hemp cbd transport arrestBack in September 2018, I wrote about how important it was for hemp businesses to carefully plan the routes they would use to ship hemp and hemp products, including hemp-derived CBD. This is because some states are hostile towards hemp and do not recognize a difference between hemp and marijuana.

My article was written prior to the passage of the Agricultural Improvement Act of 2018 (“2018 Farm Bill”), which expanded federal law to cover a wider range of commercial hemp activity and gave the US Department of Agriculture (“USDA”) regulatory authority over the cultivation of hemp. With regards to the interstate transfer of hemp, section 10114 (b) 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) through the State or the territory of the Indian Tribe, as applicable.

In plain english, this means that states and Tribes can’t prohibit hemp or hemp products from passing through their state or territory if the hemp or hemp products were produced in compliance with Section 10113 of the 2018 Farm Bill. On it’s face this provision may look like hemp businesses no longer need to fear state-level enforcement against hemp or hemp products entered into interstate commerce. However, that is not necessarily the case and businesses who hang their hat on section 10114 do so at their own risk.

The problem with relying on section 10114 is that it appears to be contingent on Section 10113 of the 2018 Farm Bill. Section 10113 of the 2018 Farm Bill covers hemp production (which you can read about here). In summary, Section 10113 indicates that the USDA will oversee hemp production at the federal level by approving of state and Tribal plans covering the cultivation of hemp. States and Tribes will submit plans to the USDA for approval. Section 297C of the 2018 Farm Bill requires that the USDA establish its own plan and and issue licenses to cover the cultivation of hemp in states or Tribal territories where that state or Tribe’s plan for hemp cultivation has not been approved.

The USDA has not yet approved of any state or Tribes plan. It also has not created its own plan under Section 297C. That means that any hemp legally cultivated in the US was done so under Section 7606 of the 2014 Farm Bill. The 2014 Farm Bill allows states to implement agricultural pilot programs to research the cultivation of industrial hemp. State departments of agriculture can issue licenses for the cultivation of hemp. Some states have interpreted this to cover commercial activity. However, the 2014 Farm Bill provides no explicit protection for the interstate transfer of industrial hemp.

Returning to the 2018 Farm Bill, Section 7605 (b) of the 2018 Farm Bill extends Section 7606 of the 2014 Farm Bill for one year after the USDA establishes a plan under 297C. That provision is not contained within Section 10113. Section 10114’s prohibition on interference with the interstate transfer of hemp does not reference the 2014 Farm Bill. Therefore, Section 10114’s protection against interference with the interstate shipment of hemp or hemp products may not currently apply to hemp or hemp products currently in transit because they cannot yet be cultivated “in accordance with” Section 10113.

On the other hand, the intent of Congress seems to indicate that hemp and hemp products should be commercially distributed throughout the country. The 2018 Farm Bill changes the Controlled Substance Act (“CSA”) by explicitly removing “hemp” from the definition of marijuana. It also defines hemp as an agricultural commodity that is eligible for federal crop insurance. Additionally, it allows the USDA to license the cultivation of hemp in a state or Tribal territory that does not have an approved plan. Additionally, an administrative law judge has held that products containing CBD derived from 2014 Farm Bill industrial hemp are allowed to be distributed in the US mail. Also, a federal judge in West Virginia recently lifted a restraining order that limited a hemp cultivator from transporting processed hemp to a Pennsylvania lab that would process it into CBD isolate, because “the Court has become increasingly doubtful of the Government’s case on the merits.” This is due, at least in part, to the 2018 Farm Bill’s removal of hemp from the CSA. (A copy of the order is provided by Hemp Industry Daily, which also wrote about the decision here.)

We’ll likely get additional insight into the question of whether companies can ship 2014 Farm Bill hemp across state lines as there is currently a lawsuit pending between Big Sky Scientific, LLC (“Big Sky”) and the Idaho State Police. I’ll provide some additional insight on this case later this week.

For now, the bottom line is that hemp businesses must still carefully consider their shipping plans for hemp and hemp products. Blind reliance on Section 10114 to protect against local law enforcement is ill advised. Until the 2018 Farm Bill is fully implemented by the USDA, states may seize hemp shipments. Hemp businesses should avoid transporting their products through states that show hostility towards hemp. If you have questions about other ways to mitigate the risk of state level enforcement, please contact our regulatory attorneys.

Something has gotta give in Phase 3.

The City of Los Angeles has long endured questions surrounding its elusive Phase 3 licensing process for cannabis businesses. The City completed Phase 1 and 2 licensing without too much crazy change, but Phase 3 is very likely going to be a different story, and will affect a lot of stakeholders for better or worse.

On February 8, 2019, the Department of Cannabis Regulation (“DCR“) wrote to the Rules, Elections, and Intergovernmental Relations Committee (“Committee”), proposing total reform for Phase 3 licensing in the face of multiple regulatory issues caused by undue concentration, the promotion of social equity businesses, and the overall economic interests of various stakeholders who are waiting for Phase 3 to open. DCR wrote to the Committee that it wants to make certain strategic amendments to the licensing process in Phase 3 that “would make our licensing process more efficient, transparent, and, most important, equitable.”

DCR’s obvious concern in its letter to Committee is that Phase 3 successfully hoist up social equity applicants and be as efficient as possible at the same time. In particular, the letter states that:

DCR recognizes that the existing licensing process provided in the Cannabis Procedures ordinance and regulations will take significant time to implement and that many Phase 3 storefront retail applicants will have to make significant investments in the application process before knowing for certain whether they might be denied because another applicant within 700 feet of them gets licensed first or the Community Plan in which they are located reaches undue concentration before they obtain a license.

Based on its letter, DCR looks to be seeking to award those stakeholders that are patiently sitting on eligible commercial cannabis properties (bleeding rent and other costs while waiting for Phase 3 to commence) through swift and efficient licensing. The bottom line is that the current proposed licensing process potentially harms everyone, including social equity applicants who have either already made the investment in the unsettled program or that don’t have the resources to invest ahead of time to their detriment (since the City hasn’t yet established the assistance programs necessary to aid social equity applicants, but is finalizing a draft RFP “to identify vendors who can provide a suite of business and licensing support to Tier 1 and Tier 2 social equity applicants”).

Combine the foregoing with the fact the City “expects approximately 200 storefront retail licenses will be available through Phase 3 before undue concentration is reached in most or all of the City’s Community Plans,” and DCR has taken the position that Phase 3 licensing procedures must change, and fast. DCR therefore proposes in its letter that Phase 3 licensing for the remaining estimated 200 retail licenses (probably all of which will go only to social equity applicants per existing laws) take place as follows:

First come, first serve for verified Tier 1 and Tier 2 applicants (that also have locations ready to go) for the first 100 licenses OR a lottery system to issue the first 100 licenses (with various barriers to entry, including having a location on lock). And for the second 100 licenses, the DCR wants a merit-based system with various qualification criteria.

There were other pretty important recommendations made in the letter to Committee regarding other amendments to current LA cannabis licensing laws, but the change-up on the Phase 3 licensing process is, by far, the most impactful.

Even though the DCR has studied the foregoing issues for months, the City Council was not yet ready to act on the DCR’s recommendations. On Friday, February 15, after a hearing with Committee and then a hearing with Council regarding the DCR’s recommendations, Council instructed DCR “to report back at the next Rules, Elections, and Intergovernmental Relations Committee meeting with a further analysis of the recommendations for Phase 3 Storefront Retail processing and Non-storefront Retail processing, including consideration of a social equity applicant registry platform similar to the City of San Francisco” and to “suspend any Phase 3 processing until the enhanced Social Equity analysis for the San Fernando Valley, Boyle Heights, and Downtown Los Angeles is completed.”

What does all of this mean? Basically, we’re back to square 1 in L.A., and original Phase 3 processing remains in place despite the DCR’s attempt at an overhaul. Without question though, Phase 3 licensing should change. The current timing alone on issuance of Phase 3 licenses will bankrupt or scare off the vast majority of people. First come, first serve likely appeals to most people, but it’s just as imperfect and arbitrary as a lottery system. So long as the right barriers to entry and restrictions are implemented, either system can work to effectuate quick and efficient licensing (just ask Washington State whose biggest problem with a lotto system was actually movement of winners after-the-fact).

Lotto likely edges out first come, first serve if we’re talking maximum efficiency, because it eliminates the timing pressure and order of applicants at the outset when they file with DCR. With either proposal though, ambiguities would hinge around what a “complete” application really means and/or the ability of people to game the system by paying off family members (or whomever) to act as straw applicants to increase their chances of success. Merit-based also poses its own challenges regarding what qualities should net you the most points, especially when dealing with social equity applicants who remain the most popular form of licensing capital in L.A. and therefore the most vulnerable when it comes to scams and hawkish investor behavior.

Interestingly enough at Friday’s hearing, Council did instruct the City Attorney to draft an ordinance (with input from DCR) to, among other things:

  • grant temporary approval to phase 3 retailers (which would allow them to instantly open their doors upon securing state licensure),
  • exempt non-storefront retailers from hearing before the Cannabis Regulation Commission prior to full licensure,
  • force Tier 1s or 2s to give a right of first refusal on ownership transfers to their existing partners to purchase their ownership interests at market rate (after expiration of the applicable Social Equity Agreement term),
  • bar from Phase 3 retail or delivery licensure applicants or landowners with “evidence” against them for illegal cannabis activity at any time since January 1, 2018.

So, we know change is coming to Phase 3 licensing albeit at a glacial pace. For now though, it appears that the DCR will really have to persuade Council on adopting its Phase 3 recommendations for the licensing process, or all Phase 3 stakeholders will invariably suffer licensing by a thousand cuts.

oregon marijuana cannabis
Time to kick back and consider Oregon cannabis.

On January 31, the Oregon Secretary of State released an audit of Oregon marijuana regulation. The audit is a hefty 37 pages, but its core findings are listed right there on the cover sheet: “Oregon’s framework for regulating marijuana should be strengthened to better mitigate diversion risk and improve laboratory testing.” Now: we would all like to see less diversion and better testing, but those findings are not exactly surprising. And no one should expect big fixes anytime soon.

Below is some straight talk about the audit’s two primary conclusions, and a few thoughts about where things are headed.

  1. Much of the medical market is a black market and diversion is unstoppable at this time.

The Oregon Medical Marijuana Act (OMMA) was passed over 20 years ago, in 1998. As we explained a few years back, OMMA was (and is) little more than an affirmative defense for designated marijuana possessors and distributers from state criminal prosecution, and from federal hassles to the extent possible. Those are commendable goals, but the program never made sense from a commercial perspective. Thus, the Oregon Health Authority (OHA) has always found itself in the unenviable position of struggling to write rules around legislation that creates a marketplace while ignoring the market itself.

When the legislature did decide to shepherd the primitive market, it did so in fits and starts. It took seven years to put a grow site registry together, and fifteen years for dispensary licensing. Heck, even the first grow site inspections (and there haven’t been many) didn’t occur until 2016. All of this was toothpicks and BAND-AIDS. And all the while, many people made money trading in the “medical” market. Did a lot of that weed and cash make its way across the country? You bet.

Even if Oregon were to follow the audit recommendations, however, and ramp up funding for inspections and enforcement in both the OHA and OLCC (adult use) programs, there are inherent and well documented limits to supply-side efforts when it comes to federally controlled substances. Oregon can invest heavily in keeping its cannabis under seal, but its energy would be better focused on federal lobbying to de- or reschedule marijuana under the federal Controlled Substances Act, or even on longshot solutions like promotion of interstate marijuana exchanges.

The state should also continue to push medical marijuana regulation, including enforcement, into the OLCC purview. The audit briefly suggests as much, and we’ve been talking about that forever on this blog. It’s not such a political quagmire anymore, especially as more overlap comes with each legislative session. The fundamental question is this: why have a revenue raising agency and a health authority both focus on intensive regulation of the same plant, especially when both are under-supported? It doesn’t make a lot of sense.

Finally, here’s the part that administrators, legislators and even executive branch actors aren’t saying out loud: leakage into interstate commerce really doesn’t matter at this point, especially if the state is running its studies and making token efforts to stop it. There may be some federal enforcement against black market actors (which is great), but no one is shutting these state programs down. In 2019, cannabis leakage exerts more pressure on the feds to find legislative solutions than enforcement ones.

  1. Testing is a tough issue, but more fixable.

Back in the day, when OHA first started licensing dispensaries, there were no real rules around testing. People would take weed to labs with inadequate equipment and inconsistent practices. They would leave with unreliable results. In 2016, when OHA began accrediting the first laboratories for the medical and adult use (OLCC) markets, not many of them signed up. In the OLCC market, this meant bottlenecks for an extended period.

Nowadays, all cannabis making its way to retail sale is tested more strictly than other agricultural crops, but medical marijuana outside that channel typically goes untested (unless the flower is processed by a medical marijuana processor, which is pretty niche). That’s a shame because medical marijuana patients are the ones who would benefit from testing the most: many of these individuals have conditions like cancer and HIV that directly compromise their immune systems. And roughly 10% of Oregon’s medical marijuana patient community includes children under 18 years of age and seniors over 70.

As far as testing issues that affect our industry clients (OLCC businesses and financiers) the audit recommends expanding testing requirements to screen for microbiological and heavy metal testing, and it promotes “shelf audits” at dispensaries. In theory, those steps could drive up costs along the supply chain, but we wouldn’t expect much variance. Altogether, the testing push is more about protecting vulnerable individuals in Oregon, including people in limited, patient-caregiver relationships. We can get behind that.

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.

california cannabis trademark
 

State trademarks for cannabis goods and services have been an ongoing saga in California that we have written about extensively. For a little background, until January 1, 2018, obtaining state trademark protection in California was not possible due to Sections 14270-14272 of the Model State Trademark Law of the California Business and Professions Code, which are simply titled “Miscellaneous.” Section 14272 states the following:

The intent of this chapter is to provide a system of state trademark registration and protection substantially consistent with the federal system of trademark registration and protection under the Trademark Act of 1946 (15 U.S.C. Sec. 1051 et seq.), as amended. To that end, the construction given the federal act should be examined as non-binding authority for interpreting and construing this chapter.”

However, in December of 2017, the California Secretary of State’s Office announced that customers would be able to register cannabis-related trademarks or service marks so long as the following requirements are met:

  1. The mark is lawfully in use in commerce within California; and
  2. The specification matches the classification of goods and services adopted by the United States Patent and Trademark Office.

The Secretary of State’s Office has reiterated that it will only accept applications insofar as the goods and/or services in question fit within an existing classification code from the USPTO’s Identification of Goods and Services Manual. Therefore, it is easy to register for things that fit squarely within the USPTO specifications, like retail services. Cannabis goods are a bit more problematic, although we have developed strategies to protect these as well.

All of this has been based on administrative policy declared by the Secretary of State’s Office, not on legislation or a change to the California Business and Professions Code, but Senate Bill 185, which was introduced on January 30, 2019 and just went to committee, would change that.

SB 185 notes that existing law in California provides for registration of trademarks where the classification of goods and services for those marks conforms to the classifications adopted by the USPTO, but proposes that for marks for which a certificate of registration is issued on or after January 1, 2020, applicants would be authorized to use “specified classifications for marks related to cannabis, including medicinal cannabis, goods and services that are lawfully in commerce under state law in the State of California.” Designated classifications of goods for cannabis products would streamline the process for trademark registration in California and provide cannabis companies with greater security regarding the enforceability of their registrations.

Additionally, SB 185 provides that the Department of Food and Agriculture, in conjunction with the State Department of Public Health and pursuant to MAUCRSA, must establish a certification program for cannabis and manufactured cannabis products comparable to the federal National Organic Program and the California Organic Food and Farming Act. As we’ve written before, it is not permissible to use an organic designation on cannabis products unless that designation is pursuant to state law or pursuant to a private certification, since the U.S. Department of Agriculture generally regulates that certification under the Organic Foods Production Act.

SB 185 lays the groundwork for some important improvements to the way cannabis companies protect their brands and the establishment of an organic certification program will benefit both companies and consumers. We’ll be following this bill closely and hope it doesn’t stall in committee. Stay tuned!

Earlier this year, the Food and Drug Administration (“FDA”) began seizing various cannabidiol (“CBD”) products from store shelves. These enforcement actions reflected the implementation of the agency’s position that CBD, regardless of the source from which it is derived, cannot be lawfully sold for human consumption.

A few states, including states that have adopted industrial hemp pilot research programs under the 2014 Farm Bill, now seem to have embraced this FDA position by banning certain CBD-infused products from local stores.

Last Friday, several New York restaurants, bakeries, and bars were forced to stop selling CBD-infused foods and drinks. Officials with the New York City Department of Health confiscated those products, marking them as “embargoed.” The embargo process consists of identifying, itemizing and removing products. The Department has yet to issue a public statement or to provide further information on these actions, but it appears state health inspectors explained to the business owners that CBD cannot be used as a “food additive”.

This argument was similar to that used by the Maine Department of Health and Human Services (“DHHS”). Earlier last week, Maine health authorities notified various businesses that they needed to remove all CBD-infused foods, tinctures, and capsules from their shelves. Relying on an internal report by the state Maine Attorney General’s Office which concluded that CBD could not be used in mass-market food until Maine’s hemp pilot program receives federal approval pursuant to the 2018 Farm Bill, the Maine DHHS determined that CBD was an unapproved food additive the FDA does not recognize as safe.

Section 201(s) of the Food, Drug, and Cosmetic Act (“FD&C Act”) defines “food additive” to encompass any substance that may reasonably be expected to directly or indirectly affect or become part of a food. Until a food additive is tested and found safe for its intended use, it is deemed unsafe. A food additive is considered safe if there is a reasonable certainty that it is not harmful under its intended use and condition. If a food additive is added to a food prior to FDA approval, its presence renders the food adulterated and subject to enforcement action.

Because the FDA has yet to approve CBD as a food additive, Hemp-CBD products, particularly edibles and infused drinks are  deemed unsafe under the FD&C Act.

Though state health authorities embargoed CBD edibles and other CBD products used for human consumption, they told affected business owners they could continue selling CBD products that “could be smoked, vaped, worn as a patch or applied as lotion.” This is because cosmetics and smokable products are subject to less onerous FDA regulations than foods and dietary supplements. This all may change when the FDA soon releases its plan to regulate Hemp-CBD products.

These recent enforcement actions in New York and Maine should remind industry players that business and legal considerations surrounding Hemp-CBD products are in a constant state of flux.

washington hemp In light of the recent federal legalization of industrial hemp, Washington lawmakers are taking a hard look at the state’s hemp program. Senators Bob Hasegawa (D) of Beacon Hill, Steve Conway (D) of Tacoma, and Karen Keiser (D) of Kent recently introducing Senate Bill 5719. The stated purpose of SB 5719 is as follows:

Authorize the growing of hemp as a legal, agricultural activity in this state. Hemp is an agricultural product that may be legally grown, produced, processed, possessed, transferred, commercially sold, and traded. Hemp and hemp products produced in accordance with this chapter may be transferred and sold within the state, outside of this state, and internationally. Nothing in this chapter is intended to prevent or restrain commerce in this state involving hemp or hemp products produced lawfully under the laws of another state or country.”

The bill requires Washington comply with the 2018 Farm Bill, which removed industrial hemp from the federal Controlled Substances Act, and which provides for state-and tribe-level programs for the cultivation of industrial hemp. As such, the Washington State Department of Agriculture (“WSDA”) would need to submit a plan to US Department of Agriculture (“USDA”) pursuant to the 2018 Farm Bill. The plan must address licensing, THC testing, enforcement, and a host of other topics required under federal law.

It’s too early to tell whether SB 5719 will ultimately become law, but it’s worth keeping an eye on at this point (and will be covered in our upcoming free CBD Webinar on February 21 at 12:00 PST). Here are some of the key provisions:

Food and Hemp

SB 5719 would repeal Washington’s Industrial Hemp Research Program (RCW 15.120 et seq.) completely. This program was created under the 2014 Farm Bill, which was fairly light on details and limited to hemp cultivation for “research” purposes. Washington’s hemp program is fairly limited and has never really taken off like it has in Colorado, Kentucky, and Oregon. Washington’s hemp law is also confusing thanks to RCW 15.120.020 which prohibits the “production of any part of industrial hemp, except seed, as food, extract, oil, cake, concentrate, resin, or other preparation for topical use, oral consumption, or inhalation by humans[.]” This provision only refers to the production of hemp, not the sale of hemp products, including widely popular hemp-derived CBD (“Hemp-CBD”) products. However, it has also stunted the retail sale of hemp products intended for human consumption under the idea that if it’s illegal to produce hemp for human consumption it is also legal to sell hemp products for human consumption. This would no longer be an issue if SB 5719 passes. However, SB 5719 does come with some ambiguity.

Under, SB 5719 “CBD and CBD products derived from hemp are considered a food product that must be tested and treated in accordance with other agricultural crop derived food products for human and animal consumption.” This could lead to confusion. For example, a Hemp-CBD topical cream would still have to be “tested and treated” as food. That is inconsistent with FDA regulation which treats food and cosmetics differently. Additionally, what does it mean to “treat” something as food? I read it to refer to things like manufacturing, labeling, and storing Hemp-CBD, but I could be wrong.

Licensing and Seeds

The WSDA would issue hemp producer licenses. Current hemp licensees could transfer into Washington’s new program once it’s up and running.  Hemp producers will only be allowed to use seeds listed in SB 5719 or approved by the WSDA. The bill also contains a clever provision that distinguishes seed varieties based on THC percentage. Certain seed “cultivar” (i.e., “a variation of the plant Cannabis sativa L. that has been developed through cultivation by selective breeding”) will be exempt from THC testing. WSDA will have the authority to approve seed cultivar and determine whether THC testing is required. Cultivar that were brought into Washington state before January 1, 2022 so long as “the state has planting, growth, and stability records covering at least three years.”

Even though seeds will be regulated fairly robustly, SB 5719 does not indicate the need for seed-to-sale traceability as the WSDA will not be responsible for determining whether a hemp product was derived from an approved hemp cultivar.

Regulatory Authority

Though SB 5719 is a major overhaul, WSDA would still have authority over hemp in the Evergreen State. Both marijuana and hemp are ways to describe cannabis so it’s natural to wonder what is the LCB’s role in regulating hemp under SB 5719? SB 5719 specifically states that “all rules relating to hemp, including any testing of hemp, are outside the control of the [LCB].” However, the WSDA is mandated to consult with the LCB to establish rules and policies to prevent cross pollination between marijuana and hemp crops. In the event that a documented cross-pollination erupts between two farms growing hemp or marijuana, the farm operating first will be the victor. This first-in-time law would give marijuana farmers a massive upper-hand, at least initially, as Washington’s marijuana program is older and much larger than the hemp program. The WSDA and state lawmakers will undertake a task force for determining the need for crop insurance.

Bottom line

SB 5719, if passed in its current form, would drastically change Washington’s hemp laws. Like the 2018 Farm Bill, it’s a much more commercial friendly scheme. If you agree or disagree with the current version of SB 5719, you can submit comments here.

If SB 5719 becomes law, it will take effect immediately. Given that there are several time-sensitive provisions in the bill, it makes sense to start planning now. We’ll keep an eye on this and other hemp-bills in Washington and other states.

In late January, Portland hosted the Cannabis Collaborative Conference (“CCC” or “Conference”), an annual forum created by cannabis industry leaders, aimed at addressing the most pressing issues facing this emerging market. This year’s conference focused on the future of the cannabis industry.

Rick Garza, Director of the Washington State Liquor and Cannabis Board (“WLCB”), was one of the key speakers at this year’s Conference. Mr. Garza discussed the possibility of Washington state allowing small cannabis farmers to sell directly to consumers. This practice would be comparable to that allowed for wineries, breweries and distilleries. If approved by the Washington State Legislature, this move would afford small growers an opportunity to increase their sales and, consequently, boost the local economy. This initiative would mirror the practice adopted by several Canadian provinces, which allow licensed producers to sell marijuana to consumers at cultivation facilities, and states like Colorado and Oregon, which authorize licensed cannabis growers to concurrently hold retailer licenses.

washington oregon cannabis marijuanaThe Washington cannabis regulator was also joined by Steve Marks, Executive Director of the Oregon Liquor Control Commission (“OLCC”). Both discussed upcoming changes to the Washington and Oregon programs, which respond to the ongoing and growing issues of oversupply. As we previously discussed, Oregon’s supply has far exceeded local demands: the state is currently sitting on approximately 1.4 million pounds of marijuana that state and federal laws prohibit from selling outside state lines. This tremendous oversupply in Oregon has caused prices to crater, putting many licensed growers on precariously thin ice. In 2018, the wholesale price of Oregon flower dropped from $3.90 per gram at the beginning of the year to $1.86 as of the end of the summer. Washington growers find themselves in an equally challenging situation.

In addressing the overproduction issue and interstate leakage, the OLCC leader said he expected more discussion about legislation capping the number of cannabis business licenses in Oregon. However, as we explained before, controlling supply by capping Oregon licenses as a fearful response to interstate leakage could also incentivize black markets, especially for Oregon sales, because a cap would increase the prices of cannabis.

Mr. Marks also shared that he has seen an infusion of capital into Oregon cannabis companies from investors who believe marijuana will become federally legal. Similarly to those investors, we believe federal legalization is merely a matter of time and that it will help put an end to unapproved interstate leakage. Indeed, the federal prohibition of cannabis is encouraging unscrupulous and desperate cannabis businesses to cut their losses and sell their surplus in the black market.

Although solving the issue of oversupply and interstate leakage will inevitably require the federal legalization of cannabis, it is encouraging to know that Washington and Oregon cannabis regulators are actively exploring ways to improve the industry and insure its sustainability. We expect to see some very important developments in both states in 2019, in addition to any federal law updates.

cannabis marijuana immigrationOn January 16, 2019, each of the three California cannabis agencies dropped a final set of regulations. In many senses, the Bureau of Cannabis Control’s (“BCC”) regulations were the most comprehensive and expansive (we summarized some of the highlights here, and summarized the highlights of the California Department of Public Health’s final regulations here). In one area in particular, the BCC’s regulations may have some unintended and far-reaching effects: immigration.

For some reference, one of the biggest changes to the BCC’s regulations is in the “ownership” disclosure requirements, which now will require disclosure of persons as potential owners who may be far removed from the actual licensed entity. To recap, in the post linked above, we wrote:

[The BCC’s] 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 this could mean in other words is that more people, and people higher up a corporate chain, may need to make “ownership” disclosures. One of those disclosures is the requirement per BCC Regulation 5002(c)(20)(D) to provide a Social Security Number (“SSN”) or individual taxpayer identification number (“ITIN”), and another is the requirement to obtain a live scan. These are significant requirements for foreign persons who “own” cannabis businesses and, as described below, could affect their immigration status.

SSNs are available for residents and citizens of the United States. ITINs may be available in limited circumstances to foreign persons who have a need for tax identification purposes in the United States, but they are somewhat complex to obtain and require certain documentation (either a federal income tax return or some “exemption” documents). And live scans are federal background checks that land in federal databases, and as a result, in hot water.

The reason background checks for foreign nationals are problematic is that any direct or peripheral involvement in the cannabis industry is incompatible with the immigration laws of the United States. This applies to everyone who is not a United States citizen, including lawful permanent residents (i.e., green card holders), those living, studying, and/or working in the United States under an authorized nonimmigrant visa, those temporarily visiting the United States for business or pleasure, and of course, those who have no legal status in the United States.

As explained previously, even where a foreign person is traveling to a state where marijuana is legal, federal law applies at all U.S. ports-of-entry and preflight clearance locations (the “border”). The U.S. Customs and Border Protection (“CBP”) officer at the border has the legal authority to question the foreign person about the purpose of the visit and has advance access to the list of airline passengers on each flight and the license plate of each vehicle waiting at a border checkpoint.

By the time a foreign person is greeted by the CBP officer, seemingly unrelated dots between a web search and live scan and other databases have already been connected for the officer to use in questioning the foreign person about his connection to a cannabis business.

If the foreign person wants to lie about his involvement, he should absolutely not. The CBP has broad authority to search electronic devices, including cell phones and laptops. If the CBP officer finds any information to contradict the foreign person’s statements, it can potentially permanently ban him or her from entering the United States because of fraud or misrepresentation, and not just for violating the Controlled Substances Act.

Under the BCC’s new ownership regulations and its live scan requirement, a few things are clear. First, persons who earlier may not have qualified as owners now might. This may include a host of foreign citizens who now need to obtain ITINs and undergo live scans. Second, live scans are part of a federal database, so federal agents may be able to stop and ask clients questions about why they have undergone live scans. Moreover, and third, under the BCC’s live scan memo (linked above), live scan forms won’t be sent until an application is made, so foreign persons entering the United States to undergo a live scan will by definition already have applied for a cannabis application and thus may risk being turned away.

What’s clear is that ownership of a cannabis business is a risk when it comes to immigration. The BCC’s newest regulations may pass that risk on to a host of new persons. Stay tuned to the Canna Law Blog for more developments. In the meantime, for more on immigration and cannabis, check out the following: