Oregon Hemp: Free Webinar October 3!

It can be difficult forecasting your business’ future in the rapidly evolving hemp industry. From the signing of 2018’s Farm Bill legalizing industrial hemp at the federal level, to the rise of CBD as a purported wündercure, hemp has rapidly become the hottest commodity around. But between the big headlines, hemp industry players have grappled with unclear legal frameworks and a spate of million-dollar lawsuits.

Oregon has been a champion of the hemp industry since first legalizing industrial hemp at the state level back in 2015. The state continues to roll out new regulations and refine its regime. In a very impressive public-private commitment, Oregon State University announced it would be launching the United States’ largest hemp research facility this June.

So how do you keep up with the changes and protect your business? How do new entrepreneurs catch a ride on the relentless hemp-CBD train without getting steamrolled? Stakeholders in the industry at every level should save the date for Thursday, October 3rdand join Harris Bricken for a free, one-hour webinar about leveraging Oregon hemp for local and national success.

Portland-based corporate lawyers Vince Sliwoski and Nathalie Bougenies will be joined by litigation colleagues Jesse Mondry and Jihee Ahn to present this webinar just in time for harvest season. These lawyers represent a wide array of hemp businesses, from local family farms to national retail conglomerates. The format of their upcoming webinar covers:

  1. The legal framework of Oregon hemp, including CBD, and anticipated changes;
  2. The federal laws that continue to inform and affect Oregon hemp, CBD and related products;
  3. The rise of industry lawsuits, and the issues at play; and
  4. Your questions, which will be welcome throughout the webinar.

Register Here to join us on Thursday, October 3rd at 12:30 p.m. Pacific.

And if you cannot attend, feel free to register and submit questions prior to the event. Our Oregon hemp team will do all our best to field all of them, and we will post a recording afterward.

We hope to see you October 3!

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Cannabis Smoke: The Good, the Bad and the Ugly

The last few days we’ve seen a flurry of activity related to smokable cannabis products. It’s been tough to keep track of everything that’s gone on, so today I’m going to take a page out of legendary Italian director Sergio Leone‘s book and break down the Good, the Bad, and the Ugly in all things related to cannabis smoke.

The Good. On September 13, 2019, the U.S. District Court for the Southern District of Indiana struck down Indiana’s ban on “smokable hemp” deeming it unconstitutional (shout out to Kristen Nichols, editor of Hemp Industry Daily, for covering this case and for linking to the court’s Order at the top of her story).

Why is this decision good? Preemption! When a state law conflicts with federal law, federal law wins due to the Supremacy Clause of the Constitution. With that in mind let’s take a look at the match-up between Indiana’s smokable hemp ban and the 2018 Farm Bill.

The 2018 Farm Bill removed hemp from the Controlled Substances Act (“CSA”) and defined “hemp” as the Cannabis sativa L. plant with 0.3% or less THC “and any part of that plant, including . . . all derivatives, extracts, [and] cannabinoids . . . whether growing or not[.]” The 2018 Farm Bill did specifically did not preempt states or Indian tribes from passing laws regulating the production of hemp more stringently than federal law. However, the 2018 Farm Bill did explicitly preempt states and Indian tribes from passing laws that “prohibit the transportation or shipment of hemp or hemp products produced in accordance with” the 2018 Farm Bill.

In response to the 2018 Farm Bill, Indiana passed SEA 516 to legalize the commercial production of hemp in Indiana while also criminalizing the manufacture, finance, delivery, and possession of “smokable hemp,” i.e., hemp derivatives that can be introduced to the human body through inhalation. Notably, the ban on smokable hemp did not reference the “production” of hemp. This lead to the Midwest Hemp Council and several other hemp stakeholders to sue Indiana for violating federal law and to enjoin the state from enforcing portions of SEA 516 pending the lawsuit.

To recap, federal law says that states can’t interfere with the right to transport hemp products in interstate commerce. Indiana law says that it’s illegal to manufacture, finance, possess, and deliver certain smokable hemp products and does not limit that prohibition to intrastate activities. The court ruled that the Plaintiffs had a high likelihood of success on challenging SEA 516 as being preempted by the 2018 Farm Bill and granted the injunction.

It’s also worth noting that the court considered Indiana’s legitimate claim that the passage of the 2018 Farm Bill made it difficult for law enforcement to differentiate between hemp and marijuana, especially smokable hemp. However, the court was not convinced that these challenges were enough to justify an outright ban on smokable hemp especially when other options were available (e.g., earmarking funds to purchase THC testing equipment; increasing penalties for knowingly selling marijuana packaged as hemp).

This court order won’t immediately impact states outside of Indiana but does show the impact of the 2018 Farm Bill on all hemp products, including smokable hemp.

The Bad. Donald Trump found out about vaping and announced that his administration would ban flavored vaping products. The Food and Drug Administration (“FDA”) issued a News Release shortly after Trump’s announcement stating that:

the FDA intends to finalize a compliance policy in the coming weeks that would prioritize the agency’s enforcement of the premarket authorization requirements for non-tobacco-flavored e-cigarettes, including mint and menthol, clearing the market of unauthorized, non-tobacco-flavored e-cigarette products.

As this is the Canna Law Blog, you may be wondering how this ban will impact cannabis, including both marijuana and hemp-derived vapor products. We’ll certainly get more insight once the FDA announces its compliance plan referenced above, along with promised guidance on how the FDA will regulate Hemp-CBD generally.

However, even though we don’t have the full picture, we already know this ban is bad policy, and likely to lead to an increase in unregulated and illegal vapor products. To understand this, I want to break down the vapor market into five major categories:

  1. Legal vapor products containing nicotine or tobacco;
  2. Illegal vapor products containing nicotine or tobacco;
  3. Largely unregulated hemp-derived CBD vapor products;
  4. State-legal marijuana-derived vapor products; and
  5. Illegal vapor products containing marijuana.

Trump’s ban will have the biggest impact on lawful manufacturers of tobacco products in category one, who can no longer sell flavored vapor products. For years, the FDA has been focused on moving tobacco product manufacturers from category two to category one. The FDA even provides resources specifically designed to allow small businesses to comply FDA regulations in manufacturing tobacco products, which have changed a lot in the last few years.

In 2009, the Tobacco Control Act (“TCA”) granted the FDA regulatory authority over any “tobacco product,” that is, a “product made or derived from tobacco that is intended for human consumption, including any component, part, or accessory of a tobacco product.” In 2016, the FDA expanded its regulatory authority to include as e-cigarettes, cigars, pipes and waterpipes. Trump’s ban isn’t going to make it easier for the FDA to get illicit manufacturers to “buy in.”

Trump’s ban is also likely to cast a shadow on categories three and four: manufacturers of Hemp-CBD and state-legal marijuana vapor products. The FDA’s website (here and here) seems to suggest that the agency currently does not interpret “tobacco products” so broadly as to include products free of nicotine or tobacco. Accordingly, it’s plausible that the FDA will not enforce Trump’s ban to explicitly ban Hemp-CBD and marijuana vapor products that are nicotine or tobacco-free.

Despite these jurisdictional issues that may limit the FDA’s enforcement ability, Trump’s ban places a target on all flavored vape products. This could mean seizures of cannabis-based vapor products in states where they are legal. It could also cause state regulators to ban certain marijuana and hemp vapor products.

In reality, the only products that won’t be impacted are likely marijuana and tobacco vapor products that are currently being manufactured illegally under federal and state law.

The Ugly. People are getting sick and dying as a result of vape-related illnesses and it’s likely going to get worse before it gets better because no one really know what’s going on. Let’s assume for a second that I’m totally wrong about Trump’s ban and it effectively kills the flavored vape market. If that happens do we really think vaping will be safe? Probably not because it doesn’t seem like flavoring is what’s causing illness and death.

What about vitamin E acetate? On September 6, a few days before Trump’s ban was announced, the Washington Post reported that FDA investigators found vitamin E acetate present in samples of cannabis oil linked to vaping illnesses across the country. Vitamin E acetate is an oil derived from vitamin E that naturally occurs in certain foods like almonds and olive oil. It’s found in topical products and dietary supplements. However, it’s very dangerous when inhaled. This is a chilling reminder that otherwise harmless articles can be dangerous when inhaled.

To further complicate things, vitamin E acetate may not even be the biggest problem. In a warning about THC vaping products the FDA wrote:

No one substance has been identified in all of the samples tested. Importantly, identifying any compounds that are present in the samples will be one piece of the puzzle but will not necessarily answer questions about what is causing these illnesses.

Scientific American also reports that though these vaping illnesses are popping up across the country, the symptoms vary wildly from person to person. This is an ugly, and frankly scary situation with more questions than answers.

We’ll continue to monitor smokable hemp, Trump’s ban, and these troubling vape-related illnesses and report the good, the bad, and the ugly.

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Litigation Update: Who Decides Whether You Can Ship Hemp Through Idaho?

Regular readers know that we are in the midst of presenting a 50-state series analyzing how each state treats hemp-derived cannabidiol (“Hemp CBD”). Recently we covered Idaho, which we neatly summarized as “probably the worst state in the country to get caught with hemp.” The article explains why this is so in detail. Among the reasons is that last winter the Idaho State Police seized a shipment of 13,000 pounds of hemp which was being transported across Idaho from Oregon to Colorado. (See here.) The case has received considerable attention from the press and the hemp industry. Indeed, the American Trade Association of Cannabis and Hemp filed amicus briefs in both the federal district court and the Ninth Circuit in support of the owner of the hemp.

The Ninth Circuit sends hemp owner to Idaho state court on the basis of the Younger abstention doctrine.

The seizure led to a federal lawsuit by the owner of the seized load. Big Sky Scientific, LLC v. Jan M. Bennetts, No. 1:19-cv-00040-REB (D. Idaho). Big Sky sought a declaration that (i) the cargo is industrial hemp under provisions of the 2018 Farm Bill, (ii) hemp is not a controlled substance under federal law, and (iii) Idaho cannot interfere with the interstate transportation of hemp.

Big Sky also quickly moved for a preliminary injunction asking the federal court to compel the Idaho State Police (“ISP”) to return the hemp. Big Sky contended the cargo was deteriorating and losing its value as it sat in ISP’s possession. Meanwhile, ISP filed a state-court complaint in rem for forfeiture of the hemp under Idaho state law.

In considering the motion, the federal district court directed the parties to address “whether the Court has jurisdictional authority to compel the relinquishment of property seized in connection with a state criminal case.” ISP drew upon the Younger abstention doctrine to argue the federal court lacked jurisdiction and ought to abstain from exercising jurisdiction over Big Sky’s request for equitable relief.

The federal court denied the motion for a preliminary injunction and ruled that it need not decide the abstention question. Big Sky appealed the denial to the Ninth Circuit, wherein ISP argued the district court abused its discretion by not abstaining pursuant to Younger.

In a short, unpublished opinion issued on September 4, 2019, the Ninth Circuit agreed with ISP and reversed the district court’s decision not to apply Younger abstention. The decision was based, in part, on ISP’s representation at oral argument that (i) Idaho will immediately move to lift the stay in the in rem forfeiture action, and (ii) the assumption that the Idaho state court would proceed expeditiously with the in rem action, including Big Sky’s challenge to Idaho’s interpretation of the 2018 Farm Bill.

In plain terms: the Ninth Circuit ruled that the federal district court should refrain from exercising jurisdiction over Big Sky’s case because doing so may interfere with the ongoing proceedings in Idaho state court. (Feel free to email me for a copy of the opinion.)

What is Younger abstention?

The Younger abstention doctrine is named after the Supreme Court’s 1971 decision in Younger v. Harris which held that federal courts may not enjoin state court criminal proceedings. At heart the Younger abstention doctrine arises from our system of federalism and its separation of powers. States are independent sovereigns (as are Indian tribes in many respects) and most abstention doctrines proceed from this understanding. Since 1971, federal courts have applied the principles of Younger to proceedings far beyond the criminal context. Generally speaking, the doctrine operates to prevent federal courts from enjoining pending state court proceedings.

The doctrine is controversial in several respects for reasons we won’t get into here. (See Federal Jurisdiction by Erwin Chemerinsky for a thorough analysis). Other abstention doctrines include Colorado River abstention – which is concerned with avoiding duplicative litigation; the Rooker-Feldman doctrine – which concerns federal court review of state court decisions; Pullman abstention – which concerns refraining from deciding questions based on unclear state law; and Burford abstention – which concerns deferring review of complex state administrative procedures.

For now, I’ll briefly explain the elements of Younger abstention and turn to the implications of the Ninth Circuit’s decision. As the Court explained, “Younger abstention is appropriate when (1) there is an ongoing state judicial proceeding; (2) the proceeding implicates important state interests; (3) there is an adequate opportunity in the state proceedings to raise constitutional challenges; and (4) the requested relief seeks to enjoin or has the practical effect of enjoining the ongoing state judicial proceeding.”

In Big Sky, the Ninth Circuit found these elements met because of the pending in rem forfeiture proceeding in Idaho state court in which Big Sky may raise its federal claims. Although the state courts had stayed that action, ISP’s promise to move to lift that stay, and the “assumption” the state court would proceed to resolve that action expeditiously and permit Big Sky to raise its constitutional challenges led the Ninth Circuit to conclude Younger abstention was appropriate.

What are the implications of the Ninth Circuit’s ruling in Big Sky for shipping Hemp-CBD across state lines?

The Ninth Circuit’s decision has several immediate consequences relevant to anyone operating in the Hemp-CBD marketplace:

1) Big Sky (and others) who have Hemp-CBD shipments seized in Idaho may ending up winding their way through state court and the state court appellate process (this is less than ideal);

2) Other states that take a dim view of hemp (we are looking at you, South Dakota) may see this as a template for seizing Hemp-CBD shipments and keeping related proceedings out of federal court (though South Dakota is in the Eighth Circuit so not bound to follow the Ninth);

3) Trucking and shipping companies may decline to offer Hemp-CBD shipping services because of the potential of seizure;

4) The risk and costs of shipping Hemp-CBD ought to be addressed in your contracts – as we have said before – and you should consider spelling shipping routes to lessen the risk of seizure;

5) Ensure that your Hemp-CBD shipments and shippers have the proper manifests and other chain-of-custody documents; and

6) Finally, if one of your Hemp-CBD shipments is seized by law enforcement, act quickly with your litigation attorneys to commence a federal court action and be prepared to make sophisticated jurisdictional arguments.

For now, it may be best to stay away from Idaho.

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Hemp-CBD Across State Lines: Indiana

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 turn to Indiana.

The Office of Indiana State Chemist (“OISC”) regulates hemp cultivation activities. Currently, the OISC is allowing applications for hemp researchers but expects to allow commercial cultivation applications in 2020 (absent a change in applicable laws or regulations) in light of the 2018 Farm Bill’s allowance of hemp production programs and a series of laws and regulations in Indiana. Pursuant to these OISC FAQs, the final rules for the 2020 application process are still being worked out, and the state hopes that the first round of commercial hemp crops will be planted next year. The FAQs also state that hemp seeds can be imported from other states and that the license types that will eventually be issued will be for Growers, Handlers, and Researchers.

Perhaps surprisingly, Indiana has some of the most robust Hemp CBD requirements of any U.S. state. Indiana’s legislature passed SB-52, allowing the sales of FDA-approved Hemp CBD products, or “low THC hemp extract” that complies with Indiana law effective in 2018. These requirements are broad and require independent lab testing with a passing certificate of analysis, and require products to have comprehensive labels with scannable QR codes linking to even more comprehensive information.

SB-52 doesn’t list each and every kind of Hemp CBD product that may be sold, but subsequent legislation has clarified the state’s position on certain products. Earlier this year, the state passed SB-516, which among other things, makes clear that smokable hemp isn’t a permitted product in Indiana. “Smokable hemp” is defined broadly and arguably includes both flower products and vape products.

Stay tuned to the Canna Law Blog for developments on hemp and Hemp CBD in Indiana. For previous coverage in this series, check out the links below.

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Will California Get a Hemp Social Equity Program?

As states across the country develop regulated cannabis programs, more and more are incorporating social equity programs. Illinois’ new adult-use cannabis law, for example, made waves for its broad social equity program. Here in California, cannabis social equity is not a central part of the state-level regulations, but many of the larger cities throughout the state have adopted and are in the process of implementing comprehensive social equity programs: for example, Los Angeles, San Francisco, and Long Beach. Others will probably follow in the future.

But the same isn’t really true for California hemp or hemp-derived cannabidiol (“Hemp CBD”). California hasn’t really made any progress on adopting hemp social equity programs, probably because of the murky legality of hemp to start. Most Hemp CBD products are “illegal” according to the California Department of Public Health, and . AB-228—the bill that may change that, if it ever moves forward—won’t really do anything to create any kind of social equity benefits for Hemp CBD manufacturers or sellers. California’s existing hemp cultivation law—the California Industrial Hemp Farming Act (or “CIHFA”, which I’ve written about here)—is half a decade old and essentially is limited to regulating very limited aspects of cultivation.

The CIHFA is not really geared towards the easy creation of a social equity program for hemp farmers. It doesn’t necessarily require city or county permitting, but instead requires that commercial cultivators file simple registration forms with county agricultural commissioners and pay a pretty nominal fee. This is in contrast to the state’s cannabis law—the Medicinal and Adult Use Cannabis Regulation and Safety Act and its corresponding regulations (or “MAUCRSA”)—which requires local approval and thus creates the opportunity for cities to fill the gap with their own individualized social equity programs. Because there’s currently not an equivalent licensing program for hemp, and because the state laws on point don’t address social equity, we just aren’t seeing that happen.

Moreover, a possible amendment to the CIHFA (SB-153) will actually hurt the chances of the state getting a social equity program that looks anything like cannabis social equity programs. One of the current provisions of SB-153 states:

Any person convicted of a felony relating to a controlled substance under state or federal law before, on, or after January 1, 2020, shall be ineligible, during the 10-year period following the date of the conviction, to participate in the industrial hemp program.

This provision is a bit vague and we don’t yet know how it will be implemented—for example, what the state means by “participation” is not yet clear so we don’t know if that would bar someone from being an owner of a hemp farm, or even being employed by one. It is also similar to exclusionary language found in the federal 2018 Farm Bill, which bars “any person convicted of a felony relating to a controlled substance under State or Federal law.”

We wrote about the discriminatory impact of that language here. Under the similar SB-153 language, if someone had a controlled substances conviction—likely even a cannabis conviction anywhere in the U.S.—within 10 years of attempting to participate in the industrial hemp program, they would be ineligible. This is anathema to social equity programs which in many cases will give assistance to persons were convicted for possession of controlled substances (i.e., Los Angeles’ program). The upshot is that if a locality were to adopt a social equity program, it may not be able to use prior convictions as a basis for eligibility and would have to design it a lot differently.

At the end of the day, it’s too early to tell whether the state will bring social equity to hemp. We’ll report back on any updates to this, so stay tuned to the Canna Law Blog.

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Hemp-CBD Across State Lines: Illinois

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 will summarize a new state in alphabetical order. So far, we’ve covered Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii and Idaho. Today we turn to Illinois.

Overview. Since 2016, Illinois has limited the cultivation of industrial hemp by the Illinois Department of Agriculture (“IDA”) and institutions of higher learning for research purposes only. However, on August 26, 2018, Governor Bruce Rauner signed SB 2298, which expanded the state’s industrial hemp regulations to cover commercial activity. SB 2298 updated Illinois’ industrial hemp laws to allow individuals and entities to cultivate hemp by registering with the IDA and removed industrial hemp from the definition of cannabis.

Earlier this year, the IDA adopted temporary rules under SB 2298. Under the rules, “Industrial Hemp” means

the plant Cannabis sativa L. and any part of that plant, whether growing or not, with a delta- tetrahydorcannabinol (THC) concentration of not more than 0.3% on a dry weight basis that has been cultivated under a license issued under the Act or is otherwise lawfully present in this State and includes any intermediate or finished product made or derived from industrial hemp.

Production of Hemp and Hemp-CBD Products. Pursuant to Illinois law, only licensed growers and processors may sell or transfer living hemp plants or viable hemp seeds to (1) other IDA licensees, or (2) others outside of Illinois so long as the sale is authorized by a state agency in the destination state.

The IDA also permits the sale and transfer of “stripped stalks, fiber, dried roots, nonviable seeds, seed oils, floral and plant extracts (excluding THC in excess of 0.3%) and other marketable hemp products to members of the general public, both within and outside the State of Illinois.” Note that neither the bill nor the IDA rules define “marketable hemp products.”

However, Section 25 of SB 2298 provides the following provision:

Nothing in this Act shall be construed to authorize any person to violate federal rules, regulations, or laws. If any part of this Act conflicts with a provision of the federal laws regarding industrial hemp, the federal provisions shall control to the extent of the conflict.

Accordingly, because there is no permissive language that allows for Hemp-CBD products and because of Section 25, the sale of these products is illegal at worst, and unregulated at best.

In addition, only registered processors can process Hemp-CBD grown under the program. However, nothing in SB 2298 nor the IDA rules expressly prohibit the introduction of hemp products lawfully processed under another state plan.

Possession. Pursuant to SB 2298, “[n]othing in this Act shall alter the legality of hemp or hemp products that are presently legal to possess or own.” Consequently, the possession of Hemp-CBD products seems limited to those approved by the FDA or that meet the standards set by IDA rules (i.e., containing no more than 0.3% THC and that satisfy other requirements).

Transportation. Only a licensed grower or registered processors may transport hemp so long as the hemp contains no more than 0.3% THC. Note that the IDA rules state that the transportation of Hemp-CBD products is not restricted after sold to a member of the public.

Marketing or Advertising Restrictions. As of the date of this post, the state has not enacted regulations governing the marketing or advertising of Hemp-CBD products.

Bottom Line. Although the production and sale of Hemp-CBD products isn’t clearly authorized or restricted, Illinois is authorizing the cultivation of the crop and has not taken any enforcement actions against these products. For these reasons, Illinois should be considered a hemp friendly state. That being said, there is a possibility that things may change upon the adoption of final rules by IDA.

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Navigating the Use of CBD Oil as a Food Claim, September 10 and 11: Harris Bricken Presents!

This Wednesday, September 11, our own Vince Sliwoski will present at a marquee food industry event in Chicago. The topic will be “Navigating the Use of CBD Oil as a Food Claim.” This stand-alone presentation will occur alongside presentations from regulatory counsel at Whole Food Markets, Sargento Foods, Nestle USA, Non GMO Project and the USDA, to name a few. A handful of our law firm’s national retail and distribution clients will also be making the trip. For the conference landing page, including registration and agenda, go here.

Over the past year or two, we have seen a tremendous uptick in the manufacture, distribution and sale of hemp-CBD products. This trend continues to accelerate despite FDA’s clear position that these products are unlawful under the Food, Drug and Cosmetics Act (“FD&C Act”). And, while the FDA has not been very active in enforcing this position, it recently dispatched another highly-publicized warning letter regarding hemp-CBD products on offer at CVS, one of the nation’s largest retailers.

As we have covered extensively on this blog, the manufacture and distribution of hemp-CBD products under the 2014 and 2018 Farm Bills is a challenging area of law, and incredibly dynamic. The FDA is currently considering whether there is any path forward for these products under its reading of the FD&C Act, while USDA simultaneously writes rules that will affect the industry. The approaches taken by states and even local jurisdictions have been all over the board.

Despite all of the uncertainty and hassle, though, businesses and consumers are moving ahead. Today, you can buy CBD food products (and beverages, topicals, supplements, and pet products) at physical and online retailers throughout the United States. We don’t see that ending anytime soon.

We are honored and excited to have been asked to speak at this leading industry event on the issue of food claims and CBD, and we will continue to serve as thought leaders and advisers on this and related matters. For more on these issues, check out our tagged archives of hemp and FDA blog posts. Otherwise, best of luck to Vince in Chicago and we hope to see some of you at the event.

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Hemp/CBD Litigation Forecast: Cloudy with a Chance of Damages

Our cannabis attorneys are often asked by media, clients, and other professionals working in the hemp and CBD marketplace what we think will be the next “big issue” in this developing industry. Often these questions concern regulatory and compliance questions, as (most) companies are keen to mitigate risk and avoid running afoul of state and federal regulators. Regulation is just part of the risk equation, however, as the value chain for hemp and CBD is rife with issues that may give rise to substantial and even “bet the company” litigation. This post offers an overview of litigation trends we are seeing, or in some cases predicting, that hemp/CBD producers, processors, manufacturers, and retailers should keep on their radar.

Disputes between hemp farmers concerning cross-pollination

Cross-pollination is an increasing source of conflict between hemp farmers and we expect an increase in “farmer v. farmer” litigation as hemp acreage increases across the country. The passage of the 2018 Farm Bill has seen hemp production increase from roughly 25,000 acres in 2017 to 80,000 acres in 2018 to hundreds of thousands of acres in 2019. Oregon alone has surged to more than 60,000 acres of hemp in 2019. Colorado and Kentucky project more than 50,000 acres of hemp each this year and other states have reported significant increases in applications by growers to plant hemp.

Some farmers are growing hemp for biomass, others for seed, and still others for its CBD content. This last kind of hemp is (for now) the most desirable as consumer demand for CBD seems to increase daily. Farmers growing hemp for CBD desire certain strains of female hemp plants to achieve a high CBD yield The risk of cross-pollination and contamination by male plants can be a death knell to these farmers’ crops. Even fields grown with certified feminized seed will still have rogue male plants and many hemp farmers walk their fields regularly to remove the male plants. Farmers growing hemp for biomass (e.g. fiber and seed) are less concerned about whether their plants are male or female. Another complicating factor is that some farmers are not sufficiently aware of the dangers of cross-pollination and are not taking appropriate actions to protect their own crops. Yet another factor, in some jurisdictions, is the risk of cross-pollination between marijuana and hemp.

State regulators are just beginning to work through the complex issues of how to license and approve farmers to grow hemp and how to isolate and protect farmers growing hemp for different purposes. Meanwhile, some farmers have taken matters into their own hands by filing suit against their neighbors for nuisance and other torts alleging that cross-pollination harmed or destroyed their crop.

We expect to see more of these cross-pollination lawsuits in the next several months and urge regulators and farmers to start working toward practical solutions to mitigate the risks of cross-pollination.

Disputes between hemp farmers and purchasers

Disputes between hemp farmers and purchasers of raw hemp – whether for processing CBD or other industrial purchases is a growing concern. Setting aside the cases involving some kind of fraud or failure to deliver the crop (see here, here, and here), we expect to see an increase in litigation between farmers and purchasers. Potential sources of litigation include whether the hemp is legal, chain of custody, total THC, CBD content, and compliance with appropriate state and federal regulations.

A potential saving grace is that many of these issues can (and should) be dealt with through a robust production contract or purchase order. Too often, however, we see contracts that fail to address specific issues relevant to hemp. As we’ve said numerous times before, hemp is a unique commodity that requires contractual terms beyond those found in generic agreements. Although a robust contract may not prevent litigation, it may very well mean the difference between achieving lawsuit dismissal at the outset of a case or spending hundreds of thousands of dollars in litigation.

Consumer and shareholder actions relating to CBD

We anticipate that companies selling CBD products will see a significant increase in claims against them by consumers and shareholders. Last week a consumer class action complaint was filed against JustCBD in the Southern District of Florida. JustCBD sells a variety of products containing CBD – from gummies to soap to tinctures to cartridges. According to its website, the company was “founded on the basis that CBD is Mother Nature’s secret miracle.” The complaint alleges that JustCBD overstated the quantity of CBD contained in its products on repeated occasions and in violation of representations and warranties it made in marketing and selling its products. The plaintiff alleges it conducted independent testing (by Anresco Laboratories) that revealed:

the “JustCBD Honey Liquid Tincture,” which purports to contain “100mg CBD” in the bottle, actually contains just 48.92mg CBD per bottle. This represents an underfill of approximately 51%. As another example, the “JustCBD Apple Rings Gummies,” which purportedly contains “250mg CBD,” in fact contains a non-detectable quantity of CBD. 2 This represents an underfill of 100%. By misrepresenting the true quantity of CBD in their CBD Products, Defendants are able to charge a substantial price premium on account of these fictitious CBD quantity claims.

The complaint alleges claims for breach of warranty, unjust enrichment, fraud, violation of New York’s General Business Laws §§ 349 and 350, and violations of Florida’s Florida Deceptive and Unfair Trade Practices Act. A full analysis of the JustCBD complaint is beyond the scope of this article. (Feel free to email me for a copy of the complaint).

Suffice to say companies selling CBD products ought to be on notice that the plaintiffs’ bar is actively searching out ways to cash in on the booming CBD market—the complaint notes that market is projected to surpass $23 billion in annual U.S. sales by 2023. Of special concern is that some states permit plaintiffs to recover attorneys’ fees for violations of their laws prohibiting unfair and deceptive trade practices.

Consequently, we anticipate a significant uptick in consumer class actions. (Particularly given some of the claims being made about CBD). Companies in the CBD marketplace should work carefully with their regulatory attorneys concerning any advertising claims and other statements made about their products. For more reading see here, here, here, here and here.

Lanham Act claims between competitors in the CBD marketplace

The Lanham Act, also known as the Trademark Act of 1946, is the principal federal statute that governs trademarks, service marks, and unfair competition. Although the Lanham Act is generally thought of as the trademark statute, the Lanham Act also protects businesses against unfair competition by competitors who use false or misleading advertising or labeling. (Notably, consumers do not have standing under the Lanham Act).

Although we are not yet aware of a Lanham Act lawsuit between CBD companies, we expect that to change. A plaintiff may seek injunctive relief (i.e. an order compelling the competitor to remove the false or misleading advertising) as well as damages and, in some instances, attorneys’ fees. Given some of the claims made by CBD companies (see here), cease-and-desist letters and lawsuits almost write themselves.

I’ll be addressing the Lanham Act in greater detail in the coming weeks as well as an important Lanham Act issue that is on the United States Supreme Court’s docket this term.

International trade and contract disputes concerning Hemp/CBD

Hemp is now an international concern and our international trade lawyers are getting a steady stream of questions on the importation and exportation of hemp and CBD – some that involve the United States and some that do not. See here for a discussion of the impacts of U.S.-China trade war on hemp.

An important part of any international dispute is the question of arbitration. This term the United States Supreme Court will resolve a key issue in international arbitration agreements: whether the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “Foreign Arbitral Award Convention”) permits a non-signatory to an arbitration agreement to compel arbitration against a signatory to arbitration based on the doctrine of equitable estoppel. See here for a fulsome discussion of this issue.

Given the global uncertainty surrounding trade and the shifting regulatory environments concerning Hemp and CBD, we fully anticipate an increase in cross-border disputes and international arbitrations. So if your Hemp/CBD company is working internationally, we strongly recommend you start reading our China Law Blog – which touches on trade and other issues that go well beyond China.

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Washington Bans Hemp-CBD in Food

If you’ve been following the hemp scene in Washington state, you know it’s been a bit of a roller coaster. The latest “drop” comes in the form of an August 1 memo from the Washington State Department of Agriculture (“WSDA”) titled Restrictions on the use of hemp CBD as a food ingredient. According to the memo, Washington is following the lead of many other states, most notably California, in prohibiting the use of hemp-derived CBD (“Hemp-CBD”) in foods and beverages.

Washington is essentially implementing the Food and Drug Administration’s (“FDA”) policy on Hemp-CBD as a food ingredient. Last year, the FDA approved the drug Epidiolex. Epidiolex contains CBD. The Food, Drug and Cosmetics Act (“FDCA”) and FDA regulations generally prohibit an article that is approved or investigated as a drug from being an ingredient in food or dietary supplements, unless that article was marketed as a food or dietary supplement prior to being investigated as a drug. The FDA has concluded that Hemp-CBD was not marketed as a food or dietary supplement before the investigation of Epidiolex and therefore the FDA’s position is that Hemp-CBD cannot be added to food or dietary supplements.

According to the WSDA, Hemp-CBD is not approved as a food ingredient. Note that the WSDA’s memo does not apply to Washington’s regulated marijuana market. Licensed retailers are still free to sell CBD-infused edibles derived from marijuana, so long as those products were manufactured by a licensed processor. Washington processors are allowed to add Hemp-CBD to marijuana products so consumers, over the age of twenty-one, can still access Hemp-CBD by going to marijuana retailers. Additionally, the WSDA has stated that some parts of the hemp plant, specifically hulled hemp seeds, hemp seed protein powder and hemp seed oil are allowed for use in food. Why? Because the FDA has determined that these components are Generally Recognized as Safe (“GRAS”) for use in food. Notwithstanding these marijuana-food products containing CBD and food items containing these GRAS components, the WSDA is prohibiting all hemp in food:

Other parts of the hemp plant, including CBD, cannot be used as a food ingredient under a Washington State Food Processor License. Foods containing unapproved parts of the hemp plant may not be distributed in Washington State under a Washington State Food Storage Warehouse License.

This development from the WSDA was somewhat unexpected in light of Senate Bill 5276, which went into effect in April and overhauled Washington’s hemp program in light of the 2018 Farm Bill. Section 4 of SB 5276 provides:

“[t]he whole hemp plant may be used as food. The [WSDA] shall regulate the processing of hemp for food products, that are allowable under federal law, [and] may adopt rules as necessary to properly regulate the processing of hemp for food products including, but not limited to, establishing standards for creating hemp extracts used for food.”

In addition, SB 5276 Section 14 struck RCW 15.120.020’s language which previously prohibited processing hemp, except for hemp seeds, into any consumable good. This is not to say that the WSDA doesn’t have authority to follow the FDA’s position on hemp, it just seemed as if the legislature had set the WSDA up to allow for Hemp-CBD in a whole host of products, including food.

In terms of enforcement, it does appear that the WSDA is going to ramp out any aggressive efforts against Hemp-CBD right away:

Recognizing that these recent changes in law may have caused some confusion in the manufactured-food industry, WSDA has been reaching out to the industry so they can take appropriate actions, such as removing CBD ingredients from their products or discontinuing distribution of CBD-containing food products in the state. WSDA is committed to working with our food industry partners during this transition.

Steve Fuller, director of the WSDA’s Food Safety and Consumer Services division told Ben Adlin of Leafly that he prefers to focus enforcement efforts on “outreach and education,” optimistically stating that “[a]s processors and distributors learn that this is not legal either federally or within the state, most of them will do the right thing and figure out a way to come into compliance around that.”
If the outreach and education method doesn’t work, we expect to see WSDA partnering with cities and counties to seize Hemp-CBD food products and potentially even shut down non-compliant businesses. It’s worth noting that King County’s Food Protection Program weighed in on Hemp-CBD in food on August 30:

Recently there has been interest from food establishment operators in selling food and beverage products with industrial hemp and its derivatives such as cannabidiol, more commonly known as CBD. Federal and State laws do not permit the manufacture and retail sales of CBD as a food ingredient in foods and beverages for sale in retail food establishments.

Therefore, in King County, the addition of CBD to food and beverages is prohibited until further guidance and approval by the U.S. Food and Drug Administration, Washington State Department of Agriculture, and Washington Department of Health.

This means that operators may not add CBD to food or beverages, nor may they obtain products containing CBD for resale in any retail food establishment in King County, including restaurants, coffee shops, cafeterias, grocery stores, or at temporary food events and farmers markets.

So what is the big takeaway here? If you are operating in Washington State, steer clear of Hemp-CBD in foods for now. If the FDA changes its tune, the WSDA will likely follow suit but until then, selling Hemp-CBD food in the Evergreen State is risky.
Finally, if you want some additional information on Hemp-CBD in Washington, check out the September 3 episode of KUOW’s The Record where I spoke to host Bill Radke about whether CBD bars are legal in Washington State.
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Hemp-CBD Across State Lines: Idaho

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 will summarize a new state in alphabetical order. So far, we’ve covered Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Georgia and Hawaii. Today we turn to Idaho.

To put it bluntly, Idaho is probably the worst state in the country to get caught with hemp. Hemp cultivation is not legal, even after the passage of the 2018 Farm Bill. The state legislature considered House Bill 122 earlier this year. It would have allowed for the regulated cultivation of hemp. It stalled out in April.

Long before that bill failed, the Idaho Attorney General issued an informal opinion (see pages 132-134) on the legality of Hemp-CBD in 2015. He concluded that in almost all cases, the possession of any form of CBD, whether derived from marijuana or hemp, is illegal. According to the opinion, in Idaho, products containing CBD are only legal if the two following criteria are met:

  • the substance cannot contain any THC; and
  • the substance must be excluded from the definition of “marijuana” under Idaho Code § 37-2701(t)

Under Idaho Code § 37-2701(t), the only legal part of the cannabis plant, whether hemp or marijuana, are (a) mature stalks of the plant; (b) fiber produced from the stalks; (c) oil or cake made from the seeds or the achene of such plant; (d) any other compound, manufacture, salt, derivative, mixture, or preparation of the mature stalks; or (e) the sterilized seed of such plant which is incapable of germination.

For a CBD product to be legal in Idaho and it must be totally THC free and must come from one of the five categories mentioned above. It doesn’t matter whether the CBD was derived from hemp or marijuana. If derived from anything other than the seeds or stems of the cannabis plant, it is illegal.

Stems and seeds aren’t going to have high levels of CBD or any other cannabinoids so really this just means that CBD is pretty much outlawed in Idaho with one notable exception: Idaho allows for FDA-approved CBD, such as that found in Epidiolex. The Idaho Office of Drug Policy’s webpage on CBD Drug Policy indicates that Idaho’s position on CBD has not changed as of June 2019 and that the informal opinion from 2015 is still followed.

Idaho’s opposition to hemp goes beyond the informal opinion as Idaho has recently seized hemp shipments traveling through the state. On August 28, 2019, the Ninth Circuit Court of Appeals heard oral arguments in Big Sky Scientific, LLC v. Jan Bennetts, on appeal from the District of Idaho. We wrote about that case in great detail here.

The case involved the Idaho State Police’s seizure of 6,700 pounds of industrial hemp biomass cultivated lawfully in Oregon that was on its way to Colorado for state-lawful processing. The appeal involved the denial of Big Sky’s preliminary injunction by the state court. Big Sky moved for a declaratory judgment stating that Idaho Police improperly seized Big Sky’s hemp in light of the 2018 Farm Bill’s and a preliminary injunction requiring police to return the hemp. The District Court issued an Order denying relief to Big Sky stating that it’s not clear that the 2018 Farm Bill, which prohibits states from interfering with shipments of legal hemp, provides protection for hemp grown under the 2014 Farm Bill. Because the USDA has not approved any state-level hemp cultivation plans under the 2018 Farm Bill, all hemp in the US is grown under the 2014 Farm Bill. In other words, all hemp shipments are at risk of seizure if they pass through Idaho.

The Ninth Circuit indicated that it believes federal jurisdiction may have been improper, meaning the case may ultimately be dismissed on procedural grounds. Even if Big Sky is unsuccessful here on procedural grounds, it’s worth noting that the USDA’s opinion is that Idaho should not have seized this hemp under the 2018 Farm Bill.

One day Idaho will come around and stop fighting hemp farmers who are merely shipping products through the state. For now, Idaho is one of the worst states on hemp. If you are a stakeholder in this industry, avoid Idaho at all costs.

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Hemp Regulation: USDA Struggles with Drafting THC Testing Rules

Hemp stakeholders have been eagerly waiting for the release of rules and regulations by the U.S. Department of Agriculture (“USDA”). Although the 2018 Farm Bill removed the hemp and its derivatives from the Controlled Substances Act, it did not provide clear, consistent and reliable standards to safely and lawfully produce the crop. Instead, the new law tasked the USDA with adopting those standards with which states and Native American tribes wishing to regulate the crop within their borders will have to comply.

Earlier this summer, the USDA announced in a notice published in the Federal Register that it aimed to release its interim final rule in August. However, various comments recently made by USDA representatives suggest that the agency is struggling to meet its deadline. Specifically, the agency seems to be wrestling with the drafting of THC testing standards.

THC Testing standards matter because THC concentration is the key factor in differentiating hemp from marijuana. It is the difference between a regulated agricultural commodity and a Schedule I controlled substance. Without a national THC testing standard marijuana and hemp are virtually impossible to differentiate because they look, smell and feel the same.

Pursuant to Section 297B (a)(2)(A)(ii) of the 2018 Farm Bill, states and Native American Tribes seeking regulatory authority over the production of hemp must submit a plan to the USDA that includes, in part,

a procedure for testing, using post-decarboxylation or other similarly reliable methods, delta-9 tetrahydrocannabinol concentration levels of hemp produced in the State or territory of the Indian tribe[.]”

As I explained in a prior post, there is no “postdecarboxylation” testing method per se, and although the congressional intent of the 2018 Farm Bill apparently was to refer to a testing method known as gas chromatography (“GC”), this method has been heavily criticized by stakeholders because it tends to increase the THC concentration in the hemp sample and pushes it over the 0.3 percent limit.

So it isn’t entirely surprising that the USDA is struggling to craft THC testing standards with so little guidance.

Unfortunately, this delay is further exacerbating state and local enforcement authorities’ ability to differentiate hemp from marijuana. As of now, most jurisdictions lack the resources to test for specific levels of THC and differentiate hemp from its illegal cousin, marijuana. The patchwork of testing standards across states has further hindered the lawful sale of hemp nationwide. After all, why impose a 0.3 percent THC threshold if the states are imposing 50 different testing standards?

Establishing a reliable and uniform testing standard is only one of many other standards the USDA needs to promulgate in order to fulfill the intent of the 2018 Farm Bill. Implementing a procedure for tracking the source of the crop and its finished products is as important as the adoption of a uniform testing standard. Indeed, the 2018 Farm Bill legalized hemp grown pursuant to a state or Native American tribe plan. This means that not all hemp is treated equal, even if the tested crop contains no more than 0.3 percent THC.

As such, hemp industry players must maintain records showing the source of the plant, including but not limited to the grower’s license under which hemp was cultivated as well as the certificate of analysis (“COA”) for each batch of hemp or finished hemp product tested showing that they contain no more than 0.3 percent THC. If your company is dealing in hemp, you should know exactly where it was grown and should be prepared to prove it.

The lawful production and sale of hemp and hemp products is a complex business that requires cautious planning and due diligence. As such, hemp stakeholders should consult with lawyers who thoroughly understand the field in order to mitigate their risks and thrive in this fairly unregulated market.

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Top Five Hemp Purchase Order Terms

A few weeks ago, we addressed the need for hemp sellers and purchaser to enter into agricultural production agreements (“APAs”), and in doing so, avoid unnecessary litigation. APAs are generally entered into at the beginning of a contractual relationship. In other cases, parties will forego a formal APA, and opt for a simpler, more “casual” way of doing business by using a purchase order, sometimes known as a “PO.”

A PO is a contractual document generated by the purchaser to authorize a purchase transaction. When the PO is accepted by the seller (typically on the seller’s preferred form), it becomes a binding agreement on both parties. A PO sets forth the description of the goods, their quantities, their prices, payment terms and the date of performance or shipment. It can also incorporate a wide array of associated terms and conditions. If the parties are operating without an underlying APA, it’s very important that the seller include these.

Whether hemp sellers and purchasers adopt an APA and/or a PO with associated terms and conditions, they should ensure that the following five terms are incorporated in their agreement:

1. Proof of Authorization to Grow Hemp.

The US Department of Agriculture is working on regulations under the 2018 Farm Bill and will eventually approve of hemp cultivation plans submitted by states. Until then (and for a year following the adoption of the USDA regulations), the 2014 Farm Bill remains in effect. Pursuant to the 2014 Farm Bill, every state that allows hemp cultivation requires that hemp be produced under a license, permit, or other authorization issued by its state department of agriculture. Accordingly, a hemp agreement should mandate that the seller (i.e., grower and/or processor), provide a copy of its license registration with the state department of agriculture in which the hemp is grown and/or processed. In addition, a well-drafted hemp agreement should further require that the seller provide information regarding the harvest lot and process lot identifiers with every delivery of the goods.

2. Testing Requirements.

The 2018 Farm Bill legalized hemp by removing the agricultural crop from the definition of marijuana under the Controlled Substances Act. What differentiates hemp from marijuana is merely its tetrahydrocannabinol (“THC“) concentration, which must not exceed 0.3 percent on a dry weight basis. Therefore, it is vital that the hemp or hemp product sold meet this THC limit. The seller should attach to each delivery a copy of a certificate of analysis (“COA”) from a licensed third-party lab that show compliance with this testing requirement. A prudently-drafted hemp agreement will also afford the purchaser the right to inspect and test the goods to ensure the sufficiency of testing under all applicable laws.

3. Packaging & Labeling.

States with robust regulatory systems require hemp and hemp products be packaged and labeled in conformance with rules adopted by their department of agriculture. As such, the hemp agreement should designate which party is responsible for labeling and its associated costs, as well as what would happen in the event of non-compliance.

4. Representations and Warranties.

Most agreements contain an abundance of representations and warranties; however, hemp agreements take this concept further and cover everything from program compliance concepts to product safety. This also tends to be one of the most heavily negotiated area of any hemp sale agreement.

5. Limitation of Liability.

This section also tends to be heavily negotiated, as the parties determine who would be responsible for problems and to what extent. Many things could go wrong given the perishable nature of hemp and the risk of THC fluctuation from the time of harvest all the way to the manufacture of a finished product. Under this provision, each party will seek indemnification for anything beyond its control.

As reflected in this non-exhaustive list, hemp is a unique commodity that requires contractual terms beyond those found in generic agreements. As such, any agreement entered by hemp sellers and purchasers should, at a minimum, include the five terms discussed above to help mitigate their risks. For more information on hemp APAs and POs, please contact our regulatory attorneys.

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