A dark-haired man in a worn flannel coat walked into a Dino Mart convenience store on a busy North Hollywood street on a weekday afternoon. He scanned the shelves before landing on a mini-fridge filled with colorful cans near the chip aisle.

As he bought a drink and left the store, Esmeralda Reynoso, supervisory agent in charge of the California Department of Alcoholic Beverage Control, looked through the windshield of her unmarked sedan parked outside.

Moments later, she received a text message from the customer: “THC cans located.”

He was an undercover agent working for Reynoso’s agency, ABC, which issued Dino Mart’s license to sell alcohol. Shortly after he left, a team of officers arrived to search the store more thoroughly.

The operation targeted so-called “hemp intoxicating” drinks, banned in September under the law. state of emergency regulations because they contain THC, the compound known to make cannabis users high.

Gov. Gavin Newsom said the restrictions — which effectively ban any product containing detectable levels of THC except those sold in state-licensed dispensaries — are necessary to protect the public from drinks, gummies and other products containing hemp-derived THC or any other product. about 30 other natural and synthetic chemicals known as cannabanoids. Prior to the statewide ban, the products were available at small corner stores and large retail chains, while similar items sold at licensed dispensaries are subject to additional taxes and fees. quality control testing.

Hemp companies say the governor has cast too wide a net. They say the ban sweeps away innocuous products, such as drinks containing “microdoses” with just a few milligrams of THC, and products containing mostly CBD, a non-intoxicating cousin of THC popular with people suffering from pain and cancer.

Esmeralda Reynoso, supervisory agent in charge of the California Department of Alcohol and Beverage Control, locates illegal THC-laced beverages during a raid at a Dino Mart in North Hollywood on November 14, 2024. The state agency enforced aggressively enforced new beverage rules, confiscating thousands of cans from licensed liquor stores across the state since they were banned in September.

(Genaro Molina/Los Angeles Times)

In the two months since the rules took effect, companies in California and elsewhere have laid off employees and halted operations in the state, upending a market for hemp and CBD products which some economic research firms estimate generates more than $1 billion in annual revenue. Manufacturers have been forced to destroy thousands of now illegal products.

When ABC agents searched the Dino Mart in North Hollywood, they found several cans of Cheech & Chong’s Orange Dream and Cycling Frog’s Ruby Grapefruit THC Seltzer on display, as well as others stacked in milk crates in a storage room.

Officers seized the products, more than 200 cans in total, and provided store manager Augustin Martinez with a printed notice regarding emergency measures.

“I just found out it’s illegal. Nobody ever sent notices or anything, so we didn’t know,” Martinez said. “We’ve been selling them for a while now, over a year. »

ABC Deputy Division Chief Matthew Hydar, right, counts and details illegal drinks containing hemp-derived THC that were found during a raid at a Dino Mart in North Hollywood on November 14, 2024.

(Genaro Molina/Los Angeles Times)

Similar scenes have been repeated several times in recent weeks. From September 24 to November 10, according to According to ABC data, state regulators seized 5,318 illegal hemp products from 102 different stores.

Days after the ban took effect, an industry group called the US Hemp Roundtable and several companies filed an action v. California Department of Public Health. They argued that the agency failed to demonstrate the existence of an immediate crisis requiring emergency regulations.

Last month, Los Angeles County Superior Court Judge Stephen Goorvitch denied a request by the plaintiffs for a temporary restraining order that would have halted enforcement of the order, but the case remains ongoing .

The governor’s office has directed requests for information on the status of emergency regulations and their enforcement to ABC. Agency Director Joseph McCullough said in an emailed statement that retailers across the state are “overwhelmingly complying” with the new rules.

“I am very proud of the work our officers do every day to keep these dangerous products off the shelves,” McCullough said. “I would also like to recognize the exceptional work of our team in getting the message out to our licensees before we engage in enforcement efforts.”

Ajay Narain, chief executive of Beacon Beverages, which specializes in mocktails infused with hemp-derived THC and CBD, said the Bay Area-based company saw a 35% drop in revenue and laid off four employees since the regulation came into force.

“The loss was significant and truly demoralizing,” he said in an email. “It’s just baffling to me that instead of stating the obvious – requiring consumers to be 21 and older to purchase hemp beverages and enforcing responsible packaging that doesn’t appeal to children – Newsom simply outright banned.”

ABC agents confiscate items from Jet Stream Liquor in North Hollywood on November 14, 2024. Earlier this fall, Governor Gavin Newsom instituted emergency rules regulating the so-called intoxicating hemp industry, which produces a large range of products containing THC.

(Genaro Molina/Los Angeles Times)

Although many in the legal cannabis industry have in the past opposed hemp intoxicating products because they compete for market share, Jonathan Black, CEO of the Danville-based industry giant, Cheech and Chong’s Global Holdings, said a recent summit in Sacramento led to a proposed legislative solution. with broad support from both sides. They hope to present the idea to state lawmakers in January, when California’s 2025 legislative session begins.

“We are working on a comprehensive bill to present to the governor and state Legislature that would benefit both cannabis and hemp, increase the state’s taxable revenue, ensure we meet standards compliance in both cases and would protect the industry at the same time and protect the consumer,” said Black, whose company is among those pursuing the state ban.

Jim Higdon, a member of the US Hemp Roundtable and co-founder of Louisville, Kentucky-based Cornbread Hemp, said that until the law changes, California should prioritize eradicating dispensaries and illegal smoking shops selling illicit products with high THC content and fake psilocybin mushroom chocolate bars.

“If I were in government, my main enforcement focus would be illegal illicit market cannabis dispensaries and unlicensed smoke shops,” he said. “That’s where teenagers get these products.”

A Pew Research Center study released in February indicated that up to 1,100 illegal cannabis stores were operating in Los Angeles County. The Sheriff’s Department said he only loots two to four illicit stores a month, and many of them reopen within days of closing.

But efforts to enforce intoxicating hemp have at least been successful, according to Matthew Hydar, ABC deputy division chief.

“We’ve seen a pretty steady decline in the number of places that are non-compliant” and still selling illicit drinks, he said outside the Dino Mart as officers loaded the seized drinks into the back of a van. . “We have two aligned goals: ensuring public safety and ensuring store compliance. We are not here to close stores. …The message has to be that things like this are not legal.

The sudden change frustrated Jake Bullock, CEO of Cann, a maker of low-dose THC infused drinks based in Venice Beach. Bullock said his company’s offerings were popular at Erewhon supermarkets before Newsom’s ban. All 140 or so Bevmo stores in California sold the drinks, he said.

Cann sold millions of dollars’ worth of products this year and was on track to do $15 million in sales in 2025, Bullock estimated.

ABC Supervisory Agent in Charge Esmeralda Reynoso, right, and ABC Deputy Division Chief Matthew Hydar discuss the seizure of illegal beverages containing intoxicating hemp found during a raid at a Dino Mart in North Hollywood on November 14, 2024.

(Genaro Molina/Los Angeles Times)

“We were going to see strong growth in California at the end of this year and next year and that’s it,” he said. “If we do not obtain changes to these laws in the coming months, we will be forced to exit the market.”

Newsom’s emergency ban is only in effect until March, when the restrictions will be rolled back unless replaced with a permanent version.

Alexa Steinberg, legal counsel at the Los Angeles-based law firm Greenberg Glusker, represents several companies in the hemp, CBD and cannabis space. She said her customers are “holding their breath” to see what happens.

“If this becomes permanent, it would kill a lot of brands,” she said.