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.
Federal Banking Regulators Take Steps to Allow Financial Services for Hemp-Related Businesses
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.”
U.S. Senators Urge Changes to Testing Requirements Under USDA Interim Final Rule for Hemp Program
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.
Neville Bilimoria Quoted on FDA Rules in Cannabis Era
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).
Ninth Circuit Punts on Interstate Transportation of Hemp
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.
Ninth Circuit Hears Oral Argument in Landmark Hemp Transportation Case
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.)
Florida’s Budding Cannabis Industry Expands With New Hemp Law
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.
USDA Memo Clarifies Key Provisions Regarding Hemp in the 2018 Farm Bill
The Agriculture Improvement Act of 2018 (the “2018 Farm Bill”), signed into law on December 20, 2018, altered the federal government’s treatment of hemp in a number of ways. The 2018 Farm Bill expanded the definition of “hemp” to include, explicitly, derivatives, extracts and cannabinoids, and removed hemp from the definition of federally unlawful marijuana under the Controlled Substances Act (CSA). See 2018 Farm Bill, Pub. L. No. 115-334 §§ 10113, 12619, 132 Stat. 4490. Notably, the 2018 Farm Bill also explicitly permitted the interstate transportation of hemp: “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).” Id. at § 10114.
Subtitle G, for its part, provides that “[n]othing in this section prohibits the production of hemp in a State or the territory of an Indian tribe—(1) for which a State or Tribal plan is not approved under this section, if the production of hemp is in accordance with section 297C or other Federal laws (including regulations).” Id. at § 10113 (emphasis added). This final clause, “or other Federal laws,” is significant because the Agriculture Act of 2014 (the “2014 Farm Bill”) is also a “federal law,” and to date approximately 40 states have instituted industrial hemp programs pursuant to the 2014 Farm Bill. Under the language of the 2018 Farm Bill, then, states may not interfere with the interstate transportation of hemp produced in accordance with either the 2014 Farm Bill or—once regulations are implemented and state hemp programs are approved—the 2018 Farm Bill.
Notwithstanding the language of the 2018 Farm Bill, the absence of federal regulations implementing the new law and sanctioning state hemp programs revised pursuant to the 2018 Farm Bill has caused significant confusion regarding the true impact of the act.
Case Sets Stage for Cannabis Patent Infringements Actions
Getting a patent for a cannabis product is no more difficult than getting a patent for any other kind of product. However, with a high number of cannabis patent applications being approved, it is likely that many will be challenged for invalidation in the coming years.
Already one of these patents has gone to court in the U.S. District Court for the District of Colorado. In United Cannabis v. Pure Hemp Collective, United Cannabis Corp. claims that Pure Hemp Collective Inc. used a cannabis extract that United Cannabis had a patent on. Pure Hemp filed a motion for partial summary judgment, arguing United Cannabis should not have had a patent on the extract because it was something that occurred naturally. In April, U.S. District Judge William Martinez found the strain was altered and would not have occurred naturally and denied the motion for partial summary judgment. The case is still pending..
To read the full text of this article including Duane Morris Attorney Vince Capuano, please visit the Duane Morris website.
Reprinted with permission from law.com, © ALM Media Properties LLC. All rights reserved.
“Cannabis 201” Webinar Replay Available
A video replay of the webinar “CBD and Hemp Regulatory Update” is available to view.
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