Title of Regulation: 18VAC110-60. Regulations Governing Pharmaceutical Processors (amending 18VAC110-60-280).

Statutory Authority: §§ 54.1-2400 and 54.1-3447 of the Code of Virginia.

Public Hearing Information: No public hearings are currently scheduled.

Public Comment Deadline: March 3, 2021.

Effective Date: March 18, 2021.

Agency Contact: Caroline Juran, RPh, Executive Director, Board of Pharmacy, 9960 Mayland Drive, Suite 300, Richmond, VA 23233, telephone (804) 367-4456, FAX (804) 527-4472, or email caroline.juran@dhp.virginia.gov.

Basis: Regulations are promulgated under the general authority of § 54.1-2400 of the Code of Virginia, which provides the Board of Pharmacy the authority to promulgate regulations to administer the regulatory system. The specific language relating to use of industrial hemp extract by processors is found in §§ 54.1-3408.3 and 54.1-3442.6 of the Code of Virginia.

Purpose: Consistent with the specific provisions of § 54.1-3442.6 of the Code of Virginia, regulations specify that oil from industrial hemp must be subject to the same testing standards as those required for cannabis plant extract. Since the product (cannabis oil) may contain oil from industrial hemp, it is essential that the product comply with the same rigorous testing to ensure it can safely be consumed by a patient. The regulation also requires proper storage and handling of hemp oil that will allow a processor to trace the source of such oil in case of a recall. Testing, recordkeeping, and storage and handling standards are necessary to protect public health and safety in the same way in which standards for compounding drugs are intended to protect patients.

Rationale for Using Fast-Track Rulemaking Process: Chapter 928 of the 2020 Acts of Assembly authorizes pharmaceutical processors to acquire oil from industrial hemp extract in to be used in formulations of cannabis oil for dispensing to patients. While most of the amendments to 18VAC110-60-280 are conforming the regulation to changes in the law, there are additional requirements relating to recordkeeping and storage and handling that are authorized but not specified in the statute. Therefore, this regulation was deemed appropriate for fast-track rulemaking process but not as an exempt action. Since the law authorizes processors to acquire and utilize industrial hemp oil as of July 1, 2020, it is important to implement this regulation as soon as possible. Processors are aware of this regulation, and it is not expected to be controversial.

Substance: Regulations for pharmaceutical processors to use oil from industrial hemp extract are consistent with provisions of subsection I of § 54.1-3442.6 of the Code of Virginia, which requires acquisition from a registered hemp dealer or processor in Virginia and third-party testing of the hemp product by the same testing requirements as those for cannabis plant testing. The regulation also (i) specifies the content of records relating to such acquisition and the time period for maintenance of the record and (ii) requires policies and procedures for proper storage and handling of the oil, including a process to follow in case of a recall of a product.

Issues: There are no primary advantages or disadvantages to the public. The advantage for hemp growers and dealers is the creation of a new market for their product. The advantage to the processors is the availability of hemp oil to be added to the oil produced from the Cannabis grown in the facility. There are no advantages or disadvantages to the agency or the Commonwealth.

Issues: There are no primary advantages or disadvantages to the public. The advantage for hemp growers and dealers is the creation of a new market for their product. The advantage to the processors is the availability of hemp oil to be added to the oil produced from the Cannabis grown in the facility. There are no advantages or disadvantages to the agency or the Commonwealth.

Department of Planning and Budget's Economic Impact Analysis:

Summary of the Proposed Amendments to Regulation. Chapter 928 (HB1670) of the 2020 Acts of Assembly¹ authorized pharmaceutical processors to acquire oil from industrial hemp extract to be used in formulating cannabis oil for dispensing to patients and requires the same third-party testing requirements for industrial hemp extracts as those for cannabis plant extract. The Board of Pharmacy (Board) proposes to incorporate this legislative change in the regulations. In addition, the Board proposes discretionary changes to further ensure patient safety. These include specifying the content of records relating to such acquisition and the time period for maintenance of the record and requiring policies and procedures for proper storage and handling of the oil, including a process to follow in case of a recall of a product.

Background. Cannabis oil can be extracted from both marijuana and hemp. Both of these are types of the Cannabis sativa family, which are annual flowering plants. Both varieties can contain cannabidiol (CBD), but marijuana contains higher amounts of Tetrahydrocannabinol (THC). THC is one of many cannabinoids identified in cannabis and is the principal psychoactive constituent (the chemical that produces an intoxicated feeling). The federal 2018 Farm Bill considers Cannabis sativa plants with less than 0.3 percent THC to be hemp or industrial hemp. In Virginia, industrial hemp growers, dealers, and processors are regulated separately from pharmaceutical processors. The Virginia Department of Agriculture and Consumer Services (VDACS) administers a registration program for industrial hemp under the Virginia Industrial Hemp Law² while the Board regulates the pharmaceutical processors.

The 2020 General Assembly authorized pharmaceutical processors to acquire oil from industrial hemp extract to be used in formulating cannabis oil for dispensing to patients as of July 1, 2020. The Board proposes to incorporate this legislative change in the regulations.

Estimated Benefits and Costs. Industrial hemp extract, which may have no more than 0.3 percent THC, can be produced from industrial hemp and can be used by pharmaceutical processors in formulations of cannabis oil with higher THC content for dispensing to patients. In economic terminology, that means there is some degree of possible substitution between hemp and marijuana flower extracts. Pursuant to the 2020 legislation, the proposed regulation would allow pharmaceutical processors to purchase hemp extract from industrial hemp dealers or processors.³ Pharmaceutical processors would likely take advantage of this option if it is economically advantageous. In other words, pharmaceutical processors would be inclined to purchase hemp extract from industrial hemp dealers or processors if doing so is cheaper than the cost of obtaining the marijuana extract by growing it themselves. Generally speaking, that appears to be the case.

This option made possible by the new legislation would allow pharmaceutical processors to reduce their cost of production and create a new market for industrial hemp. The trade would take place only if it is economically advantageous to both parties. Currently there are four licensed pharmaceutical processors in Virginia. Only one of them is actively selling cannabis oil products. The other three are in the startup phase. There are approximately 1,200 registered growers and 337 processors of industrial hemp. However, only 17 of the registered industrial hemp processors have been approved to produce food grade hemp extract, which is the most likely version of the hemp extract that pharmaceutical processors may be interested in purchasing.

The proposed regulation is beneficial because it would allow pharmaceutical processors to acquire suitable hemp extract at lower cost, which may help to bring cannabis oil to market at lower prices than otherwise would be possible. Such sales would also benefit participating industrial hemp processors.

The size of benefits from this proposed change would depend on the magnitude of the quantity and the market value of hemp extract that may be purchased by the pharmaceutical processors. However, there is no data available to estimate the quantity or the market value of hemp extract that may be purchased by the pharmaceutical processors. Currently, there are approximately 7,000 registered users of cannabis oil, but the market appears to be in its infancy and growing fast.

In addition, the Board proposes to specify the content of records relating to such acquisition and the time period for maintenance of the record; and require policies and procedures for proper storage and handling of the oil, including a process to follow in case of a recall of a product. These particular changes are not expected to create any significant economic effects as the processors are already required to maintain records. However, the proposed clarification may improve compliance and help with recalls to avoid some adverse health consequences should a health risk arise with a particular product.

Businesses and Other Entities Affected. The proposed regulation would directly affect four licensed pharmaceutical processors (only one of whom is currently selling cannabis oil products while the other three are in the process of setting up their operations) and approximately 17 food grade industrial hemp processors. To the extent the legislative change creates a new market for the use of industrial hemp and allows pharmaceutical processors to acquire CBD extract at lower cost and reduce cannabis oil product prices, approximately 1,200 hemp growers and over 7,000 cannabis oil consumers may be indirectly affected.⁴ None of these entities appear to be disproportionately affected.

Small Businesses⁵ Affected: DHP believes one of the four pharmaceutical processors likely qualifies as a small business. However, the proposed amendments do not appear to adversely affect small businesses.

Localities⁶ Affected:⁷The proposed amendments do not affect or introduce costs for local governments.

Projected Impact on Employment. The proposed amendments would allow pharmaceutical processors to purchase CBD extract from industrial hemp processors rather than produce it themselves. This may add to demand for labor in the hemp industry while having an offsetting effect on demand by the pharmaceutical processors. The net impact on total employment is unlikely to be significant.

Effects on the Use and Value of Private Property. To the extent pharmaceutical processors purchase CBD extract from the hemp industry, there may be an increase in the demand for and the use of farm land for hemp production and an increase in the value of such land as well as an increase in the asset values of hemp processors. An increase in the asset values of pharmaceutical processors may also be expected due to enabling them to acquire CBD extract at lower cost than otherwise would be possible.

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¹ https://lis.virginia.gov/cgi-bin/legp604.exe?201 ful CHAP0928

² https://law.lis.virginia.gov/vacode/title3.2/chapter41.1/

³ Although hemp seed oil is extracted from hemp seeds for other uses, it is the extract from the flowers of the hemp plant that is suitable for cannabis oil products.

⁴ Data source: DHP and VDACS

⁵ Pursuant to § 2.2-4007.04 of the Code of Virginia, small business is defined as "a business entity, including its affiliates, that (i) is independently owned and operated and (ii) employs fewer than 500 full-time employees or has gross annual sales of less than $6 million."

⁶ "Locality" can refer to either local governments or the locations in the Commonwealth where the activities relevant to the regulatory change are most likely to occur.

⁷ § 2.2-4007.04 defines "particularly affected" as bearing disproportionate material impact.

Agency's Response to the Economic Impact Analysis: The Board of Pharmacy concurs with the economic impact analysis of the Department of Planning and Budget.

Summary:

Amendments (i) conform the regulation to § 54.1-3442.6 of the Code of Virginia, which requires acquisition from a registered hemp dealer or processor in Virginia and third-party testing of the hemp product by the same testing requirements as those for cannabis plant testing; (ii) specify the content of records relating to such acquisition and the time period for maintenance of the record; and (iii) require policies and procedures for proper storage and handling of the oil, including a process to follow in case of a recall of a product.

18VAC110-60-280. Cultivation and production of cannabis oil.

A. No cannabis oil shall have had pesticide chemicals or petroleum-based solvents used during the cultivation, extraction, production, or manufacturing process, except that the board may authorize the use of pesticide chemicals for purposes of addressing an infestation that could result in a catastrophic loss of Cannabis crops.

B. Cultivation methods for Cannabis plants and extraction methods used to produce the cannabis oil shall be performed in a manner deemed safe and effective based on current standards or scientific literature.

C. Any Cannabis plant, seed, parts of plant, extract, or cannabis oil not in compliance with this section shall be deemed adulterated.

D. A pharmaceutical processor may acquire oil from industrial hemp extract for the purpose of formulating such oil extract with cannabis plant extract into allowable dosages of cannabis oil provided:

1. The pharmaceutical processor acquires the oil from industrial hemp extract processed in Virginia and in compliance with state or federal law from a registered industrial hemp dealer or processor;

2. The oil from industrial hemp acquired by a pharmaceutical processor is subject to the same third-party testing requirements applicable to cannabis plant extract as verified by testing performed by a laboratory located in Virginia and in compliance with state law; and

3. The industrial hemp dealer or processor provides such third-party testing results to the pharmaceutical processor before oil from industrial hemp is acquired.

E. A pharmaceutical processor acquiring oil from industrial hemp extract shall ensure receipt of a record of the transaction that shows the date of distribution, the names and addresses of the registered industrial hemp dealer or processor distributing the product and the pharmaceutical processor receiving the product, and the kind and quantity of product being distributed. The record of the transaction shall be maintained by the pharmaceutical processor with its records of receipt. Such records shall be maintained by each pharmaceutical processor for three years.

F. A pharmaceutical processor shall maintain policies and procedures for the proper storage and handling of oil from industrial hemp extract, to include a process for executing or responding to mandatory and voluntary recalls in a manner that complies with 18VAC110-60-250.