Seth A. Goldberg, Duane Morris partner and team lead of the Cannabis Industry Group, spoke with Law.com’s Higher Law on the health issues surrounding vaping and implications for the cannabis industry.
The past week has shown the challenges that the cannabis industry supply chain—manufacturers, processors, distributors and dispensaries—faces, as regulators target claims relating to the health benefits of CBD and media outlets report, without any scientific evidence, that cannabis vaping may be linked to lung illnesses, and, as of the issuing of this Alert, the Trump administration is reported to be poised to ban flavored nicotine vaping. These kinds of issues could spur claims against cannabis industry participants for consumer fraud, personal injury and products liability, and heighten the scrutiny of cannabis products by federal and state regulators.
On September 10, 2019, the Federal Trade Commission announced that it had sent warning letters to three unidentified businesses “that sell oils, tinctures, capsules, ‘gummies,’ and creams” containing hemp-derived CBD, concerning health-related claims about the benefits of their CBD products. Although the FTC did not release the warning letters or identify the recipients, the FTC’s press release announcing the warning letters explained that the letters were issued to reinforce that “it is illegal to advertise that a product can prevent, treat, or cure human disease without competent and reliable scientific evidence to support such claims.”
I have been writing about the recent reports of vaping related deaths and illnesses, and allegations that in some instances cannabis vaping could be a contributing factor, with a focus on the heightened risk of personal injury/product liability lawsuits. Amidst those reports it is now being reported that the Trump Administration is preparing to ban flavored nicotine products. Because THC is federally unlawful, it us unlikely that such a ban would explicitly prohibit THC vaping products, but it could include federally lawful hemp-derived CBD vaping. The absence of an explicit reference to THC vaping by the Trump Administration should not be deemed a clear runway for THC vaping manufacturers, as federal prosecutors who have discretion to take enforcement action for public safety concerns may use that power against THC vape manufacturers. Cannabis vaping manufacturers need to be very mindful of the current climate with respect to vaping. I will continue to monitor and update our Cannabis Industry Blog on this issue.
Yesterday, I blogged about a Washington Post article that reported that vitamin E acetate in marijuana vaping products is being considered as possibly being linked to alleged vaping related lung injuries. I cautioned cannabis manufacturers, processors and dispensaries, i.e., the cannabis supply chain, that articles like WP’s, which referred to vitamin E acetate in cannabis vapor as a “contaminant,” could be the impetus for product liability lawsuits.
Today, WP provided an update to yesterday’s article. WP now states as many as 450 vaping illness cases have been reported across 33 states. Up from yesterday’s report of 250 cases across 25 states. WP’s new article refers to the vaping related health claims as possible a “new lung disease” based on a study by the New England Journal of Medicine that reports about a possible lung disorder being experienced by certain consumers of vape. However, WP appears to acknowledge scientists have not yet identified a specific chemical in vape, or whether vaping of nicotine or marijuana, is resulting in an increased risk of the lung disorder reported by NEJM. Indeed, scientific research and investigation is needed in this area.
Nevertheless, as I explained yesterday, having represented pharmaceutical companies in product liability matters involving alleged “contaminants,” product liability lawsuits are often, if not usually, filed without any scientific proof of injury causation. Accordingly, the cannabis supply chain should be careful to ensure the safety of their products, and implement necessary compliance measures.
Likewise, cannabis consumers should be mindful that many of the reports of vaping related health issues concern “black market” vape products, not those manufactured by state-licensed cannabis companies who are required by law to maintain strict standards for their products.
Today, the Washington Post reported that federal and state regulators have identified the chemical vitamin E acetate as being contained in certain cannabis vaping products allegedly linked to lung injuries. According to WP, 215 cases possibly arising out of cannabis vapes containing the chemical have been reported in 25 states, and two deaths have been linked to marijuana vaping.
WP refers to vitamin E acetate in cannabis vapor as a “contaminant,” which is a loaded term that could get the attention of the plaintiffs’ product liability bar. Articles like this are often the impetus for lawsuits to be filed. Consequently, products’ liability claims may soon become a reality for the cannabis vape supply chain.
However, as even the WP article makes clear, whether vitamin E acetate in marijuana vapor can cause an increased risk of injury of any kind to vaping consumers is being investigated, and has not been proven. The article also identifies the fact that many users of marijuana vape also vape nicotine, which is likely one of many confounding factors. Thus, product liability claims asserting injuries from marijuana vaping brought now are likely to be unsupported by science.
Nevertheless, those in the cannabis supply chain, e.g., manufacturers, processors, and sellers, should be aware of the likelihood of such claims, as product liability claims are often asserted without any scientific evidence of causation. Those in the supply chain should know that a range of compliance measures can be implemented to better protect against against such claims.
On September 4, 2019, the Ninth Circuit issued its ruling in Big Sky Scientific LLC v. Jan Bennetts et al, the case involving the seizure of an interstate shipment of hemp that occurred after the enactment of the 2018 Farm Bill. In a three-page opinion, the court sidestepped the substantive issues presented on appeal and held that the parties should pursue their claims in state court.
In January 2019, a hemp cultivator in Oregon attempted to ship a truckload of hemp to a processor in Colorado. But as the cargo passed through Idaho, the Idaho State Police seized the shipment and arrested the driver, alleging violations of Idaho state law. The Idaho police charged the driver with a crime and filed a civil complaint in state court against the hemp itself. The Idaho civil case was stayed pending resolution of the criminal proceeding.
On August 26, 2019, the Drug Enforcement Agency (DEA) issued a press release announcing “it is moving forward to facilitate and expand scientific and medical research for marijuana in the United States.” This announcement comes in the midst of a growing demand for marijuana for medical and scientific research. Several years ago, in an August 11, 2016, press release, DEA first announced its intention to “expand… the number of DEA-registered marijuana manufacturers” because “only one entity was authorized to produce marijuana to supply researchers in the United States: the University of Mississippi.” Since that announcement, 33 entities have applied to DEA for a marijuana manufacturer registration. However, the approval process was stalled during Attorney General Jeff Sessions’ term in office, and to date no new applications have been approved. Meanwhile, the number of entities registered by DEA to conduct research on marijuana, marijuana extracts or marijuana derivatives has jumped from 384 in January 2017 to 542 in January 2019. Thus, while demand for marijuana for research purposes has increased sharply, the number of suppliers has remained stagnant.
On August 28, 2019, a three-judge panel of the Ninth Circuit Court of Appeals, Judges Hawkins, McKeown and Bybee heard oral argument in Big Sky Scientific LLC v. Jan Bennetts et al.
To review the background briefly, Big Sky Scientific, LLC, a Colorado-based hemp processor, purchased federally lawful hemp from a state-licensed hemp cultivator in Oregon. The parties arranged to ship the hemp from Oregon to Colorado via motor carrier. En route to Colorado, the shipment entered Idaho, where the Idaho police seized the cargo and arrested the driver, alleging violations of Idaho state law. Idaho initiated a state court criminal proceeding against the driver, and a state court civil proceeding against the hemp itself, to ensure the hemp would not be returned to Big Sky. In response, Big Sky filed a motion for a temporary restraining order and preliminary injunction in federal court to force the Idaho State Police to return the seized cargo and stop seizing hemp shipments that pass through the state. The District Court denied Big Sky’s motion, and Big Sky appealed. That appeal was the basis of the oral argument. Duane Morris filed an amicus brief on behalf of the American Trade Association for Cannabis and Hemp in support of Big Sky, arguing that an adverse ruling would have a serious negative impact on the hemp industry. (Duane Morris is the national law firm partner of the American Trade Association for Cannabis and Hemp.)
Duane Morris attorney Justin Stern provided an update on Florida cannabis legislation during the “Cannabis 204: The Roundup of State Cannabis Legislation” webinar.
The full video replay of the webinar is also available.
“Credit unions may provide the customary range of financial services for business accounts, including loans, to lawfully operating hemp related businesses within their fields of membership,” says the National Credit Union Administration (NCRU) in its recently released guidance 19-RA-02.
While this is a significant step for hemp businesses seeking banking outlets, it is far from the relief proposed by Secure and Fair Enforcement Act (“SAFE Banking Act”) and does not represent a blanket permission. Still, the NCRU Guidance signals a recognition of the growing Cannabis industry and the practical need to provide financial services to businesses in the industry. Here are some key takeaways.
First, the guidance only applies to Federally Insured Credit Unions, not national banks.
Second, the guidance explicitly relates to credit unions serving “hemp” businesses as defined in the Agricultural Improvement Act of 2018 (2018 Farm Bill), which removed hemp from Schedule I of the Controlled Substances Act.[1] Marijuana remains a Schedule I drug, which restricts banking access of marijuana businesses.
Third, because the USDA has yet to promulgate regulations and guidelines to implement the hemp production provisions of the 2018 Farm Bill, credit unions must ensure members in hemp-related business are operating under the industrial hemp pilot provisions of the Agricultural Act of 2014 (2014 Farm Bill).
Fourth, credit unions that elect to bank hemp-related businesses must maintain robust Bank Secrecy Act (BSA) and Anti-Money Laundering (AML) compliance programs. This includes:
In sum, banking hemp-related businesses is permissible for credit unions. But they must be diligent in crafting BSA/AML policies. This is not a complete solution to the existing banking problems facing the Cannabis industry, but it does evidence a growing regulatory desire to provide access for the industry, which could sway policy makers down the road.
[1] The 2018 Farm Bill defines “hemp” as: “the plant Cannabis sativa L. and any part of that plant, including the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with a delta-9 tetrahydrocannabinol concentration of not more than 0.3 percent on a dry weight basis.”
