California SB 54 Faces Legal Challenges from Industry Coalitions, Environmental Groups

• Reduce plastic packaging over time;
• Pay fees for covered materials to assist with funding waste management improvements;
• Ensure covered materials become recyclable or compostable by 2032; and
• Participate in and report data about covered materials to an approved Producer Responsibility Organization (PRO), currently Circular Action Alliance, or comply on an individual basis.

After multiple rounds of rulemaking and three public comment periods, the California Office of Administrative Law approved CalRecycle’s proposed regulations on May 1, 2026, with the final regulations going into effect on the same date. Within a month of the final regulations going into effect, two lawsuits were separately filed to challenge the regulations.

Environmental Groups Challenge the Regulations
The first suit, brought by environmental organizations Natural Resources Defense Council, Californians Against Waste Foundation and Oceana, Inc., argued that the final regulations are (1) inconsistent with SB54, and (2) key provisions of the regulations are arbitrary or without rational basis. Specifically, the regulations were challenged with regard to the following provisions:

• Pyrolysis: The regulations allow pyrolysis, a form of chemical recycling, and other chemical recycling technologies to qualify as recycling for purposes of the statute, despite SB 54 providing that regulations should exclude plastic recycling technologies that produce “significant amounts of hazardous waste.” The suit alleges that pyrolysis was intended to be excluded from SB 54 because it produces significant amounts of hazardous waste.
• Hazardous waste: The definitions of hazardous waste are allegedly not consistent with the legislation because CalRecycle improperly imported the federal hazardous waste definition rather than California’s broader definition under state law.
• Federal law exemption: SB 54 allows for relief where compliance with California EPR laws may conflict with federal law. However, the plaintiffs argue that CalRecycle has created a broad exemption that allows packaging to be treated as outside of the reach of SB 54 immediately after filing a claim, imposes no deadline for a decision to be made as to whether a conflict exists and allows exemptions to continue even after claims prove to be meritless.
• Arbitrary and capricious: The second cause of action asserted that CalRecycle failed to properly explain some of its major policy reversals compared to earlier versions of the regulations. Specifically, the plaintiffs assert that CalRecycle failed to justify its alterations to the treatment of pyrolysis recycling, its switch of the California hazardous waste definition to the federal definition, its adoption of the broad federal law exemption process, etc.

States and Industry Groups Challenge the Regulations
In State of Nebraska et al. v. Heller et al., Case No. 2:26-at-01047, E.D. Cal., filed on June 19, 2026, Nebraska and 16 other states, in collaboration with the National Association of Wholesaler-Distributors (NAW), filed suit challenging California's implementation of SB 54. In addition to Nebraska, Florida, Alabama, Georgia, Idaho, Iowa, Indiana, Missouri, Louisiana, Montana, Oklahoma, North Dakota, South Dakota, South Carolina, Utah, Texas and West Virginia also joined the suit, which asked the court to block enforcement of California’s EPR laws while the matter is pending. The complaint raises constitutional and administrative law arguments, including that the regulations:

• Discriminate against non-California businesses selling into the state, violating the Commerce Clause;
• Impose speech restrictions in violation of the First Amendment free speech protections;
• Compel NAW members to join a PRO, violating the First Amendment freedom of association protections; and
• Delegate government authority to private entities without adequate public oversight.

NAW, a trade organization, emphasized that many of its industry members distribute products nationwide and contended that California's requirements effectively dictate packaging decisions across the country, impermissibly regulating businesses across state lines.

Next Steps for Producers Covered by SB 54
Despite the pending litigation and uncertainty, businesses should assume that SB 54 will remain in effect unless a court provides otherwise. The regulations are now in effect, and CalRecycle continues to administer the program. Accordingly, companies should continue to:

• Assess whether they qualify as “producers” under SB 54 and its implementing regulations;
• Pursue participation in an approved Producer Responsibility Organization, Circular Action Alliance or pursue individual compliance where appropriate;
• Continue collecting data and reviewing packaging procedures;
• Monitor developments in both lawsuits to assess for potential impacts on compliance deadlines; and
• Assess contractual allocation of compliance responsibilities where multiple entities may be involved throughout the supply chains.

For the time being, regulated entities should closely monitor both proceedings while preparing for compliance as though the law will remain in effect as proposed.