Richmond-area CBD companies expect business to take a hit as hemp regulations loom

Jared Preston of Blossom, a CBD store in the Fan. (Jack Jacobs photo)

In a bid to save his business from what could prove to be devastating legislative changes, there’s a shift underway on the shelves of Jared Preston’s local CBD shop Blossom.

When the store first opened in the Fan in 2019, hemp-derived products such as cannabidiol edibles and oils figured more prominently in the store’s inventory, which also includes herbal products.

But then, state regulation began to creep in. It started last year when legislation was introduced in the General Assembly that would have created greater restrictions on hemp products. While that effort failed, Preston started to swap out CBD-based items in favor of handmade plant pots as a way to hedge against future regulatory attempts.

It took only another year for that future to arrive.

New hemp industry regulations passed last month by the General Assembly and awaiting Gov. Glenn Youngkin’s signature would further clear out the CBD-side of Blossom’s shelves. If signed into law, Preston said the pending legislation might even spell the end of his business, and has his local industry peers also pondering their futures.

The legislation would limit the amount of tetrahydrocannabinol (THC) allowed in hemp-derived products like edibles, tinctures and topicals to a total of no more than 0.3 percent and require them to be sold in packages that contain no more than 2 milligrams of THC.

Preston said those limitations would render the majority of the CBD products in his inventory illegal.

“Most of what I sell in the cannabinoid (CBD) space would have to be taken off or switched,” he said.

The proposed legislation would be stricter than existing federal rules that classify cannabis with no more than 0.3 percent of delta-9 THC as hemp. The new Virginia standard would create a hemp definition that encompasses a longer list of THC forms such as the increasingly popular delta-8.

Delta-9 is the substance in cannabis that provides the high associated with marijuana. Delta-8 has a similar intoxicating effect and has risen in prominence as an alternative.

Preston said his company’s revenue would take a major hit should the law be enacted as written. Without that revenue, he said he might close down the business, which has already been struggling since the start of COVID-19.

“This might be the final little kick that makes me close,” he said. “Because if you were to look at the numbers of my sales, at least 75 percent is full-spectrum or THC related.”

CBD products at Blossom in the Fan. (Jack Jacobs photo)

 

He said full-spectrum CBD products, which feature THC, would suffer the brunt of the regulations. Preston and other local business owners said that the full-spectrum style of CBD tends to be more popular with customers than CBD isolate or broad-spectrum types of CBD that lack THC.

Preston expects the new rules would turn more customers to online orders from out-of-state companies as an alternative source for the CBD products they seek.

“I feel like people will still buy the regular full-spectrum stuff online if they feel like it, because it’s still federally legal. It seems like something that really only affects Virginia businesses, maybe not even customers that much,” he said.

Evan Somogyi, owner of local CBD brand Kultivate Wellness, said he’s weighing an out-of-state move and shuttering of his Richmond-area retail stores should the legislation pass.

“It would make 90 percent of the products illegal. It would destroy our business,” he said.

Evan Somogyi, founder and owner of Kulture Smoke and Vape and Kultivate Wellness. (BizSense file)

While he wouldn’t say what states he’s considering for the move, Somogyi said the general plan would be to shutter the Kultivate stores (he has one in Short Pump that opened in 2020, and one in Chesterfield County that opened in 2018), as well as his four-location head shop chain Kulture Smoke and Vape, and revive the concepts outside Virginia.

Somogyi’s Kulture stores also rely on the Kultivate brand CBD products as a revenue stream, so they too would also be impacted by the legislation.

“When you take 90 percent of the business we created over the past five years and take it away, why would I stay in a state that doesn’t support my business and my family?” Somogyi said.

Somogyi isn’t the only local looking to make a run across the Virginia border.

Colonial Heights-based VGI Distribution, a distributor for CBD products as well as vapes and related items, is planning a move to North Carolina as a result of the pending legislation, owner Yan Gleyzer said.

“Our distribution side will have to move to another state. That’s 40 jobs we’re shipping away. We have plans to move to North Carolina and are in the process of getting a lease there,” he said.

Gleyzer also expects to relocate his CBD manufacturing company Chesterfield Hemp Co., which makes CBD pre-rolled joints, edibles, tinctures and other products to avoid the criminal penalties established by the legislation.

“They’re regulating an agricultural commodity far more than the federal government does. It puts Virginia at a disadvantage against other states. Virginia products will be inferior to everybody else’s,” he said.

Manufacturers such as Chesterfield Hemp Co. would have to revamp the packaging of hemp-derived products with THC to adapt to the new regulations, as most existing products have more THC than would be legal to sell in Virginia.

Gleyzer also owns local vape store chain The Vape Guys, which has four locations in the region. He expected that those stores would stay open but would stop selling CBD products as they do currently.

The primary driving force behind the new regulations is safety concerns. There’s been an increase in the number of children in Virginia who have visited emergency rooms due to ingesting cannabis products by accident, the Virginia Mercury reported.

The Virginia Sheriffs’ Association and several health organizations such as the Virginia Chapter of the American Academy of Pediatrics and the Virginia College of Emergency Physicians have voiced support for the legislation with those public safety reasons in mind.

Gov. Youngkin has indicated support for the hemp regulations, which passed in the General Assembly with bipartisan support.

The legislation was introduced as Senate Bill 903 and House Bill 2294. The House version’s chief patron is Del. Terry Kilgore (R-1st), and the chief patron of the Senate bill is Sen. Emmett Hanger (R-24th).

“The Governor has made cracking down on dangerous THC intoxicants, including those synthesized from hemp, a priority to protect public safety,” Youngkin spokeswoman Macaulay Porter said in an email last week.

The governor’s deadline to act on the legislation is March 27. The governor could sign the legislation into law, or choose to amend it and return it to the General Assembly for consideration.

“The final text of the bill is in review and the Administration is meeting with stakeholders. The Governor looks forward to the enhanced enforcement this will bring to keep dangerous intoxicants off the shelves and away from Virginia children,” Porter said.

Youngkin had not taken action on the legislation as of Friday afternoon, according to the state’s online legislative information system.

In addition to the THC limitations, the legislation would require retailers that want to sell “an industrial hemp extract or food containing an industrial hemp extract” to get a permit to do so. There isn’t currently a license requirement to sell hemp products, though other segments of the industry like manufacturing and growing require licenses.

The legislation would require CBD topical products to include a bittering agent.

The legislation includes packaging, labeling and testing requirements for hemp-based products. Among those requirements include child-resistant packaging and certifications that the products have been tested for their THC content.

Businesses that manufacture or sell hemp products without a permit would be subject to a fine of $10,000 every day, per the legislation. The fine would also be applied to businesses that sold CBD products that didn’t adhere to the proposed THC limits.

Looming new hemp regulations come as the General Assembly failed to pass legislation to stand up a recreational marijuana market in Virginia. Currently, the only legal pot sellers are the state-sanctioned medical cannabis providers. However it is legal to consume marijuana for recreational use and possess and grow small amounts of the plant.

Somogyi said legislators have cast too wide a net in their attempt to rein in a few bad apples from the CBD industry. He and others said they weren’t totally opposed to some regulations but felt the current proposal goes too far.

“The people who are doing it right are being punished by the bad actors. These convenience stores and tobacco and vape shops opening on every corner, they go to these warehouses and buy garbage,” he said.  “The problem with all this is they want to get rid of delta-8. That’s fine. Let us do everything else we’re doing.”


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