United States: Changes In Federal Regulation Of CBD And Other Hemp Products Will Create New Opportunities For Investment, But Regulatory Challenges Remain

On December 20, 2018, President Trump signed the Agriculture Improvement Act of 2018 (P.L. 115-332), commonly referred to as the "2018 Farm Bill," into law. One of the most notable changes to current law in the $867 billion bill is the creation of a regulatory framework for the federal legalization of the production of cannabis sativa (hemp), including the "de-scheduling" of certain hemp derivatives under the federal Controlled Substances Act ("CSA").

Hemp legalization enjoyed bipartisan support and has been touted by many as having the potential for creating new opportunities for investment—not only in hemp cultivation, but also in the manufacturing and distributing of hemp-derived products, including cannabidiol ("CBD"). CBD, in particular, has received press attention for its potential health benefits, and it is beginning to be offered in consumer products ranging from food products to cosmetics. CBD is also the active ingredient in Epidolex, which was recently approved by the Food & Drug Administration ("FDA") for the treatment of severe forms of epilepsy.

Despite these headlines, legalization of hemp cultivation and the production of products from hemp derivatives, including CBD, will be far from immediate. Notably, many federal, state and local regulatory barriers remain and require careful navigation by investors and stakeholders looking to enter, or expand their current activities in, this growing space. This Alert describes the relevant provisions of the 2018 Farm Bill and then highlights some of these legal and regulatory areas that stakeholders will need to consider.

History of Hemp Regulation and Context for the 2018 Farm Bill

Prior to enactment of the 2018 Farm Bill, all cannabis sativa plants and cannabis products, including products containing CBD, were regulated by the federal Drug Enforcement Agency ("DEA"). The basis for this historical jurisdiction is that hemp plants and cannabis extracts, including CBD, were expressly included in the definition of "marihuana" under the CSA as a "Schedule I" Controlled Substance (i.e., no currently accepted medical use and a high potential for abuse). However, there has been movement toward legalization of hemp and hemp derivative products over the past five years.

Impact of the 2018 Farm Bill

The 2018 Farm Bill carves out hemp and hemp derivatives (including CBD) that have a delta-9 tetrahydrocannabinol ("THC") concentration of 0.3% or less from the definition of marijuana under the CSA, shifting primary regulation of CBD and other qualifying hemp derivatives from the DEA to the Secretary of the U.S. Department of Agriculture ("USDA"). THC is the psychotropic component of these plants, whereas CBD has no reported psychotropic impact. However, any cannabis plant or product with a THC content of higher than 0.3% would remain under the definition of marijuana in the CSA, making its manufacture, possession or distribution illegal and subject to potential enforcement by the DEA and the U.S. Department of Justice at the federal level.

Under the 2018 Farm Bill, states that desire to be primarily responsible for the regulation of industrial hemp production must submit a plan to the USDA that lays out the procedures for oversight of such production within the state or territory for approval. Hemp producers in states that do not have an approved plan must satisfy requirements under a federal plan set forth by the USDA. Both state and federal plans must, among other requirements, set forth a procedure for licensure of hemp producers and a procedure for testing THC concentration levels of the hemp produced. As such, the industrial production of hemp will still be subject to federal regulation, but its elimination from coverage under the CSA addresses barriers that prevented interstate commerce, including distribution across state lines and banking activities associated with controlled substances.

The 2018 Farm Bill does not specify a time frame for the state and federal licensure programs to be established; and it could take some time before there are licensed producers from which the hemp products necessary to manufacture CBD may be obtained. Significantly, anyone who engages in the industrial production of hemp—including both companies that grow and companies that distribute hemp or hemp-derived products—without a proper state or federal license will be subject to penalties, and multiple violations will constitute a felony. Additionally, the 2018 Farm Bill does not preempt state and local laws and regulations—including the need to obtain state licenses—that govern the distribution, packaging and sale of hemp and hemp derivatives, such as CBD, nor does it preempt federal laws that govern importing CBD from foreign jurisdictions.

Continued FDA Regulation of Hemp and CBD

The 2018 Farm Bill expressly does not affect FDA's jurisdiction and authority over products that contain CBD or hemp as an ingredient in other products. The regulatory issues for CBD and hemp products from an FDA perspective turn on how the products are classified by FDA based on the intended uses of the products and their ingredients. In an announcement after enactment of the 2018 Farm Bill, FDA Commissioner Gottlieb reiterated that FDA treats products containing cannabis or cannabis-derived compounds the same as it does any other FDA-regulated products, and indicated that FDA will continue to take enforcement action against companies illegally selling cannabis and cannabis derived products. FDA has in the past sent warning letters to firms marketing products containing CBD. For example, a Colorado company was warned for marketing "CBD All-Natural Hemp Oil" as effective in treating everything from cancer and diabetes to high blood pressure and Alzheimer's disease. In its warning letter, FDA stated that the company was improperly marketing its CBD products as a dietary supplement, and was making claims that its products could be used in the diagnosis, cure, mitigation, treatment, or prevention of disease.

In his recent announcement, Commissioner Gottlieb expressed continued concern over the number of drug claims being made for unapproved products containing CBD or other cannabis-derived compounds. He emphasized that selling unapproved products with unsubstantiated therapeutic claims both violates the law and potentially puts patients at risk. Commissioner Gottlieb also asserted that it continues to be unlawful to market foods containing added CBD or THC or dietary supplements containing CBD or THC, regardless of whether the substances are hemp-derived and regardless of the claims being made. FDA takes this position based on the operation of statutory "exclusionary clauses" in the Food, Drug and Cosmetic Act related to food additives and dietary supplements. Specifically, FDA has determined that both CBD and THC, which are now active ingredients in FDA-approved drugs, were the subject of substantial clinical investigations before they were marketed as foods or dietary supplements, and due to the operation of the exclusionary clauses, FDA concludes that it is currently illegal to introduce CBD or THC into the food supply or to market these ingredients as dietary supplements.

Commissioner Gottlieb acknowledged that FDA is considering whether to use its authority to issue regulations that would permit the marketing of CBD in foods or as dietary supplements. FDA plans to hold a public meeting in the near future to solicit feedback regarding pathways for marketing products containing cannabis or cannabis-derived compounds. Not all products derived from hemp plants may raise the same regulatory issues as CBD or THC. In conjunction with Commissioner Gottlieb's announcement, FDA announced the completion of its evaluation of three "Generally Recognized as Safe" notices for certain hemp seed-derived products that are distinct from CBD and THC—hulled hemp seeds, hemp seed protein, and hemp seed oil—which means that these three ingredients may now be legally marketed as food additives.

Other Regulatory Considerations

When considering investment in CBD or hemp businesses, additional regulatory considerations that should be taken into account include the Federal Trade Commission's regulation of unfair and deceptive product labeling and marketing, as well as state law regulation of food safety. Additionally, as noted above, the manufacturing, distribution and sale of hemp and CBD products will be subject to state licensure and the associated requirements on the distribution and/or retail sale of cannabis-related products. States have the authority to regulate matters related to the health and safety of its own citizens, such that the 2018 Farm Bill and regulation by the USDA will not necessarily preempt state or local laws regulating the manufacture and distribution of cannabis-related products that are not directly in conflict with federal law.

* * *

While legalization of hemp and hemp derivatives under the 2018 Farm Bill is a significant step in expanding CBD business opportunities, significant federal, state and local regulatory risks and uncertainties remain, both in terms of how these products are being regulated and in terms of how these products (in their various forms) can be marketed. Accordingly, investors and companies considering venturing into the hemp or CBD space should not treat the 2018 Farm Bill as blanket authorization to proceed. Rather, these investors and companies should understand and address other regulatory barriers that have not been impacted by passage of the 2018 Farm Bill.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions