Krista Quarles or Julie Brooks

This administrative regulation establishes the requirements for retail sale of hemp-derived cannabinoid products, and methods for use of hemp-derived cannabinoid as an additive to food products. The amended after comments version clarifies that all retailers registered with the department prior to December 31, 2024, will be exempted from the permit fee for one year and exempted from the location requirements, adds that retailers permitted by the department will be exempted from the special event permit fee, revises the enforcement procedures to allow due process proceedings, if requested, to be requested before seized products are destroyed, and makes other changes for compliance with KRS chapter 13A.

This new administrative regulation is necessary because many hemp-derived cannabinoid products sold in Kentucky remain unregulated by both the state and the federal Food and Drug Administration. Some products containing hemp-derived cannabinoids have concentrations that produce a psychoactive effect and are unsafe if consumed in large quantities. This administrative regulation is necessary to ensure that all hemp-derived cannabinoid products produced and sold in the state are safe for human consumption, and are not targeted for sale to persons under the age of twenty-one (21).

KRS 217.125(1) authorizes the secretary of the Cabinet for Health and Family Services to promulgate administrative regulations for the efficient administration and enforcement of the Kentucky Food, Drug and Cosmetic Act, KRS 217.005 through 217.215. KRS 217.125(2) requires the secretary to provide by administrative regulation a schedule of fees for permits to operate and for inspection activities carried out by the cabinet pursuant to KRS 217.025 through 217.390. KRS 217.135 authorizes the secretary to establish food standards by administrative regulation including a reasonable definition, standard of identity, and designation of optional ingredients that shall be named on the label. KRS 217.155 allows the cabinet or its duly authorized agent free access at reasonable times for the purpose of inspection any factory, warehouse, or establishment where foods, drugs, devices, or cosmetics are manufactured or held for sale.

This new administrative regulation will ensure proper oversight of the sale of hemp-derived cannabinoids and will help to ensure these products are safe for human consumption.

This is a new administrative regulation.

This is a new administrative regulation.

This is a new administrative regulation.

This is a new administrative regulation.

The department is unsure of the total number of retail establishments offering hemp-derived cannabinoids for sale at this time.

Retail establishments and food service establishments will need to be aware of the registration requirements, will need to ensure the products are properly labeled and registered with the department, will need to obtain the required paperwork, and will need to take the necessary precautions to limit the sale of adult use products to individuals under the age of twenty-one (21).

Retail establishments that offer adult-use cannabinoid products will pay a $2,000 permit fee. The retail establishment has the option of registering the product for the processor or manufacturer and may have a cost associated with that process.

Retail establishments and food service establishments will be able to ensure the products offered to consumers are safe for human consumption.

The current budget for the food manufacturing permitting and inspection program is $1,080,900. The increase in required permitting and inspection processes to implement this administrative regulation will cost the department an additional $1,551,397 in the first year.

The department will continue to need an additional $1,551,397, at a minimum, in subsequent years. An increase in permitted facilities requiring inspection will result in increased costs.

State general fund dollars and revenue received from permitting and product registration are the sources of funding for this administrative regulation.

An increase in fees and funding is necessary to implement the registration, permitting and inspection requirements of this new administrative regulation.

This new administrative regulation does establish a new fee for retail establishments that offer adult-use cannabinoid products for sale. This increase is necessary to help offset the costs associated with the registration, permitting, and inspection processes.

Tiering is applied. Only retail establishments that offer adult-use cannabinoid products are required to register with the department. However, all products sold are to be in compliance with this administrative regulation.

KRS 217.125, 217.127, 217.135, and 217.155.

The Department for Public Health, Division of Public Health Protection and Safety is the promulgating agency. The department has coordinated with the Department of Alcoholic Beverage Control in the Public Protection Cabinet for retail inspection activities.

Expenditures for the department to implement this administrative regulation will be approximately $1,551,397 per year.

The amount of revenue cannot be determined. While retail establishments are required to register with the department, they are not assessed a fee at this time and less than 100 stores are registered.

This administrative regulation does not generate cost savings.

Expenditures in subsequent years will be dependent on changes in the salary, fringe, and benefit cost. Changes in revenue cost in subsequent years will be dependent on the number of permits issued and the number of products registered.

Local law enforcement entities may be affected by this administrative regulation.

The department is not able to calculate the expenditures for affected local entities at this time.

This administrative regulation will not generate revenue for affected local entities.

This administrative regulation does not result in cost savings.

The department is not able to determine changes in expenditures, revenues or cost savings for affected local entities.

Additional regulated entities include retail establishments and food service establishments that offer cannabinoid products for sale.

The expenditure for retail establishments that sell adult-use cannabinoid products will be $2,000 per year to obtain a permit from the department. Food service establishments will pay the permit fee according to 902 KAR 45:110.

The total revenue for retail establishments and food service establishments cannot be determined.

This administrative regulation does not result in cost savings.

The expenditures will not change in subsequent years without an amendment to this administrative regulation.

This administrative regulation may generate 1.4 million in revenue. Additional revenue will be generated by the product registration fee, but that total cannot be determined at this time. The cost to the department to administer this administrative regulation is $1,551,397.

The total range for the potential revenue was calculated by multiplying the approximate number of retail locations that sell adult-use products by the suggested permit fee of $2,000. If the approximate number of retail locations that sell adult use products is 700 the multiplying that by the $2,000 permit fee equals $1,400,000. The total expenditure was calculated based on the need for thirteen (13) additional environmental management staff to oversee the permitting and inspection activities. The thirteen (13) additional staff include a branch manager, administrative support staff, two (2) supervisors, two (2) processing/manufacturing inspectors, five (5) retail inspectors, and two (2) enforcement staff. (b) Methodology and resources used to determine the fiscal impact: The total range for the potential revenue was calculated by multiplying the current number of permitted facilities times the lowest and highest permit fee amounts, which is 38x1,000 and 38x3,000 respectively. The total expenditure was calculated based on the need for thirteen (13) additional environmental management staff to oversee the permitting and inspection activities. The thirteen (13) additional staff include a branch manager, administrative support staff, two (2) supervisors, two (2) processing/manufacturing inspectors, five (5) retail inspectors, and two (2) enforcement staff. The breakdown of expenditures is as follows: -- Administrative Clerk: Program Coordinator (Grade 14); Annual Salary + 5% Probationary increase: $59,213.70; Fringe Benefits - FICA - Retirement - Hlth/Life Ins: $53,711.55; Total Annual Salary and Fringe Benefits: $112,925.25 x 1 Employee = Total Amount: $112,926.25 ---- Retail Inspectors: Program Evaluator (Grade 14); Annual Salary + 5% Probationary increase: $59,213.70; Fringe Benefits - FICA - Retirement - Hlth/Life Ins: $53,711.55; Total Annual Salary and Fringe Benefits: $112,925.25 x 5 Employees = Total Amount: $564,626.27 ---- Processor/manufacturing Inspectors, Enforcement staff, and Supervisors: Program Administrator (Grade 15); Annual Salary + 5% Probationary increase: $65,135.20; Fringe Benefits - FICA - Retirement - Hlth/Life Ins: $58,082.80; Total Annual Salary and Fringe Benefits: $123,218.00 x 6 Employees = Total Amount: $739,307.99 ---- Manager: Branch Manager (Grade 16); Annual Salary + 5% Probationary increase: $71,646.12; Fringe Benefits - FICA - Retirement - Hlth/Life Ins: $62,889.17; Total Annual Salary and Fringe Benefits: $134,535.29 x 1 Employee = Total Amount: $134,535.29 ---- TOTAL AMOUNT = $1,551,396.79

The expenditures for the department will exceed $1,000,000, resulting in an overall negative or adverse major economic impact. The overall economic impact for the regulated entities cannot be determined. While these entities will have expenditures associated with the permit and product registration, these will be offset by the revenue received in product sells.

Legislation has delegated new authority to the Kentucky Department for Public Health (KDPH) to regulate recreational adult-use products, such as delta-8 THC, for the safety of Kentuckians. These products, which may only be sold to adults aged 21 years or older, are increasingly complex, diverse, and evolving. An estimated 1,000-1,500 retailers and 40 manufacturers of recreational adult-use drugs are believed to be operating in Kentucky. Manufacturers of hemp THC products use complex chemistry conversion methods to process distillates, which increases the technical training required for inspection. Due to the intricacies involved, the successful oversight and regulation of these products in Kentucky will require additional staffing and the use of a hybrid approach that blends the traditional roles of the Department of Alcoholic Beverage Control, such as the enforcement of laws and age verification, with the expertise of the Food and Drug Administration (FDA). In order to adequately oversee the manufacture and retail sale of these products, the department would propose establishing a new branch with specialized staff. An estimated additional thirteen (13) staff will be needed to carry out the following activities: Regulatory Oversight: Establish and enforce standards for product manufacturing, packaging, and labeling for human consumption; Establish and enforce distribution controls to consumers to prohibit and prevent sales of adult-use products to individuals under 21 years of age; Prohibit the manufacture and sale of unallowable products; Protect consumers from harmful exposure to chemicals, contaminants, and adulterants that would have an adverse impact on human health; Evaluate the use of chemicals when added to products, such as food ingredients and substances that come into contact with food through food processing, manufacturing, packaging, storage, or other handling to ensure these uses are safe; Monitor products for contaminants and take action when the level of a contaminant causes a product to be unsafe. Licensing and Inspections: Administer licensure and registration for processors, manufacturers, distributors, and retailers and conduct regular inspections to ensure compliance with regulatory requirements. Surveillance and Monitoring: Collect and analyze data on adverse events and product quality to guide decision-making and interventions. Collaboration and Partnerships: Collaborate with federal/state agencies, professional organizations, academic institutions, and industry stakeholders to exchange information, share best practices, and coordinate efforts to address common challenges.