Federal law and policy

FDA CBD Industrial HempYesterday, President Trump signed the 2018 Farm Bill, paving the way for industrial hemp legalization. Within hours, the U.S. Food and Drug Administration (“FDA”) Commissioner, Scott Gottlieb, issued a statement clarifying the FDA’s position on industrial hemp.

The FDA’s position: Just because industrial hemp is legal doesn’t mean that you can put it in food or call it medicine.

Gottlieb was quick to point out that even though the Farm Bill modified the Controlled Substances Act, the FDA still retains the authority to “regulate products containing cannabis or cannabis-derived compounds under the Federal Food, Drug, and Cosmetic Act” (or “FDCA”). Gottlieb went on to state that the FDA fully intends to exercise that authority:

[I]t’s unlawful under the FD&C Act to introduce food containing added CBD or THC into interstate commerce, or to market CBD or THC products as, or in, dietary supplements, regardless of whether the substances are hemp-derived. This is because both CBD and THC are active ingredients in FDA-approved drugs and were the subject of substantial clinical investigations before they were marketed as foods or dietary supplements. Under the FD&C Act, it’s illegal to introduce drug ingredients like these into the food supply, or to market them as dietary supplements. This is a requirement that we apply across the board to food products that contain substances that are active ingredients in any drug.”

Moving on, Gottlieb was careful to point out that the FDA is open to taking steps to clearing pathways for those who wish to seek FDA approval—as it did for Epidiolex. And in fact, the statement incorporates yet another statement by the FDA issued yesterday which concluded that the FDA “has no questions about Fresh Hemp Food’s conclusion that the following ingredients are GRAS under their intended conditions of use: hulled hemp seed (GRN765), hemp seed protein powder (GRN771), and hemp seed oil (GRN778).”

But Gottlieb was careful to cite, in general terms, a number of different kinds of conduct by companies selling products containing CBD that, according to the statement, are unlawful. These include things like claiming CBD or cannabis products cure diseases prior to undergoing FDA approval. And Gottlieb noted that the FDA will not hesitate to warn consumers and even initiate enforcement actions. In that sense, status quo prevails.

What does this mean for California? We’ve written pretty extensively on the California Department of Public Health’s FAQs which take the position that industrial hemp derived food products are unlawful. In fact, we wrote just days ago that the Farm Bill was unlikely to change the core of the FAQs.  The FDA’s statement from yesterday in combination with the FAQs seem to hammer home that in California, CBD in food products will not be considered lawful unless the FDA and CDPH say otherwise.

industrial hemp farm bill 2018
Hooray for hemp!

Today the US takes a major step forward in cannabis reform! The 2018 Farm Bill legalizes industrial hemp, and was just signed into law by President Trump. Industrial hemp will now be treated like an agricultural commodity, not a controlled substance. Our in-depth look at the hemp provisions in this new Farm Bill is available here.

Hemp has been booming in popularity these last few years and this latest development is only likely to do accelerate market growth. This is in large part due to the increased interest in cannabidiol (CBD) derived from industrial hemp. With reform comes regulation. We expect the Food and Drug Administration to start reevaluating hemp-derived food products, cosmetics, dietary supplements, and drugs. It may take some time for the FDA to actually approve a hemp-derived product, but that day is coming a lot faster in light of this Bill. You can read more about cannabis and the FDA here:

As this Bill just passed, we plan to watch carefully how things develop. Will businesses selling Hemp-CBD now be able to obtain federal trademark protections? How long until California rethinks it’s much maligned CBD-FAQs? If industrial hemp is going to be more widely distributed, what does that mean in terms of product liability? Will other states or even the feds follow Indiana’s guidance on Hemp-CBD labeling? Does hemp legalization mean that US companies can finally enter the international cannabis market?

These are just a few of the questions we’ll continue to write about in this new era of legal industrial hemp. And there will be many more. Even with this new legislation, hemp law will always be complicated due to its close proximity to marijuana. The two both come from the cannabis plant after all. Despite the uncertainty, one thing does seem clear: 2019 is going to be the year of hemp!

cbd trademark fda
It seems that FDA holds the key.

With everyone discussing the passage of the 2018 Farm Bill and its implications for the booming cannabidiol (CBD) industry, there is much speculation as to how the legalization of industrial hemp will affect the treatment of CBD by multiple government agencies, including the United States Patent and Trademark Office. Will the legalization of industrial hemp open the door to federal trademark protection for CBD products? Unfortunately, the answer is not yet clear.

I’ve discussed the “legal use in commerce” requirement for federal trademarks at length in other posts, so I won’t go into too much detail here. But the gist is that in order to procure federal trademark protection for your mark, the goods and/or services for which you are claiming trademark protection must be legal pursuant to federal law. Because the manufacture, distribution and dispensing of cannabis is illegal under the Controlled Substances Act, the lawful use in commerce requirement cannot be met.

But what about CBD? If my CBD products are “legal under federal law,” why can’t I obtain federal trademark protection? Part of the issue that remains, even in light of the legalization of industrial hemp, is that the FDA still says that CBD cannot be sold for human consumption unless it has undergone the agency’s drug approval process. Currently, Epidiolex is the only FDA-approved CBD-based drug, which was rescheduled to Schedule V of the Controlled Substances Act (CSA) in September.

The DEA now defines CBD drugs as follows:

Approved cannabidiol drugs. A drug product in finished dosage formulation that has been approved by the U.S. Food and Drug Administration that contains cannabidiol . . . derived from cannabis and no more than 0.1 percent (w/w) residual tetrahydrocannabinols.”

This definition creates three conditions for a product to be an approved CBD drug. As such, it must:

  1. Be FDA approved;
  2. Be derived from cannabis; and
  3. Have less than .1% THC.

And at least for now, nothing in the 2018 Farm Bill changes this. Without a formal policy change or a change to the FDA’s position, we anticipate that the USPTO will treat CBD products much the same as they have to date, although we wouldn’t be surprised to see a good amount of debate around the subject.

The most informative case that helps to illustrate the USPTO’s current position on CBD trademarks is the Stanley Brothers case.

On December 5, 2014, Stanley Brothers Social Enterprises, LLC filed a U.S. federal trademark application for CHARLOTTE’S WEB, to be used on “plant extracts, namely, hemp oil sold as a critical component or ingredient of dietary supplements.” That application has been alive and the subject of multiple office actions from the examining attorney since, including a final office action that was issued on April 20th of this year (harsh). This final office action is very interesting, because the refusal to register the mark was made final for unlawful use in commerce on two grounds: Lack of compliance with the Controlled Substances Act (CSA) and lack of compliance with the federal Food, Drug & Cosmetic Act (FDCA). I’ll take each of the USPTO’s lawful use determinations in turn.

The Examining Attorney used a pretty standard argument in deeming the Applicant’s goods unlawful pursuant to the CSA stating:

“[i]n this case, the items or activities in the application with which the mark is used involve a per se violation of federal law. See In re Brown, 119 USPQ2d at 1352. Specifically, federal law prohibits the sale, distribution, dissemination and possession of marijuana. That is, under the [CSA] prohibits, among other things, manufacturing, distributing, dispensing, or possessing certain controlled substances, including marijuana and marijuana-based preparations.”

The Examining Attorney goes on to note that the Applicant’s specimens submitted with its application show that the “goods are dietary supplements infused with or which are comprised of cannabidiol (CBD) which is derived from what applicant has called industrial hemp plants which is grown in Colorado.” The Applicant also provided a statement to the USPTO that the goods are “comprised of CBD derived from the plant Cannabis sativa L and that applicant obtains the CBD from more than just the mature stalks and sterilized seeds of the plant. Applicant processes the entire plant including the resins, stalks, stems, buds and flowers …”. Therefore, the Examining Attorney deemed Applicant’s CBD to be derived from the portions of the hemp plant that are unlawful under the CSA.

This argument could become obsolete with the passage of the 2018 Farm Bill.

However, the Examining Attorney also determined that the Applicant’s goods are not in compliance with the FDCA, which prohibits the introduction or delivery for introduction into interstate commerce of a food to which has been added 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. 21 U.S.C. §331(11). The U.S. Food and Drug Administration (FDA) has stated that substantial clinical investigations of cannabidiol have begun and thus products containing CBD may not be sold as dietary supplements. Applicant plainly indicates that its goods are a dietary supplement, both in its application and on its website, and the Examining Attorney analyzes why CBD does not fall into any of the FDA exceptions that would allow it to be marketed as such.

In wrapping up his analysis, the Examining Attorney made a final argument entitled “The 2014 Farm Bill Did Not ‘Legalize’ Hemp on a National Level.” The Applicant here argued that “its goods are not prohibited under either the CSA or the FDCA [because] the 2014 Farm Bill, 7 U.S.C. Section 5940, has effectively overruled the FDCA as well as the CSA by declaring that hemp is a legal product at the federal level and that all things made from hemp are, therefore, legal.” Applicant also argued that the omnibus law prohibits the expenditure of federal funds to prohibit the transportation, processing, sale or use of hemp that is grown or cultivated under the 2014 Farm Bill. Here’s the relevant portion of the 2014 Farm Bill:

“[N]otwithstanding the Controlled Substances Act, or any other federal law, an institution of higher education or a State department of agriculture may grow and cultivate hemp if (1) the industrial hemp is grown or cultivated for the purposes of research conducted under an agriculture pilot program or other agricultural academic research and (2) the growing or cultivating of the industrial hemp is allowed under the laws of the State in which such institution of higher education or State department of agriculture is located and such research occurs.” 7 U.S.C. Section 5940(a).

And here is the Examining Attorney’s succinct response:

“Although applicant is correct that the cited portion of the Farm Bill states that ‘industrial hemp’ is Cannabis sativa L which is less than 0.3 percent tetrahydrocannabinol (THC) on a dry weight basis, the Farm Bill did not make ‘hemp’ and everything made or extracted from hemp ‘legal’ on a nationwide basis as applicant contends. Section 7606 of the 2014 Farm Bill, 7 USC Section 5940, merely allowed universities and/or state departments of agriculture to create pilot programs to grow Cannabis sativa L with a THC content of less than 0.3 percent for purposes of conducting academic or scientific or marketing research. However, this marketing research did not extend to general commercial activity nor did it make all hemp related goods ‘lawful’ on a federal level. The 2014 Farm Bill provision, for example, did not allow those participating in a state pilot program to sell seeds or plants to consumers in other states nor did it allow for goods made under the program, such as applicant’s dietary supplements, to be sold in states which have not established similar pilot programs … The Federal Register notice goes on to state that Section 7606 of the 2014 Farm Bill, 7 USC Section 5940, did not amend the federal Food, Drug and Cosmetic Act’s requirements for obtaining FDA approval for new drug applications or the requirements for conducting clinical trials and research prior to such approval, or the FDA’s oversight of marketing claims such as those in the Warning Letter addressed to applicant. With regard to the Controlled Substances Act, the Farm Bill provision did not alter the provisions of the CSA that apply to the dispensing, distribution and manufacture of drug products containing controlled substances. ‘Manufacturers, distributors, dispensers of drug products derived from cannabis plants, as well as those conducting research with drug products, must continue to adhere to CSA requirements.’ Federal Register, Vol. 81, No. 156 (August 12, 2016). With regard to ‘marijuana,’ a Schedule I prohibited substance, this means that anything which falls within the statutory definition of marijuana, 21 USC Section 802(16), cannot be distributed or disseminated in interstate commerce. This means that if applicant is extracting CBD from all parts of the Cannabis sativa L plant, as applicant has stated, then the goods are marijuana and cannot be sold in interstate commerce under the CSA.”

Obviously, with the legalization of industrial hemp pursuant to the 2018 Farm Bill, a large portion of the Examining Attorney’s argument for denying the Stanley Brothers trademark protection would be irrelevant. However, the FDA-based reasons for denial still stand, and we’ll be waiting in anticipation to see how FDA’s position on CBD changes, if at all. Ultimately, it seems that the FDA holds the key when it comes to federal trademark protection for CBD products.

international law WHO UN cannabisLast Friday, December 7, the World Health Organization (“WHO”) Expert Committee on Drug Dependence (“ECDD”), was scheduled to make a recommendation about the international legal status of cannabis. The WHO is a “specialized agency” of the United Nations, and the ECCD is a WHO committee consisting of experts in the field of drugs and medicines, that assesses the health risks and benefits of the use of psychoactive substances. Alas, the ECDD announced it would temporarily withhold the results of the assessment until January, declaring it needed additional time “for clearance reasons.”

Earlier this year, the ECDD released a preliminary report (“Pre-Review”) on the effects of the plant, which concluded that cannabis is a “relatively safe drug.” The Pre-Review also revealed that cannabinoids (“CBD”) offer numerous therapeutic benefits, including reduction of pain, promotion of sleep, and improvement of motor function for individuals affected by Parkinson’s disease. As a result, the ECDD made the recommendation to the United Nations Commission on Narcotic Drugs (“CND”), that pure CBD not be scheduled under any international drug treaty.

The Pre-Review results gave us and other reform advocates great hope that a more in-depth review would take place before the ECDD makes a final recommendation to U.N. Secretary António Guterres. Comprehensive scientific data on the effects and benefits of cannabis are hard to find. Indeed, the current status of cannabis as a strictly prohibited substance has forced researchers who wish to study the plant to overcome additional hurdles that do not exist for the study of other drugs. To this end, U.S. Surgeon General Jerome Adams declared last week that the federal government should evaluate how it classifies the drug because the restrictive scheduling hinders research.

Just as we need to look at criminal justice laws, rules and regulations, we need to look at health laws, rules and regulations, and that includes the scheduling system.”

This statement by one of the key officials of the Trump administration highlights a shift in the U.S. federal government’s strict position on the prohibition of cannabis. As we previously discussed, the federal government has repeatedly cited to obligations under international treaties to perpetuate the current ban on cannabis and its derivatives. Back in May, the Food and Drug Administration (“FDA”) concluded that CBD should be descheduled but felt forced to recommend rescheduling the plant to Schedule V of the Controlled Substance Act to comply with international treaties to which the U.S is a party. Nonetheless, the FDA specified that if treaty obligations were to no longer require control of CBD that its recommendation would need to be promptly revisited.

Accordingly, the potential recommendation by the ECDD to remove cannabis from international control would create wide-ranging implications for the global effort to legalize the plant, including in the U.S. But for now, we must wait patiently for the ECDD’s recommendation to the CND, which is scheduled to be discussed and to go up for a vote in March 2019. The delay is frustrating, although we are encouraged to see that the U.N. continues to take a hard look at cannabis. Sit tight.

farm bill hemp california cbdThe federal 2018 Farm Bill is likely to become law in the very near future. If it does, it will redefine the hemp industry nationwide. We intend on writing more in the near future as to the specifics of the 2018 Farm Bill, but one interesting question is what effect it will have on California’s industrial hemp and CBD policies.

As anyone in the California hemp business knows, the Department of Public Health (“CDPH”) issued a FAQ policy guideline over the summer which took the position that industrial-hemp derived CBD in food products is unlawful. The FAQ justified this position in part because the federal Controlled Substances Act included industrial hemp as a Schedule I drug, and in part because the federal Food and Drug Administration (“FDA”) had concluded that it was unlawful to place THC or CBD into food products.

The 2018 Farm Bill, if it passes, will essentially amend the Controlled Substances Act to take industrial hemp out of the definition of marijuana. In essence, this would make industrial hemp derived products lawful products. The question then is: Will the 2018 Farm Bill negate the FAQ?

The answer is probably not. Even though the Controlled Substances Act may be amended and some of the underlying support for the FAQ may be undermined, that won’t change the fact that the FDA has not concluded that CBD in food products is lawful. While the CDPH certainly could change its position, the de-scheduling of industrial hemp won’t necessarily change the FDA’s positions right away. In the meantime, it’s safe to conclude that the FAQ still stands.

Ultimately, the 2018 Farm Bill is likely to have far-reaching impacts throughout the industrial hemp industry. We’ll make sure to keep you updated along the way.

industrial hemp 2018 farm bill

Update: The 2018 Farm Bill was just approved by the House. It now heads to President Trump’s Desk. 

At long last, it’s finally happening: The 2018 Farm Bill has made it out of conference and been approved by the Senate. It currently awaits approval from the House, which is expected this week. If Donald Trump signs the 2018 Farm Bill before the current legislative session ends on December 21, industrial hemp will be legal under U.S. federal law. Though we still are likely a few years out from full marijuana legalization, it appears that 2019 is going to be the “Year of Hemp” if Washington D.C. can make this happen before the deadline. Now, we’ll turn to the long awaited hemp-related text of the 2018 Farm Bill, as agreed to by the House and Senate. A copy of the full 2018 Farm Bill is available, via the U.S. Hemp Roundtable, here.

Some key provisions of the 2014 Farm Bill remain. “Industrial hemp” still means parts of the cannabis plant, whether growing or not, with less than 0.3% THC on a dry weight basis. Cannabis with more than 0.3% is still considered marijuana and is still classified as a schedule I substance. Additionally, the 2014 Farm Bill’s hemp provisions will continue for a year after the 2018 Farm Bill is signed. That means that the agricultural pilot programs that we know and love will stick around for a little bit longer.

However, the new version of the Farm Bill differs significantly in that industrial hemp is explicitly defined to include “all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers” of industrial hemp. Technically, this isn’t necessarily a change in the sense that industry stakeholders (including yours truly) have long interpreted the 2014 Farm Bill to make derivatives and cannabinoids from industrial hemp legal. Now that interpretation has been codified into US law.

The CSA will also explicitly exempt “hemp” from the definition of marijuana. That means that the CSA will acknowledge two different types of cannabis, hemp and marijuana. Hemp is an agricultural commodity. Marijuana is a controlled substance. The problems that plague the marijuana industry including the lack of access to banking, bankruptcy, and federal intellectual property protections should no longer impact businesses dealing solely in industrial hemp. This distinction will also likely lead to increased research by the FDA and other agencies, and remove any question as to whether industrial hemp producers are subject to IRC 280e, which prohibits the taking of deductions related to the trafficking of Schedule I or II controlled substance.

The questions of the interstate transfer of industrial hemp is also addressed. Section 10114 of the 2018 Farm Bill states the following:

TRANSPORTATION OF HEMP AND HEMP PRODUCTS. — No State or Indian Tribe shall prohibit the transportation or shipment of hemp or hemp products produced in accordance with subtitle G  of the Agricultural Marketing Act of 1946 (as added by section 10113) [the provisions on industrial hemp] through the State or the territory of the Indian Tribe, as applicable.
This is a major development as the 2014 Farm Bill did not require states to make any distinction between hemp and marijuana. The new provision means that states that don’t adopt an industrial hemp program cannot interfere with the transportation or shipment of industrial hemp. Though this may not go so far as to require each state to allow the sale of industrial hemp or hemp products, including Hemp-CBD, it does prevent states from interfering with the distribution of industrial hemp.

The 2018 Farm Bill also gives Indian tribes the authority to regulate industrial hemp. This is an important change as the Menominee tribe, who’s territory falls within the state of Wisconsin had its initial hemp crop destroyed by DEA agents. A Federal Court ruled that the 2014 Farm Bill required that hemp be cultivated in  compliance with state law and therefore, because Wisconsin had not implemented an agricultural pilot program to research industrial hemp, that the Menominee tribe could not legally cultivate hemp. The 2018 Bill explicitly gives tribes the ability to implement programs allowing the cultivation of industrial hemp.

One of the reasons the 2014 Farm Bill’s hemp provisions have been so murky is that no federal agency was given regulatory authority over hemp. The 2018 Farm Bill addresses this by appointing the United States Department of Agriculture (USDA). The USDA will oversee a state or tribe’s regulatory authority over industrial hemp. The state or tribe will submit a plan to monitor  and regulate the production of industrial hemp and the USDA will have 60 days to review the plans. Plans must track the land where hemp is cultivated, procedures for testing hemp and disposing of non-compliant hemp, and indicate how the state will enforce against violations of the 2018 Farm Bill.

The 2018 Farm Bill covers penalties for violations of approved state or tribal plans and breaks them into the following categories:

  • Negligent Violations occur when a hemp producer unintentionally violates a state or tribal plan for hemp cultivation by failing to provide a legal description of the land where hemp will be cultivated, failing to obtain the required license or authorization from the state or tribe, or produces cannabis with more than 0.3% THC. Producers who commit a negligent violation shall enter into and comply with a plan established by a state or tribe to correct the violation. The corrective action plan must include a date by which the producer corrects the violation and require that the producer periodically report to the state or tribe on compliance for no less than two years. Producers who commit negligent violations will not be subject to criminal or civil enforcement action beyond agreeing to submit to a corrective action plan. However, if a producer commits three negligent violations within a five-year window
  • Other violations occur when a hemp producer acts with a “culpable mental state greater than negligence.” Other violations could cover things like intentionally growing THC-rich marijuana under the guise of industrial hemp or completely disregarding the industrial hemp rules. Other violations will be referred to the Department of Justice or the “chief law enforcement officer of the State” where the industrial hemp is grown.

The 2018 Farm Bill will prohibit “any person convicted of a felony relating to a controlled substance” under state or federal law before, on, or after the date when the Farm Bill passes to produce hemp under the 2018 Farm Bill or participate in a state or tribal hemp program for a period of 10 years following the date of conviction. This prohibition will not apply to any person lawfully growing hemp with a license, registration, or authorization under a 2014 Farm Bill agricultural pilot program prior to the 2018 Farm Bill enactment. In addition, anyone who makes a false statement on an industrial hemp application will also be banned from the industry.

Finally, the 2018 Farm Bill would also extend federal crop insurance coverage to industrial hemp, meaning that the feds will actually insure a cannabis crop. Hemp producers can also apply for USDA certification and grants, as with other agricultural commodities.

Expect us to write more on this in the near term. This is an important day in the history of cannabis reform and will have a major and positive impact on the cannabis industry.

marijuana bank fincen
Slowly but surely, it’s happening for canna businesses.

According to a recent report from the U.S. Treasury Department’s Financial Crime Enforcement Network (“FinCEN”), a growing number of financial institutions are willing to work with cannabis businesses. As of September 30, 375 banks and 111 credit unions were managing marijuana business accounts.

These numbers reveal a steady growth in the number of financial providers willing to engage with the cannabis industry, despite its federal illegality. The report confirms what our cannabis business lawyers have observed over the past few years in Washington and Oregon: namely, most of our licensed cannabis business clients in those states are banked, and it isn’t as hard as it used to be to acquire a basic merchant account. (California is a different story.)

Nationwide, though, most financial services providers have been reluctant to serve the marijuana industry for years, fearing the federal cannabis prohibition would trigger liability under money laundering laws. Earlier this year, many concluded that banks would refuse to associate with cannabis businesses following the decision by then-U.S. Attorney General Jeff Sessions to retract policy protections for licensed marijuana businesses from federal interference. However, the latest FinCEN report reveals that those fears were mostly speculative.

The American Bankers Association, which recently conducted a survey on the issues faced by banks that are serving cannabis businesses, is advocating for greater legal clarity to banks operating in states where recreational and medical cannabis has been legalized. Indeed, the guidelines currently used by the financial services industry are those published in 2014 by the FinCEN and could use an update given the continued ascendance of marijuana reform.

Several key officials of the Trump administration have also expressed the need to clarify cannabis banking issues. For instance, Treasury Secretary Steven Mnuchin stated in congressional testimony that he wants businesses operating in states where marijuana is legal to be able to store their profits in banks.

I assure you that we don’t want bags of cash … We do want to find a solution to make sure that businesses that have large access to cash have a way to get them into a depository institution for it to be safe.”

In June, Federal Deposit Insurance Corporation Chariwoman Jelena McWilliams explained that she instructed her staff to consider ways to address the banking issues, but that the agency’s hands were “somewhat tied” until federal law legalizes cannabis.

Support for clarification and for fixing marijuana banking problems also comes from the states. A few months ago, a coalition of the top financial regulators located in thirteen states asked Congress to take action to protect banks working with the cannabis industry.

In their letter, the regulators wrote:

It is incumbent on Congress to resolve the conflict between state cannabis programs and federal statutes that effectively create unnecessary risk for banks seeking to operate in this space without the looming threat of civil actions, forfeiture of assets, reputational risk, and criminal penalties.”

Finally, back in June, a bipartisan group of twelve governors urged lawmakers to pass the Strengthening the Tenth Amendment Entrusting States (“STATES”) Act, which proposed to amend the Controlled Substance Act to exempt state-legal marijuana activities.

This growing support for permanent protections of banks that serve cannabis businesses is a promising sign that legal reform is on its way. The newly formed Democratic House has expressed a strong desire to move cannabis legislation, including banking issues, in the new year. Only time will tell whether the Republican-controlled Senate will allow it.

FLSA cannabis marijuana employment

As we all know, cannabis remains a federally controlled substance, and therefore illegal at the federal level. However, most states have some form of legalization. I have always advised my cannabis business clients to comply with both state and federal laws when it comes to employment laws. It seems to be the safest bet to ensure cannabis companies are not sued by employees for violating federal laws, and it seems to be the smart move in terms of keeps the feds out of their state legalized cannabis businesses.

Recently, a lawsuit arose in the Tenth Circuit challenging whether the Federal Labor Standards Act (FLSA) was meant to provide wage and hour protection to employees of cannabis businesses. In Kenney v. Helix TCS, Inc., the Tenth Circuit will decide whether the FLSA applies to such businesses. The FLSA sets federal wage and hour requirements and sets the standards for when employers must pay employees overtime wages.

In the litigation at issue, Helix TCS, INC. (“Helix”) provides security services to cannabis businesses. Kenney, an employee of Helix, was classified as an exempt employee, meaning Helix did not pay him overtime pursuant to the requirements of the FLSA. Kenney brought suit against Helix claiming he was misclassified as exempt and should have been paid overtime.

Helix moved to dismiss the case, arguing that Kenney was not entitled to the protections of the FLSA because cannabis was entirely forbidden under the CSA. The district court denied the motion to dismiss but certified the ruling for immediate appeal to the Tenth Circuit Court of Appeals.

On Appeal, Helix contends that its employees are not entitled to the protections of the FLSA. Helix’s main argument is that all participants in state recreational marijuana industries assume the risk that their activities will subject them to federal criminal sanctions and therefore they are not entitled to benefits under federal law, and cannot expect federal court to aid their conduct. Essentially Helix is arguing that the federal government would be assisting employees in drug trafficking if they afforded the employees the protections of the FLSA.

It remains to be seen whether the Tenth Circuit will buy Helix’s argument (and whether any of Helix’s remaining employees will want to stick around, for that matter). Helix clearly has the means to fight Kenney’s allegations. Perhaps Helix’s costs will increase substantially if they must pay all security guards overtime and litigation makes sense for them. However, litigation is extremely expensive, and Helix will have to balance those two issues as it proceeds.

In the meantime, best practices are to ensure your cannabis business is paying employees correctly under both state and federal wage and hour laws. If you pay your employees what they deserve, that alone may save you from a lawsuit. That sounds much better than fighting a wage and hour claim through the federal court of appeals.

On Thursday, November 30, I’ll be speaking at a presentation hosted by the Seminar Group titled, “The Business of Marijuana in Washington State.” In preparation for this event, I’ve put together a list of materials that I think are vital to understanding the law on hemp-derived CBD (Hemp-CBD). Below is a list of statutes, cases, and other authority that frames the legal status of Hemp-CBD.

industrial hemp cannabisThe Agricultural Act Of 2014 Section 7606 (the 2014 Farm Bill). Any analysis of US policy regarding hemp must the begin with the 2014 Farm Bill. Section 7606 of the 2014 Farm Bill is the starting point of the country’s rapidly expanding Hemp-CBD industry. The 2014 Farm Bill allows states to implement agricultural pilot programs overseeing the cultivation of industrial hemp. Industrial hemp is defined as the cannabis plant with less than .3% THC on a dry weight basis. States that have implemented an agricultural pilot programs are then authorized to issue licenses or permits to individuals and entities who can then cultivate industrial hemp. The 2014 Farm Bill requires a research component. What constitutes research is not defined within the “four corners” of the 2014 Farm Bill. Some states, such as Colorado, Kentucky, and Oregon, have interpreted the 2014 Farm Bill liberally, allowing the commercial sale and distribution of industrial hemp and industrial hemp products, such as hemp-CBD.

Statement of Principles on Industrial Hemp (the Statement). In 2016, the Drug Enforcement Administration (DEA), issued the Statement. The stated goal of this guidance document is to provide clarity as to how federal law applies to activities associated with industrial hemp, grown pursuant to the 2014 Farm Bill. The DEA interpreted the 2014 Farm Bill taken narrowly as the Statement indicates that the general commercial sale of industrial hemp is not permitted except for “marketing research” conducted by institutions of higher education or state departments of agriculture. The DEA also interprets the 2014 Farm Bill to prohibit the interstate transfer of industrial hemp. The DEA has not enforced the Statement robustly. For the most part, the commercial sale of industrial hemp and Hemp-CBD and the interstate transfer of industrial have been unimpeded by the DEA.

The Agricultural Appropriation Act of 2018, Section 537. One of the major reasons that the DEA has not followed up on the Statement, is that Congress has exercised its “power of the purse” to prevent the DEA from using federal funds to prevent the interstate transfer of industrial hemp or the commercial sale of industrial hemp. This was first enacted in 2017 and recently was renewed to run through December 9, 2018.

Hemp Indus. Ass’n v. U.S. Drug Enf’t Admin., 720 Fed. Appx. 886 (9th Cir. 2018). This case, decided by the US Court of Appeals for the Ninth Circuit, was brought by the Hemp Industry Association in response to the DEA’s “marijuana extract rule.”

The rule established a new drug code specifically for marijuana extracts and defined a marijuana extract as any extract containing cannabinoids derived from the cannabis plant. On its face, the rule makes no distinction between industrial hemp and marijuana. Shortly after issuing the rule, the DEA issued a clarifying statement that said that the rule only applied to derivative of marijuana, and that it would not make any extracts that were otherwise legal under US law illegal.

HIA was unsuccessful in the sense that the Ninth Circuit upheld the rule, dismissing the HIA’s challenges on procedural grounds. However, the DEA’s rule was left largely toothless by the time the Court issued its memorandum as the DEA had already walked back the rule through its clarification. Additionally, the Court stated that the 2014 Farm Bill preempted the Controlled Substances Act (CSA), meaning that when the CSA and 2014 Farm Bill conflict, the 2014 Farm Bill prevails. This preemption interpretation does not set precedent, as the memorandum is non-binding. It does, however, give credence to the argument that the 2014 Farm Bill preempts the CSA.

Hemp Farming Act of 2018. The Hemp Farming Act of 2018 was introduced by Senate majority leader Mitch McConnell. Mitch McConnell hails from the state of Kentucky, which has become a major player in industrial hemp. The Hemp Farming Act is much more detailed than the 2014 2014 Farm Bill. It explicitly removes industrial hemp and derivatives from industrial hemp, including CBD, from the CSA. It also provides a more robust regulatory framework’s for states to implement industrial hemp programs.

The Hemp Farming Act was adopted in its entirety in the Senate version of the 2018 Farm Bill. The house version of the 2018 Farm Bill did not include the Hemp Farming Act. Before the 2018 Farm Bill can be enacted into federal law, both houses of Congress must agree on the language of the Bill. Recently, McConnell guaranteed that the hemp provisions included in the Senate Bill would make the final cut. If that’s true, then as early as next year we will see a much more thoughtful (and discernible!) federal policy on industrial hemp.

industrial hemp cannabis farm bill

Just two weeks after Speaker of the House Paul Ryan expressed public support for the legalization of industrial hemp, Senate Majority Leader Mitch McConnell is now guaranteeing that the 2018 Farm Bill will include the industrial hemp legalization provision once the House and the Senate solve their difference regarding this issue.

If there’s a Farm Bill, it’ll be in there, I guarantee that,” McConnell told reporters last Friday.

(To watch McConnell’s hemp legalization guarantee, go to 13:15 into this video clip).

As we have discussed at length, the House and the Senate versions of the bill differ in that the House version is silent on the legalization of industrial hemp whereas the Senate version, which was introduced by the Senate Majority Leader himself, would remove the crop from the definition of “marijuana” under the Controlled Substance Act, and instead treat hemp like a standard agricultural crop. Indeed, although industrial hemp and marijuana are the same species, hemp contains a negligible amount of tetrahydrocannabinol (“THC”), the psychoactive compound that gives its users a high.

In justifying his support of the legalization of the crop, McConnell stressed the immense value and versatility of industrial hemp. In addition, McConnell declared that he became aware of the international implications of hemp legalization during his visits of hemp processors this past year and explained that major foreign investors have expressed interest in the hemp business, signaling the crop’s tremendous potential.

I don’t want to overstate this—I don’t know if it’s going to be the next tobacco or not—but I do think it has a lot of potential. And as all of you already know, in terms of food and medicine but also car parts…it’s an extraordinary plant.”

According to the Senate Majority Leader, once legalized, industrial hemp will be “lightly regulated” by the U.S. Department of Agriculture. In addition, there will be no more federal involvement except for the issuance of crop insurances to hemp farmers—which is one of the most significant provisions included in the Senate version of the bill. Instead, industrial hemp would be regulated by local law enforcement, pursuant to the state program under which hemp farmers would be registered.

Although McConnell acknowledged that a provision pertaining to work requirements for food stamp recipients had caused delays in the enactment of the 2018 Farm Bill, he declared that the enactment of the bill will be one of his top priorities when Congress reconvenes for a lame-duck session.

The continuing public support for the legalization of industrial hemp by conservative Congressional leaders strongly suggests that the enactment of the 2018 Farm Bill is imminent, which is fantastic news!