To register for the event, visit the Food and Drug Law Institute website.
Since the 2018 Farm Bill passed in December 2018, removing hemp from the Controlled Substances Act and thus legalizing it under federal law, consumer goods containing the hemp-derivative cannabidiol (CBD) have become exceptionally popular. With that growing popularity among consumers has come increased scrutiny by federal regulators whose mission is consumer safety and protection, such as the Food and Drug Administration and Federal Trade Commission, and now by the plaintiffs’ bar, which files consumer class actions based on advertising. As the recent spate of warning letters and consumer class actions demonstrate, hemp-derived CBD product manufacturers and others in the supply chain for those products have to be mindful of the claims they make to consumers about their products.
Banking has been an impediment for the cannabis industry because the Bank Secrecy Act of 1970 (BSA) and related regulations―which seek to prevent money laundering and other financial crimes―place onerous requirements on banks when a transaction is suspected to involve illegal activity. 12 C.F.R. Section 21.11. Notwithstanding billions of state-legal cannabis dollars exchanging hands, the commercial banking industry, which is largely federally regulated, is virtually nonexistent in the cannabis space. In 2014, the Treasury’s Financial Crimes Enforcement Network (FinCEN) provided guidance intended to enhance the banking of cannabis-related monies by establishing a category of suspicious activity reporting for “marijuana related businesses.” But, according to FinCEN, as of June 30, 2019, just 553 commercial banks and 162 credit unions had filed an SAR for a “marijuana-related business.”
When the United States Department of Agriculture released the interim final rule for the hemp program in October 2019, many stakeholders—including businesses and state agencies—were caught off guard by certain testing-related requirements contained in the rule. Because hemp is now legal under the 2018 Farm Bill if it contains no more than 0.3 percent THC concentration, testing for THC levels is critical. However, significant questions and issues with the testing requirements must be clarified.
On November 20, 2019, Senators Ron Wyden and Jeff Merkley, both from the state of Oregon, submitted a letter to the secretary of the USDA, in which they flagged—“in no particular order”—five controversial testing-related requirements and requested modifications to those requirements. Below, we have summarized the senators’ concerns and proposed solutions to three particularly controversial testing-related requirements in the interim final rule.
Duane Morris partner Neville M. Bilimoria is quoted in the Law360 article, “CBD Rules In Limbo As FDA Grapples With New Cannabis Era.”
Hemp may have been legalized less than a year ago, but CBD derived from it is already on its way to becoming a multibillion-dollar industry. However, sales of everything from CBD gummies to lattes are occurring in a legal gray area as the U.S. Food and Drug Administration struggles with regulating the largely unstudied ingredient. […]
“This is a watershed year for the FDA and its coming to grips with the increasing demand from the consumer public over marijuana, cannabis, CBD, hemp. It’s trying to catch up to what the consumers are touting as being therapeutic uses for CBD and THC,” Mr. Bilimoria said. “It’s basically saying, ‘Wait, everybody slow down. We’re the FDA. We rely on science before we can approve any uses and regulate any uses of cannabis or CBD.'” […]
Mr. Bilimoria said he can’t blame the FDA for “taking it slow,” but said doing so is frustrating when CBD is already all over store shelves. […]
To read the full article, visit the Law360 website (subscription required).
The long awaited regulations establishing a regulatory framework under the 2018 Farm Bill passed last December were issued today (10/29/19). An Interim Final Rule will be published in the Federal Register later this week, which will make the U.S. Domestic Hemp Production Program effective. As explained in the Interim Final Rule: “The program includes provisions for maintaining information on the land where hemp is produced, testing the levels of delta-9 tetrahydrocannabinol, disposing of plants not meeting necessary requirements, licensing requirements, and ensuring compliance with the requirements of the new part.” USDA has published the Interim Final Rule and Guidelines for Sampling and Guidelines for Testing pursuant to the Interim Final Rule on its website.
Among other key provisions, the new regulatory framework provides for USDA’s approval of State and Tribal Land hemp programs established under the 2018 Farm Bill, which will end debate as to whether hemp activities in a State or Tribal Land receiving such approval are federally lawful. To be approved, those plans will have to contain stringent requirements for testing the THC content of hemp to ensure it does not meet the definition of marijuana, and contain procedures for the enforcement of violations of the State or Tribe’s hemp program. Importantly, the regulatory framework provides for USDA’s granting of hemp production permits in states and territories that do not establish hemp programs for approval by USDA.
Duane Morris attorneys will be publishing a more fulsome review of the Interim Final Rule. Please visit our Alerts and Updates webpage, or our cannabis industry webpage for that information.
On September 13, 2019, a federal district court in the Southern District of Indiana issued an Order regarding Indiana’s treatment of “smokeable hemp” that could have far-reaching consequences for the hemp industry. C.Y. Wholesale Inc. et al. v. Holcomb et al., 1:19-cv-02659 (S.D. In., Sep. 13, 2019). The court issued a preliminary injunction against the state of Indiana that prohibits the enforcement of certain provisions of a new Indiana law that regulated criminalized the manufacture, finance, delivery, or possession of “smokeable hemp.” Id.
On May 2, 2019, Indiana Governor Eric Holcomb signed Senate Enrolled Act No. 516 (the “Act”) into law. Among other things, the Act made it a Class A misdemeanor to manufacture, deliver, finance the manufacture or delivery of, or possess “smokeable hemp.” Ind. Code § 35-48-4-10.1. The Act defined “smokeable hemp” as “a product containing not more than three-tenths percent (0.3%) delta-9-tetrahydrocannabinol (THC), including precursors and derivatives of THC, in a form that allows THC to be introduced into the human body by inhalation of smoke.” Ind. Code § 35-48-1-26.6.
The Act’s prohibition on “smokeable hemp” is not unique. For instance, Kentucky’s industrial hemp regulations list products that are not to be sold to the public, and those products include “Hemp cigarettes” and “Hemp Cigars.” 302 Ky. Admin. Regs. 50:070. And the North Carolina legislature is considering a bill that would similarly ban “smokeable hemp.” Such bans are viewed as assisting local law enforcement in the performance of their duties. As federally lawful hemp and federally unlawful marijuana have the same appearance and a virtually identical smell, police officers throughout the country often have trouble distinguishing between the two. A ban on “smokeable hemp” would help officers and citizens avoid the waste of time and resources that could be caused by confusing unlawful marijuana and lawful hemp.
However, on June 28, 2019, a few days before the Act became effective, a group of Indiana businesses that sell hemp products at wholesale or retail filed a motion for a preliminary injunction to prohibit enforcement of the smokeable hemp ban. The plaintiffs argued Indiana’s smokeable hemp ban was unconstitutional because it was preempted by the 2018 Farm Bill and because it violated the Commerce Clause of the Constitution. The Court agreed.
First, the court held that Indiana’s “smokeable hemp” ban was impermissible because it was not limited in scope to intrastate activities, and as such interfered with interstate commerce. The 2018 Farm Bill explicitly provides “No State or Indian Tribe shall prohibit the transportation or shipment of hemp or hemp products produced in accordance with,” federal or state law. 2018 Farm Bill § 10114. By criminalizing the delivery and possession of “smokeable hemp,” the Act precludes transportation of hemp or hemp products through Indiana “and thus impede[s] the interstate commerce of hemp in contravention of the 2018 Farm Bill’s express prohibition on state laws that do so.” C.Y. Wholesale Inc. et al., 1:19-cv-02659 at 8. For instance, the court explained, “a driver traveling along I-74 from Ohio to Illinois who passes through Indiana with smokeable hemp in the vehicle, including hemp bud or hemp flower, would be in ‘possession’ of smokeable hemp and thus subject to arrest and criminal penalties under SEA 516.” Id.
Second, the court held Plaintiffs had shown a likelihood of success on the merits of their conflict preemption claim. “[T]he plain language of the 2018 Farm Bill, as well as statements from its legislative sponsors, reflect Congress’s intent to de-stigmatize and legalize all low-THC hemp, including its derivatives and extracts, and to treat hemp as a regulated agricultural commodity in the United States.” Id. at 10. However, Indiana’s smokeable hemp ban would “criminalize the manufacture, finance, delivery, and possession of hemp bud and hemp flower—hemp derivatives of the kind specifically legalized under the 2018 Farm Bill—[which] frustrates these congressional purposes and objectives.” Id. at 11.
Although the dispute has not been finally resolved, in granting the plaintiffs’ motion for a preliminary injunction, the court has given a strong indication of its view on the matter. If the court ultimately finds Indiana’s law unconstitutional, it is likely to impact other federal court analysis of similar state laws across the country. Duane Morris will continue to monitor this case and will provide additional updates as necessary.
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.
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.
