Seven Problems with the DSHS Proposed Rules

Our hemp attorneys recently sat down to identify seven issues with the Texas Department of State Health Services (“DSHS”) Proposed Rules for Texas’ consumable hemp program. If you are a consumable hemp manufacturer, processor, distributor, or retailer, it is not too late to submit your comments directly to DSHS. Comments can be submitted to DSHS until June 7, 2020.

Comments on the DSHS Proposed Rules may be submitted by email to [email protected]. When emailing comments, please indicate “Comments on Proposed Rule 19R074 Hemp Program” in the subject line. Written comments on the proposal may also be submitted to Rod Moline, Ph.D., R.S., Section Director, Mail Code 1987, Texas Department of State Health Services, P.O. Box 149347, Austin, Texas 78714-9347.

1. RETAIL BAN OF SMOKABLE HEMP PRODUCTS

Texas law currently prohibits the processing or manufacturing of a consumable hemp product for smoking. Tex. Health & Safety Code § 443.204 (4). Under the DSHS Proposed Rules, DSHS intends to ban retail sale of consumable hemp products for smoking, despite the fact that the Texas Legislature did not do so.  

Why is it a problem?

A ban on retail sale of smokable hemp products would negatively impact Texas growers and retailers who were expecting to generate significant revenue from smokable hemp products. As most hemp growers know, the bud is generally the most lucrative portion of the plant and retail stores see a large revenue share from the flower market. 

If DSHS implements its retail rule in its Final Rules, it is likely that a legal challenge will result. 

2. HARMFUL PATHOGENIC MICROORGANISM TESTING

Texas law currently requires testing for harmful microorganisms. Tex. Health & Safety Code § 443.151. In drafting its Proposed Rules, DSHS requires testing for harmful “pathogens” and has defined that term as “a microorganism of public health significance, including molds, yeasts, Listeria monocytogenes, Campylobacter, Salmonella, E. coli, Yersinia, or Staphylococcus.”

Why is this a burdensome requirement?

Several of the above-identified pathogen testing panels are extremely cost-prohibitive. Additionally, it is nearly impossible for some of the identified pathogens to present in a marketable consumable hemp product. For example, Campylobacter typically presents on raw chicken and milk products. Setting that aside, it is quite probative that even some food manufacturers do not have to abide by these testing standards. While food safety is always the proper purview of DSHS, the rules could be more appropriately adapted to target specific consumable hemp products where the risk of the pathogen presenting is much higher. 

3. WHAT CONSTITUTES “RETAIL”?

Neither the Texas statute nor the DSHS Proposed Rules provide a definition for the term “retail.” This is important because there are regulatory agencies in other states who have interpreted retail sales in their respective statutes to include e-commerce sellers. If DSHS intends to include e-commerce only enterprises, including out-of-state e-commerce sellers, it needs to provide clarity on what constitutes “retail.” 

4. MULTIPLE RETAIL LOCATION REGISTRATION FEES

The DSHS Proposed Rules require annual registration of each retail location selling consumable hemp products. Texas law is quite clear that DSHS may issue a single registration covering multiple locations. (“The department may issue a single registration under Subsection (b) covering multiple locations owned, operated, or controlled by a person.”  Tex. Health & Safety Code § 443.2025). In lieu of following that statutory guidance, DSHS has elected to require multiple registrations, to the tune of $150 per location, to be renewed annually. 

Why is this troublesome for retailers?

If you own 10 retail stores in Texas, you must annually register and pay the $150 registration or renewal fee to DSHS for each of your 10 retail stores, totaling $1,500 in fees per year. These annual fees will certainly be exorbitant for large companies that may sell consumable hemp products in Texas, such as CVS or HEB. For example, if CVS owns 500 retail stores in Texas, total annual fees of $75,000 would be required. As we know from both the medical and recreational cannabis realms, tracking multiple licenses with differing renewal dates can be a difficult enterprise.  

5. “GOOD STANDING” WITH DSHS

As criteria for annually renewing your retail registration with DSHS, the DSHS Proposed Rules requires you to remain in “good standing” with DSHS. What exactly does this mean?

Because the phrase “good standing” is undefined in the DSHS Proposed Rules, your guess is as good as ours. This subjective and ambiguous requirement should concern Texas retailers of consumable hemp products. If you ordered a Texas birth certificate from DSHS 10 years ago but forgot to pay for it in its entirety, does this mean you are currently not in “good standing” with DSHS? Although this hypothetical illustrates an unlikely scenario, it certainly demonstrates the ambiguity of this provision.  

Why is it a problem?

If you are not in “good standing” with DSHS, your retail registration could be denied, thus precluding you from selling consumable hemp products. For denial of retail registration, DSHS should be required to follow definitive guidelines and to define what “good standing” with DSHS constitutes.

6. ONEROUS LABELING REQUIREMENTS FOR RETAILERS

According to the DSHS Proposed Rules, all consumable hemp products marketed as containing CBD must be labeled with the following information: product name; name of the product’s manufacturer; telephone number and email address of manufacturer; lot identification number; lot date; and the product’s respective Certificate of Analysis. This information can be displayed on a label in the form of a URL linking to the manufacturer’s website and a QR code that can be scanned that leads to the product’s information.

Currently, Texas law has no requirement that a consumable hemp product label includes its manufacturer’s telephone number and email address. Although this seems like a minor addition by DSHS, it forces retailers to provide even more information on each individual consumable hemp product it sells or intends to sell. The more labeling requirements imposed, the more expensive the labeling and packaging process is for retailers. In a world where spam email is out of control, it is not prudent to require email address disclosure on the label. The consumer would already have, by statute, the manufacture’s name, who would be registered with DSHS. Thus, in the event of a consumer claim or adverse event, there would be no issue tracking down the manufacturer. 

7. SALES OF PRODUCTS MANUFACTURED OUT-OF-STATE 

If you are a retailer selling consumable hemp products that are processed or manufactured in another state, DSHS requires you, upon request, “submit to the department evidence” that these products were processed or manufactured in compliance with a state’s hemp production plan as approved by the USDA or a foreign jurisdiction’s laws if the products are tested in accordance with the DSHS testing provisions and comply with federal regulations. 

Why is this an issue?

Current Texas law permits retail sale of out-of-state processed or manufactured consumable hemp products:

Retail sales of consumable hemp products processed or manufactured outside of this state may be made in this state when the products were processed or manufactured in another state or jurisdiction in compliance with:

(1) that state or jurisdiction’s plan approved by the United States Department of Agriculture under 7 U.S.C. Section 1639p;

(2) a plan established under 7 U.S.C. Section 1639q if that plan applies to the state or jurisdiction; or

(3) the laws of that state or jurisdiction if the products are tested in accordance with, or in a manner similar to, Section 443.151.

Tex. Health & Safety Code § 443.206. The statute in no way places the burden on the individual retailer to provide information to DSHS proving that the product is produced in accordance with the above. DSHS imposes the additional burden that, upon its request, retailers must submit evidence of compliance in regard to their out-of-state processed or manufactured consumable hemp products. Additionally,, it is unclear what exactly this evidence entails. DSHS needs to provide more clarity on this provision. Of note, the majority of states in the nation with hemp programs that permit sale of hemp-derivative products freely engage in interstate commerce without placing the burden on individual retailers to prove their products are eligible for sale. 

If you are a consumable hemp manufacturer, processor, distributor, or retailer, these rules directly impact you. Currently, the best way to voice your opinion to DSHS on the Proposed Rules is to submit comments during the 31-day window for public comment, which is open until Sunday, June 7, 2020. For purposes of this blog, we chose our top seven; however, there are certainly others.

Ritter Spencer, PLLCSeven Problems with the DSHS Proposed Rules

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