By Shay Aaron Gilmore | The Law Office of Shay Aaron Gilmore
On April 1, 2026, the Centers for Medicare & Medicaid Services (CMS) launched one of the most consequential—and legally complex—hemp policy innovations in U.S. history: the Substance Access Beneficiary Engagement Incentive (BEI). For Medicare beneficiaries enrolled in certain value-based care models, this pilot creates the first federal pathway for physician-supervised access to hemp-derived CBD products at no out-of-pocket cost. But for California operators, ACOs, and healthcare providers looking to participate, the program runs headlong into a thicket of state law—specifically California’s Assembly Bill 45 (AB 45) and Assembly Bill 8 (AB 8)—that creates serious legal uncertainty about whether the program can actually operate as intended within the Golden State. If your organization is an ACO, a hemp manufacturer, a healthcare system, or a cannabis-licensed distributor trying to navigate this landscape, reach out for a consultation. [^1] [^2]
What Is the CMS Substance Access BEI?
The Substance Access Beneficiary Engagement Incentive is an optional program offered through the CMS Innovation Center. As of April 1, 2026, organizations participating in three specific models may elect to furnish eligible hemp-derived products to Medicare beneficiaries under clinician guidance: [^2]
- ACO REACH Model — available April 1, 2026 [^3]
- Enhancing Oncology Model (EOM) — available April 1, 2026 [^4]
- Long-term Enhanced ACO Design (LEAD) Model — available January 1, 2027 [^4]
Participating organizations may furnish hemp-derived products worth up to $500 per year per eligible beneficiary. Medicare does not directly reimburse product costs; the participating healthcare organization bears that expense as part of its model participation. The program follows Executive Order 14370, signed by President Trump on December 18, 2025, directing HHS agencies—including the NIH—to “develop research methods and models to improve access to hemp-derived cannabinoid products in accordance with Federal law and to inform standards of care.” [^5] [^6] [^1] [^4]
What Products Qualify?
CMS has defined “eligible hemp products” narrowly. Qualified products must be: [^2]
- Orally administered — inhalable products are expressly excluded [^1]
- No more than 0.3% delta-9 THC by dry weight [^1]
- No more than 3 mg per serving of total THC (including delta-8, delta-10, and THCA) [^1]
- Free of synthetic cannabinoids [^1]
- Third-party tested for potency, contaminants, and microbial hazards [^2]
- Compliant with all applicable federal, state, and local laws [^2]
That last requirement—compliance with state and local laws—is where the collision with California law begins.
How Are Products Furnished?
Products must be furnished directly by a qualified physician affiliated with the participant organization; Medicare beneficiaries cannot be instructed to purchase retail products and seek reimbursement. Participating organizations are responsible for procurement, storage, inventory control, and distribution workflows, and must submit an implementation plan to CMS for approval. As of the April 1, 2026 launch date, only five ACOs across the entire ACO REACH model had submitted implementation plans for CMS review — a signal that the program is in genuine early-pilot mode and that a meaningful window remains for California to act legislatively before participation scales up. For California-based organizations trying to structure these arrangements, commercial contracts and supply chain counsel will be essential from the outset. [^4] [^2]
The Federal Context: An Uncertain Legal Foundation
The CMS BEI was born into a contested federal legal landscape, and California stakeholders need to understand three layers of federal uncertainty before investing in program participation.
The SAM v. Kennedy Lawsuit
On March 31, 2026, a coalition led by Smart Approaches to Marijuana (SAM) filed SAM et al. v. Kennedy et al., Case No. 1:26-cv-01081, in the U.S. District Court for the District of Columbia, seeking a permanent injunction blocking the BEI. The plaintiffs argue that CMS bypassed the Administrative Procedure Act’s notice-and-comment requirements, violated the FD&C Act by distributing non-FDA-approved products, and exceeded its authority under the Social Security Act. A federal judge denied the motion for a temporary restraining order on March 31, 2026, but scheduled a preliminary injunction hearing for April 20, 2026. The program’s legal durability remains an open question. California organizations with administrative law exposure to CMS enforcement consequences of a program shutdown need contingency plans in place. [^7] [^8] [^9]
The CY 2027 Medicare Advantage Final Rule: The Same Problem, Broader Scale
The BEI is not an isolated experiment. On April 2, 2026 — one day after the BEI launched — CMS issued the Contract Year 2027 Medicare Advantage and Part D Final Rule, effective June 1, 2026. [^15] The rule amends the Special Supplemental Benefits for the Chronically Ill (SSBCI) framework at 42 CFR 422.102(f)(1)(iii) to prohibit only hemp products that are “illegal under applicable State or Federal law” — effectively permitting Medicare Advantage plans to offer certain hemp products as supplemental benefits to chronically ill enrollees. The rule specifically authorizes hulled hemp seed, hemp seed protein powder, and hemp seed oil (all FDA-recognized as GRAS), and, subject to federal and state law compliance, allows MA plans to include non-intoxicating hemp products in their SSBCI benefit designs. For California MA plans, the same AB 8 state-law compliance wall applies: CBD isolate (zero THC) products may qualify, but any full-spectrum or broad-spectrum product with detectable THC remains blocked under AB 8. The upshot is that AB 8’s conflict with federal hemp health policy is not limited to the BEI — it now cuts across multiple Medicare programs simultaneously, affecting both Innovation Center models and commercial MA plan offerings.
The November 2026 Federal THC Cliff
Section 781 of the FY2026 Agriculture Appropriations Act (P.L. 119-37), effective November 12, 2026, will impose a limit of 0.4 milligrams of total THC per container in finished hemp products and redefine hemp to exclude products with more than 0.3% total THC (including THCA). The CMS BEI currently permits up to 3 mg of total THC per serving—potentially far exceeding what federal law will allow in November. CMS has stated it will adjust its product definition as federal law changes, but unless Congress passes the Hemp Planting Predictability Act to delay the Section 781 deadline to 2028, the BEI’s product framework may become untenable within months of launch. Compounding the problem: Congress required FDA to define “container” under P.L. 119-37 within 90 days of enactment—that deadline, February 10, 2026, passed without any definition being issued, leaving the scope of the 0.4 mg limit legally ambiguous. Hemp businesses assessing their regulatory compliance exposure under both P.L. 119-37 and the BEI should seek counsel before structuring any BEI supply relationships. [^10] [^8] [^11] [^7]
The FDA Enforcement Memo: Cover—but With Gaps
On April 1, 2026, FDA Commissioner Marty Makary issued a memo providing partial regulatory cover for the BEI. FDA stated it does not intend to enforce certain FD&C Act provisions with respect to orally administered, hemp-derived CBD products, provided the product: (1) is manufactured and labeled consistent with the dietary supplement framework; (2) is not contaminated; (3) is not marketed to children; and (4) is provided to a beneficiary under the direction of their treating physician within a Medicare program. [^12]
Long-time observers of federal cannabis policy will recognize the structure: this is enforcement discretion on a prerogative basis—a near-exact parallel to the 2013 Cole Memorandum, through which DOJ instructed U.S. Attorneys not to prioritize prosecution of state-compliant cannabis activity. The FDA memo is welcome, but it is not a rule, not a regulation, and not a statutory authorization.
Moreover, the memo applies only to CBD products—THC-containing products permitted under the BEI’s 3 mg/serving allowance are not sheltered. And it implicitly references the P.L. 119-37 0.4 mg/container THC threshold, while the CMS BEI permits up to 3 mg/serving. Until FDA defines “container,” the precise boundary of its enforcement discretion with respect to THC-containing BEI products remains unresolved. [^11a] [^12]
California AB 45: The 2021 Foundation
Assembly Bill 45, signed October 6, 2021, formally authorized hemp-derived CBD and other non-intoxicating hemp extracts in dietary supplements, food, beverages, cosmetics, and pet food in California. Key requirements include mandatory CDPH registration and an Industrial Hemp Enrollment and Oversight (IHEO) authorization for manufacturers, independent COA confirmation of no more than 0.3% delta-9 THC, and a prohibition on the in-state sale of inhalable hemp products. [^13] [^14]
AB 45’s critical gap for BEI purposes: it established a retail and consumer product framework with no exemption or pathway for physicians, healthcare providers, or healthcare organizations to distribute hemp products—including products with any THC content—outside the consumer retail supply chain. Navigating CDPH IHEO registration and AB 45 regulatory compliance remains an active challenge for any hemp manufacturer seeking to participate in the BEI supply chain. This gap becomes critical when we examine AB 8.
California AB 8: The 2025 Tightening
Assembly Bill 8, signed October 2, 2025, and effective January 1, 2026, represents a fundamental restructuring of California’s hemp framework, driven by a public health crisis involving intoxicating hemp products flooding California’s unlicensed retail market. AB 8’s core provisions, as confirmed by the CDPH’s official FAQ, include: [^16] [^17] [^18]
- Hemp extract in food, beverages, dietary supplements, or processed pet food cannot contain any detectable THC; a COA must confirm that CBD or CBN exceeds 99% of total cannabinoid content (i.e., CBD or CBN isolate at near-pharmaceutical purity)
- Products with any THC content must be sold through licensed cannabis dispensaries under MAUCRSA
- Hemp flower, pre-rolls, and inhalable products containing hemp-derived THC cannot be sold in California
- Beginning January 1, 2028, all hemp cannabinoid products other than CBD/CBN isolate must comply with full DCC licensing, testing, and track-and-trace requirements [^19]
AB 8 passed 73-1 in the Assembly and 37-0 in the Senate. What remains legal in general retail is narrow: CBD isolate (>99% purity, zero THC), CBN isolate, fiber-derived hemp products, and topicals with no more than 0.3% total THC. For cannabis businesses now seeing hemp products flow into the licensed DCC system, corporate law and commercial contracts counsel can help structure compliant supply and distribution arrangements. [^20] [^18] [^16]
The Regulatory Collision: Where AB 8 and the CMS BEI Clash
The conflict between AB 8 and the CMS BEI operates on multiple levels simultaneously.
The THC content problem. The CMS BEI permits hemp products containing up to 3 mg of total THC per serving. AB 8 prohibits any detectable THC in hemp products distributed outside the licensed cannabis system. Only CBD isolate products with zero detectable THC and greater than 99% CBD purity could satisfy both regimes simultaneously—severely narrowing the therapeutic utility of the BEI in California. [^18] [^1]
The distribution channel problem. California law recognizes only two legal channels for hemp or cannabis products with any THC: (1) licensed dispensaries under MAUCRSA, or (2) the zero-THC general retail channel under AB 8. There is no “physician-direct hemp distribution” pathway. An ACO seeking to physician-furnish hemp products with any THC content cannot lawfully do so through the cannabis dispensary system (which requires full MAUCRSA licensing, track-and-trace, excise taxes, and DCC oversight) and cannot do so through general retail (which prohibits any detectable THC). Understanding this channel gap requires careful regulatory compliance and corporate law analysis for any organization considering BEI participation. [^18]
The self-defeating state law compliance mandate. CMS expressly requires that BEI products “must also comply with applicable state and local laws.” This means CMS itself requires AB 8 compliance as a condition of BEI participation. The only California-compliant BEI products are CBD isolate products—the narrowest possible therapeutic category—leaving California participants unable to offer the full range of products the program envisions. [^8]
No healthcare or medical exemption in AB 8. A careful review of AB 8 and the CDPH FAQ reveals no exemption for physician-supervised or clinically supervised distribution of hemp products with THC outside the licensed cannabis system. Unlike California’s medical cannabis framework, there is no analogous “medical hemp” category for physician-supervised hemp distribution. ACOs evaluating BEI participation should build regulatory compliance review into their implementation planning and structure any vendor agreements with commercial contracts counsel familiar with both cannabis regulation and healthcare contracting. [^18]
Federal Preemption Does Not Rescue the BEI in California
Some observers might ask whether federal law preempts California’s restrictions, clearing the way for BEI-compliant products regardless of AB 8. The answer is almost certainly no.
The Congressional Research Service (CRS) issued a detailed report in August 2025 analyzing preemption questions raised by state hemp restrictions, concluding that the 2018 Farm Bill’s preemption clause prevents states only from blocking interstate transportation of compliant hemp—not from regulating intrastate hemp commerce more strictly than federal law. California has done exactly that with AB 8, with a clear public health rationale and an overwhelming legislative vote to show for it. Federal courts have consistently held that federal law can preempt state requirements to provide coverage for cannabis products, but not force states to permit distribution channels their own law prohibits. Organizations exploring preemption arguments as a path to BEI participation in California should consult administrative law counsel before relying on any such theory. [^21] [^21a] [^22] [^16]
Ideas for a California Legislative Fix
This post does not advocate for any specific legislative solution—the right approach involves policy tradeoffs that stakeholders, legislators, and state agencies are better positioned to weigh. But for the sake of putting ideas on the table, here are some directions the 2026 California Legislature could consider:
- A narrow physician-furnishing exemption in the Health and Safety Code: carving out of AB 8’s zero-THC prohibition any hemp product furnished directly by a physician affiliated with a CMS-approved model participant, conditioned on CMS BEI eligibility requirements and state-level testing standards
- Auto-conformance drafting: rather than hardcoding THC limits (which could become outdated if Section 781 or a future farm bill changes the federal standard), tying any California exemption to whatever the applicable CMS definition requires at any given time
- A sunset tied to federal program status: making any exemption automatically inoperative if the CMS BEI is terminated, suspended, or enjoined—preventing a California carve-out from outliving the federal program it was designed to enable
- A CDPH or DCC registration pathway for California-based CMS model participants, calibrated to a clinical healthcare setting rather than the cannabis retail supply chain—addressing the IHEO and distribution authorization gaps without requiring full MAUCRSA licensing
- A Business and Professions Code clarification that physician-affiliated CMS model participants are not required to route BEI products through licensed cannabis retailers or distributors, eliminating the risk that DCC asserts jurisdiction over a physician-direct distribution channel
- An urgency clause to allow any fix to take effect immediately upon chaptering, rather than January 1, 2027—given that the CMS BEI is already live and California participants are already excluded
- Model-neutral or successor-model drafting: ACO REACH is scheduled to sunset on December 31, 2026 [^22a], with the LEAD model taking over beginning January 1, 2027. Any California statute that references specific CMS model names should be drafted to automatically include successor and substantially similar models — otherwise a California fix keyed only to ACO REACH could inadvertently expire with that model at year-end
Any combination of these ideas would require careful drafting to avoid creating a back door for retail hemp operators to circumvent AB 8’s zero-THC requirement. Engagement with the legislature and state agencies on these questions is well-suited to administrative law representation.
Practical Guidance for California Stakeholders
Hemp product manufacturers: Evaluate your product catalog against AB 8’s zero-THC requirement. If you have not already, pursue CDPH IHEO authorization and ensure your COA methodology supports the >99% CBD/CBN isolate standard. Engage with CMS-approved ACOs about supplier relationships—but with the understanding that California-distributed products must currently be CBD isolate only. Regulatory compliance counsel can help you navigate both the current AB 8 requirements and the post-November 2026 federal THC cliff.
ACOs and healthcare organizations: Before electing the BEI, assess (a) which products can be sourced and distributed in California in compliance with both federal and state law, (b) whether your organization needs a California license or authorization to act as a hemp product distributor, and (c) the legal exposure created by the gap between the BEI’s THC allowance and AB 8’s zero-THC requirement. Reach out if your organization is working through these questions.
Cannabis distributors and retailers: Explore whether your existing MAUCRSA license positions you as a lawful supply chain partner for healthcare organizations seeking BEI-compliant products. Commercial contracts and corporate law counsel can help structure compliant B2B arrangements, and intellectual property counsel can assist with brand licensing into the clinical channel.
Workforce considerations: Hemp and cannabis businesses expanding into the BEI supply chain will encounter new employment and labor law questions around hiring for clinical distribution roles, training compliance, and the intersection of California’s cannabis employment rules with healthcare employer standards.
Real estate and zoning: Storage, distribution, and clinical dispensing of hemp products—even CBD isolate—will raise real estate and land use questions around zoning approvals, lease compliance, and local permitting that need to be addressed before any BEI distribution infrastructure is established.
Conclusion: A Historic Program Stuck at California’s Border
The CMS Substance Access BEI is a historic first: a federal program that creates a physician-supervised, evidence-generating pathway for hemp-derived CBD products in Medicare. But California’s AB 45 and AB 8 create a regulatory environment in which the BEI cannot fully function. The zero-THC requirement for non-cannabis hemp products, the absence of any physician or healthcare organization distribution pathway for hemp products with THC, and the mandatory state-law compliance requirement in the BEI itself combine to effectively exclude California Medicare patients from a program that is already available to patients in other states.
The solution is not to unwind AB 8’s consumer protection framework. It is to create a targeted, narrowly drawn clinical exemption that acknowledges the federal medical oversight inherent in CMS Innovation Center model participation, establishes appropriate California-level safeguards, and ensures California’s Medicare patients are not left behind. Whether through legislation, DCC/CDPH rulemaking, or both, this is a problem the 2026 California Legislative Session has the tools—and the reason—to solve.
The Law Office of Shay Aaron Gilmore provides regulatory compliance counsel, corporate and transactional advice, commercial contracts drafting and negotiation, administrative law representation before DCC and CDPH, real estate and land use counsel, venture capital counsel, intellectual property protection, and employment and labor law guidance to cannabis and hemp operators and investors throughout California. If your organization is navigating the intersection of the CMS Substance Access BEI and California law, contact us for a consultation.
© 2026 The Law Office of Shay Aaron Gilmore. This post is for informational purposes only and does not constitute legal advice or create an attorney-client relationship.