cannabis insurance

With Juul recently in the news and vaping bans going into effect around the country (see our recent coverage here, herehere and here), marijuana companies have been asking us questions about what to expect in the near term. In the midst of this uncertainty, we have been stressing to our clients the importance of insurance coverage for your business (see Anatomy of a Cannabis Insurance Policy Part 1: The Basics)– especially insurance that covers your liability for your marijuana- and hemp-derived products.

You need product liability insurance if you sell any goods or products that end up in the hands of the public. Period. You need as much insurance coverage as you can afford. Period. Your products liability insurance is not a substitute for you producing a safe, quality product. Period. You need to reassess your insurance coverage at least annually. Period.

I spend roughly half of my time doing traditional “legal work” for clients and the other half discussing business strategy, particularly how to protect the company’s business through having good contracts with every important business contact (business partners, suppliers, customers, financiers/investors, and insurers). Insurance is one of the most boring but important parts about running any business, and due to the outsized risks in the cannabis world, it is something that should be prioritized alongside your fundamental business plan. For those of you who do not want to read much further, here are the takeaways:

  1. You need product liability insurance if you sell any goods or products that end up in the hands of the public. Period.
  2. You need as much insurance coverage as you can afford. Period.
  3. Your products liability insurance is not a substitute for you producing a safe, quality product. Period.
  4. You need to reassess your insurance coverage at least annually. Period.

Generally speaking, product liability insurance (potentially) addresses the negative effects surrounding the use and consumption of your completed products, essentially the “what could go horribly wrong?” scenarios. Think exploding vape carts, carcinogenic edibles, and children choking on your packaging. These are the kinds of potential issues that keep businesspeople up at night when new products go to market. The “what could go wrong” scenarios generally fit into the following categories: 1) design defects (negligence claim), 2) production or manufacturing flaws (negligence claim), 3) marketing defects (misleading or defective warnings or instructions) (negligence claim), 4) breach of warranty (breach of contract claim), and 5) strict liability.

Design defects. Design defects are distinct from manufacturing defects because they go to the root of the product itself. If you design a poor product, such as a glass vape cartridge with glass that is too thin and is prone to shattering, you will get sued for damages resulting from your product with a design defect.

Manufacturing defects. You can create a sound product but have lackadaisical manufacturing processes that result in product defects. If your manufacturing process introduces mold into your product or does not sufficiently identify contaminated products, you will get sued for damages resulting from a manufacturing defect.

Marketing defects. Marketing defects refer to misleading or defecting warnings or instructions. If your product label’s instructions for an edible product accidentally get placed on a smokable product or vice versa, you may get sued for damages resulting from that marketing defect. And if your marketing or packaging makes health claims, whether it is in products designed for pets (see Hemp-CBD Pet Foods Are Everywhere But Are They Legal?) or humans (see FDA Issues Warning Letters to CBD Manufacturers Making “Over-The-Line” Health Claims), these claims can also get your company into a world of trouble with state and federal regulators (see CBD Products and False Advertising Under the Lanham Act), which could easily provide substance for marketing-related lawsuits from your consumers.

Breach of warranty. By virtue of state laws, every product sold includes an implied warranty unless it is disclaimed by the manufacturer or retailer. Implied warranties include the implied warranty of merchantability and the implied warranty of fitness for a particular purpose. Providing an express warranty is a smart way for a company to disclaim the implied warranties that are broader than the express warranty. Express warranties provide the company more certainty than it would otherwise have with respect to potential product liability claims. I will cover product warranties in more depth in a later blog post.

Strict liability. This is the scariest of the legal grounds for product liability because, as the term indicates, this liability is strictly applied to companies that manufacture or sell products in dangerous, unreasonable conditions. This claim potentially encompasses every part of the supply chain, from producers, to processors, to manufacturers, to distributors, to retailers. This liability is rooted in state law and provides a mechanism for potential plaintiffs who have been harmed to sue every party that was involved in bringing a dangerous product to market. My co-blogger Jesse Mondry, who specializes in litigation, will cover this topic in a future blog post.

Product liability insurance is not a substitute for designing and producing a quality product, and it will not protect you from your company’s illegal activity. You may have read that California vape maker Kushy Punch was caught making illegal products, essentially selling quality product through the “front door” licensed premises while selling tainted product out the “back door” from an unlicensed premises. In the extremely unlikely event that Kushy Punch’s inside or outside legal counsel recommends contacting their products liability insurer regarding consumer claims stemming from the negative effects of those tainted products, the insurance company will deny coverage without even reviewing the terms of the insurance policy.

As one insurance agent recently commented to me, “Since the business [policy] is almost certainly being written on an excess and surplus basis rather than [an] admitted [basis] and thus [is] less standardized, it is important to read the policy carefully and not buy the cheapest policy. On a products liability policy, pay special attention to the health hazard exclusion. An absolute health hazard exclusion will exclude almost any adulterated product if it causes a bodily injury. It is rare the carriers will offer coverage without a health hazard exclusion, so companies should really be looking for a properly modified health hazard exclusion that only excludes coverage for long term health issues.”

Products liability insurance, like all insurance policies, are affected by the limit of the policy. Do not think just because a certain issue or event is covered by your policy that you have reached the end of your analysis. If a court renders a judgment against your company for $5 million and the limit of your insurance policy is $1 million, you know the other $4 million will come directly from the company’s assets and potentially the owners’ pockets (if the “corporate veil” is pierced – a topic for another day).

Smart business owners will recognize that it is time to do an insurance audit. Talk to your legal counsel on how to properly conduct an insurance audit so that you understand what coverage you have, what events will trigger your policies, how to implement good recordkeeping that is in sync with your insurance policy requirements, and how to negotiate with your insurance company when they want to deny you coverage for a covered event.

california cannabis M&A licensing

Now that we’re about two years into California cannabis licensing, our California cannabis attorneys are seeing a huge uptick in mergers and acquisitions in the cannabis space. It’s critical for potential M&A transactions to understand California cannabis laws and regulations and ensure that any M&A contracts are drafted with the regulations in mind. This is especially so for buyers who will have to live with the mistakes of the seller and any defects in the M&A contracts—some of which can be fatal to a cannabis license. For buyers especially, it is very easy to overlook key regulatory requirements in a complex M&A transaction and jeopardize a target business’ license. In this post, I’ll go over some of the biggest problems that our California cannabis attorneys routinely see with M&A transactions.

1. Not Considering the Regulations

The biggest M&A mistake that our California cannabis attorneys see, hands down, is not considering the California cannabis regulations and their requirements from day one. Parties routinely come to an agreement on the commercial terms of a deal, and in some cases even draft contracts without considering the impact of the regulations. We cannot underscore how problematic this can be. Failure to consider the rules from day one may require the parties to re-draft a 60-page contract on the eve of signing—or worse, after signing—because they forgot to address regulations that might result in the loss of a license. Especially for a buyer, who is left holding the bag for any regulatory problems caused by the seller, this can be disastrous.

2. Licenses Cannot be Sold

California cannabis law is very clear that licenses may not be sold or transferred in any way. Nevertheless, our California cannabis attorneys have seen transactions where parties have attempted to sell licenses, which would result in the automatic termination of the license. Most of the time, however, the issues we see are subtler. For example, it’s generally common in M&A for the buyer to offer something as security if the buyer is not paying the full purchase price up front. But because licenses cannot be transferred, they should not be pledged or offered as security. That too could result in loss of the license.

3.  Acquisitions of a Parent Company Can Still Trigger Owner Disclosures

Many cannabis businesses in California are owned by holding companies. Some of them even have three or four levels of corporate ownership before getting to the parent company. Most cannabis deals involve acquiring a parent (which almost always is not licensed), as opposed to the subsidiary licensee. Even though that parent isn’t licensed, the parties to the transaction must still comply with California cannabis regulations. Even in these deals, the buyer must consider that it will still be considered an owner. At least one California cannabis agency explicitly requires identification of equity and non-equity “owners” all the way up the chain to the parent company—no matter how far removed—and has the discretion to require those persons to make full owner disclosures. Failure to consider the requirements of ownership and disclosure timetables could be disastrous for the buyer who will have to scramble to make tight 10–14 day disclosures to the state and who may have missed the local-level pre-closing disclosure requirements.

4. Complete Changes of Ownership at Once are Forbidden

The California cannabis agencies (and most local jurisdictions) do not allow businesses to be sold or transferred entirely at one time. The Bureau of Cannabis Control, for example, requires that at least one original owner remain on the license while the incoming owners are evaluated. In the event of an M&A transaction that results in a complete change of ownership at once, the business could lose its license. Because of this, our California cannabis attorneys have seen a surge in phased deals where only portions of a business are transferred to the buyer at one time. This is probably the biggest area where failure to consider regulations at the outset could result in a lost license.

5. Foreign Buyers Have Even More Potential Problems

Over the last year, we’ve seen more and more foreign companies seeking to invest in any even acquire California cannabis companies. Notwithstanding legal ramifications in the purchaser’s home country (cannabis is still illegal in most countries), there are major impacts in U.S. laws for foreign purchasers. For example, owners of California cannabis businesses must have Social Security numbers (“SSNs”) or Individual Taxpayer Identification (“ITINs”), which foreign purchasers don’t have. ITINs can take months to obtain, so not having one prior to closing can interfere with regulatory disclosures. There are also immigration concerns for cannabis industry participants (see herehere, and here), so a new owner coming to the United States to close a transaction or obtain their required live scan could be barred from entry.  Failure to consider these issues from the outset could obviously result in tremendous problems for foreign investors who could be barred from entry into the US and may jeopardize a license if they can’t make timely disclosures.

maine hemp cannabis

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”). Each Sunday, we summarize a new state in alphabetical order. Today, we turn to Maine.

Maine began authorizing the commercial sale of industrial hemp and Hemp-CBD products in 2015. Following the enactment of the 2018 Farm Bill, the state passed H.P. 459 and S.P. 585 to align Maine with the 2018 Farm Bill and clarify the legality of Hemp-CBD foods.

Under S.P. 585, which generally went into effect on September 19, “hemp” means:

the plant Cannabis sativa L. and any part of that plant, including the seeds and all derivatives, extracts, cannabinoids, isomers, acids, salts and salts of isomers, whether growing or not, with a delta-9-tetrahydrocannabinol concentration that does not exceed of not more than 0.3% on a dry weight basis and that is grown or possessed by a licensed grower in compliance with this chapter” and “includes agricultural commodities and products derived from hemp and topical or ingestible consumer products, including food, food additives and food products derived from hemp.” (Emphasis added).

Moreover, S.P. 585 provides that:

[n]otwithstanding any other provision of law to the contrary, food, food additives or food products that contain hemp, including cannabidiol derived from hemp, are not considered to be adulterated or misbranded under this subchapter based solely on the inclusion of hemp or cannabidiol derived from hemp.” (Emphasis added).

Accordingly, the manufacture and sale of Hemp-CBD food products seem to be authorized in the state so long as they comply with the THC testing and marketing requirements.

The state has adopted labeling requirements for packaged and unpackaged Hemp-CBD foods. Packaged food labels must:

  1. Indicate that the food, food additive or food product contains hemp or Hemp-CBD;
  2. Describe the CBD content by weight or volume;
  3. Include the source of the hemp from which the CBD was derived;
  4. In the case of extracts or tinctures, indicate the batch number; and
  5. Include a disclosure statement that the food product has not been tested or evaluated for safety.

Unpackaged Hemp-CBD foods, which are foods sold in public eating places, such as retail stores, hotels and restaurants, must be accompanied by a conspicuous label or sign indicating that the product contains CBD either on the menu or in an open manner where the food order or food product is served. In addition, the public eating place must conspicuously display a directory for use by customers that contains information on the contents of all unpackaged Hemp-CBD products.

However there is one requirement that applies to both packaged and unpackaged Hemp-CBD foods: they cannot be marketed with any claims that the products can “diagnose, treat cure or prevent any disease, condition or injury” without approval from the FDA. If you follow our blog, you know it is wise not to make statements about the therapeutic value of Hemp-CBD products (see here and here). So by imposing this requirement on Hemp-CBD manufacturers and public eating places, the state is helping Hemp-CBD stakeholders mitigate their risk of FDA enforcement.

Turning to other categories of Hemp-CBD products, the sale of Hemp-CBD smokable products is neither restricted nor authorized under the law whereas the sale of cosmetics (i.e., topical) is expressly allowed under the definition of “hemp”.

Overall, it’s fair to say that Maine is a “Hemp-CBD friendly state.” In fact, no enforcement action has been taken against Hemp-CBD products since the enactment of H.P. 459 in March 27, 2019.

Stay tuned to the Canna Law Blog for developments on hemp and Hemp CBD in Maine and other states across the country. For previous coverage in this series, check out the links below:

tom steyer marijuanaWe recently ran a series of blog posts that take a close look at the Democratic Party candidates for President in 2020. We examined each candidate’s historic approach to marijuana law and policy, and we also canvassed their current respective stances on marijuana.

In all, we covered Joe BidenBernie SandersKamala Harris, Elizabeth WarrenPete ButtigiegCorey BookerBeto O’RourkeAndrew YangAmy Klobuchar and Julián Castro. We concluded by covering President Trump.

Those posts were very popular, and in light of the fact that two more Democratic Party candidates later qualified for the most recent debate, we added Congresswoman Tulsi Gabbard last week, and we turn to liberal activist Tom Stayer today.

Former Hedge Fund Manager and Founder of NextGen Non-Profit Tom Steyer

Grade: C-

Stance on marijuana: Tom Steyer supports legalizing marijuana, but he is far from outspoken on the issue.

History: Steyer has never served in a political office but he was very politically active prior to his presidential campaign through donations to various Democratic Presidential Campaigns, the PAC Need to Impeach, and the nonprofit NextGen. None of his political activism addressed marijuana.

Tom Steyer does not mention marijuana on his website nor on his social media. Cannabis-related criminal rehabilitation is also absent from the criminal justice reform section of his platform. Steyer spoke on the issue for the first and only time during an interview in August. He expressed his support for legalization, explaining that marijuana’s illegal status at the federal level made it so that banks could not finance marijuana businesses, even in states where marijuana is legal:

I know that because my wife and I started a community bank that is dedicated to the idea of economic justice, environmental sustainability [and] women- and minority-owned businesses. We know that for us to actually finance marijuana businesses would mean that we would lose the support of the Federal Deposit Insurance Corporation (FDIC). So, the real question is, don’t we have to change the federal laws so that the FDIC can allow community banks and other banks to support these legal industries in the states where they exist?”

While banking issues regarding marijuana are certainly important, it is concerning that this is the only issue that Steyer brought up about the criminalization of marijuana. Even more concerning, however, is that this is the only time he has directly addressed his views on marijuana.

Conclusion: We give Steyer a “C-” because he has only directly addressed his views on marijuana once. He also does not address criminal justice reform on his website or in his rhetoric.

olcc vape marijuana thc

Early last week, we covered Governor Brown’s Executive Order No. 19-09 ordering a ban of flavored vaping products. That ban is six months in duration, and it covers all flavored tobacco and nicotine vaping products, as well as marijuana products flavored with non-marijuana terpenes. As expected, the Oregon Liquor Control Commission (OLCC) and Oregon Health Authority (OHA) quickly released temporary rules enacting the ban, both inside and outside the marijuana context. No one in the OLCC world challenged this ban, which is surprising given the significant industry impact.

Outside of the marijuana context, it’s a different story. Yesterday afternoon, the Oregon Court of Appeals granted a request for an immediate and temporary stay from enforcement of the new OHA rules found at OAR 333-015-1000. These rules prohibit retailers from “offer[ing] for sale a vapor product containing a flavor, to a consumer in Oregon.” The Petitioners here are a series of vape businesses and interest holders, which filed two separate lawsuits. The first lawsuit was filed by a national trade group known as Vapor Technology Association along with southern Oregon outfits Vape Crusaders Premium E-Liquid, LLC and Smokeless Solutions, LLC. The second lawsuit was filed by a Portland shop called Division Vapor and its owner, Paul Bates.

Interestingly, the “Division Vapor” name registration has long since expired and ORS 648.135(1) may prevent that company from moving any further. They have slipped through for now, though, and along with other Petitioners, Division Vapor argued that “as a result of the [emergency OHA] rule, they, along with numerous other similarly situated businesses, will be forced to permanently close within weeks.” That was enough for the Appellate Commissioner, who halted the rule and gave all Petitioners the opportunity to duke it out with the Oregon Department of Justice in motion practice. Eventually, the court will reach a decision on the merits. This is a similar outcome to what recently happened with the ban in New York State. Challengers in Massachusetts have been less successful.

Will the Oregon vape shops ultimately prevail? It’s hard to say, and a full analysis is beyond the scope of this post. Could OLCC licensees have made identical arguments to the Appellate Commissioner to buy some time? Absolutely. Could they still? You bet. Overall, however, industry response has been staid, including from the Oregon Cannabis Association and other trade groups. And though our office has heard client complaints about business interruption–including talk of losses and layoffs–no one has stepped up to challenge the temporary rules at OAR 845-025-2805. That may change if someone is emboldened by yesterday’s ruling.

The big question in any marijuana business challenge would be whether the Appellate Commissioner and ultimately the Court would think of that challenge in the same manner as the vape shops. The two sets of petitioners are not perfectly analogous, of course, and the Appellate Commissioner could determine that vape shops are more dependent on sales of newly banned products than affected OLCC businesses. Still, given various factors including: 1) the highly competitive nature of the OLCC market, 2) the razor-thin margins of many licensees, and 3) the flavor-dominant product lines of many processors, a compelling argument could be made that the emergency rules will have a fatal effect on one or more businesses. In light of yesterday’s ruling, it might be worth a shot.

cannabis cbd trademark

Last week I had the pleasure of speaking on a panel called “Expert Perspectives on the Rapidly Evolving Cannabis Industry” at the Midwest IP Institute in Minneapolis, MN. One of the issues that is often a source of confusion, both at IP-focused events and for clients, is how to craft an appropriate specification of goods or services for a federal trademark application while simultaneously navigating the trademark challenges faced by cannabis companies.

As we’ve written about extensively, federal trademark protection is extremely limited for businesses operating in both the hemp-CBD and cannabis spaces. You can read more about those limitations here:

Most significantly for cannabis business owners, one requirement for registration of a federal trademark is that the applicant has made “lawful use” of the mark in commerce on the goods and services that are specified in the trademark application. Under the CSA, it is unlawful to sell, offer for sale, or use any facility of interstate commerce to transport drug paraphernalia, i.e., “any equipment, product, or material of any kind which is primarily intended or designed for use in manufacturing, compounding, converting, concealing, producing, processing, preparing, injecting, ingesting, inhaling, or otherwise introducing into the human body a controlled substance, possession of which is unlawful under the CSA.” Furthermore, it is the FDA’s position that CBD cannot lawfully be introduced into comestibles without having undergone the FDA’s formal drug approval process, rendering CBD products intended for human consumption illegal under federal law as well.

The question I’m asked most frequently with respect to crafting a specification of goods for a U.S. trademark application is whether the applicant can merely omit any references to cannabis in their specification and avoid scrutiny during the examination process that way. The short answer to that question is “no.” The way in which a specification is crafted is irrelevant if the goods that the applicant is actually selling in commerce are not lawful. For example, specifying “brownies” in your application when the brownies you are actually selling contain marijuana or CBD will not circumvent the fact that you are not making lawful use of your mark in commerce. While an application like this may slip past an examining attorney, it would ultimately be void or unenforceable, and of no value to the applicant.

In addition–and this is something I see most frequently with trademark applications proposed by foreign applicants–overly broad specifications can be a huge problem and can ultimately lead to cancellation of the entire U.S. trademark registration. It is crucial that an applicant have a bona fide intent, from the time of filing of the application, to use the trademark on all of the goods and services specified. We really cannot emphasize this enough. Lack of this bona fide intent to use the mark on all goods or services specified can be a basis for attack on the validity of the application or registration. Said another way, an attempt to grab broader protection than an applicant is entitled to can actually leave them with no protection at all.

For these reasons, it is prudent to have a conversation with your trademark attorney about how to craft a defensible specification of goods and services for your U.S. federal trademark applications, and to err on the side of caution when attesting to a bona fide intent.

social equity cannabis california

Last week was a big one in terms of California’s social equity programs, with the Bureau of Cannabis Control (BCC) announcing its award of equity grant funding to a number of local jurisdictions “to be used for commercial cannabis equity programs that focus on inclusion and support of persons or communities that were negatively or disproportionately impacted by cannabis criminalization.” The funds are intended to be used by cities and counties to provide assistance and services to equity applicants and equity licensees.

On October 9th, the BCC awarded $10 million in equity grant funding to the following jurisdictions:

  • City of Los Angeles ($1,834,156.38)
  • City of Oakland ($1,657,201.65)
  • County of Humboldt ($1,338,683.13)
  • City & County of San Francisco ($1,338,683.13)
  • City of Sacramento ($1,197,119.34)
  • City of Long Beach ($913,991.77)
  • City of San Jose ($560,082.30)
  • County of Santa Cruz ($560,082.30)
  • City of Coachella ($500,000.00)
  • City of Palm Springs ($100,000.00)

This funding was authorized by the California Cannabis Equity Act of 2018 (Senate Bill 1294) and the Budget Act of 2019. The hope is that these additional funds will help local jurisdictions with implementation of equity programs that have struggled due to lack of funding and under-staffing.

In addition to the BCC’s announcement of its financial support of these equity programs, companies Eaze and Vangst also announced their plans to implement equity initiatives. Eaze’s program, called Momentum, is a “cannabis business accelerator” that will select ten applicants to partake in a ten-week education program. Each selected applicant will receive a $50k grant toward their business. Eaze’s Director of Social Impact, Jen Lujan, has stated that the purpose of the program is to support underrepresented individuals, including people of color, women, the LGBTQ community, and anyone incarcerated or negatively impacted by cannabis prohibition, within the marijuana industry. Eaze will grant applicant’s access to their business resources, including HR, legal, and marketing, via more than 40 volunteer employees.

Recruiting company Vangst also recently began a social equity program in order to facilitate the hiring of qualified equity candidates in the cannabis industry. According to Vangst, its “Social Equity Initiative focuses on making employment opportunities more accessible. We work with the biggest and most well known cannabis brands in the country, and together, we will lower the barriers to entry in this burgeoning industry.”

For those unfamiliar with the social equity programs being implemented by some cities and counties not just in California, but across the nation, the concept is to encourage equitable participate in the cannabis industry and to foster business opportunities for individuals who have been negatively impacted by the War on Drugs. Here in San Francisco, for example, Equity Applicants do not have to pay the $5,000 permit fee required of other license applicants, and can benefit from incubator partnerships with established companies that provide rent-free space for three years, or other technical assistance in running their businesses.

In order to qualify as an Equity Applicant in San Francisco, an individual must:

  • apply as a person, not a company.
  • have net assets below established limits for each household. This means you will not qualify as an Equity Applicant if your 1-person household has net assets over $193,500. Asset limits for larger households can be found here: Equity verification requirements.
  • be one of the following:
    • the business owner;
    • own at least 40% of the business and be the CEO;
    • own at least 51% of the business;
    • a board member of a non-profit cannabis business where most of the board also qualify as Equity Applicants; or
    • an individual with a membership interest in a cannabis business formed as a cooperative.

In many cases, partnering with or incubating an Equity Applicant is the only means by which companies can currently apply for and receive licenses in some jurisdictions. Most cities have given priority to equity participants, and many have not even indicated when they will begin accepting non-equity applications from the general public.

Given the struggles we’ve witnessed in many jurisdictions to effectively and efficiently implement their social equity programs, we’re hopeful that additional state funding will be beneficial, and we are pleased to see large companies stepping in to provide some assistance. In all, we hope this will be the small beginning of a growing trend to address some of the many social justice issues created by marijuana prohibition and the War on Drugs.

california hemp

On October 12, 2019, Governor Newsom announced that he had signed SB-153, a bill aimed at making significant changes to California’s hemp cultivation law. As I’ve written before, the bill is a major change for California hemp laws for the following reasons:

  • The bill adds a new definition of “industrial hemp”.  There are now separate (and slightly different) definitions for hemp generally under the California Health and Safety Code, and now under the Food and Agriculture Code relative just to hemp cultivation.
  • California is required to submit a 2018 Farm Bill-compliant hemp production plan to the U.S. Department of Agriculture by May 2020. This is required under federal law, in order for states to comply with the 2018 Farm Bill. We still are awaiting USDA regulations to see how the submission process will work, but CA is now locked into submitting a plan.
  • SB-153 narrows the scope of who qualifies as an established agricultural research institution (“EARIs”) to be more consistent with federal law.  Under current California hemp cultivation laws, the definition of EARIs is much broader than under federal law. SB-153 will, once the USDA approves of CA’s hemp production plan, narrow the scope of who qualifies as an EARI to be consistent with federal law.
  • California mandates registration for commercial and non-commercial growers who don’t qualify as EARIs. Previously, only commercial growers must register. These modifications, in combination with the narrowed definition of EARIs, require that some current hemp cultivators who qualify as EARIs will then need to register as non-commercial cultivators.
  • California now also mandates registration for EARIs and require them to submit “research plans” to their local county agricultural commissioner that detail what their cultivation operations will look like. This is a brand new concept that was not included in the original California Industrial Hemp Farming Act and is likely going to be a major change for cultivators across the state operating under research memoranda of understanding with EARIs.
  • SB-153 creates enforcement provisions, penalties for false statements on applications, and a bar on persons from being a part of the industrial hemp program if they had a conviction relating to controlled substances in the prior 10-year period.
  • SB-153 clarifies that hemp can’t be cultivated in a licensed cannabis premises, but that if it is, it will be considered cannabis.

Now that SB-153 is the law, hemp businesses across the state will need to adjust how they operate to ensure compliance with the law. It’s not clear from SB-153’s text when certain parts take effect, and we don’t yet have any official guidance by the California Department of Food and Agriculture (which regulates hemp cultivators) on compliance, so compliance may be a mess—as usual. Stay tuned to the Canna Law Blog for more California hemp cultivation updates.

pet cbd hemp foodAccording to recent reporting, pet industry spending is expected to reach $96 billion by 2020 with CBD as one of its fastest growing sections. Following the enactment of the Agricultural Improvement Act of 2018 (“2018 Farm Bill”), there has been a huge interest in the use of hemp-derived cannabidiol (“Hemp-CBD”) for our furry friends. Yet, public demand for Hemp-CBD pet products may be pushing the market ahead regardless of legal requirements.

While there are many Hemp-CBD pet products on the U.S. market, this blog post provides a brief overview of the regulatory framework surrounding Hemp-CBD pet foods.

FEDERAL POLICIES

Hours following the passage of the 2018 Farm Bill, Scott Gottlieb issued a statement in which the then-FDA Commission clarified that the federal legalization of the crop did not strip the agency of its regulatory authority over products containing hemp and its derived compounds, including Hemp-CBD pet foods.

Pursuant to Sections 301(ll) and 201(ff)(3)(B) of the Food, Drug and Cosmetic Act (“FD&CA”), food cannot contain an ingredient also found in an approved drug. Because the FDA approved CBD as an active ingredient in Epidiolex, a drug used in the treatment of epilepsy, for which substantial clinical investigations have been instituted, the FDA posits that it is unlawful to use CBD as an active ingredient in human and pet foods.

There is an exception to this rule if the substance was “marketed as” a conventional food before the new drug investigations were authorized; however, based on available evidence, FDA has concluded that this is not the case for CBD. Consequently, the sale and marketing of Hemp-CBD pet foods currently violates FDA policies.

The FDA has limited its enforcement actions against Hemp-CBD products for pets by issuing warning letters to companies that have been making unsubstantiated, egregious claims about the therapeutic value of their products. Therefore, if a company decides to enter the Hemp-CBD pet market regardless of FDA policy, it should, at a minimum, refrain from making any health claims.

STATE LAWS

Although the FDA prohibits the sale and marketing of Hemp-CBD pet foods in interstate commerce, several states have enacted legislation that expressly legalized the sale of these products. Oregon, for example, authorizes the manufacture, distribution and sale of Hemp-CBD pet foods, which are limited to “dog and cat” foods containing no more than 0.3 percent total THC. In addition, Hemp-CBD pet foods manufactured, sold and marketed in the Beaver State must meet other testing requirements imposed by the Oregon Health Authority, including but not limited to microbiological contaminants.

Other states have not taken a position on the sale of these products, rendering these products illegal at worse and unregulated at best.

So similarly to Hemp-CBD human foods, Hemp-CBD pet foods cannot lawfully be sold throughout the United States. As such, manufacturers, distributors and retailers of Hemp-CBD pet foods should consult with regulatory attorneys to understand and mitigate the risk of enforcement action by the FDA as well as state and local enforcement groups that prohibit the sale of these products.

For more information on this issue, please contact our hemp regulatory team.

louisiana hemp cbd

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”). Each Sunday, we summarize a new state in alphabetical order. Today, we head to the bayou: Louisiana.

Louisiana lawmakers recently adopted House Bill 138 (HB 138) and  House Bill 491 (HB 491) in light of the 2018 Farm Bill. HB 138 amends Louisiana’s definition of marijuana to exclude “industrial hemp that is in the possession, custody, or control of a person who holds a license issued by the Louisiana Department of Agriculture and Forestry, or is cultivated and processed in accordance with the U.S. Agriculture Improvement Act of 2018.” In turn, HB 138 defines industrial hemp as “the plant Cannabis sativa and any part of that plant, including the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids 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 and cultivated and processed in accordance with the U.S. Agriculture Improvement Act of 2018, or the plan submitted by the Louisiana Department of Agriculture and Forestry that is in compliance with the U.S. Department of Agriculture rules.” In Louisiana, hemp is only legal if it meets the THC concentration outlined in the 2018 Farm Bill and also was cultivated and processed legally, either in Lousiana or elsewhere.

HB 491 lays out the details of Louisiana’s hemp cultivation plan. The Louisiana Department of Agriculture and Forestry (LDAF) oversees the program. LDAF issues the following licenses:

  • Grower License – authorizes the licensee to cultivate, handle and transport industrial hemp;
  • Processor License – authorizes the licensee to handle, process and transport industrial hemp;
  • Seed Producer – authorizes the licensee to produce, transport and sell industrial hemp seed; and
  • Contract Carrier – authorizes the licensee to transport industrial hemp (required when the transporter is not the licensed grower or processor of the plant material).

LDAF has not yet begun issuing these licenses as the USDA has yet to approve any state plan, including Louisiana’s. With regards to hemp cultivation, HB 491 tracks the farm bill closely. It is worth mentioning that any person transporting or delivering hemp in Louisiana must carry a dated invoice, bill of lading, or manifest which shall include the seller and purchaser’s name and address, the specific origin and destination, and the quantity of hemp. That’s important to note for anyone traveling through Louisiana with hemp.

HB 491 also covers Hemp-CBD products. No person may process or sell (1) any part of hemp for inhalation, (2) any alcoholic beverage containing CBD, or (3) any food product or beverage containing CBD unless the FDA approves CBD as a food additive. All Hemp-CBD products must be labeled and registered in accordance with Louisiana’s  Food, Drug and Cosmetic Law (R.S. 40:601 et seq.). Hemp-CBD may not be marketed as a dietary supplement. In addition, Hemp-CBD labels must meet the following criteria and be approved by the Louisiana Department of Health:

  • Contain the following language: “This product has not been evaluated by the Food and Drug Administration and is not intended to diagnose, treat, cure, or prevent any disease.”
  • Contain no medical claim
  • Have a scannable bar code, QR code, or web address linked to a Certificate of Analysis (COA)

COAs for Hemp-CBD products in Louisiana must contain the following:

  •  The batch identification number, date received, date of completion, and the method of analysis for each test conducted.
  • Test results identifying the cannabinoid profile by percentage of dry weight, solvents, pesticides, microbials, and heavy metals.

Retailer sellers of Hemp-CBD must (1) register with the Office of Alcohol Tobacco Control (OATC) and (2) meet the above specific labeling and testing requirements. Hemp-CBD may only be sold by businesses holding a CBD Dealer Permit from OATC, which requires a location in Louisiana where products are stored and/or sold. CBD Dealer Permit applicants must also have been residents of the state of Louisiana for two years prior to applying. These provisions make the online sale of Hemp-CBD in Louisiana impractical in most cases. 

Stay tuned to the Canna Law Blog for developments on hemp and Hemp CBD in Louisana and other states across the country. For previous coverage in this series, check out the links below: