each license is renewed on an annual basis.
Product composition results are required to be accessible via each package. The new law requires potency and full panel testing on all active cannabinoid molecules. The Department of Agriculture is also charged with promulgating product testing requirements and third-party laboratory regulations by July 1, 2024.
The Department of Revenue will have enforcement authority at the point of retail sale and collection of the 6% specialty tax in addition to the standard sales tax. Products that are out of compliance may be seized and destroyed by local or state law enforcement. Any retail establishment opened after December 31, 2023, is prohibited from being within 1,000 feet of a K-12 public or private school. The collection of the specialty tax as well as some of the regulatory requirements, such as the 21 and up and behind-the-counter requirements, will take effect July 1, 2023.
Estimated State Fiscal Impact
The final fiscal note stated that in the fiscal year 2023-24, the Department of Agriculture and the Department of Revenue could expect to collect approximately $13 million and the expenses incurred by the same departments and the TBI totaled about $1.3 million. Therefore, the state expects to net nearly $11.7 million, the majority of which would be placed into the state’s General Fund.
Cannabis regulation continues to evolve quickly. We encourage clients to monitor developments in the law on these issues closely. If you want more information about this or any other issues affecting the cannabis space, please reach out to the authors or any member of our Cannabis Practice Group.