Bill Summary for H 563

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Summary date: 

Jun 21 2023

Bill Information:

View NCGA Bill Details2023-2024 Session
House Bill 563 (Public) Filed Tuesday, April 4, 2023
AN ACT TO REGULATE THE SALE AND DISTRIBUTION OF HEMP-DERIVED CONSUMABLE PRODUCTS, TO BAN THOSE PRODUCTS FROM SCHOOL GROUNDS, TO PLACE TIANEPTINE, XYLAZINE, AND KRATOM ON THE CONTROLLED SUBSTANCE SCHEDULES, TO CREATE THE OFFENSE OF CRIMINAL POSSESSION AND UNLAWFUL SALE OF EMBALMING FLUID AND TO MAKE OTHER TECHNICAL REVISIONS, AND TO CREATE NEW CRIMINAL OFFENSES FOR EXPOSING A CHILD TO A CONTROLLED SUBSTANCE.
Intro. by McNeely, Sasser, Cotham, Fontenot.

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Bill summary

House committee substitute to the 1st edition makes the following changes.

Parts I and V.

Substantially revises new GS Chapter 18D, now pertaining to regulation of hemp-derived consumable products (was, hemp-derived cannabinoid products) in Part I of the act, as discussed below. Part V of the act creates new GS Chapter 18E, pertaining to Regulation of Kratom Products and Processors, which is largely identical to the regulatory scheme set forth in GS Chapter 18D, except for the differences discussed below.  Removes references to the NC Alcoholic Beverage Control Commission (Commission) throughout new GS Chapter18D and replaces it with the Department of Revenue (Department). Makes conforming changes throughout new GS Chapter 18D for new term, "hemp-derived consumable products," and change from Commission to Department.

Enacts new 18D/E-101, creating the following four sales restrictions on hemp-derived consumable products and kratom products and processors: (1) knowingly, or having reason to know, sell a hemp-derived consumable product/kratom product to a person under 18 years of age; (2) knowingly, or having reason to know, distribute samples of hemp-derived consumable products/kratom products in or on a public street, sidewalk, or park; (3) engage in the business of selling hemp-derived consumable products/a kratom product without a valid license; and (4) (i) for GS 18D-101, knowingly, or having reason to know, sell at retail a hemp-derived consumable product that has a delta-9 tetrahydrocannabinol concentration of more than 0.3% on a dry weight basis or (ii) for GS 18E-101, knowingly, or having reason to know, sell at retail a kratom product that violates the provisions of GS18E-106 (limits on kratom products). Provides for civil penalties imposed by the Department ranging from a penalty of no more than $500 for the first violation to a penalty of no more than $2,000 and either suspension of the seller’s license for up to a year or revocation of the seller’s license for a fourth or subsequent violation within three years of the first violation. Permits the Department, in any case which the Department is entitled to suspend or revoke a seller's license, to accept from the seller an offer in compromise to pay a penalty of not more than $3,000. Specifies that the Department may either accept a compromise or revoke a license, but not both. Allows the Department to accept a compromise and suspend the license in the same case.

Provides for three listed defenses, including (1) demonstrating that the purchaser produced identification showing their age to be the required age for purchase and bearing a physical description of the person named on the card that reasonably describes the purchaser or (2) production of other facts that reasonably indicated that at the time of sale, the purchaser was at least the required age.  Retains civil penalty provision and forfeiture authorization from prior version and applies it to new GS Chapter 18E.

Amends new GS 18D/18E-102, offenses involving the purchase, attempted purchase, or possession of hemp-derived consumable products/kratom products by a person under 18 years of age, as follows. Makes it unlawful for: (1) any person to give hemp-derived consumable products/kratom products to any person under 18 without the consent of the person’s parent or guardian; (2) any person under 18 to purchase, or attempt to purchase, any hemp-derived consumable products/kratom products; (3) for any person to enter or attempt to enter a place where hemp-derived consumable products/kratom products are sold or to obtain, or attempt to obtain hemp-derived consumable products/kratom products by using fraudulent identification; and (4) for any person to allow their identification to be used by any other person attempting to purchase hemp-derived consumable products/kratom products if they are under 18. Specifies that if the person is under 18, they are guilty of a Class 2 misdemeanor and if they are over 18, they are guilty of a Class 1 misdemeanor. Provides for aiding and abetting liability.

Specifies that the act is not intended to prohibit an underage person from selling, transporting, or possessing hemp-derived consumable products/kratom products in the course of employment, if the employment of the person for that purpose is lawful under applicable youth employment statutes.

Amends new 18D/E-103, creating three offenses involving the manufacture and distribution of hemp-derived consumable products and kratom products and processors: (1) knowingly, or having reason to know, distribute samples of any hemp-derived consumable products/kratom products in or on a public street, sidewalk, or park; (2) engage in the business of manufacturing or distributing hemp-derived consumable products/kratom products without a valid license; or (3) (i) knowingly, or having reason to know, manufacture or distribute a hemp-derived consumable product that has a delta-9 tetrahydrocannabinol concentration of more than 0.3% on a dry weight basis or (ii) knowingly, or having reason to know, manufacture or distribute a kratom product that violates the provisions of GS 18E-106 (product limits). Specifies that violation is a Class A1 misdemeanor. Specifies that in addition to any criminal punishment, a violation must result in the Department imposing one or more of four listed civil penalties against the licensee including suspension of their license for not more than three years, revocation of licenses, and monetary penalties ranging from $1,000 for the first violation to $7,500 for a third violation within three years of the first violation.  Provides for offers in compromise of not more than $8,000 in cases where the Department is entitled to suspend or revoke a seller’s compromise. Allows the Department to accept a compromise and suspend the license in the same case, but not to revoke a license if an offer in compromise is accepted.  Directs that the clear proceeds of any civil penalty be remitted to the Civil Penalty and Forfeiture Fund. Authorizes forfeiture of products sold in violation of the bar on hemp-derived consumable products that have a delta-9 tetrahydrocannabinol concentration of more than three tenths of one percent (0.3%) on a dry weight basis or kratom products that are sold in violation of GS 18E-106.

For violations pertaining to the manufacture and/or distribution of hemp-derived consumable products that have a delta-9 tetrahydrocannabinol concentration of more than 0.3% on a dry weight basis (GS 18D-103), creates a defense if the manufacturer does all of the following: (1) recalls all hemp-derived consumable products from the same batch as the product on which the violation is based; (2) has samples of the batch tested by an independent testing laboratory (provides for minimum sample sizes); and (3) provides certified results from the independent testing laboratory indicating that the sample tested does not contain a delta-9 tetrahydrocannabinol concentration of more than 0.3% on a dry weight basis.

Amends new GS 18D/E-105, setting forth seven licensure requirements for persons or entities in the business of manufacturing, distributing, or selling hemp-derived consumable products/kratom products, including that the applicant be at least 18 years of age, not have been convicted of a felony related to a controlled substance within 10 years in any state or federal jurisdiction, and that they consent to reasonable inspection and the taking of reasonable samples by the Alcohol Law Enforcement (ALE) Division of the person’s inventory of hemp-derived consumable products/kratom products. Sets forth application fee schedule as follows: (1) for a manufacturer’s license, $5,000; (2) distributor license, $2,500; (3) retail sales license, $100 per location with a cap of $2,500 with a requirement that the applicant submit a list of all locations to the Department; (4) online sales license, $100 per location with a cap of $2,500 with a requirement that the applicant submit a list of all internet websites to the Department.

Specifies that the license is valid for one year and sets forth fee renewal schedule as follows; (1) $1,000 for a manufacturer’s license; (2) $750 for a distributor license; and (3) the same amount as the initial application fee for retail licenses.

Authorizes the Department to adopt, amend, and repeal rules to carry out the provisions of GS Chapter 18D/E. Provides for distribution of revenue collected from fees to the ALE Division to cover its costs in enforcing GS Chapter 18D/E.  Exempts businesses with permits issued under GS 18B-1001 (ABC permits) or GS 90-85.21 (pharmacy permits) from the licensure requirements of GS 18D/E to sell hemp-derived consumable products/kratom products. Specifies that such businesses are still subject to the other provisions of GS 18D/E.

Makes organizational, conforming, and technical changes.

For processors and distributors of kratom products licensed under GS 18E-105, requires them to register all kratom products they offer for sale in the State with the Department. Specifies that the registration must include any information that the Department deems necessary to ensure compliance with the provisions of GS Chapter 18E. Requires the Department to require the processor or distributor, upon receipt of any adverse event report related to a product manufactured or distributed by that processor or distributor, to submit a copy of the adverse event report, as required under 21 U.S.C. 49 §379aa-1, to the Department within 30 days. If the processor or distributor does not submit a copy of the adverse event report within the time allotted, requires that the registration for that product must be revoked and the license for that processor or distributor must be suspended or revoked, at the discretion of the Department.

Provides for forfeiture of property that has not been previously seized pursuant to an arrest or search in conjunction with certain alleged violations of GS 18D/E-101 by application to the court for an order authorizing seizure of such property. Specifies that an order for seizure can only issue after criminal process has been issued for any of those alleged violations.

Part I.

In addition to statutory provisions set forth above, makes the following changes to new GS Chapter 18D. Adds new defined terms cannabinoid, department, distributor, hemp, hemp-derived consumer product, hemp-derived psychoactive cannabinoid, hemp product, independent testing laboratory, ingestion, inhalation, license, manufacturer, and seller. Removes defined terms commission, hemp-derived cannabinoid, and proof of age. Changes definition of batch to the hemp-derived consumable product produced during a period of time under similar conditions and identified by a specific code that allows traceability. (Was, a single stock keeping unit with common cannabinoid input or a hemp flower of the same varietal and harvested on the same date manufactured during a defined cycle in such a way that it could be expected to be of a uniform character and should be designated as such.)

Amends GS 18D-106 (testing requirements prior to distribution of a hemp-derived consumable product) to add that the tests run on such products must also test for any other controlled substance, in addition to six other listed things that must be tested for. Provides for required sample sizes based on the size of the batch for batch testing. Makes conforming changes. Amends GS 18D-107 (setting forth additional requirements and restrictions for hemp-derived consumable products) as follows. Changes the cap on the amount of milligrams per serving of an ingestible from 75 milligrams to 200 milligrams of hemp-derived cannabinoids. Makes clarifying changes.

Changes the effective date to July 1, 2024 (was, October 1, 2023).

Part II.

Deletes proposed changes to GS 18B-500(b)(1) and repeal of GS 90-87(13). Repeals instead of amending GS 90-94.1 (exemption for use or possession of hemp extract). Effective July 1, 2023, and applies to offenses committed on or after that date.

Part III.

Amends the appropriation provision to specify that once the $2 million provided to the ALE Division has been exhausted, the fees remitted to the Division pursuant to GS 18D-105 should be used to support the new full-time positions on a recurring basis. Also specifies that any nonrecurring funds appropriated by this section for the 2023-24 fiscal year that remain unexpended at the end of the 2023-24 fiscal year will not revert at the end of the 2023-24 fiscal year and will remain available for expenditure for the purpose for which the funds were appropriated until the funds are expended.

Part IV.

Amends Article 29A of GS Chapter 115C so that it also requires a policy prohibiting the use of hemp-derived consumable products, in addition to tobacco.  Changes the entity responsible for adopting such written policies from the local boards of education to the governing bodies of public school units under GS 115C-407. Removes duties to implement and enforce such policies. Makes conforming changes.

Enacts new GS 115C-407.1 (policy prohibiting the use of hemp-derived consumable products in school buildings, grounds, and at school sponsored events), as follows. Requires governing bodies of public school units to adopt a written policy prohibiting at all times the use of any hemp-derived consumable product by any person in school buildings, in school facilities, on school campuses, and in or on any other school property owned or operated by the public school unit. Requires the policy to further prohibit the use of all hemp-derived consumable products by persons attending a school-sponsored event at any other location when in the presence of students or school personnel or in an area where the use of hemp-derived consumable products is otherwise prohibited by law. Requires the policy to include at least the following: (1) adequate notice to students, parents, the public, and school personnel of the policy; (2) posting of signs prohibiting at all times the use of hemp-derived consumable products by any person in and on school property; and (3) requirements that school personnel enforce the policy.

Authorizes hemp-derived consumable products to be included in instructional or research activities in public school buildings if the activity is conducted or supervised by the faculty member overseeing the instruction or research and the activity does not include smoking, chewing, or otherwise ingesting or inhaling the hemp-derived consumable product.  Specifies that local school units can adopt and enforce a more restrictive policy on the hemp-derived consumable products in school buildings, in school facilities on school campuses, or at school-related or school-sponsored events, and in or on other school property.

Requires charter schools, regional schools, schools for students with visual and hearing impairments, and UNC lab schools to adopt a policy in conformity with the requirements discussed above.  Makes conforming change to Section 6(d) of SL 2018-32 (renewal school system plans) to account for increased scope of mandatory tobacco/hemp-derived consumable products policy.

Applies beginning with the 2023-24 school year.

Part V.

In addition to statutory provisions set forth above, does the following as part of new GS Chapter 18E. Defines terms department, distributor, processor, kratom product, and seller. Prohibits a kratom processor, distributor, or seller from preparing, manufacturing, distributing, or offering for sale any of six listed types of kratom products.  Enacts new GS 18E-104 and GS 18E-108, which is identical to GS 18D-104’s enforcement provisions and GS 18D-109’s statutory construction provisions, respectively. Makes conforming change to GS 18B-500(b) as amended by the act to refer to new GS Chapter 18E. Effective date of GS Chapter 18E is July 1, 2024, and applies to all kratom products possessed, sold, distributed, processed, or manufactured on or after that date, and to all offenses committed on or after that date.

Part VI.

Now requires the Department to establish guidance to parties regulated by the provisions of GS Chapter 18D and GS Chapter 18E as enacted by the act. Specifies that the Department must adopt and amend rules prior to July 1, 2024; however, no rule may become effective until on or after that date. Requires the Department to provide and accept applications for licensure, and issue licenses in accordance with GS Chapters 18D and 18E prior to July 1, 2024, in order that licensees may be in compliance on July 1, 2024. Specifies that no license issued by the Department will become effective prior to July 1, 2024. Authorizes the Department to use the procedure set forth in GS 150B-21.1 (APA procedure for temporary rules) to adopt or amend any rules as required by the act.

Now requires the Department of Public Safety (DPS), solo (was the Board of Agriculture, DPS, and the ABC Commission), to adopt rules  consistent with the provisions of the act. Allows for the APA procedures pertaining to temporary rules to apply to the rules adopted or amended by those entities.

Changes the general effective date to when the act becomes law.

Makes conforming changes to the act's titles.