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.”
According to a research report published by Cowen & Co. earlier this year, the investment bank believes that the U.S. market for cannabidiol (CBD) consumer goods could reach $16 billion—a “conservative” forecast—by 2025, up from between $600 million and $2 billion in 2018 retail sales. As the third-most populous state in the country, this is a very big deal for Florida.
Florida’s state hemp program law, Section 581.217, Fla. Stat., created by the enactment of Senate Bill 1020, has the potential to transform Florida’s agricultural landscape while also capitalizing on a fertile market of enthusiastic cultivators and eager consumers.
With a population of more than 21 million, Florida has long been viewed as ripe for potential commercialization by the cannabis industry. Gov. Ron DeSantis made headlines in March when he signed legislation that effectively repealed the ban on smoking and “vaping” medical cannabis. Yet outside of Florida’s medical marijuana program (and the hemp pilot project discussed below), cannabis—which includes hemp and hemp-derived products—has remained a controlled substance, making the manufacture, processing, sale and possession of hemp or hemp-derived products (including cannabidiol, i.e., CBD-infused items) a criminal endeavor. Even within the state’s medical use program, the cultivation of cannabis, even for medicinal purposes, remains tightly regulated.
To read the full text of this article by Justin M. L. Stern, Robert A. Zinn, Jay Steinman and Jennifer A. Migliori, please visit the Duane Morris website.
At the U.S. Food and Drug Administration’s (FDA) public hearing on May 31, 2019 (read more about the hearing), over 100 people presented to a panel of FDA stakeholders and to over 500 attendees. Last week, FDA stated in a post that it recognizes the “significant public interest in these products, for therapeutic purposes and otherwise” but reiterated that “there are many unanswered questions about the science, safety, and quality of many of these products.”
The good news for the industry is that FDA “recognize[s] the need to be clear and open about where things stand, and about the efficient and science-based way in which we are moving forward,” including “being transparent and up-front” as they continue to collect data and information on CBD. FDA is taking an “Agency-wide, integrated, and collaborative approach” to regulating products made from CBD and is exploring potential pathways to market for CBD products. However, FDA still grapples with how to balance the desire for widespread availability of CBD products with the desire to preserve incentives for research and drug development of CBD products.
On May 3, 2019, the Florida legislature passed SB 1020, creating the state hemp program and authorizing the Florida Department of Agriculture and Consumer Services (FDACS) to enact regulations to govern the program. The bill, first filed in the Florida Senate on February 13, 2019, passed with overwhelming support; the final version passed by a margin of 39-0 in the Senate after passing 112-1 in the House. Governor Ron DeSantis has until May 18, 2019, to veto the bill or it will automatically become law.
“The historic vote,” according to FDACS Commissioner Nicole Fried, is in response to the federal 2018 Farm Bill, which “removed the prohibitions on industrial hemp in place since 1937 and authorized states to create hemp programs.” Id. If SB 1020 becomes law, it will fundamentally alter the treatment of hemp and hemp extracts, including cannabidiol (CBD) products, under Florida law.
On May 2, 2019, the United States Patent and Trademark Office (USPTO) made available a new examination guide aimed at clarifying the examination procedure for trademarks used in connection with cannabis and cannabis-derived goods and services.
These guidelines are a direct response to the signing of the Agricultural Improvement Act of 2018 (2018 Farm Bill) into law on December 20, 2018. The 2018 Farm Bill changes certain federal authorities relating to the production and marketing of “hemp,” defined 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 [THC] concentration of not more than 0.3 percent on a dry weight basis.” These changes include removing hemp from the Controlled Substance Act’s (CSA) definition of marijuana, which means that cannabis plants and derivatives such as cannabidiol (CBD) that contain no more than 0.3 percent THC are no longer controlled substances under the CSA.
As with CVS, Walgreen’s decision to sell hemp-derived in CBD in select states, as opposed to rolling those products out nationally, is likely the result of the still developing federal regulatory framework for hemp, which includes forthcoming regulations and guidance from USDA and FDA, and differences in the laws pertaining to hemp and hemp-derived CBD products from state-to-state.
Notwithstanding the challenging regulatory environment, the mass marketing of hemp-derived CBD, now that hemp is no longer a federal controlled substance, provides a lucrative opportunity for the hemp-derived CBD supply chain – cultivators, processors, and retailers, including the major pharmacy chains. However, the “select state” approach Walgreens and CVS have taken demonstrates that careful is analysis of the federal and state laws and regulations at play is necessary before entering the hemp-derived CBD market.
CVS Pharmacy’s announcement that it will be selling hemp-derived CBD topicals, including creams, sprays, roll-ons, lotions and salves in Alabama, California, Colorado, Illinois, Indiana, Kentucky, Maryland and Tennessee, should really come as no surprise, as the mass marketing of CBD has been an eventuality since hemp was removed from the Controlled Substances Act’s definition of marijuana with the signing of the 2018 Farm Bill in December 2018. CBD’s therapeutic benefits, without the psychoactivity of THC, have made products containing CBD the darling of the cannabis industry.
However, as CVS’s decision to market hemp-derived CBD products in select statesdemonstrates, the 2018 Farm Bill was not a total green light. USDA has yet to establish regulations fully implementing the federal hemp program, which would allow states to establish their own rules for cultivation, processing and sale of hemp, meaning state-by-state differences in the laws concerning cannabis, including hemp, must be assessed before marketing products like hemp-derived CBD. Such federal regulations should be promulgated later in 2019, ahead of the 2020 growing season.
In addition to USDA, FDA has authority over CBD-containing products under the Food, Drug and Cosmetics Act, adding another layer of regulatory complexity that makes the 2018 Farm Bill’s removal of hemp from the CSA more of a yellow light for marketing hemp-derived CBD. Thus, manufacturers and distributors of CBD products must assess how CBD fits in with FDA and state rules concerning drugs and drug approvals, active pharmaceutical ingredients, health claims and labeling, and foods and beverages. FDA has said it is evaluating CBD closely, and should be providing guidance later in 2019.
Because the light is still yellow on the marketing of hemp-derived CBD, manufacturers and distributors should carefully evaluate the federal and state regulatory framework before marketing their CBD products.
Update: The Senate passed this bill on December 11, 2018; the House of Representatives passed it on December 12, 2018. It was signed into law on December 20, 2018.
Duane Morris will be following further developments and issuing updates.
The 2018 Farm Bill removes hemp from the Controlled Substances Act;
The 2018 Farm Bill confers on the Department of Agriculture (“DOA”) authority over hemp, including CBD derived from hemp;
States desiring to have primary regulatory authority over hemp must submit a plan to DOA pursuant to which the state will establish hemp regulations to provide for the growth and use of hemp, including CBD derived from hemp;
No laws will be erected to prohibit the interstate transportation of hemp, or CBD derived from hemp;
The Food and Drug Administration may intensify its involvement with CBD as more products for human consumption hit the market;
Banking and insurance for hemp derived CBD products should become increasingly available as those products are no longer “unlawful”; and
CBD derived from unlawful marijuana is still unlawful.
Enter the 2018 Farm Bill, known as the “Agriculture Improvement Act of 2018,” set forth in final form in a Conference Report yesterday, and which will be voted on as early as this week and could be signed into law next week. The 2018 Farm Bill defines hemp as follows: The term ‘hemp’ means 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. It goes on to explicitly remove hemp from the Controlled Substances Act, as follows:
SEC. 12619. CONFORMING CHANGES TO CONTROLLED SUBSTANCES ACT. (a) IN GENERAL.—Section 102(16) of the Controlled Substances Act (21 U.S.C. 802(16)) is amended— (1) by striking ‘‘(16) The’’ and inserting ‘‘(16)(A) Subject to subparagraph (B), the’’; and (2) by striking ‘‘Such term does not include the’’ and inserting the following: ‘‘(B) The term ‘marihuana’ does not include— ‘‘(i) hemp, as defined in section 297A of the Agricultural Marketing Act of 1946; or ‘‘(ii) the’’. (b) TETRAHYDROCANNABINOL.—Schedule I, as set forth in section 202(c) of the Controlled Substances Act (21 U.S.C. 812(c)), is amended in subsection (c)(17) by inserting after ‘‘Tetrahydrocannabinols’’ the following: ‘‘, except for tetrahydrocannabinols in hemp (as defined under section 297A of the Agricultural Marketing Act of 1946)’’.
The 2018 Farm Bill confers on the DOA the regulation of hemp, and contemplates federal regulations that would allow for states to become the “primary regulator” of hemp. Importantly, the 2018 Farm Bill explicitly provides for the interstate transportation of hemp and prohibits states from restricting the interstate transportation of hemp, stating “nothing in this title or an amendment made by this title prohibits the interstate commerce of hemp (as defined in section 297A of the Agricultural Marketing Act of 1946 (as added by section 10113)) or hemp products…No State or Indian Tribe shall prohibit the transportation or shipment of hemp or hemp products produced in accordance with subtitle G of the Agricultural Marketing Act of 1946 (as added by section 10113) through the State or the territory of the Indian Tribe, as applicable.”
Significantly, the 2018 Farm Bill does not remove CBD derived from THC-containing marijuana from the Controlled Substances Act. Consequently, the DEA’s pronouncement as described above is still in effect, CBD derived from unlawful marijuana is still unlawful. However, there is now clarity. CBD derived from “hemp,” as defined in the 2018 Farm Bill, and grown pursuant to state regulations established pursuant to the 2018 Farm Bill, is lawful and may not be the subject of federal prosecution.
Banking: It should be underscored that banks and other financial institutions, such as investment firms and insurance companies, that have been cautious or reluctant about CBD products because of their connection to unlawful marijuana may view the 2018 Farm Bill as a green light for banking, investing and insuring hemp derived CBD products as hemp and CBD derived from hemp are no longer “unlawful.”
Most importantly, the 2018 Farm Bill does not eliminate the regulation of hemp or CBD derived from hemp. Rather, it envisions the promulgation of additional federal regulations and state regulations intended to promote its growth and use, and federal agencies like the FDA may increase their involvement with CBD. Those interested in participating in the hemp and hemp derived CBD markets should retain counsel well-versed in the pertinent state and federal regulations to provide guidance that will allow for the achievement of business objectives.
The Controlled Substances Act defines “marijuana” as: all parts of the plant Cannabis sativa L., whether growing or not; the seeds thereof; the resin extracted from any part of such plant; and every compound, manufacture, salt, derivative, mixture, or preparation of such plant, its seeds or resin. Such term does not include the mature stalks of such plant, fiber produced from such stalks, oil or cake made from the seeds of such plant, any other compound, manufacture, salt, derivative, mixture, or preparation of such mature stalks (except the resin extracted therefrom), fiber, oil, or cake, or the sterilized seed of such plant which is incapable of germination.
Just like THC-containing products that are lawful under a state’s marijuana laws, CBD that may be lawful under a state’s marijuana laws, is still federally unlawful if sourced from the parts of the plant included in the definition of marijuana.