cannabis arbitration

As each state’s cannabis industry matures past the licensing and permitting phases, expect to see a huge uptick in internal and external issues with cannabis businesses: promising partnerships turn into bitter rivalries, companies go broke, permits and licenses get voided, etc. All of these issues need to be resolved, and many companies or their execs or owners will end up slugging it out in court. However, many, if not most cannabis disputes will be resolved behind closed doors and generally out of the public view, in private arbitration.

If you don’t know what arbitration is, check out my post here from back in 2018. For a cliff notes version, private arbitration is basically a trial before a private arbiter who is usually a former judge or lawyer. Arbitration can only happen if the parties agree to it, and that usually translates to disputes over a contract with an arbitration clause. If your contract doesn’t have one, chances are you’ll be stuck in the courts. In this post, I want to get into some of the pros and cons of arbitration.

The Good

The upside to arbitration, in my opinion, far outweighs the downside. Here are some of the reasons why cannabis arbitration can be such a benefit to the parties:

  • The arbitrator can focus on your case. I have appeared in many courtrooms where the judges have hundreds of active cases. I once heard a judge say that she gets more than thirty motions to dismiss A WEEK. The bottom line is that these kinds of judges just cannot devote the same attention to each case that an arbitrator can.
  • It is typically much faster than litigation, for the same reason as the last point.
  • The rules of procedure and evidence are typically more relaxed than in a state or federal courtroom.
  • Proceedings are usually confidential in nature. Even if the parties don’t agree in their arbitration agreement to keep the proceedings confidential, arbitrators don’t typically have publicly viewable dockets like courts do, so the whole proceeding will be much less publicly involved. This can provide obvious benefits to the cannabis industry.
  • Arbitration keeps disputes out of the federal courts. One defense that lots of cannabis litigants may want to raise is that the court should not enforce a contract that deals in federally unlawful substances. While many courts have not gone along with this argument,  federal courts have recently indicated that this may be a valid defense in certain cases. While an arbitrator may reach the same conclusion, it is probably less likely to occur than in federal court.

The Bad

Though there are obvious benefits to arbitration, it’s not always good:

  • Arbitration can be expensive. Unlike in the court system, the parties pay the costs of the arbitrator, which can be like paying a second lawyer. If multiple arbitrators are involved, or if there are a high amount of proceedings, the cost can be prohibitive for smaller parties.
  • Proceedings are usually confidential in nature. While this is a benefit to some parties, one card that litigants often have up their sleeves is the fact that the proceedings shine a light on alleged misconduct. This leverage may not be available in a private arbitration proceeding.
  • Arbitration may be final and binding and not allow appeal rights.

The Ugly

There are some aspects of arbitration that can be pretty bad if the parties don’t consider them up front:

  • There can be lengthy court disputes over whether arbitration should even occur. Often times, one party to a contract with an arbitration clause may not want to arbitrate and may resist efforts to force them to arbitrate. I’ve personally been stuck in months’-long court battles over the simple issue of whether arbitration can occur. This is why it’s so critical to have strong and clear arbitration clauses in cannabis contracts.
  • Arbitration can be expensive. I have seen cannabis contracts that call for panels of three arbitrators. For some larger disputes, this may make sense. But for small companies or small disputes, the arbitration fees can rack up very, very quickly with a panel of arbitrators and even surpass the value of the case.

In conclusion, the benefits of arbitration still outweigh the downsides in many cases. Even though it can be expensive, it may be a worthy cost for many cannabis companies. Stay tuned to the Canna Law Blog for more information on cannabis arbitration.

cannabis events california

It’s been a crazy two years since California legalized adult-use cannabis with the passing of Prop 64 and the adoption of the Medicinal and Adult-Use Cannabis Regulation and Safety Act.

On Thursday, January 30th, our own Hilary Bricken will join KCRW’s cannabis round table to discuss the industry’s evolution and future. This is a rare opportunity for anyone interested in the dynamic cannabis regulatory and business scene to sit down with some of the industry’s most influential figures, and we hope you got your tickets. While tickets to the live event have already sold out, the round table discussion will be recorded with plans to broadcast at a later date.

“Take Me To Your Dealer” is part of the ongoing KCRW @Home series dedicated to hosting “intimate discussions and workshops” relevant to the Southern California community. To learn more about this series, visit the KCRW events page.

washington cannabis marijuana

Last year brought significant changes to Washington cannabis via the legislative session. Today I’ll outline some of the ways the Washington State Liquor and Cannabis Board (“LCB”) plans to regulate marijuana in 2020. Before I get into the details, let me please encourage you to check out Cannabis Observer, who goes to every LCB meeting and provides details free of charge each week online.

This is part one in a two-part series. Today we’ll outline changes related to how the LCB is going to handle potential violations. Next, we’ll dive into penalties related to marijuana violations. In both cases, I’ll be analyzing proposed rules so things are subject to change.

Senate Bill 5318 went into effect last year and requires that the LCB move over from an enforcement-based approach to marijuana regulation to a compliance-based approach. In light of SB 5318, the LCB is retooling its rules, codified at WAC 314-55 et seq. In November 2019, LCB Policy and Rules coordinator Kathy Hoffman issued a paper (link provided by Cannabis Observer) on enforcement of marijuana regulations. Hoffman’s paper outlined the directives of SB 5318:

  • Specified when the Board may issue a notice of correction under a technical assistance program. This rule proposal establishes and frames the notice of correction; a separate rule project is underway to establish the technical assistance program in alignment with the directives of ESSB 5318;
  • Expanded on existing programs for compliance education;
  • Required rule making regarding penalties, with limits, such as the effect of cumulative violations;
  • Specified the types of violations that may result in license cancellation;
  • Required consideration of aggravating and mitigating circumstances;
  • Provides that the terms of a settlement agreement entered into by a licensee and hearing officer or designee of the Board be given substantial weight by the Board;
  • Allowed a licensee to correct violations unrelated to public health and safety within a reasonable amount of time.

The LCB has proposed or amended several sections of WAC 314-55 following these directives. Yesterday (January 22, 2020) the LCB adopted rules relating to marijuana penalties. The following are some highlights of the substantial changes and the new rules can be found here (thanks again to Cannabis Observer):

  • New Section: WAC 314-55-502 – Notice of Correction – This will  create a process for the LCB to issue notices of correction (“NOC”) to marijuana licensees in lieu of civil penalties. The NOC would state the noncompliant condition in detail, including the regulation at issue, a statement of what is required to achieve compliance and a date when compliance must be met, a contact for technical assistance from the LCB, notice of when, where, and to whom a request to extend the time to achieve compliance for good cause should be filed. The rule states that a NOC is not an enforcement action, but if a licensee doesn’t comply with a notice, the LCB may issue an administrative violation notice (“AVN”).
  • Amended Section: WAC 314-55-505 – Administrative Violation Notice – This rule outlines when the LCB may forego a NOC and issue an AVN, under three specific scenarios:
    • When a licensee has previously been given notice of or been subject to, an enforcement action for the same or similar violation of the same statute or rule;
    • When compliance is not achieved by the date established by the Board in a previous notice of correction and if the Board has responded to a request for review of the date by reaffirming the original date or establishing a new date; or
    • When the Board can prove beyond a preponderance of the evidence that any of the following violations have occurred;
      •  Diversion of marijuana product to the illicit market or sales across state lines;
      • Furnishing marijuana product to minors;
      • Diversion of revenue from the sale of a marijuana product to criminal enterprises, gangs, cartels, or parties not qualified to hold a marijuana license based on criminal history requirements (it’s significant that this is based on criminal history meaning that NOC would still need to be issued for revenues diverted to parties not qualified to hold a marijuana license for other reasons, such as residency);
      • The commission of nonmarijuana-related crimes; or
      • Knowingly making a misrepresentation of fact related to conduct or an action that is, or is alleged to be, any of the preceding four violations.
  • New Section: WAC 314-55-5055 – Resolution Options – This rule will replace WAC 314-55-510, which currently governs a licensee’s options after an AVN is issued. The rule describes a licensee’s options for responding to an AVN including timelines (20 days to respond) and penalties for failing to pay monetary fines. The rule states that the LCB will not renew a license if there are two or more outstanding monetary fines in a two-year period, which may not comply with SB 5318 which states that LCB rules “[m]ay include cancellation of a license for cumulative violations only if a marijuana licensee commits at least four violations within a two-year period of time;” which is now codified at RCW 69.50.562 (1)(c). It seems likely that a court will eventually rule on whether the LCB’s decision not renew is a license cancellation. The rules also outlines how to request a settlement conference, what’s included in a settlement agreement, and how to defer a penalty.

It’s reassuring to see the LCB implementing a policy that favors compliance over enforcement. Stay tuned next week for part two in the series!

psilocybin patent

Last week, COMPASS Pathways announced its acquisition of US Patent No 10,591,175. What does that patent cover? Psilocybin! More specifically, COMPASS has locked down “methods of treating drug-resistant depression with a psilocybin formulation.” The company is also running a phase IIb clinical trial of its patented formulation, COMP360, which we covered in a blog post back in 2018. In that post, I explained how the Food and Drug Administration (FDA) approval process works and why this trial is so interesting and important.

COMP360 is not the only patent application related to psilocybin, but it has generated a lot of press. Some of that press includes scare articles related to a “millionaire couple threatening to create a magic mushroom monopoly.” Other observers take a more measured position, examining the COMP360 application in detail, and concluding that “the only monopoly sought by Compass Pathways is for the right to make, use or sell their extremely narrow and specific forms of psilocybin.” These analysts posit that psilocybin research and commerce will not be affected in any meaningful way by COMP360, including for sale of “any varieties of magic mushrooms.”

Patents with narrow claims are easier to obtain and enforce. Assuming that is the case with psilocybin, the COMPASS effort should have no direct impact on decriminalized psilocybin in places like Oakland and Denver, or broader legalization efforts here in Oregon. Still, the fallout from patents—and especially drug approvals—for controlled substances can be hard to predict. When clinical trials began for cannabidiol (CBD), for example, no one could have foreseen the impact that FDA’s eventual approval of Epidiolex would have on the legality of CBD as a food or dietary supplement. Back then, no one knew CBD consumer products would be a thing.

Will the country be overrun by a wave of food, beverage and other products containing psilocybin sometime in the next decade? It seems unlikely, even if microdosing continues to trend. Psilocybin is a very different chemical than CBD, primarily for its psychoactive properties. In addition, psilocybin (along with psilocin) is included in Schedule I of the federal Controlled Substances Act and in Schedule I of the United Nations Convention on Psychotropic Substances. For psilocybin to have a broad path forward, it would have to be descheduled and decriminalized, just as hemp was here in the United States.

Ultimately, it is important not to lose sight of what COMP360 is actually for: treating drug-resistant depression. As I wrote previously, around 100 million individuals suffer from treatment-resistant depression worldwide. This means that nothing works– not antidepressants, not psychological counseling, not even grisly procedures like electroconvulsive therapy. Almost everyone knows someone who has suffered from this disorder.

If COMP360 performs well in current trials, a lot of people stand to benefit. COMPASS will benefit as well by raking in the profits, just as GW Pharma is doing today with Epidiolex. That seizure drug returned $296 million in revenues in a stellar launch year. Remember too that COMP360 is a depression drug: its ceiling is probably much higher.

Hopefully COMP360 expands rather than limits the seemingly vast potential of magic mushrooms. If it does not, the fallout will be deeply felt. Even compared to the cannabis community, the magic mushrooms crowd is decidedly anti-corporate and impassioned with respect to ownership claims on the compound. Psilocybin advocates will be watching COMPASS closely.

We will continue to track COMP360 and psilocybin in general. For more on psilocybin, check out the following posts:

cannabis trademark

We try to cover cannabis-related trademark issues thoroughly on this blog, because branding and trademark protection form the most basic foundation for most businesses. In our most recent posts, we’ve focused heavily on trademark disputes, because as the industry matures, litigation has become inevitable. For reference, you can check out some of the big trademark disputes from the last couple of years here:

But what we haven’t done recently is a recap of the trademark basics for cannabis companies, as well as a rundown on the updates regarding what products are and aren’t eligible for protection. There have been some positive changes in the last year with the implementation of the 2018 Farm Bill – the USPTO released updated guidance regarding the registration of hemp-related trademarks, which can be found here.

I’ll give a brief overview of the cannabis trademark landscape, but at this point, I think it’s safe to say that nearly every cannabis company has at least something that should be the basis for obtaining trademark protection.

Trademarks 101: A trademark is a word, phrase, symbol, and/or design that identifies and distinguishes the source of the goods of one party from those of others. More commonly, a trademark is recognized as a brand. The importance of trademarks is two-fold: On one hand, owners of successful brands want to rest assured that other parties will not be able to use and exploit their brand without the brand-owner’s permission. But on the other, perhaps more important hand, trademarks are crucial from a consumer protection standpoint. As a society, we want consumers to know where the goods and services they purchase are coming from, and to make informed purchasing decisions based on factors like quality and safety. The primary way consumers are able to distinguish the goods of one company from the goods of another is via branding.

There are three ways in which a brand owner can establish trademark rights:

  1. By using the mark in connection with their goods or services (legally) in commerce;
  2. By registering the mark with the United States Patent and Trademark Office (USPTO); and
  3. By registering the mark with an appropriate state trademark registry.

Registering a trademark with the USPTO is the best way to protect one’s mark, but because cannabis is still illegal under federal law, and because one requirement for registration of a federal trademark is that the applicant has made “legal use” of the mark in commerce, the USPTO has continually refused to register marks for use on cannabis and any other goods and services that violate the Controlled Substances Act (CSA).

The crux of the analysis for any cannabis company’s federal trademark eligibility is whether or not the company sells goods or offers services that comply with federal law. To the extent that it does, those goods or services are likely eligible for trademark protection. In addition, to the extent that a company is selling products that comply with both the Controlled Substances Act (CSA) and the Food Drug and Cosmetic Act (FDCA), those products are likely eligible as well. For example, while the FDA maintains that CBD cannot be added to food products without violating the FDCA, its position on CBD in topical products is quite different. Those products, as long as they comply with the 2018 Farm Bill, are likely eligible for trademark protection. Likewise, certain hemp products are Generally Recognized As Safe (GRAS) by the FDA – these products, including hemp seed oil, for example, are also eligible for federal trademark protection.

For products that do not meet the threshold for federal trademark protection, there’s a good chance that state protection is available. Though the protection afforded by a state trademark is geographically limited to the state of the registration (and sometimes just the area of use within that state), state trademarks usually provide more extensive geographic protection and legal remedies than common law rights. Common law rights are almost always limited to the geographic area in which you are using the mark, meaning that if you only do business in San Francisco, your common law trademark rights could only protect you within the city of San Francisco. And if you want to avail yourself of the statutory remedies available to trademark owners in infringement cases, you will need to register your mark.

While trademark protection in the cannabis industry still presents challenges for business owners, the law is in constant flux, and opportunities are beginning to emerge. If you haven’t worked with your cannabis intellectual property lawyer to develop a strategy for protecting your trademarks now and going forward, now is the time to do so.

Happy MLK Day!

For our international readers, Martin Luther King, Jr. Day is a federal U.S. holiday marking the birthday of its eponymous civil rights hero. Dr. King was the chief spokesperson for nonviolent activism in the Civil Rights Movement, which successfully protested racial discrimination in federal and state law. Dr. King was assassinated in 1968, four years after the passage of one of the great U.S. laws of the 20th century, the Civil Rights Act of 1964. His death also came two years prior to one of the 20th century’s most controversial and insidious laws, the Controlled Substances Act of 1970 (CSA).

The CSA is a half-century old this year, and it’s looking much worse for the wear. We have commemorated MLK Day each of the past few years on this blog by examining the status of cannabis and civil rights. In short, things were bad, are bad, and are not improving quickly enough (if at all). Marijuana arrests continue to track upward despite more states legalizing distribution and sale of the plant and despite broad non-enforcement of federal law.

We did see promising expungement efforts around the country last year, from San Francisco to Illinois to New York. But that is not enough. The War on Drugs persists in insidious ways, particularly with respect to black and Latino Americans. This includes everything from disproportionate incarceration to disenfranchisement under “progressive” new laws, like the 2018 Farm Bill.

In each of 2018 and 2019 we observed that Dr. King died 50 years ago, but his legacy continues to resonate and expand. The year 2020 will be politically momentous: let’s hope that state and federal governments finally turn the corner. Not only should cannabis be decriminalized once and for all, but the leaders among us should strive to make amends for a half-century of failures.

new mexico hemp

The Agriculture Improvement Act of 2018 (“2018 Farm Bill”) legalized hemp by removing the crop and its derivatives from the definition of marijuana under the Controlled Substances Act (“CSA”) and by providing a detailed framework for the cultivation of hemp. The 2018 Farm Bill gives the US Department of Agriculture (“USDA”) regulatory authority over hemp cultivation at the federal level. In turn, states have the option to maintain primary regulatory authority over the crop cultivated within their borders by submitting a plan to the USDA.

This federal and state interplay has resulted in many legislative and regulatory changes at the state level. Indeed, most states have introduced (and adopted) bills that would authorize the commercial production of hemp within their borders. A smaller but growing number of states also regulate the sale of products derived from hemp.

In light of these legislative changes, we are presenting a 50-state series analyzing how each jurisdiction treats hemp-derived cannabidiol (“Hemp CBD”). Today we head to New Mexico.

In 2017, New Mexico enacted Senate Bill 6, which established an industrial hemp program. The bill tasked the New Mexico Department of Agriculture (“NMDA”) with overseeing the production of the crop.

Two years later, state lawmakers passed House Bill 581, codified, in part, at N.M.S.A. § 76-24, which provides a regulatory framework for the manufacture of Hemp CBD products, also known as “hemp finished products.” A “hemp finished product” is “a hemp product that is intended for retail sale and containing hemp or hemp extracts that includes food, food additives and herbs for human use, including consumption, that has a THC content of not more than three-tenths percent.” Unlike industrial hemp, hemp finished products are regulated by the New Mexico Environment Department (“NMED”).

Following the enactment of House Bill 581, the NMED began the rulemaking process and issued the first set of proposed rules (“Emergency Rules”), which are scheduled to remain in effect through January 31, 2020. On December 2, 2019, the agency held a meeting for public comments to discuss the proposed final rules, but these rules won’t be adopted for at least a few more weeks – at least not until the Emergency Rules expire.

Both the Emergency Rules and proposed final rules require state extractors, processors, manufacturers and wholesalers to secure a permit from the NMED and meet certain manufacturing requirements to operate a hemp facility where hemp finished products intended “for human ingestion, absorption, or smokable products” are produced.

Note, however, that the proposed final rules intend to remove “food, food additives and herbs” from the definition of hemp finished product.” This suggests that the NMED wants to align its rules with the Food and Drug Administration’s policy on the sale and marketing of these products.

But for the time being, the manufacture, sale and marketing of food products seems allowed. Pursuant to House Bill 581 and the Emergency Rules, products intended for human consumption by eating or drinking are subject to the provisions of the Food Service Sanitation Act and the New Mexico Food Act (“NMFA”) but are not deemed adulterated. These products must also meet applicable labeling requirement in the NMFA and 21 C.F.R. 101 et seq. (food labeling).

The sale and marketing of smokables and cosmetics is not expressly authorized nor restricted but the Emergency Rules and proposed final rules mandate that these products meet applicable federal labeling requirements.

In addition to meeting federal labeling requirements, all categories of products must meet certain labeling and marketing requirements, including but not limited to:

  1. Clearly identity on the front display panel:
    1. CBD content in the package, labeled in milligram; and
    2. Total THC content in the package, labeled in milligrams.
  2. Unless otherwise approved, statements representing or inferring a hemp finished product contains no THC are prohibited.
  3. Hemp facilities shall design, maintain and use a coding system that will identify the date and place of manufacture of each hemp product that shall be clearly visible on the product label or securely affixed to the body of the container.
  4. No more than 0.3% Total THC concentration and meet other specific testing requirements.
  5. Contain no health, medical or benefit claims on the label.

Therefore, for the time being, New Mexico seems rather friendly toward the manufacture, sale and marketing of Hemp-CBD products. This could always change once the proposed final rules go into effect.

For previous coverage in this series, check out the links below:

cannabis fiduciary duty

Welcome back to our litigation series on California cannabis claims. We’re continuing today with a cause of action we unfortunately commonly see in cannabis litigation: the breach of fiduciary duty.

Introduction

A fiduciary relationship exists between parties when at least one of the parties is, in duty, bound to act with the utmost good faith for the benefit of the other party. Meaning, if you’re classified as a fiduciary (either under statute, or by virtue of an agreement you have signed), you MUST act in good faith for the benefit of the other party on any matter within the scope of your relationship. This encompasses sub-duties, like managing the subject matter with “due care,” providing an account to the beneficiary, or keeping the beneficiary fully informed.

Statute of Limitations

Subject to certain exceptions, the California statute of limitations on a breach of fiduciary duty claim is four years. One exception we see often, and is worth mentioning here, is when the essence of the claim is that the defendant’s act constituted actual or constructive fraud – in that case, the claim is actually subject to California Code of Civil Procedure s. 338’s three-year statute of limitations period.

Elements of a Breach of Fiduciary Duty Claim

The elements of a breach of fiduciary duty cause of action are: (1) the existence of a fiduciary relationship, (2) breach of the same, (3) damage (4) caused by that breach.

  1. Existence of a fiduciary relationship: California case law has come a long way in recognizing certain relationships or transactions as establishing fiduciary relationships. In general terms, a fiduciary duty under common law can arise in any situation where “one person enters into a confidential relationship with another.” The most common fiduciary relationships in the business context are:
  • Corporate officers and directors toward corporation and shareholders;
  • Controlling shareholders toward minority shareholders;
  • Partner toward partner: “In all proceedings connected with the conduct of the partnership every partner is bound to act in the highest good faith to his copartner and may not obtain any advantage over him in the partnership affairs by the slightest misrepresentation, concealment, threat or adverse pressure of any kind.” Enea v. Sup.Ct. (2005) 132 Cal. App. 4th 1559, 1564; and
  • Joint venturer toward co-joint venturer.
  1. Breach of fiduciary duty: to have a valid claim, the plaintiff must prove that the defendant breached its fiduciary duty. This is a question of fact, so make sure you have concrete documentation and other evidence.
  2. Causation: the plaintiff must then demonstrate that the defendant’s breach proximately caused the plaintiff’s damages.
  3. Damages: finally, the plaintiff must demonstrate its damages.

Remedies

Under a valid breach of fiduciary duty claim, both legal and equitable remedies are available:

  1. Legal Remedies
  • Compensatory damages: compensation for all the plaintiff’s harm caused by the breach.
  • Punitive damages: unlike under a breach of contract claim, punitive damages can be awarded if the court is satisfied, by clear and convincing evidence, that the defendant is guilty of oppression, fraud or malice.
  1. Equitable Remedies
  • Accounting: if, for example, your partner was in charge of handling your business’ funds and it’s unclear how much money was stolen over a one-year period, the court can order an accounting to be complete.
  • Constructive trust: if a defendant has obtained property by violation of a fiduciary relationship, the court may impose a constructive trust to compel the transfer of that property back to its rightful owner.
  • Disgorgement of profits: if a defendant profits from transactions it conducted as a fiduciary, another proper measure of damages is full disgorgement of any secret profit made by the defendant.

Stay tuned next week, when I plan to cover one of the sexier claims: fraud.  Part one of this series covered breach of contract, and you can find that here.

fda cbd hemp

The Food and Drug Administration (FDA) may soon change its tune on hemp-derived CBD (Hemp CBD) thanks to a bill recently filed by chairman of the House Agriculture Committee, Rep. Collin Peterson (D-MN) and cosponsored by Reps. Thomas Massie (R-KY), James Comer (R-KY) and Chellie Pingree (D-ME).

HR 5587 is an Act “To amend the Federal Food, Drug, and Cosmetic Act [(FDCA)] with respect to the regulation of hemp-derived cannabidiol and hemp-derived cannabidiol containing substances.” As of the time of this writing, the bill’s text is not available on Congress.gov but is provided by Marijuana Moment’s Kyle Jaeger, who wrote a great article on the bill.

If passed in its current form, HR 5587 would amend the FDCA’s definition of dietary supplement (21 U.S.C. 321(ff)(3)(B)) as shown below in bold:

The term “dietary supplement” does  not include—

(i) an article (other than hemp-derived cannabidiol or a hemp-derived cannabidiol containing substance) that is approved as a new drug under section 355 of this title, certified as an antibiotic under section 357 of this title, or licensed as a biologic under section 262 of title 42, or

(ii) an article (other than hemp-derived cannabidiol or a hemp-derived cannabidiol containing substance) authorized for investigation as a new drug, antibiotic, or biological for which substantial clinical investigations have been instituted and for which the existence of such investigations has been made public,

which was not before such approval, certification, licensing, or authorization marketed as a dietary supplement or as a food unless the Secretary, in the Secretary’s discretion, has issued a regulation, after notice and comment, finding that the article would be lawful under this chapter.

The bill would also amend the FDCA to clarify that federal law does not prohibit a person from introducing Hemp CBD into interstate commerce, as shown by the proposed amendments to 21 U.S.C. 331(ll):

The introduction or delivery for introduction into interstate commerce of any food to which has been added a drug approved under section 355 of this title, a biological product licensed under section 262 of title 42, or a drug or a biological product for which substantial clinical investigations have been instituted and for which the existence of such investigations has been made public (other than hemp-derived cannabidiol or a hemp-derived cannabidiol containing substance)[.]

This would be a significant change as the FDA has long held that Hemp CBD cannot be classified as dietary supplement because the FDCA’s definition of dietary supplement explicitly exempts any article that is approved or investigated as a drug unless the article was marketed as a dietary supplement or food prior to being publicly investigated as a drug. The FDA’s view is that Hemp CBD was not marketed as such prior to the investigation of CBD as a drug. The FDA could deal with this through regulation, as the FDCA does grant the FDA Secretary the authority to regulate around the definition of dietary supplement. That hasn’t happened, though, and it appears that the FDA is running out of time.

HR 5587, as currently drafted, only would apply to Hemp CBD, not other cannabinoids such as CBN or CBG. The 2018 Farm Bill encompasses all hemp-derived cannabinoids in its definition of “hemp,” so HR 5587 could encompass more than just CBD without having to amend the Farm Bill. It’s likely that this bill was drafted in light of the CBD craze over the last few years, so it isn’t all that surprising that CBD is the only cannabinoid listed. If HR 5587 picks up steam, it will be interesting to see whether the language is revised to encompass other, less popular cannabinoids, in order to prevent recurring problems.

In addition to removing obstacles related to making Hemp CBD a dietary supplement, the bill would also require the US Department of Agriculture (USDA), in consultation with other federal agencies, to submit to Congress a study on the following:

  • the costs and requirements for establishing and operating a hemp testing program, including the costs and requirements for operating or contracting with a laboratory approved by the Drug Enforcement Agency;
  • the costs and requirements for the destruction of hemp crops determined to be in excess of 0.3 percent delta-9 tetrahydrocannabinol or opportunities for remediation or alternative uses;
  • the feasibility of producer compliance with sampling timetables;
  • the feasibility of producer compliance with reporting requirements; and
  • other known or potential challenges by the participation of States or producers in the domestic hemp production program.

It’s probably too early to tell whether this HR 5587 has a chance to become law. It was presented with bipartisan support, but the legislative process can be unpredictable. Even if this bill does eventually become law, it will likely be subject to significant changes along the way. We simply don’t have enough information at this point to know what will happen.

We do know, however, that HR 5587 sends a clear message to the FDA, and to a lesser extent to the USDA, that lawmakers are not pleased with the treatment of hemp. For the FDA, this seems to be based on the agency’s continued hostility towards Hemp CBD. For the USDA, it seems that lawmakers have heard the backlash against the USDA’s testing requirements including the need to test for total THC at DEA-certified labs.

Remember, federal agencies only exist because of federal lawmakers. They are creatures of statute, statutes that were crafted by lawmakers in Congress. If agencies fail to interpret a statute in the way the legislature wants, it has the unique power to amend the statute. That’s what is happening here.

This may seem like an outright rebuke, but in all fairness to the FDA, former commissioner Dr. Scott Gottlieb has told Congress that a legislative change may be needed in order for the FDA to regulate Hemp CBD in a timely manner.  In addition, the USDA has publicly stated that testing hemp for THC content has proved challenging.

We’ll keep an eye on HR 5587 and all things Hemp CBD. 2020 is likely going to be another big year for cannabis, especially at the federal level. Stay tuned.

hemp cbd online sales shopify

We recently received a request from a client to advise them on Shopify’s guidance on selling CBD products on its platform. Specifically, the first paragraph of the guidance states that “[y]ou should consult with an attorney to determine how and where you’re able to sell your product.” And that’s exactly what the client did – reached out and wanted to know exactly how and where they could sell their various products.

But, as our regular readers are well aware, there isn’t always a clear answer to that question. Unfortunately, that does not mean that sellers of these types of products should just wing it, given the proliferation of CBD online and in retail stores. That type of strategy could land you in hot water, with your accounts shut down, or your funds seized by your payment processor (as has happened to clients of ours). Shopify’s policy explicitly states:

Shopify can’t provide advice on what and where merchants can sell, but we recommend that merchants review and monitor federal, state, and local laws, as well as monitor updates from the Food and Drug Administration (FDA). The FDA site has helpful guidance on products that contain hemp and/or CBD in the United States.”

Shopify also requires all users to complete an Attestation for the Sale of Hemp and Hemp-Derived Products, for which it again urges users to consult with an attorney for legal guidance. Here is a sampling of the statements that Shopify requires all sellers of hemp and CBD to confirm:

  1. I confirm that my Shopify store operates from a state where the listing and sale of hemp and hemp-derived products is permitted by applicable state and local law.
  2. I confirm that all hemp and hemp-derived products listed or sold on my Shopify store contain not more than 0.3% tetrahydrocannabinol (THC) concentration on a dry weight basis or such lower percentage as required by applicable state and local law.
  3. I confirm that no hemp or hemp-derived products listed or sold on my Shopify store are marketed as having any medicinal, disease-related or therapeutic benefit unless such claims have been approved by the Food and Drug Administration (FDA).
  4. I confirm that all hemp and hemp-derived products listed or sold on my Shopify store have been sourced, processed, tested, labeled and marketed in compliance with all applicable federal, state and local laws.
  5. I confirm that, if any hemp and/or hemp-derived products listed or sold on my Shopify store are intended for human or animal consumption via ingestion (including but not limited to food, food additive, beverage, dietary supplement, etc.):

(a) these products are permitted by applicable state law, and they comply with all applicable state and local requirements (including all labelling, manufacturing and testing standards);

(b) I have all applicable state and local licenses, approvals and certifications required to sell these products.

  1. 6. I confirm the following:

(a) all hemp and hemp-derived products listed or sold on my Shopify store comply with all specific restrictions, license(s) and/or other standards applicable to the specific hemp-derived product being sold;

(b) all hemp and hemp-derived products listed or sold on my Shopify store are legal in every jurisdiction into which they are sold (including jurisdictions outside the US as applicable);

(c) any marketing claims associated with all hemp and hemp-derived products listed or sold on my Shopify store are permitted by the FDA for that specific product category (e.g. cosmetics, dietary supplements, etc.) and are true, accurate, and do not contain any false or misleading statements;

(d) I will notify Shopify in writing of any class action demand letter or FDA or Federal Trade Commission (FTC) enforcement action commenced against my business including any warning letters or other related correspondence within ten days of receipt;

(e) no hemp or hemp-derived products listed or sold on my Shopify store have been the subject of a recall or safety alert from an applicable regulatory authority. In the event of such a recall or safety alert, I will notify Shopify in writing within 48 hours of receipt and will immediately remove the applicable product(s) from my Shopify store and stop fulfilling, processing or receiving orders for such product(s);

(f) if my Shopify store lists or is selling hemp seeds, the seeds are not capable of germination;

(g) no hemp or hemp-derived products listed or sold on my Shopify store contain any substances in Schedules I – V of the Controlled Substances Act;

(h) if requested by Shopify at any time, I will provide further confirmation or documentation to ensure that each of my Shopify store, business, hemp and/or hemp-derived products are in compliance with all applicable laws, regulations and requirements; and

(i) I acknowledge and agree that Shopify may at any time suspend or terminate my account if I do not respond expeditiously to Shopify’s requests for confirmation or documentation or other communications, or if Shopify determines in its sole discretion that it is necessary in order to comply with any applicable law.

These guidelines are about as robust as can be, and any retailer would be taking a huge risk by selling products that do not align with Shopify’s guidelines. We highly recommend to all of our hemp and CBD clients that they have a solid grasp of the current state of the law in every jurisdiction in which they sell, and that they have a plan in place for keeping abreast of changes to those laws (because they’re changing on nearly a weekly basis). Our firm offers these types of compliance and legal monitoring services for hemp and CBD, and echoes Shopify’s recommendation that all hemp and CBD retailers consult with an attorney to make sure they can complete the required attestation in good faith.