AB 1397 adds a new category for 'low‑dose hemp drinks' into California’s Health and Safety Code and creates a companion excise tax and fund in the Revenue and Taxation Code. The bill sets product eligibility rules, requires independent laboratory testing, restricts sales to adults, and directs the California Department of Tax and Fee Administration (CDTFA) and the State Department of Public Health (CDPH) to administer and enforce the new regime.
The measure pairs consumer‑safety rules with fiscal policy: it channels tax revenue into a dedicated fund for regulatory oversight while folding compliance and enforcement into existing food and drug law frameworks. That combination creates new compliance points for manufacturers and retailers and a new source of funding — and regulatory control — for state agencies charged with oversight.
At a Glance
What It Does
The bill authorizes the manufacture and retail sale of low‑dose hemp drinks meeting statutory definitions and testing requirements, and imposes a 10% excise tax on retail gross receipts from those sales. Retailers must collect the tax at point of sale and remit it to the CDTFA, which administers the tax under the Fee Collection Procedures Law.
Who It Affects
Hemp beverage manufacturers that want to produce ready‑to‑drink products, retailers who sell those products, independent testing laboratories that certify THC content and contaminants, and state agencies (CDPH and CDTFA) that will regulate, tax, and spend the proceeds on oversight.
Why It Matters
The bill creates a regulated product category distinct from cannabis, embeds hemp drinks within California’s food and drug statute, and finances oversight through a dedicated excise tax — a structural change that shifts administrative and compliance costs onto market actors while providing an ongoing funding stream for enforcement.
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What This Bill Actually Does
The bill creates a legal path to make and sell a narrowly defined product called a "low‑dose hemp drink." The product must meet the statutory definition (including a cap on total THC per container as written in the bill) and may not contain "cannabis" as the bill defines it. Manufacturers must use independent testing laboratories to verify total THC and other safety metrics before sale, and retailers may only sell these drinks to customers aged 21 or older.
On the fiscal side, the bill levies an excise tax specifically on low‑dose hemp drinks equal to a percentage of the retail gross receipts and assigns administration and collection duties to the CDTFA. Retailers are required to collect the tax from purchasers and remit payments to CDTFA under the Fee Collection Procedures Law; the bill treats violations of the tax collection and reporting rules as criminal offenses under that statutory framework.Revenue from the tax, including any penalties and interest, flows into a newly created Low‑Dose Hemp Drink Excise Tax Fund.
The bill continuously appropriates those receipts to CDTFA and CDPH for regulatory activities connected to low‑dose hemp drinks. The bill also ties the new product category into the Sherman Food, Drug, and Cosmetic Law’s labeling, embargo, and enforcement provisions, exposing noncompliant manufacturers and distributors to existing misdemeanor penalties and administrative remedies.Statutory cross‑references and implementation mechanics are placed directly into the Health and Safety Code and the Revenue and Taxation Code.
The bill makes several procedural changes by folding this new product category into existing licensing, testing, labeling, embargo/condemnation, and fee collection systems rather than creating a wholly separate regulatory agency or permit track.
The Five Things You Need to Know
The bill inserts Article 11 starting at Section 111929.6 into Chapter 9 of Part 5, Division 104 of the Health and Safety Code, and adds Part 14.6 beginning at Section 34100 to Division 2 of the Revenue and Taxation Code.
The excise tax is imposed on purchasers at a rate equal to 10% of the gross receipts from any retail sale of low‑dose hemp drinks; retailers must collect and remit the tax to CDTFA.
All low‑dose hemp drinks must be tested by an independent testing laboratory before sale; test results and labeling must conform to the bill’s requirements and to the Sherman Food, Drug, and Cosmetic Law.
The bill makes violations of the Fee Collection Procedures Law (which governs tax collection and remittance) a crime in the context of this tax and integrates enforcement remedies (embargo, condemnation, destruction) under existing state food and drug law.
Proceeds, penalties, interest, and related collections go into a new Low‑Dose Hemp Drink Excise Tax Fund and are continuously appropriated to CDTFA and CDPH for regulatory purposes tied to low‑dose hemp drinks.
Section-by-Section Breakdown
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Defines 'low‑dose hemp drink' and product standards
This article sets the product definition and baseline eligibility, including the statutory cap on total THC per container (the bill text contains a numeric expression that will require clarification in implementation). It also bars the presence of "cannabis" as defined in the statute, distinguishes hemp drinks from cannabis products, and mandates independent laboratory testing to verify THC content and safety. Practically, this section establishes the compliance gate: without lab certification and the required labeling, a product is misbranded or adulterated under the Sherman Food, Drug, and Cosmetic Law and subject to embargo and other enforcement.
Creates the low‑dose hemp drink excise tax and fund
This part imposes a targeted excise tax at retail on low‑dose hemp drinks, ties collection responsibility to the retailer, and tasks CDTFA with administration under the Fee Collection Procedures Law. It establishes the Low‑Dose Hemp Drink Excise Tax Fund to receive tax receipts, penalties, interest, and related amounts, and provides a continuous appropriation of those moneys to CDTFA and CDPH for regulatory activities related to low‑dose hemp drinks.
Applies existing food and drug enforcement to hemp drinks
The bill folds low‑dose hemp drinks into the Sherman Food, Drug, and Cosmetic Law framework. That means existing labeling, embargo, condemnation, destruction, and misdemeanor penalties apply to noncompliant products. For regulators and businesses, it creates an enforcement pathway that relies on established public‑health tools rather than novel sanctions specific to hemp beverages.
Tax administration, criminal exposure, and fiscal mechanics
CDTFA administers the excise tax under the Fee Collection Procedures Law; the bill makes violations of those procedures criminally actionable in this context. The continuous appropriation of fund receipts to CDTFA and CDPH finances oversight activities. The bill also addresses state‑mandated local program issues by stating no reimbursement is required under the California Constitution for costs imposed on local agencies by the act.
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Explore Healthcare in Codify Search →Who Benefits and Who Bears the Cost
Every bill creates winners and losers. Here's who stands to gain and who bears the cost.
Who Benefits
- Consumers seeking low‑THC beverage options — they gain a regulated product category with laboratory testing and labeling requirements that improve product transparency.
- Hemp beverage manufacturers who can meet the statutory requirements — they obtain a clear legal pathway to market ready‑to‑drink hemp beverages distinct from licensed cannabis products.
- Independent testing laboratories — increased demand for pre‑market testing and certification services creates new business opportunities.
- CDPH and CDTFA — the new excise tax creates a dedicated fund and revenue stream to support regulatory oversight and enforcement activities.
Who Bears the Cost
- Small and medium hemp beverage manufacturers — they face testing, labeling, registration, and compliance costs and will likely absorb or pass through the 10% excise tax impact on retail pricing.
- Retailers — they must implement tax collection and remittance processes, maintain compliance records, and may face criminal exposure for collection or reporting failures under the Fee Collection Procedures Law.
- Local agencies and enforcement bodies — although some funding is directed to state agencies, local entities may still shoulder investigation, local permitting, and enforcement burdens without guaranteed reimbursement.
- Consumers — the tax on gross receipts and added compliance costs for producers may raise retail prices and reduce product competitiveness compared with unregulated alternatives.
Key Issues
The Core Tension
The bill attempts to give consumers a tested, labeled low‑THC hemp beverage market while relying on existing criminal and tax enforcement tools to ensure compliance; that balances public‑health oversight and revenue generation against higher compliance costs, criminal exposure for operational errors, and the need for clear technical standards — a trade‑off between regulatory certainty and the burden placed on producers, retailers, and enforcement agencies.
The bill’s statutory THC cap is written in the text with a numeric expression that reads ambiguously; implementation will require regulatory definition and likely rulemaking to settle a clear numeric limit and testing tolerances. Without precise numeric and analytical method standards, labs and manufacturers will face litigation risk and enforcement inconsistency.
Another structural tension lies in folding the new product into existing food and drug and tax enforcement regimes. Applying the Sherman Food, Drug, and Cosmetic Law and the Fee Collection Procedures Law leverages familiar enforcement tools, but it also imports criminal exposure for regulatory noncompliance.
That raises compliance stakes for businesses and increases administrative burdens for CDTFA and CDPH. The bill creates a dedicated fund with continuous appropriation, which secures financing for oversight but reduces periodic legislative control over spending.
Finally, the bill treats retail gross receipts as the tax base; taxing gross receipts (rather than net or per‑unit) can disproportionately affect low‑margin producers and distort pricing and market entry decisions.
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