cbd alcoholThe recent wave of crackdowns on cannabidiol (“CBD”)-infused alcohol beverages has further exacerbated public confusion regarding the legal status of the cannabis plant’s non-psychoactive compound.

This post provides an overview of the regulatory framework of alcoholic beverages, including pre-manufactured industrial hemp-infused drinks and “homemade” alcoholic drinks infused with CBD oil or extracts.

Pre-Manufactured Alcohol Beverages Infused with Hemp

As we previously explained, alcoholic beverages are regulated by federal and state laws. Cannabis is heavily regulated at the state level but unlike alcohol, it is—for the most part—strictly prohibited under federal law. However, one variety of cannabis, hemp, was recently legalized under the Agriculture Improvement Act of 2018 (“2018 Farm Bill”), which removed that particular crop from the definition of “Marihuana” under the Controlled Substance Act (“CSA”). Consequently, hemp is allowed in the formulation of alcohol beverages so long as the product meets specific criteria imposed by federal and state alcohol regulatory bodies.

The formulation of hemp-infused alcoholic drinks is regulated by the U.S. Alcohol and Tobacco and Trade Bureau (“TTB”) as well as by state liquor control agencies in states where the production and sale of hemp-infused drinks is allowed. Indeed, in its latest FAQ’s (which pre-dates the enactment of the 2018 Farm Bill), the TTB declared it understood the 2014 Farm Bill to only authorize the use of hemp in the production of alcoholic beverage products for sale within limited state-sanctioned pilot programs.

However, in the same FAQ’s, the TTB explained that before it approves a formulation, it consults with the Food and Drug Administration (“FDA”) to determine whether a hemp ingredient is safe for consumption and whether its use is lawful under the Food, Drug & Cosmetic Act (“FD&CA”). As we previously explained, the FDA currently deems the use of hemp-CBD-infused foods and drinks as unlawful because CBD has been approved in the treatment of epilepsy (Epidiolex); and therefore, can only be used as a drug. As such, the FDA has refused to recognize hemp-CBD as a safe food additive, which means it would treat hemp-CBD infused alcoholic beverages as unlawful under the FD&CA.

Consequently, alcoholic beverages derived from parts of the hemp plant that do not contain CBD, such as hulled hemp seeds, hemp seed protein and hemp seed oil, grown pursuant to a state pilot program that allows the commercial sale of these products, seem to be the only hemp-infused beverages eligible for TTB approval at the moment.

Drinks Infused with CBD Oil or Extracts

The alcoholic beverages recently banned from state bars and restaurants consisted of pre-manufactured alcohol beverages to which CBD oil or extract was later added. Unlike manufactured alcohol beverages, alcoholic drinks sold in bars and restaurants are directly regulated by state liquor control boards and state departments of health, which are free to defer to and adopt FDA regulations.

Although the FDA has limited its enforcement actions against CBD-infused products by sending warning letters, state agencies have begun confiscating those products, pursuant to FDA guidelines that categorize CBD as unsafe food additives. As I previously explained, food additives must receive FDA pre-market approval to be deemed safe for human consumption. However, given the FDA’s current position on CBD-infused products, such approval has yet to be granted.

Because these “homemade” CBD-infused alcoholic drinks are devoid of TTB and FDA market approval, it is understandable that they be banned from local restaurants and bars as they pose a potential threat to health and safety.

So as of now, only TTB-approved hemp-infused alcohol beverages seem to be legal and officially “safe” for human consumption. And to be honest, we don’t know of any that have been approved. That said, this is an incredibly fast-evolving area of law and policy, and we have seen a dramatic escalation of interest in this space ever the past year.

For more information on this issue, feel free to contact our team of hemp and CBD experts.

new york cbd
Home of “dietary supplement” CBD.

This post is part two of two on how New York is regulating CBD. 

On Monday, I wrote about the New York City Department of Health’s (“DOH”) recent crackdown on Hemp-CBD in food and how it was consistent with the New York State Department of Agriculture’s (“Department”) FAQs on hemp-derived CBD (“Hemp CBD”). In summary, the Department’s FAQs state that any Hemp-CBD product sold in New York state must be labeled and manufactured as a dietary supplement. Today’s post focuses on the Department’s Template CBD Processor Research Partner Agreement (“CBD Agreement”) which elaborates on the dietary supplement classification.

The CBD Agreement is a research contract between Hemp-CBD processors, referred to as “Research Partners” in the Agreement, and the Department. Its provisions would not bind other actors including Hemp-CBD sellers or Hemp-CBD processors legally operating in other states. However, the CBD Agreement does shed light on what the Department is going to require for Hemp-CBD.

Research Partners cannot process or sell Hemp-CBD as food. A Research Partner must also obtain written approval from the Department if it intends to sell or distribute Hemp-CBD dietary supplements in a form other than “pill, capsule, caplet, tablet, tinctures, droplets or elixir, chewable, or isolate form[.]”

The CBD Agreement expands on how Research Partners, or CBD processors in other states hoping to sell products in New York, can comply with FDA’s dietary supplement standards:

For the purposes of this Research Agreement, products and production methods used shall comply with FDA law, regulation and guidance concerning dietary supplements with respect to the standards for: personnel, facilities, production, process control systems, quality control measures, record retention, packaging, holding and distribution, supply chain management, recalls, returns, complaints and training associated with dietary supplements.

The dietary supplement standards are in addition to THC testing for CBD products. Hemp-CBD intended to be consumed or absorbed into the human body must also be tested under New York’s medical marijuana program for “cannabinoid profile, solvents, pesticides, heavy metals, bacteria and molds.”

The CBD requirements requires that Research Partners must also provide a serving size and applicable warning on the label. According to the CBD Agreement, CBD products shall also include the following information:

  • The list of all pharmacological active ingredients, including and not limited to THC, CBD, and other cannabinoid content over .05%;
  • The CBD product must set forth the servings per bottle/package, the amount of CBD in milligrams per serving and the total CBD content, in milligrams per package, and the maximum recommended daily amount;
  • The list of all solvents (pesticides) used in the cultivation/extraction process;
  • The manufacture date and source;
  • The batch number;
  • The product expiration date, and
  • The following warning, along with an appropriate warning to consult with a physician concerning the product use:

“This product is neither reviewed nor approved by the State of New York; and has not been analyzed by the FDA. There is limited information on the effects of using this product. Keep out of reach of children.”

The CBD agreement also covers reporting, approved extraction methods, and sourcing hemp.  According to the CBD Agreement, the Department may eventually require registration from entities selling Hemp-CBD.

Recently, I wrote about the FDA’s stated position is that Hemp-CBD is not a dietary supplement. As such, the Department’s position is contrary to the FDA’s. The following language in the CBD Agreement requires Research Partners to acknowledge the FDA’s position:

The Research Partner represents that it has sought whatever legal or other advice it believes to be appropriate and is not relying upon the Department’s approval of its research proposal or any other statement or conduct by the Department in connection with the Research Partner’s evaluation of any legal or other risk to which the Research Partner may be exposed in undertaking the project, including, without limitation, the FDA’s position with respect to CBD and dietary supplements.

For CBD Processors in New York, the CBD Agreement must be carefully observed. For CBD Processors operating in other states who wish to sell products in New York, the Department’s position makes things a little more complicated. For example, the FDA has different standards for cosmetic products. CBD Processors may want to argue that they are selling a CBD cosmetic not a dietary supplement. However, if that CBD cosmetic is sold in New York, it must be labeled as a dietary supplement. This may mean that the CBD cosmetic distributor may need to avoid New York or adopt labeling and manufacturing requirements as if the product was a dietary supplement.

Though it may be hard to comply with the Department’s regulations, the FAQs and CBD Agreement at least provide guidance. If you want to sell Hemp-CBD in New York, it must be sold as a dietary supplement, at least for now.

new york cbd
Home of “dietary supplement” CBD.

This post is part one of two on how the State of New York is regulating CBD. 

Last week, New York City’s Department of Health (“DOH”) quarantined a number of edible products that contained hemp-derived CBD (“Hemp-CBD”) and announced that Hemp-CBD would not be allowed in food products in the City. Eater first broke the story, but the crackdown made national news with the Wall Street Journal, the New York TimesNBC, and Fox all publishing stories on the event. It is unsurprising that the DOH action drew such coverage. CBD is massively popular, New York City is the largest city in the United States, and the story is compelling because the DOH actually sent out agents to quarantine products, rather than simply issuing a statement. It seems to be this last point that garnered national attention based on the relative lack of coverage of a very similar story a few months ago.

On December 18, 2018, shortly before the signing of the 2018 Farm Bill, the New York State Department of Agriculture and Markets (the “Department”) issued a series of frequently asked questions (“FAQs“) and a CBD Processor Template Agreement (“CBD Agreement“) that were both focused on Hemp-CBD. Unlike the DOH, the Department did not take any enforcement action. Coverage of the FAQs and the CBD Agreement was sparse. Now that New York City is taking action, it’s time to dig into the state’s position on Hemp-CBD.

The Department oversees New York’s industrial hemp program, which was promulgated under the 2014 Farm Bill. Rather than issuing licenses or permits, the Department enters into research agreements with individuals and companies who wish to process hemp into commercial products. The Department uses a number of template agreements available online. The CBD Agreement applies to processors who wish to create Hemp-CBD products intended for human consumption.

The FAQs and the CBD Agreement make it clear that the Department is intending to treat Hemp-CBD as a dietary supplement. The FAQs state that an individual cannot “sell any item for human consumption that has CBD as an ingredient unless” the two following standards are met:

  1.  The item is produced under the rigorous dietary-supplement standards described in the CBD Agreement; and
  2. The item is properly labeled and packaged for sale pursuant to FDA regulations for dietary supplements.

The FAQs elaborate on its dietary supplement standard:

What is the difference between a dietary supplement and a food product?

No product for human consumption that has CBD added to it can be labeled and marketed as a food. All extracted CBD and CBD products must be manufactured pursuant to FDA dietary supplement standards and must be labeled and marketed as a dietary supplement[.]

What are “dietary-supplement standards” or “dietary supplement GMP”?

The FDA sets three levels of Good Manufacturing Practices (GMPs): one GMP standard for foods, a more rigorous GMP standard for dietary supplements, and an extremely rigorous GMP for pharmaceuticals. Products listing CBD as an ingredient must be manufactured pursuant to the dietary-supplement standards. The dietary supplement GMPs are federal, and are described here: https://www.accessdata.fda.gov/scripts/cdrh/cfdocs/cfcfr/cfrsearch.cfm?cfrpart=111

This section is titled “Current Good Manufacturing Practice in Manufacturing, Packaging, Labeling, or Holding Operations for Dietary Supplements.” Any product for human consumption that lists CBD as an ingredient must be manufactured pursuant to these dietary-supplement standards.

This dietary supplement classification applies to any “product that is a combination of ready-to-eat food with additional CBD infusions or CBD extracts, such as CBD chocolate syrup or CBD soda or CBD-infused frosting drizzled cookies.” The FAQs also  apply to CBD-Hemp from other states: “products made from industrial hemp that are sold in NYS must meet NYS standards, regardless of where the product is processed or manufactured.”

It should be noted that the Department acknowledges that its jurisdiction over Hemp-CBD is limited. For example, the Department does not require businesses to apply to the Department to add pre-manufactured Hemp-CBD to another product such as a topical or to develop products using CBD is sourced from another state. There is also no requirement to obtain any authorization from the Department to sell Hemp-CBD products. However, if the product is sold anywhere in New York State, it must comply with dietary supplement standards.

You can agree or disagree with the New York City DOH’s decision to start quarantining CBD in food, however, it does seem to be consistent with the Department’s guidance. The Department is a state agency and the DOH is a city agency so DOH’s decision may be a show of deference to the Department.

Later this week, I’ll analyze the CBD Agreement and how it provides additional insight into the state’s position on Hemp-CBD.

international trade cannabis marijuana

Recently, we’ve been getting tons of questions from clients regarding the international import and export of cannabis around the globe. 2018 was a historic year for the cannabis industry not just in the United States, but also internationally. Canada legalized recreational marijuana for the entire country. Many countries (e.g., Thailand, New Zealand, Mexico, Lithuania, U.K.) took significant steps to decriminalize or legalize medical or recreational marijuana. In December, Israel became the fifth country to pass legislation legalizing the export of medical marijuana (after the Netherlands, Canada, Uruguay, and Australia).

Despite these advances, international trade in legal marijuana currently is limited. Under a 1961 international treaty (Single Convention on Narcotic Drugs), cannabis is classified as a controlled substance with no medicinal use or value (we explored this recently here). Most countries are signatories to this and other international treaties that set forth the ground rules for the international drug control regime for controlled substances. Individual countries, however, can and have begun to make their own determinations on whether cannabis should be treated as a narcotic substance. Countries that have legalized marijuana can agree to allow trade in marijuana between those countries. Dutch and Canadian companies have gotten a head start in the global marijuana trade with medical marijuana being exported to Germany, Italy, Croatia, Australia, New Zealand, Brazil, and Chile. Currently, Israel, Australia, Uruguay, and others are also pushing to get into the medical marijuana export game.

While other countries have begun to legalize cannabis, the United States federal government still classifies “marijuana” as a Schedule I controlled substance with no medical use and a high potential for abuse. Thus, federal law effectively prohibits importation of marijuana into the United States. In September 2018, however, the U.S. Drug Enforcement Administration (DEA) granted permission for a Canadian marijuana company (Tilray) to export medicinal cannabis to University of California San Diego for clinical trial. Although DEA’s approval of this importation may be just a one-off, this one approval could signal an eventual broader opening of the U.S. market to imported marijuana.

If (or when) the U.S. finally allows the importation of cannabis products from other countries, it seems likely that some type of trade dispute will likely occur. Legalization of marijuana has often resulted in supply and demand imbalances that result in prices rising or falling sharply. In Oregon, prices for licensed marijuana plummeted with overproduction, and nearly 70 percent of the legal recreational marijuana grown has gone unsold. In Canada, medical marijuana dispensaries faced shortages as licensed producers shifted to selling to the much larger legalized recreational marijuana market. Italy faced consistent shortages of medicinal marijuana and ultimately permitted imports from Canadian companies to ease the supply shortages.

Trade disputes often result when producers in one country complain that imports from another country are being sold at unfairly low or subsidized prices and harming the domestic industry. Domestic producers can petition their government to investigate imported products and often antidumping or countervailing duties are imposed. If imported cannabis products are allowed into the U.S., it would not be surprising if U.S. marijuana producers resort to U.S. trade laws in order to fend off import competition. Which countries might be likely targets of a cannabis trade dispute?

  • Canada –Given the head start that Canadian cannabis companies already have in developing international distribution networks in a number of countries, bigger and better funded Canadian companies could swoop in and aggressively price their product to overwhelm U.S. competitors and take over a dominant market share in the United States. U.S. cannabis companies could try to seek trade protection from Canadian imports by filing antidumping or countervailing duty petitions like those filed against Canadian softwood lumber in multiple rounds going back to the 1980s.
  • Mexico – Mexico’s new President Lopez Obrador has proposed legislation to legalize marijuana. If Mexico ever legalizes exports of licensed marijuana, Mexico’s relatively lower farm labor rates could provide significant cost advantages over U.S. or Canadian licensed suppliers.
  • China – Although marijuana is illegal in China, China is nevertheless the world’s leading producer of industrial hemp cultivation. China likely will have a significant advantage in producing more cost-effective hemp fabric and medicinal products than any other country. As of 2017, Chinese companies hold more than half of the 606 patents filed around the world that relate to cannabis. These patents could trigger plenty of litigation as companies try to attack or defend the intellectual property rights of their hemp products.

It’s hard to think of international trade disputes involving cannabis when it is still illegal for marijuana to cross U.S. state borders, let alone international borders.  But as the trend of marijuana legalization continues globally, it is likely a matter of time before licensed marijuana products become treated like any other commodity subject to competitive market forces and resulting litigation over fair and unfair competition. Once imported marijuana products are allowed, it is not difficult to foresee the day when import competition in the legal marijuana markets may trigger some type of international trade dispute either in the form of an antidumping or countervailing duty petition or a patent infringement action.

california hemp cbd food ab 228
 Keep your fingers crossed for AB 228.

On January 17, 2019, California Assembly Member Cecilia M. Aguiar-Curry kept her promise and introduced a piece of hemp legislation, AB 228.  This bill is aimed at paving the way for adding industrial hemp derived cannabidiol (“Hemp CBD”) to foods, beverages, and cosmetics. The text of AB 228 is relatively short and would add the following two provisions to the California Health and Safety Code which contain provisions of the Sherman Food, Drug, and Cosmetic Laws (the “Sherman Laws”):

110611.  A food or beverage is not adulterated by the inclusion of industrial hemp products, including cannabidiol derived from industrial hemp. The sale of food or beverages that include industrial hemp products or cannabidiol derived from industrial hemp shall not be restricted or prohibited based solely on the inclusion of industrial hemp products or cannabidiol derived from industrial hemp.

111691.  A cosmetic is not adulterated because of the fact that it includes industrial hemp products, including cannabidiol derived from industrial hemp. The sale of cosmetics that include industrial hemp products or cannabidiol derived from industrial hemp shall not be restricted or prohibited based solely on the inclusion of industrial hemp products or cannabidiol derived from industrial hemp.

AB 228 thus narrowly targets California regulators’ ability to penalize companies for selling Hemp CBD beverages or foods on the grounds that they are “adulterated” under California law. This is an interesting piece of legislation, as the biggest major legal roadblock to selling Hemp CBD foods in California is the California Department of Public Health’s (“CDPH”) Hemp CBD FAQs, which don’t in fact claim that Hemp CBD makes foods or beverages “adulterated” (and says nothing about cosmetics). The only citation in the FAQs to the Sherman Laws is for the definition of foods (see footnote 1). That said, the Los Angeles Department of Public Health will soon begin taking the position that Hemp CBD foods and beverages are “adulterated” and issuing penalties based on that position.

If AB 228 becomes law, it will take the legs out from under one of the major arguments that could be used against Hemp CBD food products. The law wouldn’t change the federal Food and Drug Administration’s position that Hemp CBD is unlawful in foods, and so it will be interesting to see how California cannabis regulators treat Hemp CBD in the wake of AB 228 passing (if it does).

Ultimately, AB 228 isn’t perfect, but it’s a step in the right direction. Stay tuned to the Canna Law Blog for more updates on this and everything else Hemp CBD.

On Wednesday, January 16, 2019, the California Bureau of Cannabis Control (“BCC”)—the agency that licenses distributors, retailers, testing labs, and event organizers—dropped its final regulations. Until then, BCC licensed commercial cannabis operators or applicants for BCC licenses had been in no man’s land, complying with emergency regulations while trying to divine what the final regulations would look like, what they would need to change, and when they would need to change it. While the final regulations are by no means perfect, they are at least here (alongside the CDPH permanent regulations, which we covered on Monday). While these final regulations from BCC appear to mirror the proposed regulations submitted back in early December, they depart from the emergency regulations in some pretty significant ways. Below are a few of the more key areas.

BCC marijuana final regulationsOwner Changes. One of the more significant final regulatory expansions comes in the disclosures that must be made to the BCC when a licensed entity is owned by another entity. The BCC previously required that some of the people who own or run entity owners of licensees be disclosed in BCC applications, but the new regulation greatly expands those requirements. For example, in the readopted emergency regulations, entity owners needed to disclose their CEOs and/or board members if those entities were considered owners based on 20 percent or more equity in the licensee.

Now, entity ownership requirements kick in in any situation in which a company owns a licensee—not only where the ownership is based in equity (remember that ownership can also be based on direction, management, or control of a licensee or other grounds). If an entity is considered an owner, then anyone with a financial interest in that entity must be disclosed to the BCC and may be considered an owner.

This is a tremendously significant requirement and means that virtually everyone in the corporate chain must be disclosed (and probably must provide all of the many significant and burdensome disclosures). For example, if John Smith directly owns 1% of the BCC licensee ABC Retailer and does not exercise any control over ABC Retailer, he will be considered a financial interest holder as opposed to an owner.  But if he owns 1% of XYX Holdings, which has a 20% stake in ABC Retailer, he will need to be disclosed to the BCC and may be considered an owner.

What is less clear is how the BCC will evaluate whether persons like John Smith in the above example are owners. The rule isn’t very clear on this point, but does give examples such as “all entities in a multilayer business structure, as well as the chief executive officer, members of the board of directors, partners, trustees and all persons who have control of a trust, and managing members or nonmember managers of the entity.” Persons like John Smith, who really have no say over the company and have just a small monetary interest, probably won’t be considered owners even under these new rules. But again, they probably will need to make full ownership disclosures before the BCC makes that determination.

One other significant point in the final regulations is that the BCC now expressly considers persons who expect 20% or more of the profits of a licensee to be owners. This means that various kinds of contracts (subject to the discussion below) between a licensee and third party could turn the third party into an owner depending on the compensation—even if that third party otherwise would not be an owner.

Interest Holder Changes: Similar to the owner regulations, the financial interest holder rules (regulation 5004) were also enlarged. Unlike in the readopted emergency regulations, the interest holder regulations provide a non-exhaustive list of persons or entities who must be disclosed as interest holders:

  • An employee who has entered into a profit share plan with the commercial cannabis business.
  • A landlord who has entered into a lease agreement with the commercial cannabis business for a share of the profits.
  • A consultant who is providing services to the commercial cannabis business for a share of the profits.
  • A person acting as an agent, such as an accountant or attorney, for the commercial cannabis business for a share of the profits.
  • A broker who is engaging in activities for the commercial cannabis business for a share of the profits.
  • A salesperson who earns a commission.

The ownership changes discussed above may seem at first glance to be one of the more onerous changes in the regulations. And to some extent—especially for licensees in corporate families or which are owned by other companies—this is true. But these interest holder disclosure requirements are equally, if not more complex because they require disclosure of virtually anyone with any sort of stake in a cannabis company—small or large. This will require companies to take stock of all third-party agreements to which they are a party and spend serious effort analyzing whether the disclosure obligations apply.

Not only are there likely to be larger disclosures of financial interest holders than of owners, but licensees are also now obligated to make similar disclosures where their financial interest holders are entities. Now, anyone who is an “owner” of a financial interest holder will need to be disclosed to the BCC. This rule is admittedly narrower than the ownership disclosure requirement in that it is limited to just owners of the financial interest holder and that the categories of information that must be submitted are much narrower, but it is significant nonetheless and will require a lot of work and evaluation.

IP Licenses and Other Third-Party Agreements: Back in October, we wrote about how changes to BCC regulation 5032(b) could prohibit IP licenses and other transactions with non-licensed entities. This is obviously significant as there are many such transactions in this industry (and any). The October version of rule 5032(b) was subsequently scaled back to remove examples of unlawful third-party agreements, but now we are left with a regulation which is ambiguous as to its scope: “Licensees shall not conduct commercial cannabis activities on behalf of, at the request of, or pursuant to a contract with any person who is not licensed under the Act.” In the final statement of rules that accompanied the December 2018 proposed final regulations (which have been removed from the BCC’s website), the BCC suggested in response to comments that third-party license agreements could be permissible if an unlicensed entity were disclosed as an owner or interest holder. But whether the BCC maintains this position remains to be seen.

Packaging and Labeling: A few weeks ago, I wrote about the packaging and labeling mess that was likely to ensue if the December proposed regulations became the final regulations. It looks like that’s happened, so I won’t repeat that article verbatim. But what bears repeating is that, except for child-resistant packaging, there doesn’t appear to be any sort of grace period for compliance with the new labeling regulations. To compound matters, while distributors can re-label cannabis and pre-rolls, they apparently can no longer re-label manufactured goods—and retailers can’t do any sort of labeling. We therefore expect that there will be a good deal of chaos over packaging that was compliant but now suddenly is not, and confusion over what to do about it.

Delivery Expansion (or Not?): As I highlighted back in the October when the BCC’s modified proposed regulations were issued, one of the bigger changes to the regulations was to section 5416(d), which allows deliveries into any jurisdiction in the state so long as they comply with the BCC regulations. This change stuck in the final regulations. While it would seem that licensed cannabis retailers can deliver anywhere in the state, there are a number of jurisdictions that still forbid it. This thus creates a conflict between local laws and statewide regulations that is not so clear as one may think.

For example, Malibu recently passed a measure that permits adult use cannabis sales and deliveries, but forbids deliveries into Malibu for entities that don’t have Malibu permits. Pasadena, which is currently undergoing a massive licensing competition, prohibits its permittees from delivering into cities or counties that prohibit deliveries. And of course there are numerous other California cities which are even more restrictive and prohibit all commercial cannabis sales or deliveries.

While not very clear, the Medicinal and Adult-Use Cannabis Regulation and Safety Act (“MAUCRSA”) provides: “A local jurisdiction shall not prevent delivery of cannabis or cannabis products on public roads by a licensee acting in compliance with [MAUCRSA] . . . .” Arguments could therefore be made on either side of the spectrum about whether MAUCRSA permits cities to preclude deliveries: cities could argue that MAUCRSA permits them to ban deliveries off of public roads (i.e., on private property); others could argue that deliveries made using public roads and to residences or other private properties adjacent to public roads cannot be prohibited. We expect that there may be future litigation here.

These are just some of the significant changes in the regulations. Compliance with the regulations is critical, and it’s always recommended to consult with experienced regulatory cannabis counsel in doing so. Stay tuned to the Canna Law Blog to see how the BCC regulations shake out and for other California cannabis developments.

HEMP CBD FULL SPECTRUM HEMP FDA
… FULL SPECTRUM  HEMP?

In a recent post regarding the labeling requirements surrounding dietary supplements containing industrial hemp-derived CBD (“Hemp-CBD”), we alluded to a recent movement in the industry to rename Hemp-CBD products “full spectrum hemp.” We now take a closer look at the reasons behind this shift in nomenclature.

Part of the impetus behind this movement might be linked to a 2001 court decision pertaining to the status of lovastatin, a compound found in red yeast rice.

Although red yeast rice had been used for healing purposes for thousands of years, the isolated compound was approved by the FDA as a drug in the treatment of cholesterol. Despite the FDA approval, companies continued to sell and market lovastatin as a dietary supplement. One of these companies was Pharmanex. The FDA challenged the sale and marketing of Pharmanex’s product, Cholestin, and ultimately prevailed when Pharmanex challenged the FDA’s position in federal court.

The court held that the lovastatin found in Cholestin was not in its natural form (i.e., as naturally occurring in red yeast rice) because its manufacturer deliberately selected and used a method to produce specific levels of lovastatin that were greater than those naturally present in red yeast rice. In addition, the court determined that Cholestin was a drug because it was specifically marketed as the isolated lovastatin compound.

There may be some parallels between the case of red yeast rice and Hemp-CBD. Indeed, like red yeast rice, hemp and hemp extracts have been consumed for hundreds of years as food and for their medicinal value. Similar to red yeast rice, hemp contains hundreds of compounds, including CBD. And like lovastatin, CBD was recently approved by the FDA via a drug known as Epidiolex—although it is important to note that the CBD approved by the FDA as a drug is derived from the cannabis plant, not industrial hemp grown under an eligible state program, pursuant to the 2014 or 2018 Farm Bill.

Accordingly, if a Hemp-CBD product were to meet the standard laid forth by the court for red yeast rice (i.e., unadulterated full-spectrum hemp marketed as full spectrum hemp, not CBD), its manufacturer may be able to use the nomenclature “full spectrum hemp,” which might mitigate the risk of FDA enforcement action against Hemp-CBD products.

However, given the varieties of hemp strains, and the fact that each contain various levels of naturally occurring compounds, it might be challenging to specifically assess what constitutes “naturally occurring” levels of CBD. Nonetheless, “full spectrum” is generally understood to mean that all the natural constituents of the hemp plant are in product at the same percentages as they would be found in nature. Because advertising cannot be false or misleading, the nature of each product would be dispositive—i.e., whether or not the natural constituents are there in natural percentages—in determining whether those products might fall outside the scope of FDA scrutiny.

Accordingly, before manufacturers of Hemp-CBD products consider renaming their product “full spectrum hemp” they should consult with experienced attorneys to review their manufacturing process and determine whether switching from “CBD” to “full spectrum hemp” in labeling and marketing would be allowed and beneficial.

HR 420 marijuana blumenauer

On Wednesday, January 9, 2018, Representative Earl Blumenauer (D-Or) introduced the aptly designated H.R. 420, or the Regulate Marijuana like Alcohol Act. The bill is still so new that it’s not yet up on Congress’ site, but the apparent text for the bill can be found online.

H.R. 420, if passed in its current form, would remove marijuana from the Controlled Substances Act’s scheduling. The law wouldn’t allow complete legalization without regulation. It still makes clear that bringing cannabis into a jurisdiction would be unlawful where it would violate the laws of that jurisdiction. Instead of full-scale legalization, the bill would require the Secretary of the Treasury to establish a permitting scheme which could, like state law, involve different permits for each different kind of cannabis activity. It’s not yet totally clear how this would play out for permit holders in states with current regimes, i.e., whether they would have to get federal permits and/or what criteria they’d be held to.

Interestingly, these federal permits appear to last indefinitely until suspended and can be transferred if the transferee makes a timely request. There are of course disqualifying convictions, but those appear to be relatively narrow and exclude federal or state offenses if the underlying conduct was lawful in the state where the conviction was rendered. The bill also makes clear that applicants couldn’t get permits that would violate state law (this is an interesting flip where federal law bows to state law) or if an applicant wasn’t likely to commence operations within a reasonable period or maintain them in accordance with federal law.

One other interesting component of the bill is that it would transfer jurisdiction from the Attorney General over marijuana to the re-named Bureau of Alcohol, Tobacco, Marijuana, Firearms, and Explosives. The bill would also give the Food and Drug Administration the same authority over marijuana that it has over alcohol. The bill would also give the Treasury Secretary the authority to regulate certain elements of marijuana advertising to ensure that it was not false or misleading.

Ultimately, the bill leaves more unsaid than said, and if it is ever passes, it will be up to the regulators to figure out the mechanics. It’s not certain that this bill will go anywhere, especially in such a tumultuous and chaotic time. However, the approach of regulating marijuana more or less like alcohol, similar to what many states are already doing and with an element of federal oversight, is a compelling idea. Stay tuned to the Canna Law Blog for more details and updates.

oregon marijuana OLCC violation
Make it happen!

I’ve been suspicious the last few months that the Oregon Liquor Control Commission (OLCC) is starting to set a zero tolerance policy for marijuana rule violations. Unfortunately, the extrinsic evidence seems to be proving my suspicions.

As I’ve previously written, the OLCC settlement policies seemed to shift last September. In a first for the commission, they rejected a settlement proposal that would have allowed a licensee to keep its license and pay a fine. That particular licensee, Black Market Distribution, LLC, either needs to fight for its license at a hearing or surrender its license. The OLCC has not issued a final order related to Black Market Distribution yet and the company still have its license according to the approved license list. Only time will tell if Black Market Distribution is able to keep their license in light of the alleged violations.

As I wrote in November, if the OLCCs continued actions are any indication, Black Market Distribution may have little chance of keeping their license. In December, the OLCC seemed to continue down a path of refusing to settle cases unless the Licensee agrees to sell the business or surrender the license.

  • The OLCC alleged licensee Positive Vibrations committed four Category IV violations relating to advertising rules. The OLCC proposed a 34-day suspension or a civil penalty of $5,610. However, the OLCC and Positive Vibrations were able to reach a settlement agreement requiring Positive Vibrations to accept responsibility for the Category IV violations and either serve a 26 day suspension or pay a civil penalty of $4,290.00.
  • In the only other settlement agreement from December, the OLCC alleged licensee Greenway Ventures committed 10 violations, including two Category I violations. Even a single Category I violation is sufficient to revoke a license. Based on the violations, the OLCC proposed license cancellation. Greenway and the OLCC entered a settlement agreement that required Greenway to sell the business or surrender its license by March 30, 2019. Greenway must also accept a Letter of Reprimand for the violations that will become a permanent part of its file and may be considered in future applications. Further, the Greenway  had to forfeit 21 totes of marijuana to the OLCC for destruction.

Not only have we seen the OLCC entering into stricter and more stringent settlement agreements, but our office has seen a significant influx of charging documents issued by the OLCC. These usually come about after anonymous complaints are made to the OLCC regarding potential rule violations of the licensee. After an anonymous complaint is received by the OLCC, the OLCC assigns the complaint an investigator. The investigator then conducts inquiries and visits the licensed premises. The investigator will not only investigate the allegations of the complaint, but will also look into other practices of the licensee. This can often result in multiple rule violations.

So, what’s the takeaway? As we’ve said in the past (and will continue to say), the only way to avoid OLCC charging document exposure is to ensure compliance with the rules. How do you do that? The best way is to create a compliance position for your license, and designate or hire a compliance person. This might not be cheap but it will probably save you in the long run. That person’s job will be to keep up to date on OLCC rules (which are still being updated frequently), and to ensure that every aspect of the license is in compliance with those rules. Alternatively, split up the job among several experts. If you have someone running your Instagram account, for example, make it their job to ensure that every Instagram post and every marketing item that stems from the license complies with the rules. Have someone become an expert in CTS, tagging, and manifest. Etc. The bottom line is, make sure you have someone or a team of someones that know the rules inside and out, and isn’t shy about speaking up when practices are lax. If you and the compliance expert cannot figure something out, hire an attorney to review your practices. At the end of the day, it’s better to pay up front to ensure rule compliance rather than to pay the OLCC in penalty fees or lose your license altogether.

fda cbd food
Not OK per FDA.

On January 3rd, according to the owner of a smoke shop in Yuma, Arizona, officials from the Food and Drug Administration (FDA) seized a variety of CBD products from the store’s shelves. The officials took fewer than fifty items and told the owner to anticipate follow-up paperwork within seven to ten business days.

According to the owner’s account, FDA officials had stopped by the shop a few days earlier and asked what products were edible and intended for humans. When those officials returned, they informed the owner that CBD cannot be sold for human consumption.

This squares with what we have written about extensively, and also with what FDA Commissioner Scott Gotlieb has stated:

[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.”

Gottlieb also made clear that things like claiming CBD or cannabis products cure diseases prior to undergoing FDA approval are not lawful, and that the FDA will not hesitate to warn consumers and initiate enforcement actions against CBD companies. The enforcement against the Yuma store seems to indicate that those enforcement actions have begun in earnest.

There seems to be a good amount of misunderstanding about how the passage of the Agriculture Improvement Act of 2018 (or the “2018 Farm Bill”) affects the legality of selling industrial hemp-derived CBD products. But to reiterate, nothing in the 2018 Farm Bill alters the FDA’s position on CBD pursuant to the Federal Food, Drug, and Cosmetic Act (FDCA). Here are some additional highlights from that statement:

  • The FDA will continue to enforce the law, including the FDCA, in an effort to protect patients, the public, and to promote the agency’s goals of promoting public health;
  • Products containing cannabis or cannabis-derived compounds, including CBD, will be subject to the same regulations and requirements as other non-cannabis FDA-regulated products;
  • Hemp or hemp-derived CBD products that are “marketed with a claim of therapeutic benefit, or with any other disease claim” must be approved by the FDA before being introduced into interstate commerce;
  • Hemp or hemp-derived CBD products marketed “for use in the diagnosis, cure, mitigation, treatment, or prevention of diseases” are considered drugs and must be approved by the FDA before they are marketed for sale in the United States; and
  • It is “unlawful under the FDCA 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.”

It remains to be seen whether the FDA will introduce new regulations pertaining to the sale of hemp-derived CBD products intended for human consumption. For now, the agency has indicated that its position on CBD products is clear. We’ll be watching closely to see if this enforcement action constitutes a ramp-up of enforcement against CBD companies nationwide.