l.a. cannabis licensing

Getting a cannabis license in Los Angeles has been notoriously difficult—and may be about to get worse as news dropped last week that a Los Angeles City Council member is recommending that the most recent phase of licensing applications essentially be suspended.

For some background on LA’s complicated licensing process, it has proceeded to date in multiple “phases” administered by the Los Angeles Department of Cannabis Regulation (“DCR”):

  1. The first phase was limited to certain qualifying existing medical marijuana dispensaries (or “EMMDs”), and so far a little under 200 have been issued.
  2. The second phase was open for only certain qualifying non-retail businesses with social equity requirements. It’s not clear yet how many phase 2 licenses have been issued.
  3. The first round of the third phase (yes, there will be multiple rounds) opened for a 14-day period for only very small amount of social equity retail licenses on September 3, 2019.

For phase 3, round 1, the application window that opened at 10:00 AM and was on a first-come, first-served basis. In other words, those who submitted their applications first would receive priority review over all subsequent applications. This made applying at the opening window critical. Even though the phase 3, round 1 application window was open for 14 days, DCR received several hundred applications in the first few minutes. There were more than 700 applications submitted in the first few days.

Since the applications were submitted, the results and process have been scrutinized intesely. On October 28, 2019, Council member Herb Wesson alleged in a letter to DCR that:

Over the last couple of weeks, including at the Cannabis Regulation Commission meeting last Thursday, allegations have been made that multiple applicants had access to the application portal prior to the announced start time of 10 am on Tuesday September 3rd. Unfortunately these allegations have been substantiated by the Department at the Commission meeting and the Phase 3 Retail Round 1 process was compromised. While it was always understood that not every applicant would get a license, it is paramount that the application process have the utmost integrity, be transparent, and fair. There appears to be no scenario in which the Retail Round 1 process can meet those three principles currently.

If Wesson’s claims are correct, then this could present a major issue for phase 3, round 1 applicants. The results of any successful applicant could now be called into question. And that’s exactly what Wesson is calling for:

I am recommending that the Department: 1) suspend all Retail Round 1 applications; 2) refund all monies paid by Retail Round 1 applicants and cancel all invoices; and 3) prepare a full audit and report by an independent third party not involved in the process – unless there are other options like processing every application that would provide the necessary assurances that the process was not compromised. These are the only options that will provide the clarity and time we need to ensure that the Phase 3 Retail process is fair, transparent, and has integrity .

It’s unclear what the next step in this process will be, or whether anything will even happen. Even though Wesson is not a staff member of DCR, he is a City Council member, and DCR answers to the City Council. With sufficient support, it is possible that phase 3, round 1 results could be tested. Stay tuned to the Canna Law Blog for more updates on LA’s licensing process.

hemp usda

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

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

In light of these legislative changes, we are presenting a 50-state series analyzing how each jurisdiction treats hemp-derived cannabidiol (“Hemp CBD”). Each Sunday, we summarize a new state in alphabetical order. Today we  deviate from our regularly scheduled program to discuss the USDA’s recently announced interim hemp rules.

As mentioned above, a tenet of the 2018 Farm Bill is the fact that states and Indian Tribes can regulate hemp cultivation plans to the USDA in order to establish jurisdiction over hemp cultivation. Since releasing the interim hemp rules, the USDA has provided guidance specifically for these plans. The USDA has outlined the requirements for state departments of agriculture and tribal governments here, which covers the following:

  1. Plans to maintain relevant producer and land information;
  2. Plans for accurate and effective sampling testing using post decarboxylation or similar reliable methods;
  3. Plan for disposal procedures;
  4. Plan for inspection procedures;
  5. Plan for collection of information;
  6. Plan to comply with enforcement procedures; and
  7. Certification that the state or tribal government (whichever applicable) has
    resources and personnel to carry out required Farm Bill practices and procedures.

The USDA has also provided additional insights for hemp producers. In order for a producer to cultivate hemp, it must either have a license or other authorization from a state hemp program, Tribal hemp program, or USDA hemp program. The USDA will issue licenses to producers who are operating in jurisdictions that have not submitted a plan or in jurisdictions where a plan has not been approved.

No plans have yet been approved by the USDA, which creates some uncertainty. The USDA has provided some clarity on its “Information for Producers” page:

If your State or Tribe has an approved plan or is in the process of developing a plan, you must apply to and be licensed or authorized under its hemp program.

If your State or Tribe does not have a pending or approved hemp production plan, you may apply for a USDA hemp production license. Applications to obtain a license to produce hemp under the USDA production program may not be submitted until November 30, 2019.

The USDA lists the Status of Submitted Plans on its website as well. This indicates which states have already submitted plans. However, how can producers determine whether a state is developing a plan?

Many states have passed legislation that allows their departments of agriculture to submit 2018 Farm Bill plans to the USDA. For example, my home state of Washington law requires the Washington State Department of Agriculture to develop a plan in compliance with the 2018 Farm Bill. RCW 15.140.040. This type of language is likely enough to indicate that Washington is developing a plan. Therefore, Washington producers would need to obtain a license from state regulators, not the USDA, because Washington is planning to submit a hemp plan to the USDA. In addition to checking state or Tribal law, would-be producers can also contact their local authorities to inquire about a state plan.

Next week, we’ll get back to our series and cover Massachusettes. You can also expect to read much more about the USDA as hemp cultivation regulations are implemented.

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

Big changes are finally on the horizon for hemp in the United States. On Tuesday, October 29th the United States Department of Agriculture (“USDA”) dropped its interim hemp rules pursuant to the Agriculture Improvement Act of 2018 (commonly known as the 2018 Farm Bill). The 161 pages of interim rules set up a regulatory system for federal government oversight and licensing of hemp farmers across the country. Importantly though, state and tribal law remains hugely relevant in that states and Indian tribes need to submit cultivation plans to the USDA for the agency’s approval, and those plans will also govern the regulatory conduct of hemp farmers. What does this mean? It means that hemp farmers are going to face a bevy of regulations and compliance issues and protocol on the state, tribal, and federal levels in a way they haven’t had to before even under 2014 Farm Bill pilot programs.

To better inform and educate our clients, readers of this blog, and those interested in hemp cultivation and/or production of hemp products, including hemp-CBD, we’ll be hosting a free webinar on Thursday, November 14, 2019 from noon PT to 1 p.m. PT. Join Nathalie Bougenies and Daniel Shortt, who will discuss and analyze the following topics:

  1. Highlights of the USDA interim hemp regulations including testing, interstate transport, and federal licensing;
  2. Immediate legal impacts on hemp farmers;
  3. Ambiguities in the regulations and areas of concern;
  4. Steps for hemp farmers to take now to best prepare for compliance with the interim rules once they’re finalized; and
  5. The effect of the USDA regulations on hemp-CBD and hemp-derived products.

Nathalie and Daniel will also take audience questions throughout the presentation.

If you’re interested in this webinar, please register your attendance here.

Even though the interim rules are not yet final, it’s hugely important for stakeholders to get a firm grasp on their meaning and consequence now in order to be better prepared for the future of what the USDA and states and tribes will impose upon hemp farmers and producers. We sincerely hope you can join us on November 14th!

fda cbd topical

We’ve written extensively on this blog about industrial hemp-derived CBD products, including CBD comestibles, CBD pet products, CBD in alcohol, and CBD topicals. Of all these categories of goods, the CBD industry seems to have reached a consensus that CBD topical products present the lowest level of risk for businesses, hence companies like CVS, Walgreens, and Sephora opting to offer the products for sale.

But a number of warning letters from the FDA, including one issued on October 10, 2019 to Rooted Apothecary LLC, make it very clear that sellers of CBD topical products do not have an unfettered pass from the FDA to sell these products.

As we’ve analyzed before, cosmetics are treated differently under federal law than food products. Cosmetics are “articles intended to be rubbed poured, sprinkled or sprayed on . . . or otherwise applied to the human body . . . for cleansing, beautifying, promoting attractiveness, or altering appearance,” except for soap which is classified separately. 21 USC 321(i). Cosmetics and ingredients in cosmetics are not subject to pre-market approval, unlike food and drugs. The FDA relies on consumer complaints to monitor the cosmetics industry. However, this does not mean that the FDA does not have regulatory authority over cosmetics and their ingredients. Some ingredients cannot be used in cosmetics (i.e. chloroform), and will lead a product to be deemed “adulterated.” The FDA has been clear that “certain cosmetic ingredients are prohibited or restricted by regulation, but currently that is not the case for any cannabis or cannabis-derived ingredients.

However, the FDA also makes clear that “[i]ngredients not specifically addressed by regulation must nonetheless comply with all applicable requirements, and no ingredient – including a cannabis or cannabis-derived ingredient – can be used in a cosmetic if it causes the product to be adulterated or misbranded in any way.” And to add another layer of complexity to the analysis, it is possible for topical products to be deemed both a cosmetic and a “drug” by the FDA, and we know that CBD and CBD products cannot be marketed as drugs without having undergone the FDA’s drug approval process.

This takes us back to the October 10th letter that the FDA issued to Rooted Apothecary. In that letter, the FDA laid out its determination that certain products sold by Rooted Apothecary, including a “Hemp Infused Body Butter,” are “unapproved new drugs sold in violation of sections 505(a) and 301(d) of the Federal Food, Drug, and Cosmetic Act (the FD&C Act), 21 U.S.C. 355(a) and 331(d).” The FDA also determined that these products were “misbranded drugs” under section 502(f)(1) of the FD&C Act, 21 U.S.C. 352(f)(1) and that introduction of these products into interstate commerce violates the FD&C Act.

The FDA reiterated its position that CBD products cannot be marketed for therapeutic or medical uses without having been reviewed for safety and effectiveness by the FDA – this requirement applies to all CBD products, including topical and cosmetic products. The FDA also seemed particularly concerned by the medical claims made by Rooted Apothecary because many of its products were being marketed for use in infants and children. Some of the problematic claims made by Rooted Apothecary for its “EARS – Essential Oil + CBD Infusion” topical roller product include the following:

  • “No matter what age, ear aches are a terrible, no good way to live each day! Our main priority was safety, effectiveness . . . as we formulated this for the entire family including our precious little ones. When the pain is bad, this roller goes to work for soothing pain, inflammation, and to battle against the bacterial/viral critters to blame.”
  • “Lavender . . . Analgesic, Antibacterial, Sedative . . .”
  • “Melaleuca . . . Anti-parasitic, Antiviral . . . Decongestant . . ..”

Based on claims like the foregoing, the FDA determined that many of Rooted Apothecary’s products were drugs under section 210(g)(1) of the FD&C Act because they “are intended for use in the diagnosis, cure, mitigation, treatment, or prevention of disease and/or intended to affect the structure or function of the body.”

The letter also scrutinized Rooted Apothecary for selling “misbranded drugs” and making “unsubstantiated advertising claims,” and should serve as a cautionary tale to manufacturers and sellers of CBD topical products. CBD topical products may often be less problematic than edible products as far as the FDA is concerned, but making claims about your products that place them within the definition of a “drug” is certain to land you in the agency’s crosshairs. Thoroughly reviewing packaging, marketing copy, and websites for these types of claims will be crucial for every company offering topical CBD products for sale.

usda hemp testing rules

On Tuesday, the U.S. Department of Agriculture (“USDA”) released its interim final rule for the production of hemp under the 2018 Farm Bill. Although these rules are not final, they will go into effect once published in the Federal Register, at which point a 60-day public comment period will begin.

Upon the publication of the rules, our firm provided a broad overview of the provisions found in the rules. Today, we further discuss the THC testing requirements proposed in the rules and how they will impact the hemp industry.

TOTAL THC TESTING PROTOCOL

To the disappointment of many in the hemp industry, the USDA adopted a total THC testing requirement. As we previously explained, total THC is the molar sum of delta-9 THC (“THC”) and delta-9 tetrahydrocannabinolic acid (“THCA”). Using a total THC testing protocol will create additional hurdles for hemp farmers who are already engaged in a precarious industry. Not only does this testing method tend to increase the THC concentration in the hemp sample, and thus, pushes it over the 0.3 percent limit, it also limits the type of strains farmers can work with. This is because few hemp genetics currently on the market would comply with a total THC testing method. Consequently, this rule will force hemp farmers to carefully select the types of seeds they buy.

To make things worse, the USDA rules also require that hemp be sampled and tested for total THC within 15 days of anticipated harvest. Given that the concentration of THC increases as harvest approaches, the rule will create additional challenges to get at or under the 0.3 percent limit. Although the USDA stated in its rules that it was “requesting comments and information regarding the 15-day sampling and harvest timeline,” the agency also explained that the rule “will yield the truest measurement of THC level at the point of harvest.” In light of these statements, it will be interesting to see whether stakeholders’ input on the matter will convince the USDA to revise this requirement.

DEA REGISTRATION

The USDA testing rules further require that the testing labs be registered with the Drug and Enforcement Administration (“DEA”). The rationale for this rule is that labs could potentially handle hemp that tests above the THC testing limit, and thus, would constitute “marijuana”, a Schedule I drug under the Controlled Substances Act. Because it is unlawful to possess marijuana without a DEA registration, all labs must be registered with the DEA in order to conduct hemp THC testing. However, the current DEA rules limit registration to labs located in jurisdictions in which the prescription, distribution, dispensing, research and handling of marijuana is legal. Accordingly, this USDA rule may reduce the number of labs that will be authorized to engage in this industry, which would be problematic given the fact that there are currently too few labs compared to the amount of hemp being produced.

Therefore, the proposed USDA rules present real challenges for the hemp industry as many crops will likely fail to meet the total THC limit and fewer labs will be allowed to test the crop.

If you would like to further discuss this issue, please contact our team of regulatory attorneys.

unpa natural products cbd fda

I recently attended two events in Utah headlined by the United Natural Products Alliance (“UNPA”) where its President, Loren Israelsen, discussed the voluminous public comments received by the FDA in response its latest round of questions regarding how over-the-counter cannabis extracts like CBD should be regulated. Israelsen provided numerous takeaways for UNPA members and their in-house attorneys regarding CBD and cannabis-derived products, and many cannabis businesses can also benefit from these insights.

As a nearly 40-year veteran of the dietary supplements industry, Israelsen knows his business. UNPA, led by Israelsen, was instrumental in helping pass the 1994 Dietary Supplement Health and Education Act (“DSHEA”), and the majority of UNPA’s calls in recent months have been from UNPA members who want to understand how natural products companies can dive into the CBD world. These inquiries culminated in UNPA reviewing the over 4,000 public comments to the FDA’s inquiries regarding cannabis regulation. In UNPA’s review of the FDA comments, UNPA identified several trends emerging that cannabis business owners should understand to help frame where UNPA believes the cannabis industry is heading in the next five years and beyond, including the intersection of cannabis-derived products appearing as foods, food supplements, drugs, and cosmetics. Those trends are summarized below.

The FDA Already Knows a Lot About CBD.

Epidiolex is a drug that was created by Cambridge, UK-based GW Pharmaceuticals and was approved by the FDA as a drug in 2018 to help relieve epilepsy-induced seizures. GW Pharmaceuticals has now done two decades’ worth of research on CBD and other cannabinoids and is responsible for putting CBD on the FDA’s radar many years ago. CBD’s involvement as an active ingredient in an FDA-approved drug precludes CBD from being marketed as a dietary supplement.

The Larger Battle is for Cannabinoids Generally, Not Just CBD.

GW Pharmaceuticals describes itself as having “established a world leading position in the development of plant-derived cannabinoid therapeutics through its proven drug discovery and development processes, intellectual property portfolio and regulatory and manufacturing expertise.” In its 23-page comment submitted to the FDA, GW Pharmaceuticals provided its well-reasoned argument as to why cannabis research should be led by pharmaceutical companies instead of business leaders (a health care professional-driven market instead of consumer-driven). Even though CBD is driving the current cannabinoid craze, companies like GW Pharmaceuticals are looking beyond CBD to the dozens of other cannabis-derived cannabinoids.

This is a Battle Among the Food and Beverage Industry, the Nutraceutical Industry, and Pharma/BioTech.

GW Pharmaceuticals made it clear that if the FDA allows cannabinoid products to be ingested in food, drinks, or dietary supplements, then pharmaceutical companies have zero incentive to spend millions or billions of dollars on R&D to develop new drug compounds to address diseases. It is highly unlikely that the current CBD market structure will extend beyond CBD to other cannabinoids because the FDA will want to maintain R&D incentives for pharmaceutical and biotech companies.

Big Pharma and BioTech are Much Farther Along than the Food and Beverage Industry and the Nutraceutical Industry.

Based on GW Pharmaceutical’s submitted comments, it is clear that the company has spent decades and many dollars on its research, and it likely knows more about cannabinoids than any other pharmaceutical or cannabis company in the world. In the broader industry, at least 10 cannabinoids are currently under research, and companies are manufacturing synthetic cannabinoids and researching cannabinoids derived from non-cannabis sources. Established food and beverage companies and nutraceutical companies have been slowly wading into the CBD world, but they are lagging behind these pharmaceutical companies.

Dosage/Acceptable Daily Intake Will Vary by the Individual.

The observable negative effects of CBD vary by individual factors such as height and weight, and what dosage is “well-tolerated” is not yet widely understood or implemented in the marketplace. That will change. Israelsen believes that the dosage will look something like this: the number of milligrams of CBD per kilogram of person, with special attention to vulnerable populations (children and pregnant/nursing women) and animals.

Everyone is Starting to Lawyer/Lobbyist Up.

During this interim period where the FDA has not yet issued its final rules, the lawmakers and regulators in Washington D.C. are regularly being contacted by trade groups, trade associations, constituents back home, and lawyers and lobbyists. The current political base is focused on how the cannabis industry is helping disenfranchised rural farmers. These hemp farmers are the ones to hitch your wagon to, especially in states that are not saturated with overcapacity. And if the FDA determines that it does not have enough guidance, it will kick the can back up the road to Congress.

UNPA Wants to Join Forces with Cannabis Businesses and Trade/Interest Groups.

UNPA recognizes that there are many cannabis interest groups and that both existing natural products companies (and trade alliances like UNPA) and new natural products companies (aka cannabis businesses and trade alliances) should collaborate to learn from each other and find commonalities. The natural products companies excel in quality control systems and analytical practices. There may be good opportunities to share expertise, resources, and legal strategies. Israelsen said the nutraceutical industry needs to get to know the cannabis farmers and marijuana-related business groups.

Product Liability Insurance was Not Discussed in the FDA Comments But is Critical.

No one likes to talk about insurance except insurance agents and lawyers. Israelsen stressed the importance of insurance for all companies engaging in the cannabis industry, and it underscores this prior blog post about product liability insurance.


The next several months will provide significant insight into these issues and how they will affect the intersecting paths of companies in the pharmaceutical, biotech, nutraceutical, food and beverage, and cosmetics industries. I believe we will see more strategic alliances, partnerships, and mergers and acquisition activities across industries.

california cannabis bank credit union

Earlier this month, on October 3, the California Department of Business Oversight (the “DBO”) issued a Cannabis Banking Guidance memorandum to its state-chartered financial institutions (banks and credit unions) to help them make appropriate risk assessments in serving cannabis-related businesses and comply with federal guidelines.  The memorandum is in the form of an extensive questionnaire. The DBO’s Commissioner, Manuel P. Alvarez, commented: “If financial institutions choose to serve the cannabis market, they must understand risks and build out their compliance infrastructure accordingly.” “By making this questionnaire available to our licensees, we hope it can serve as an additional resource for banks and credit unions as they roll out their cannabis banking programs.”

With a focus on ensuring banks and credit unions thoroughly examine a Marijuana Related Business, or MRB, the first section of the questionnaire is titled “Program Governance.” Questions in this section include whether there is a comprehensive assessment of the business, and whether a financial institution has a contingency plan in case federal or state guidelines change. This section also focuses on due diligence, as determining where an MRB’s money comes from is critical.

Other sections include recommendations for business file review, account testing/identification of FinCEN red flags, and FinCEN filings.

The questionnaire also pulls from the now-rescinded Cole memorandum in one of its sections. It asks, “Does the financial institution specifically monitor for the eight priorities found in the Cole memo?” which include preventing the distribution of marijuana to minors, preventing revenue from the sale of marijuana from going to criminal enterprises, and preventing the diversion of marijuana from states where it is legal under state law in some form to other states.

California Bankers Association’s Senior Vice President, Beth Mills, said the guidance is helpful to have in written form but that much of it is a reiteration of what the department has said verbally in the past. “It is helpful for banks who are sort of weighing the pros and cons of trying to wade into that.” She added that the California Bankers Association is “still focused on a federal fix,” in the form of a change “that would really, truly make it okay for our members to bank this industry.”

In line with Proposition 64 and actions by other states, the DBO also reaffirmed on the same day that it would not bring regulatory actions against state-chartered financial institutions for solely establishing a banking relationship with licensed cannabis businesses. These financial institutions will still be required to comply with FinCEN’s BSA expectations, including the FinCEN guidance and priorities set forth above, and they were urged to identify, evaluate, and manage risks appropriately. Commissioner Alvarez stated, “We stand ready to assist our licensees to make sure they properly develop their cannabis banking initiatives.” “We will not be an obstacle to banks and credit unions that adhere to federal expectations regarding cannabis-related businesses and responsibly manage their risk.”

usda hemp rules

Today, the U.S. Department of Agriculture (“USDA”) released its interim hemp rules. This is a major step in the full implementation of the 2018 Farm Bill. These rules are not final but they will be effective as soon as they are published in the Federal Register. Stakeholders will have 60 days to submit comments on the interim hemp rules.

Expect to see additional analysis of these rules on this blog in the coming days. For now, we’ve highlighted some of the main points that stuck out to us.

State and Tribal Plans. The 2018 Farm Bill requires states and Indian Tribes to submit hemp cultivation plans to the USDA. The interim hemp rules require that these plans include a practice to collect, maintain and report information on hemp cultivators, the land where hemp is produced, and the status and number of licenses issued. Plans must include a procedure for testing hemp within 15 days of the anticipated harvest. Plans must also ensure that samples are representative of an entire hemp lot and the state or tribal agency charged with testing must have unrestricted access to all land, building, and structures used for the cultivation, handling, and storage of hemp. Hemp producers may not harvest before samples are taken. Hemp that tests above 0.3% THC is deemed a “non-compliant cannabis plant” and a state or Tribal plan must cover the destruction of such material. Non-compliant cannabis plants must also be reported to USDA, along with other information on hemp producers and production generally. States and Tribes must also establish lab standards for testing hemp.

The USDA will review state and Tribal plans within 60 days of receipt. States and Tribes can submit amended plans in the event that the USDA does not approve of the initial submission or if the state or Tribe alters a previously approved plan. The USDA will, from time-to-time, audit state and Tribal plans.

USDA Licensing. If a state or Tribal plan is not approved, would-be hemp producers can grow hemp in that state or Tribal area under a USDA hemp license, so long as “the production of hemp is not otherwise prohibited by the State or Indian Tribe.”

The USDA will issue hemp producer licenses. Applicants can apply 30 days after the rules are published in the Federal Register. After that, the USDA will accept applications between August 1 and October 31 each year. Applicants must submit their contact information and a criminal history report. Remember that a felony conviction, at either the state or federal level, results in a 10-year ban from participating in the legal hemp industry, unless a person was lawfully growing hemp under the 2014 Farm Bill before December 20, 2018.

USDA license will be valid until December 31st three years after the year the licensed was issued. Licenses cannot be sold, assigned, transferred, pledged or otherwise disposed of. An application is required for each location where hemp is grown. USDA licensees must submit tests within 15 days of harvest to the USDA or to a state agency, federal agency, or a person approved by the USDA to accept tests. Non-compliant plant material must be destroyed. USDA licensees will be subject to inspections and must maintain records relating to hemp.

Total THC Testing.  The interim hemp rules also cover THC testing, which was a point of concern in the lead up to theses rules being released. The interim hemp rules state that:

 A State or Tribal plan must include a procedure for testing that is able to accurately identify whether the sample contains a delta-9 tetrahydrocannabinol content concentration level that exceeds the acceptable hemp THC level. The procedure must include a validated testing methodology that uses postdecarboxylation or other similarly reliable methods. The testing methodology must consider the potential conversion of delta-9 tetrahydrocannabinolic acid (THC-A) in hemp into THC and the test result measures total available THC derived from the sum of the THC and THC-A content. Testing methodologies meeting these requirements include, but are not limited to, gas or liquid chromatography with detection. The total THC concentration level shall be determined and reported on a dry weight basis.

This appears to require Total THC testing, which includes THC-A, and as has been implemented in Oregon.  Laboratories who test hemp will also report their “measurement of uncertainty” or “MU.” The USDA provides additional context on this concept:

The definition of “acceptable hemp THC level” explains how to interpret test results with the measurement of uncertainty with an example. The application of the measurement of uncertainty to the reported delta-9 tetrahydrocannabinol content concentration level on a dry weight basis produces a distribution, or range. If 0.3% or less is within the distribution or range, then the sample will be considered to be hemp for the purpose of compliance with the requirements of State, Tribal, or USDA hemp plans. For example, if a laboratory reports a result as 0.35% with a measurement of uncertainty of +/- 0.06, the distribution or range is 0.29% to 0.41%. Because 0.3% is within that distribution or range, the sample, and the lot it represents, is considered hemp for the purpose of compliance with the requirements of State, Tribal, or USDA hemp plans. However, if the measurement of uncertainty for that sample was 0.02%, the distribution or range is 0.33% to 0.37%. Because 0.3% or less is not within that distribution or range, the sample is not considered hemp for the purpose of plan compliance, and the lot it represents will be subject to disposal. Thus the “acceptable hemp THC level” is the application of the measurement of uncertainty to the reported delta-9 tetrahydrocannabinol content concentration level on a dry weight basis producing a distribution or range that includes 0.3% or less. As such, the regulatory definition of “acceptable hemp THC level” describes how State, Tribal, and USDA plans must account for uncertainty in test results in their treatment of cannabis.

Labs that test cannabis for THC levels must be registered with the DEA. The USDA is considering a fee-for-service that would allow labs to seek approval with the USDA for THC-testing.

Interstate Transport. The interim rules prohibit states or Tribes from “prohibiting the transportation or shipment of hemp or hemp products produced under a State or Tribal plan,” a license issued by the USDA, or “under 7 U.S.C. 5940[.]” What is 7 U.S.C. 5940? It’s the codification of the  2014 Farm Bill’s industrial hemp provisions. That means that states (looking at you Idaho) can not seize hemp produced under the 2014 Farm Bill, so long as it’s done in compliance with state law or cultivated by an institution of higher education.

Bottom line. We’ve just begun to scratch the surface. These interim hemp rules also outline hemp violations, the appeal process for hemp licensing, and touch on the interplay with the Controlled Substances Act. More than anything else, the USDA’s release of these rules means that we are finally headed towards full implementation of the 2018 Farm Bill. We expect the USDA to be inundated with state and Tribal hemp plans and applications for USDA hemp production licenses over the next few weeks, and then again early next year after many state legislature reconvene. We’ll keep an eye out for developments and suggest you do the same.

import hemp cbd customs

The passage of the 2018 Farm Bill and the legalization of hemp and hemp-derived products has sparked strong business interest from foreign stakeholders. For the past few months, our firm has received numerous inquiries from existing and prospective clients about the legality of importing the agricultural crop and its derived products, particularly hemp-derived CBD (“Hemp-CBD”), to the United States.

This blog posts briefly addresses the risks and feasibility of engaging in this business at the moment.

IMPORTING HEMP

Although the 2018 Farm Bill legalized the commercialization of hemp and its derivatives, the production of the crop has yet to be regulated by the U.S. Department of Agriculture (“USDA”), which is tasked with adopting rules that will serve as a road map for states and Indian tribes wishing to regulate hemp within their borders.

The USDA had anticipated issuing its rules by the end of summer; however, the agency only recently submitted (on September 13) its proposed rules to the White House Office of Budget and Management (“OBM”), which reviews all regulations adopted and implemented by a presidential administration. Until this process is complete, we are left with little guidance on the production of hemp, including its transportation — note that the USDA rules were released today and will be addressed in another blog post.

Back in April, the agency issued a statement in which it expressly legalized the importation of hemp seeds and set forth ways in which the seeds should be imported from Canada and other foreign countries. Then on October 16, the agency quietly updated its guidelines to allow the importation of both hemp seeds and plants in the United States. According to the USDA’s webpage, hemp plants for planting that originate from Canada and other foreign countries may be imported so long as certain requirements are satisfied. Hemp plants from Canada must be accompanied by “a phytosanitary certificate from Canada’s NPPO to verify the origin of the plant and to confirm no plant pests are detected.” Hemp plants from countries other than Canada must also be accompanied by a phytosanitary certificate as well as an application for a Permit to Import Plants or Plant Products, better known as a  PPQ 587 permit

These new guidelines align with the position taken by some U.S. courts that foreign hemp may be freely shipped to the U.S.  because hemp is now excluded from the Controlled Substances Act (“CSA”)’s definition of marijuana. Yet, in practicality, these court decisions did not eliminate the risk that foreign hemp be seized at the border. This is because hemp is hard to differentiate from marijuana. The crop looks and smells like its psychoactive cousin, which means additional guidelines were desperately needed from the USDA.

Although the agency’s guidelines confirm the importation of hemp plants is lawful, the rules do not mention the need to attach a copy of THC testing results, showing that the plant meets the 0.3% THC limit imposed under federal law. Therefore, it will be interesting to see whether hemp will now freely pass U.S. Customs and Border Protection or if additional regulations, such as testing protocols will be needed.

IMPORTING HEMP-CBD PRODUCTS

In addition to removing the hemp plant from the CSA, the 2018 Farm Bill legalized hemp concentrates and extracts, including Hemp-CBD. Nevertheless, the new law preserved the authority of the Food and Drug Administration (“FDA”) to regulate Hemp-CBD products, including but not limited to foods and dietary supplements. From the moment hemp and its derivatives were legalized, the FDA took the position that the use of Hemp-CBD in foods, dietary supplements and unapproved drugs is unlawful in the United States because CBD was already approved as an active ingredient in a drug used in the treatment of epilepsy (i.e., Epidiolex).

Given the popular demand of Hemp-CBD products, the federal agency has been pressured by lawmakers and stakeholders to reconsider its position on CBD and forge a pathway towards legalizing their sale and marketing in the United States.

Consequently, until the agency adopts new rules and regulations, the sale of these products will remain unlawful in the United States, even if manufactured and imported from overseas — although the FDA seems on board with the sale and marketing of Hemp-CBD topicals.

For more information on this issue, contact our team of regulatory attorneys.

california cannabis legislation

Seems like not a month goes by in California where the Assembly isn’t trying to pass a slew of cannabis bills to help regulate the state’s industry under the Medicinal and Adult-Use Cannabis Regulation and Safety Act (“MAUCRSA”). And October was no different. As of October 13, 2019, California has some new cannabis laws on the books (thanks to the Governor). This post is dedicated to the highlights of some of those new laws and how they’ll affect cannabis businesses.

State tax deductions. 

There’s no real gold standard for state cannabis taxation. And at the federal level, cannabis businesses suffer constantly under the heavy weight of I.R.C. 280E. However, AB 37 will provide at least some tax relief to California cannabis businesses (from 2020-2024). AB 37 is a departure from California’s otherwise standard mandate that income taxation be treated the same as on the federal level, which, for cannabis businesses, formerly meant no state deductions for business expenses related to trafficking in cannabis because of I.R.C. 280E. Now though, California cannabis business owners licensed under MAUCRSA will be able to lawfully take ordinary personal, business deductions under California law.

Charitable donations. 

SB 34 creates better breaks for low-income medical patients that have a physician’s recommendation but that may not have an ID card from the Department of Public Health pursuant to the 2004 Medical Marijuana Program Act. Via tax-free “compassionate care donations” by licensed retailers and/or retailer microbusinesses, before providing any medical cannabis to any qualified patient or their caregiver, those licensees have to ensure that all of the following criteria are met: only qualified patients or caregivers may have access to free medical cannabis, the retail licensee has to verify that the patient has a valid physician’s recommendation and that the physician is in good standing, keep a copy of the patient’s driver’s license or government issued ID,  and ensure that the donated cannabis complies with MAUCRSA in all capacities. In addition, a retailer “may contract with an individual or organization to coordinate the provision of free medicinal cannabis or medicinal cannabis products on the retailer’s premises. Licensed retailers that are solely authorized to engage in retail sales by means of delivery may provide free medicinal cannabis or medicinal cannabis products by means of delivery.

Testing. 

AB 404 represents a much needed, practical change to current cannabis testing laws. If a cannabis batch sample failed testing, a cannabis company only had two choices: remediate (which can only be done under certain circumstances) or destroy the batch. Now, with the passage of AB 404, a testing laboratory is authorized to amend a certificate of analysis “to correct minor errors, as defined by the Bureau of Cannabis Control. ” In addition, labs can now retest a failed batch sample “if the test result falls outside the specifications authorized by law or regulation, when the testing laboratory notifies the bureau, in writing, that the test was compromised due to equipment malfunction, staff error, or other circumstances allowed by the bureau and the bureau authorizes the retest.” Undoubtedly, the Bureau of Cannabis Control (BCC) may have some tough rulemaking ahead of it to meet the mandates of AB 404 where cannabis companies and testing labs constantly battle about the use of “dirty” equipment in testing, but AB 404 is a step in the right direction for better protection of the bottom line for cannabis businesses.

Social equity support.

California has made great strides in supporting local social equity programs–the California Cannabis Equity Act of 2018,authorizes the Bureau of Cannabis Control, upon request by a local jurisdiction, to provide technical assistance to a local equity program that helps local equity applicants or local equity licensees. With the passage of  SB 595, “on or before January 1, 2021, [the state licensing agencies will have] to develop and implement a program to provide a deferral or waiver for an application fee, a licensing fee, or a renewal fee for a needs-based applicant or needs-based licensee.” At least 60% of the total dollar amount of deferrals of fees pursuant to this new program will be allocated to the deferral of fees for local equity applicants and licensees, and SB 595 also requires at least 60% of the total dollar amount of waivers of fees to be allocated to the waiver of fees for local equity applicants and licensees. This is important where, previously, the only “technical assistance” help social equity applicants received with licensing was at the local level, and not at the state licensing level, which are two very different processes.

Research.

AB 420 expands existing University of California research mandates with the authorization of the California Cannabis Research Program, hosted by the existing Center for Medicinal Cannabis Research at UC San Diego. “The program shall develop and conduct studies intended to ascertain the general medical safety and efficacy of cannabis and, if found valuable, shall develop medical guidelines for the appropriate administration and use of cannabis. The studies may examine the effect of cannabis on motor skills, the health and safety effects of cannabis, cannabinoids, and other related constituents, and other behavioral and health outcomes.” Where the Center has had issues with acquiring enough cannabis for its research purposes (because of stringent federal research laws and prohibitions around cannabis), AB 420 allows the Center, via the Program, “to cultivate cannabis for its use in research, pursuant to applicable federal and state laws and regulations.”

Vape Cartridges and Pens.

AB 1259 takes effect immediately, and it will change up the packaging/labeling requirements for vape cartridges and pen makers by making life a little bit easier. Specifically, a cannabis cartridge or a integrated cannabis vaporizer that contains cannabis or a cannabis product “shall bear the universal symbol . . . [t]he universal symbol shall be visible on the cannabis cartridge or integrated cannabis vaporizer and shall not be smaller than one-quarter inch wide by one-quarter inch high. The universal symbol shall be engraved, affixed with a sticker, or printed in black or white.” The universal symbol was already required to go onto pens and carts, but it was too big under law to feasibly be engraved on that hardware. In turn, the state, thankfully, decreased the size of the symbol via AB 1259 so that compliance with labeling will be easier for manufacturers. What we don’t know though is if the California Department of Public Health will create any kind of grace period for the sale of now non-compliant vapes and carts.

Hemp.

In case you missed it, our hemp laws also got a tiny facelift. While Governor Newsom ushered in some much needed technical-fix legislation of MAUCRSA this October, he didn’t support every single cannabis initiative. For instance, the cannabis tourism industry lost out with Newsom’s signing of AB 1810, which preserves the current prohibition on cannabis consumption in party busses and limousines. Newsom also vetoed SB 305, which would have allowed terminally ill patients to consume medical cannabis on-site at their care facilities due to “federal conflicts”.


In the wake of the foregoing legislation, we may see the BCC and other state agencies take to rulemaking to accomplish the intent of these new statutes. So be sure to stay tuned as we approach 2020!