Four Important Considerations for Any Hemp CBD Company

State governments and the federal Food and Drug Administration (“FDA”) take wildly different approaches when it comes to Hemp-derived cannabidiol (“Hemp CBD”), and for the most part, the ball is still in the government’s court to actually regulate hemp and Hemp CBD. The Food and Drug Administration (“FDA”) and U.S. Department of Agriculture (“USDA”) haven’t issued regulations yet, states like California are still considering laws that would allow (or ban) many Hemp CBD products, and the interstate transport protections under the 2018 Farm Bill arguably still haven’t been fully implemented because the USDA hasn’t even reviewed a single state hemp production plan.

All of this makes for a lot of uncertainty for Hemp CBD companies, both in terms of how they operate internally and how they contract with third parties. It can be tough enough for Hemp CBD companies to comply with the little available guidance that’s out there, but things get increasingly difficult when Hemp CBD companies have to trust that their suppliers, manufacturers, distributors, or other partners are actually following the rules or even trying to follow the rules.

It almost goes without saying that when doing business, comprehensive written contracts that detail each party’s rights and obligations are essential. Our Hemp CBD lawyers still see comprehensive transactions memorialized on one- or two-page, bare-bones contracts or even on a “handshake” basis. This is almost always a bad idea, and is especially dangerous in an industry with so many legal and regulatory pitfalls and constant changes in the law. Hemp and Hemp CBD products should be treated like any other commodity, and legitimate contracts should be a serious consideration. No matter what kinds of Hemp CBD contracts a company might enter into, there are some important things that companies should at least consider when inking a transaction.

#1 Making Sure the Hemp is Legal

Hemp and Hemp CBD purchasers should want reassurances that the hemp or Hemp CBD products they are purchasing was grown in accordance with both state and federal law, using approved seed cultivars, passes stringent state testing requirements, etc. It’s not enough to just trust a seller or to assume that because hemp is being sold, it’s legal. Failure to vet suppliers could lead to serious legal ramifications. This doesn’t just apply to purchasers of biomass—buyers of manufactured products can ask the same (and even more) questions. If the hemp isn’t grown in accordance with the law, then that could legally “taint” all products made from that hemp and pose risks to everyone in the supply chain.

#2 Making Sure the Hemp is “Hemp”

One of the biggest concerns for Hemp CBD companies should be ensuring that the product that they are purchasing is not “cannabis” or “marijuana” as defined under state or federal law. The difference between “hemp” on one hand, and “cannabis” or “marijuana” on the other, usually is the .3% THC threshold (although states are taking varied approaches to how this is measured). If what’s cultivated has .3% or less it’s hemp and could be legal under federal and state law. But if it has any more than .3% THC, it may be considered cannabis and then be illegal under federal law, or be unregulated (and by extension, illegal) under local law. Even though more and more states are requiring lab testing, it’s always a good idea to include lab testing as a requirement in a contract.

#3 The Chain of Custody

Even if the parties ensure that lab testing is performed or that hemp is legal where it came from, it can be a moot point if the results aren’t properly used. If a government decides to investigate a Hemp CBD company, it may demand proof that what they’re making actually contains legally produced hemp. If companies can’t prove the “chain of custody” of the hemp, an investigator could conclude that the hemp at issue was not grown in accordance with state law. It’s much easier to get all the chain of custody information in a contract, rather than hoping your suppliers will give an investigator information that will help you.

#4 Watching the Advertisements

In the next few years, we’re likely to see more and more litigation over claims made in connection with Hemp CBD products (one such case alleging misleading statements on a company’s website was just filed in August 2019). We’ve already seen the FDA send warning letters to companies who make medical claims on in connection with their Hemp CBD products, and it’s likely that in the coming days the Federal Trade Commission (“FTC”) could take action against online advertisers (I recently wrote about the FTC dangers relative to using social media influencers to advertise cannabis, which are very similar for Hemp CBD companies). Hemp CBD companies can in many cases face penalties if third parties market their products unlawfully. Hemp CBD companies should take a hard look at what’s in their third-party contracts relative to marketing.

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Hemp-CBD Across State Lines: Florida

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 have covered Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, and Delaware. This week we head south to Florida.

Senate Bill 1020 (“SB 1020”) went into effect on July 1. SB 1020 provides for the creation of a plan for regulating the cultivation of hemp, pursuant to the 2018 Farm Bill, and legalizes the retail sales of hemp extract. “Hemp Extract” means “a substance or compound intended for ingestion that is derived from or contains hemp and that does not contain other controlled substances.” The Florida Department of Agriculture and Consumer Services (“FDACS”) will oversee Florida’s hemp program. A license from FDACS is required to cultivate hemp. FDACS is not currently issuing cultivation licenses. Cultivators can only obtain hemp seeds from “cultivars certified by a certifying agency or a university conducting an industrial hemp pilot project” under Florida’s prior industrial hemp agricultural pilot program.

With regards to retail sales, Hemp Extract may only be sold in Florida if the product:

(a) Has a certificate of analysis prepared by an independent testing laboratory that states the extract is the product of a batch tested by the lab, containing less than 0.3 percent THC and free of unsafe contaminants; and

(b) Is distributed or sold in packaging that includes the following:

  1. A scannable barcode or quick response code linked to the product’s certificate of analysis;
  2. The batch number;
  3. The Internet address of a website where batch information may be obtained;
  4. The expiration date;
  5. The number of milligrams of hemp extract; and
  6. A statement that the product contains a total delta-9 tetrahydrocannabinol concentration that does not exceed 0.3 percent on a dry-weight basis.

FDACS drafted proposed rules pursuant to SB 1020 and the public comment period for those rules ended on July 19. For more information on the rulemaking process, check out FDACS hemp FAQs which addresses “What happens after the public comment period ends?” The proposed rules cover a wide range of topics but below are a few highlights.

Hemp-CBD in Food. The proposed rules define “Hemp Food Establishment” as an establishment “manufacturing, processing, packing, holding, preparing, or selling Food consisting of or containing Hemp Extract at wholesale or retail.” Hemp Food Establishments must obtain a food permit from FDACS and must submit a waste disposal plan to FDACS “before manufacturing, processing, packing, holding, preparing, or selling Food constituting of or containing Hemp Extract.” FDACS has more information on retail hemp food establishment permits here. Food containing hemp or hemp extracts must come from an “Approved Source,” which means “[f]ood manufactured, processed, packaged, labeled, or held in this state under sanitary conditions as demonstrated by meeting [FDACS’s] inspection requirements or evidence the source is in compliance with a foreign, federal, state, local, territorial, or tribal jurisdiction’s food safety regulatory inspection program.” Hemp Extracts intended for human ingestion must come from a crop intended to be used in the food supply chain. The proposed rules also list contaminants and residual solvents that cannot be present in hemp-food. There are also specific rules for Hemp Extracts used in dairy products and frozen desserts and used in pet foods and treats.

Hemp-CBD in Cosmetics. The proposed rules cover Hemp-CBD in food in great detail but are fairly light on Hemp-CBD in cosmetics, stating only that Hemp Extracts used for “bodily application” is not food and is subject to the Florida Drug and Cosmetic Act.

Transporting hemp. Drivers transporting raw hemp in Florida must have “a bill of lading or proof of ownership, certificate of inspection, documentation showing the name, physical address, and license number of the originating licensed cultivator, and the name and physical address of the recipient of the delivery[.]” FDACS will issue a Permit to Import Hemp and that permit will be required to transport raw hemp or hemp biomass that originates in other states into Florida. Imported hemp must also be accompanied by “proof of origin and a phytosanitary certificate of inspection issued by a state or country plant protection governmental agency. ”

Florida is the third-largest state by population, so it is a potentially huge market for Hemp-CBD. It appears that the FDACS has put a lot of thought into this program, from cultivation to consumption. It will be interesting to see how things play out once Florida’s hemp program is up and running.

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Hemp/CBD Litigation: Curaleaf Hit With Federal Class Action Lawsuit Alleging Securities Violations

Just a few weeks ago, Curaleaf Holdings (“Curaleaf”) announced that it would pay $875 million, mostly in stock, to acquire a Chicago based cannabis company, Grassroots. (See here.) This followed news in May that Curaleaf had reached a nearly $1 billion all-stock deal with one of Oregon’s biggest cannabis companies, Cura Partners, Inc. (See here). These deals made Curaleaf one of the world’s largest marijuana companies, if not the largest.

Not much later, Curaleaf found itself on the wrong side of the FDA with respect to health claims Curaleaf had made about its CBD products. As this CNBC report explains,

The FDA told the cannabis company earlier this week that it was ‘illegally selling’ CBD products with ‘unsubstantiated claims’ that the products treat cancer, Alzheimer’s disease, opioid withdrawal, pain and pet anxiety.”

The article explains that in response to the FDA warning letter, Curaleaf (wisely) scrubbed its website and social media accounts of health claims about its CBD products. How and why a company of this size was making these types of claims in the first place, however, is truly puzzling.

We have written extensively about the FDA’s increasing intolerance for companies making “over the line” health claims about CBD and warned that retailers ought to be concerned about selling hemp-derived CBD in cosmetics. Yet everywhere our CBD business lawyers go, including in our Washington, Oregon and California offices, we see products extolling the benefits of CBD for nearly any kind of ailment – whether it affects adults, children, or pets. Although the FDA’s enforcement against businesses making health-related CBD claims has not been universal, that doesn’t make its warning letters without force as Curaleaf has learned. (Even if consumers don’t appear overly concerned.)

As a result of its claims about CBD and the subsequent warning from the FDA, Curaleaf now finds itself on the wrong side of a class-action securities complaint that was filed on August 5 in the Eastern District of New York, Michael Skibbe v. Curaleaf Holdings, Inc. et al., No. 1:19-cv-04486. The complaint alleges violations of Sections 10(b) and 20(a) of the Exchange Act, and Rule 10b-5 promulgated by the SEC. (Feel free to email me if you’d like a copy of the lawsuit).

The gravamen of the lawsuit is that Curaleaf violated federal securities law by making knowingly making materially false and misleading statements to the investing public that artificially inflated the market price of Curaleaf securities. The complaint quotes liberally from Curaleaf’s press releases and audited financial statements concerning its line of hemp-based CBD products. These include statements such as:

CBD has been shown in initial third-party studies to support a pet’s overall wellness including the potential to help manage pain and anxiety.

Our human customers are already reaping the benefits of CBD with Curaleaf Hemp. The same care and research went into the development of Bido. We are excited to be extending our high quality, trusted products to pet owners,” said Joe Lusardi, President and Chief Executive Officer of Curaleaf. “The launch of Bido is just one more way we are the most accessible cannabis company in the U.S.”

These statements and others drew the ire of the FDA. The FDA letter warns Curaleaf that some of the CBD products it sells are classified as “drugs under section 201(g)(1) of the FD&C Act, 21 U.S.C. 321(g)(1), because they are intended for use in the diagnosis, cure, mitigation, treatment, or prevention of disease and/or intended to affect the structure or any function of the body.” The FDA letter goes on to say that Curaleaf is wrongly marketing CBD products as “dietary supplements . . . because they do not meet the definition of a dietary supplement under sections 201(ff)(3)(B) and 201(ff)(2)(A)(i) of the FD&C Act, 21 U.S.C. 321(ff)(3)(B) and 321(ff)(2)(A)(i).” And finally, the FDA letter takes issue with Curaleaf’s marking of “Bido CBD for Pets” line of products.

The FDA letter, says the complaint, caused damage to investors when shares of Curaleaf fell 7.27% on July 23, 2019. The plaintiffs now seek to represent a class of “all person other than defendants who acquired Curaleaf securities” between November 18, 2018 and July 22, 2019 with damages to be calculated at trial. Will this lawsuit mark the end of Curaleaf? Probably not, but my guess is that Curaleaf won’t get rid of it for pennies.

Once again: regardless whether your company is publicly traded, your company is at risk if you are making claims about the therapeutic value of CBD products. Setting aside Curaleaf, companies making health claims about CBD may be subject to claims arising under state laws prohibiting unfair and deceptive trade practices, or under the federal Lanham Act for false and misleading advertising, or even run-of-the mine personal injury claims allegedly caused by your product.

So ask your hemp-CBD regulatory attorneys to review your marketing and merchandising materials before you find yourself on the wrong side of a lawsuit. And take their advice! Curaleaf probably wishes it had done exactly that.

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Young Living vs. doTERRA: Utah MLM Companies and the CBD Race

Utah is a unique state for a variety of reasons, but recently it gained additional notoriety because the “world leader in essential oils” (based on global revenue), Young Living Essential Oils, announced it acquired Colorado-based Nature’s Ultra. Nature’s Ultra owns more than 1,500 acres of hemp farms in Colorado and produces “natural, organic, vegan approved, and gluten free” CBD oil with 0.0% THC. 0.0% THC is the key. Why? That is hard to explain without providing a little background about the “clean living” culture in Utah, the MLM (multi-level marketing) essential oil companies that call Utah home, and their drive for producing unadulterated essential oil products to compete with each other in the global marketplace.

Young Living’s acquisition of Nature’s Ultra is a big deal for Young Livng’s more than three million worldwide distributors. It is also a big deal for doTERRA, which is Young Living’s direct competitor (archrival is not an understatement) in this niche nutraceutical market, which also has more than three million distributors worldwide. To put it simply, in the world of essential oils, these market leaders vie for dominance as the company that can produce the purest, basest “essence” of oil from a living plant source. All plant sources are nearly sacred to these companies. Their oils comes from a variety of sources: the peel of a citrus fruit like lemon or orange, the leaves of an herb like peppermint or oregano, or from other parts of a plant like bark (cinnamon) or resin (frankincense). And in the case of Young Living, its CBD oil now comes from hemp plants.

Young Living and doTERRA have battled for more than a decade for market dominance. Young Living has the longer history. It was formed in 1993, and doTERRA’s owners are an offshoot of Young Living, comprised of former Young Living employees who formed doTERRA in 2008. The two companies’ global headquarters are only ten miles apart in Utah County. Each company has taken distinct but similar marketing positions. Young Living touts its products as meeting its “stringent Seed to Seal® Standards”, while doTERRA points to its CPTG® (certified pure therapeutic grade®) standard. There is currently no accepted objective industry standard. Both companies use products sourced from around the world. Both decry the other’s essential oils as less pure than the other. They are not the only essential oil companies in the world, but they are two massive forces in Utah and beyond.

But Young Living and doTERRA are not just essential oil companies. They are MLMs, each with an army of evangelist independent distributors (not employees!) who use their company’s products, train their own downline distributors, and are fiercely loyal to their brand. Utah is the unofficial MLM mecca of the world. Over 15 MLMs have global headquarters in Utah County (yes, just in Utah County). Utah MLMs are actively working to rebrand themselves because the term MLM has, after 30 years, become unpopular in Utah (or in the local vernacular, it has become a hiss and a byword). I recently learned from two midlevel executives at a Utah MLM company that MLMs no longer refer to their industry as MLM; they are now “direct-selling companies.” To me, it sounds a little like po-TAY-to vs. po-TAH-to, but as a student of marketing and branding, I understand the drive to continue to innovate, even if that innovation is a lateral move rather than a forward or upward move.

What does all of this mean for the world of direct-selling essential oils, especially CBD oil? It means that Young Living is about to deploy its massive army of worldwide distributors into our households and onto our social media streams to teach us the virtues of CBD oil. And it means doTERRA’s equally large army of distributors will likely follow suit. And CBD oil-derived products will be appearing with regularity in products available from other Utah MLMs like NuSkin, USANA, Nature’s Sunshine, Neways, and LiveVantage. This will have not just national but international implications because these companies operate in dozens of countries throughout the world through their distributors.

Utah has emerged as a dark horse in the business world for several reasons, but I cannot go into all of them in this post. As we reported last year, Utah joined the ranks of states in voter-approved (and legislature modified) legislation authorizing medical marijuana (but cannabis sounds better for historic and linguistic reasons). This stunned many outsiders (including some of my blogging colleagues) who are only tangentially familiar with Utah’s infamous notoriety as a state with a majority populace that is adverse not only to illegal drugs but also alcohol, tobacco, tea, and coffee use. But to many Utahns (and quasi-Utahns like me who have family roots in Utah or attended school in Utah), the move to legalize medicinal marijuana (not for smoking, only for ingestion, vaping, and topical application) fits perfectly within the general population’s mantra of seeking out the best things, researching to understand them, and taking the positive while abstaining from the negative (which is why smoking medical cannabis is banned). In sum, if there are positive applications of marijuana, like the production of CBD with less than 0.3% THC or – better yet – with 0.0% THC, then the majority of Utahns are more likely to embrace those “healthy” applications. Utahns are, like most humans, compassionate and almost assiduously seek to relieve the suffering of others by whatever means they can. First it will come through 0.0% CBD oil; second through medical marijuana used in its near-purest form for greatest effect and less chance of it being used merely for recreational purposes.

So Young Living’s acquisition of Nature’s Ultra is a logical step in its business model, and it is also a logical step for a company headquartered in Utah. Thanks to the passage of the 2018 Farm Bill, hemp and hemp-derived CBD oil can now generally be transferred across state lines (caveat, caveat, caveat). Colorado had a years-long head start ahead of Utah, so rather than try to make the Utah desert bloom with hemp plants, Young Living has taken a logical shortcut in this recent acquisition. The question remains of what steps doTERRA will take to match strides with Young Living. doTERRA’s distributors have naturally been inquiring when doTERRA will launch CBD oil so that those distributors can market the next best thing to their downline distributors and customers. But doTERRA has no publicized interest in CBD oil. Why not? That is a topic for a future post. In the meantime, the doTERRA distributors will have to source their CBD oil from their competitors.

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No Smoking: Some States Try to Snuff Out Smokable Hemp Products

Last month, South Carolina’s Attorney General Alan Wilson’s office issued a letter to the Chief of the state’s Law Enforcement Division. The letter responded to a number of questions raised by the Chief regarding hemp. South Carolina, like many other states, regulates the cultivation, handling, and processing of hemp. It distinguishes between raw hemp and “hemp products.” Hemp products in South Carolina are defined as:

All products with the federally defined THC level for hemp derived from, or made by processing hemp plants or hemp plant parts, that are prepared in a form available for commercial sale, including, but not limited to, cosmetics, personal care products, food intended for animal or human consumption, cloth, cordage, fiber, fuel paint, paper, particleboard, plastics, and any product containing one or more hemp-derived cannabinoids, such as cannabidiol. Unprocessed or raw plant material, including nonsterilized hemp seeds is not considered a hemp product.

One question presented by the Chief was whether “merely placing raw plant material in a package constitute processing hemp into a hemp product?” The South Carolina Attorney General determined that it did not and deferred to law enforcement as to whether a given product is unprocessed, raw hemp which can only be possessed with a license from the South Carolina Department of Agriculture, or a processed hemp product.

According to a recent report by Greenville News, police in South Carolina are seizing smokable hemp products in South Carolina. On July 13, Anderson County deputies seized 2 pounds of hemp from Top Hat Tobacco. No one was charged but the police report indicated that deputies were investigating the illegal sale of marijuana. Anderson County deputies performed a similar seizure at a convenience store on July 12.

Greenville News contacted Robert Kittle, a spokesman for the South Carolina Attorney General, who stated that “nothing in our opinion addresses CBD Hemp Flower specifically, so whether [its sale] is illegal without a license is a question of fact that would have to be determined by law enforcement.” A spokeswoman for the South Carolina Law Enforcement division, when asked whether her agency was confiscating smokable hemp in the state said, “we feel the opinion speaks for itself.” However, the Greenville County Sheriff’s Office said that it was not seizing hemp flower from stores.

South Carolina may not have explicitly banned the sale of smokable hemp, but the sale of any smokable hemp in South Carolina comes with some risk. According to the Greenville News, the smokable hemp sold at Top Hat “is typically heated, cured, and dried by licensed processors before it’s sold to stores.” Arguably, the sale of those products were not the unlicensed sale of raw hemp but rather the sale of hemp products. The situation in South Carolina is murky at the moment.

Other states have grappled with whether to allow any smokable hemp products. Here is a non-exhaustive list of some states that address the issue of smokable hemp:

  • In June 2019, Louisiana’s Governor signed House Bill 491 into law which states that “[n]o person shall process or sell [a]ny part of hemp for inhalation.”
  • Kentucky’s hemp regulations prohibit the sale of hemp cigarettes; hemp cigars; chew, dip or other smokeless material consisting of hemp floral material; and hemp leaf material or floral material teas.
  • North Carolina’s legislature has been debating whether or not to criminalize smokable hemp in Senate Bill 315, which has yet to make it to the Governor’s desk.
  • In Indiana, a group of retailers who sell CBD products filed a lawsuit in the Southern District of Indiana to declare Indiana’s law making it illegal to manufacture, finance, deliver, or possess “smokable hemp” under state law.

The mismatch of laws, regulations, and policies on smokable hemp make it difficult for businesses to sell smokable hemp products across state lines. If you operate in this space, you must keep track of each state’s position on smokable hemp. Failure to do so could result in the seizure of products and even criminal charges.

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Oregon Hemp Litigation: Failure to Pay for 10,000 Pounds of Seeds Alleged

As we predicted, litigation concerning hemp production continues to rise. At this point, it is the rare week that we do not see at least one new lawsuit on the state or federal docket– and that is just in Oregon. Given the extraordinary growth in hemp licensure and cultivation nationwide, it seems the courts will have their hands full for the foreseeable future with hemp industry litigation.

This post concerns a contract to purchase between 9,000 to 14,000 pounds of industrial hemp at $50 per pound. The Oregon state-court lawsuit, Boring Hemp Company v. Natural Health Resources, LLC, is simple enough: Natural Health, the purchaser-defendant, picked up a load of industrial hemp from the producer’s (Boring Hemp) warehouse. Per the agreement, the purchaser transported the hemp to a certified scale in Oregon where the hemp was weighed – the load net weight was 10,240 pounds. The terms of payment were “net 30 days” with a ten-day grace period and a 10% fee added to the balance if payment was not made within that period. The complaint alleges the purchaser has not made any payments to the producer and the producer seeks to recover approximately $560,000 under breach of contract and unjust enrichment theories. Run-of-the-mine stuff.

What is worth mentioning is the one-page “Hemp Purchase Agreement” between the parties. The agreement does not require the industrial hemp contain a certain percentage of cannabidiol (CBD). The agreement does not place any limitation on the moisture content of the hemp (an important term when you pay by the pound). The agreement does not make any reference to THC content, or “total THC” content, nor any other of the terms that hemp producers and purchasers ought to be thinking about such as testing, pesticide content, and so forth.

To be sure, a better contract may not have prevented non-payment for the hemp (though a better contract may have provided some form of security or other terms to lessen the chance that the purchaser simply decide not pay the producer). But we continue to be somewhat alarmed at the poor quality of the hemp production contracts we see. For further reading on hemp production contracts, see below – and note that it may be no coincidence that the hemp contracts ending up in court are the poorly drafted ones.

Not only do many of the contracts we see lack what ought to be basic provisions, many hemp production contracts fail to account for the evolving federal and state regulatory environment – including those governing the growing, handling, processing, testing, and the manufacturing of hemp and CBD products. Feel free to email me if you’d like a copy of the complaint.

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Hemp-CBD Across State Lines: Delaware

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 have covered Alabama, Alaska, Arizona, Arkansas, California, Colorado, and Connecticut. This week we turn to Delaware.

In 2014, Delaware passed its Industrial Hemp Research Act (the “IHRA”). Pursuant to the IHRA, “Industrial hemp” is defined as:

the plant Cannabis sativa L. and any part of such plant, whether growing or not, with a delta-9 tetrahydrocannabinol concentration of not more than 0.3 percent on a dry weight basis.

In line with the 2014 Farm Bill, the IHRA allows the Delaware Department of Agriculture (“DDA”) to cultivate and certify institutions of higher education—not individuals or businesses—to cultivate industrial hemp for agricultural or academic research purposes.

However, about a year ago, the state legislature enacted Senate Bill 266, which provided some critical updates to the IHRA. SB-266 notably authorizes the DDA to adopt regulations to permit industrial hemp cultivation for broader purposes than just agricultural or research purposes—if that cultivation were consistent with federal law. According to the DDA, the hemp pilot program requires operators to partner with the Delaware State University and that “[p]roduction of hemp for research purposes is limited to 10 acres per approved operation.”

Critically, SB-266 hasn’t yet allowed for commercial cultivation. According to the DDA, commercial cultivation won’t be allowed until the USDA issues its own regulations for hemp production plan review:

When USDA re-opened following the shutdown, any plans that had been submitted by states were not approved and before submitting plans, states were instructed to wait for regulatory guidance from USDA regarding the 2018 Farm Bill and hemp production. Furthermore, for the 2019 planting season, the 2018 Farm Bill provides states and institutions of higher education the ability to continue to operate under the authority of the 2014 Farm Bill.

This hold from USDA means that no commercial production of hemp will be able to take place in Delaware for 2019. Growers can legally produce hemp in affiliation with an institute of higher education or state department of agriculture.

As first reported by Marijuana Moment, the USDA’s regulations should be released tis month.

In spite of this, in application materials for the hemp research program, the state notes:

The program authorizes growers to work with permitted institutions of higher education to gain knowledge of any aspect of hemp cultivation, harvesting, processing, marketing, or transportation of hemp for agricultural, industrial, or commercial purposes.
. . .
Hemp may not be grown in Delaware for general commercial activity, only as part of a research program; however, growers participating in the program are able to sell their crop if all research requirements are met.

In other words, while general commercial sales won’t be allowed, the DDA apparently views commercial sales for research purposes may be permissible. To that end, the DDA publishes an application for hemp processors on its website which states: “A Processor Registration is required for processing hemp in Delaware. Processing means to treat or transform harvested hemp from its natural state for distribution in commerce.” The application also states:

Please Note: The Delaware Department of Agriculture cannot advise that a viable market will exist for any processor of hemp to sell their crop. The Delaware Department of Agriculture does not hold any responsibility for ensuring that an end market for hemp or hemp products exists and does not take any responsibility for any losses that may be incurred by the processor.

For now, that’s the state of the law. DDA’s application materials for the hemp research program makes clear that it intends to open up for commercial cultivation when the USDA allows it to, so stay tuned for further updates.

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Oregon Limits the Import and Export of Hemp and Hemp Products

A few weeks ago, we explained what Oregon’s “total THC” testing requirement is and why it matters from a contractual point of view. Today, we further explore this issue and discuss how it is affecting industry players’ ability to export and import hemp and hemp products to the Beaver State.

Back in 2018, Oregon law makers passed Senate Bill 1544 (later codified in ORS 475B), which prohibits the exportation and importation of marijuana items in the state. “Marijuana items” means “marijuana, cannabinoid products, cannabinoid concentrates and cannabinoid extracts”, and includes “industrial hemp products and commodities that contain more than 0.3 percent tetrahydrocannabinol” (emphasis added).

Although the statutory language does not define “tetrahydrocannabinol,” it provides that the testing standards and processes addressed in the statute must comply with those adopted by the Oregon Health Authority (“OHA”).

The OHA testing rules are codified in OAR 333-007-0010 et seq.. Pursuant to OAR 333-007-0200(3), the concentration of THC permitted must take into account both the amount of Delta-9 THC in the product and the amount of tetrahydrocannabinolic acid (“THCA”) that if heated would convert THCA into THC.

As you know if you have been following our blog for a while, the Oregon Department of Agriculture (“ODA”) updated its testing rules to align with those adopted by OHA. Specifically, the ODA testing rules provide that finished hemp products or commodities, such as industrial hemp for human consumption, hemp items, usable hemp, and hemp cannabinoid products, must be sampled, tested, and reported in a manner consistent with the OHA’s marijuana sampling and testing rules. In addition, the ODA rules state that “[a] registrant may not sell an industrial hemp product that contains more than 0.3 percent total THC to a consumer….” (Emphasis added).

Accordingly, the importation and exportation by ODA registrants of hemp products and commodities exceeding 0.3 percent total THC is prohibited under Oregon law. But, according to the language of ORS 475B, ODA registrants are not the only ones that are barred from importing or exporting these products; “any person” must comply with this requirement.

This is problematic for many reasons.

First, requiring the total THC concentration not to exceed 0.3 percent is harmful to growers because it drastically limits the type of hemp strains they can cultivate. Limiting the strains with which growers may work creates an undue burden on an already challenging activity and places cultivators in a worse economic position than those in states that only require a Delta-9 THC compliance testing – without going into too much detail, it is easier to comply with a Delta-9 testing requirement.

Second, by prohibiting the exportation and importation of hemp and hemp products containing more than the 0.3 percent total THC, Oregon is reducing the number of hemp business opportunities within the state. Oregon growers and producers whose products exceed this THC limit, but satisfy the Delta-9 compliance testing, do not have the option of selling their products to states that have adopted the less stringent testing requirement. Also, out-of-state business players whose products meet the Delta-9 testing requirement are barred from entering the Oregon market.

Although Oregon has not taken enforcement actions regarding the importation and exportation of hemp and hemp product that contain more than 0.3 percent total THC, it is critical for hemp and CBD stakeholders in the state but also around the country to understand this issue and be cognizant of the fact that Oregon may not be, after all, the hemp-friendly state we all assumed it was.

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Hemp-CBD Across State Lines: Connecticut

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 have covered Alabama, Alaska, Arizona, Arkansas, California and Colorado. This week we turn to Connecticut.

Connecticut very recently passed Public Act No. 19-3 (“S.S.B. No. 893”), which directs the state Department of Agriculture (“DOAG”) to implement an agricultural pilot program under the 2014 Farm Bill to enable the cultivation and processing of hemp until the state plan is approved by the U.S. Department of Agriculture (“USDA”). Once the state plan is approved by the USDA, the research program will expire and DOAG will begin regulating the commercial production of hemp and hemp products, pursuant to the 2018 Farm Bill.

Section 1 of S.S.B. No. 893 provides that hemp has the same meaning as that found in the 2018 Farm Bill and defines “hemp products” as “products with a delta-a tetrahydrocannabinol concentration of not more than 0.3 percent on a dry weight basis derived from, or made by, the processing of hemp plants or hemp plant parts.”

Only growers and processors of hemp and hemp products that are not consumable (i.e., hemp products containing no more than 0.3 percent THC not intended for human ingestion, inhalation, absorption or other internal consumption) are required to obtain a license from the DOAG. In addition, DOAG licensed growers and processors must acquire certified seeds and are strictly prohibited from transporting hemp containing more than 0.3% THC to any location not listed on the licensee’s application.

In order to “manufacture, handle, store and market hemp” for human consumption, one is required to obtain a license from the Department of Consumer Protection (“DCP”) and must (1) satisfy specific testing procedures; (2) comply with the Federal Food, Drug and Cosmetic Act; and (3) not make any health claims promoting the therapeutic value of their products.

Note that hemp products that have been deemed Generally Recognized As Safe (“GRAS”) by the Food and Drug Administration (“FDA”) that are (1) marketed for the uses described in the FDA GRAS notices, (2) manufactured in a way that is consistent with the notices, and (3) meet the listed specifications in the notices, may be manufactured in the state without a DCP manufacturers or hemp consumable license.

As of the date of this post, the DCP has yet to release rules on the manufacturing, processing, storing and marketing of hemp for human consumption, but it is clear from its FAQs that the CDP is deferring to the FDA guidelines when dealing with CBD-infused foods and dietary supplements.

So while Connecticut has shown a friendly attitude towards hemp and hemp products (the state was already differentiating hemp from marijuana, even before the enactment of S.S.B. No. 893), the state is also putting restrictions on the manufacture, sale and distribution of CBD-infused foods and dietary supplements. This means that enforcement actions may soon ensue.

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CBD Regulations Might Come Sooner than Expected

The Food and Drug Administration (“FDA”) seems to be listening.

For the past six months, the federal agency has been bombarded with messages, urging the FDA to promptly develop a regulatory pathway for the lawful use of hemp-derived CBD (“Hemp-CBD”) in foods and dietary supplements.

Some of these messages came from Oregon’s hemp champion, Senator Ron Wyden (D), who in two occasions has publicly pressured the FDA to act on this issue.

Back in January, Wyden issued a joint letter with Jeff Merkley (OR-D), in which the Oregon senators demanded that the agency update federal regulations governing the use of certain hemp-derived ingredients in food, beverages and dietary supplements.

At the end of June, Wyden issued a second letter to the agency in which he criticized Former Commissioner Scott Gottlieb’s suggestion that it may take the agency three to five years to issue a final regulation authorizing the lawful use of Hemp-CBD in foods and dietary supplements. Specifically, Wyden explained that the regulatory confusion and uncertainties surrounding CBD could not continue much longer. To that end, Wyden recommended that the FDA adopt certain steps to streamline the regulatory process and directed the agency to issue “enforcement discretion guidance” by August 1 of this year and to follow up by issuing final rules as quickly as possible while the agency develops permanent final regulations.

In response to Senator Wyden and other stakeholders’ demands, FDA Acting Chief Information Officer, Amy Abernethy, recently announced on Twitter that:

[FDA] is expediting its work to address the many questions about cannabidiol (CBD). This is an important national issue with public health impact, & an important topic for American hemp farmers and many other shareholders.”

Abernethy went on to explain that while the agency is enthusiastic about research into the therapeutic values of CBD-infused products, it is also concerned with the need for safety.

To understand the breadth of issues and gather data on safety we have conducted a public hearing, reviewed the medical literature, and have an open public docket.”

If you recall, the public hearing to which Abernethy refers was held on May 31 and offered stakeholders a platform to share their thoughts and experience with the FDA and to stress the importance of developing a regulatory framework that would legalize the marketing and sale of CBD-infused foods and dietary supplements.

The public had an opportunity to weigh in with the FDA through July 16. Four days before the deadline, over three thousand comments had been published on the public docket. Now that the public comment period is over, the FDA will review the submitted data and anticipates reporting on its progress “around end of summer/early fall.”

Expediting the rulemaking process of CBD products will not only help clarify the legality of these products and render the cultivation and processing of hemp economically viable, it will also settle the position of many federal agencies on this issue. As we previously explained, numerous federal agencies, including the U.S. Patent and Trademark Office and the U.S. Alcohol and Tobacco and Trade Bureau, defer to the FDA in dealing with CBD-related issues.

Whether or not the FDA meets its proposed timeline, we will continue to monitor and report on its progress.

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California Hemp Cultivation Law is About to Change, Again

A week or so ago, I wrote a post outlining the current state of California hemp laws, and noted that there are two pending pieces of legislation that could change the state of hemp law in California: AB-228 which deals more with adding hemp-derived cannabidiol to foods and other consumer products, and SB-153, which would re-write a significant portion of California’s Food and Agriculture Code that relates to hemp cultivators. Today, I’m going to talk about SB-153, which could have a massive impact on California’s hemp cultivation industry. Below are some of the highlights of the bill.

A New Definition of “Industrial Hemp”

Currently, the California Health and Safety Code defines “industrial hemp” as follows:

“Industrial hemp” means a crop that is limited to types of the plant Cannabis sativa L. having no more than three-tenths of 1 percent tetrahydrocannabinol (THC) contained in the dried flowering tops, whether growing or not; the seeds of the plant; the resin extracted from any part of the plant; and every compound, manufacture, salt, derivative, mixture, or preparation of the plant, its seeds or resin produced therefrom.

Current provisions of the Food and Ag. code relative to hemp use this definition. But if SB-153 is passed, it’ll add a brand new definition of “industrial hemp” to the Food & Agriculture Code, as follows:

“Industrial hemp” means an agricultural product, whether growing or not, that is limited to types of the plant Cannabis sativa L. and any part of that plant, including the seeds of the plant and all derivatives, extracts, the resin extracted from any part of the plant, cannabinoids, isomers, acids, salts, and salts of isomers, with a delta-9 tetrahydrocannabinol concentration of no more than 0.3 percent on a dry weight basis.

To be clear, this new definition would be in addition to—and not a replacement of—the current state definition. And significantly, the two definitions are different. For example, the general H&S Code definition appears to place caps on the total amount of THC, whereas the Food and Ag code’s definition would place limits on delta-9 THC. This could create confusion or different standards among state agencies. We’ve written about how “total THC” limits have caused a headache in Oregon, and it’s possible that these different definitions could lead to similar issues.

Additionally, the Food and Ag code’s definition only applies to agricultural products, and may not apply to many other derivatives, for example, hemp products imported from other states.

A California Hemp Production Plan

SB-153 would force the state to create and submit to the U.S. Department of Agriculture a hemp production plan. If you haven’t read about the 2018 Farm Bill yet, in short, it allows states to set up their own hemp production programs after approval by the USDA. States aren’t forced to submit plans and have to affirmatively take steps to do it, and SB-153 would put CA on track to do just that.

New Definitions of “Established Agricultural Research Institutions”

Current California law creates a scheme for commercial cultivators to register to cultivate hemp, and then exempts established agricultural research institutions (“EARIs”) from needing to register. EARIs currently can include:

(1) A public or private institution or organization that maintains land or facilities for agricultural research, including colleges, universities, agricultural research centers, and conservation research centers; or

(2) An institution of higher education (as defined in Section 1001 of the Higher Education Act of 1965 (20 U.S.C. 1001)) that grows, cultivates or manufactures industrial hemp for purposes of research conducted under an agricultural pilot program or other agricultural or academic research.

Part (2) of the EARI definition is pretty consistent with the 2014 Farm Bill, which is still in effect, but part (1) is much broader. In the wake of this law, many institutions that may not necessarily qualify for cultivation under federal law would be able to cultivate in CA.

SB-153 would close that gap. The bill would re-define EARIs to only include:

an institution of higher education, as defined in Section 101 of the federal Higher Education Act of 1965 (20 U.S.C. Sec. 1001), that grows, cultivates, or manufactures industrial hemp for purposes of research conducted under an agricultural pilot program or other agricultural or academic research in accordance with Section 7606 of the federal Agricultural Act of 2014 (7 U.S.C. Sec. 5940) or otherwise approved by the secretary.

This new definition of EARIs would be much more in line with the 2014 Farm Bill, and would not allow many different kinds of parties to claim EARI exemptions. But note, this definition change won’t take effect until after the state’s hemp production plan is approved. So it could take a long time.

Expansion of Hemp Registrations

What will all of those companies who used to qualify as EARIs and don’t want to cultivate commercial do if the definition changes? Well, the answer is that SB-153 would expand required registrations from only commercial cultivators to include all cultivators except EARIs. So purely private companies who wanted to do hemp research and could not qualify as EARIs or work with EARIs would probably need to get registered with their county commissioner and follow the Department of Food and Agriculture (and localities’) requirements for registered cultivators.

Penalties for Misbehavior

SB-153 would add some pretty key penalty provisions that are not currently in the Food and Ag code.

First, SB-153 says that “[a]ny 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 is exceptionally broad. Anyone who has been convicted, ever, in any state, for any drug, would be barred from participating in the program for 10-years post conviction. We don’t have hemp regs yet or even know what the production plan will look like. But the extent of this could be far-reaching. If “ownership” is anything like in the cannabis rules, this may exclude a wide class of persons from even owning relatively minor stakes in hemp companies.

Second, “A person that materially falsifies any information contained in an application [for commercial or non-commercial registration], or other application to participate in the industrial hemp program, shall be ineligible to participate in the industrial hemp program.”

This is also significant. Companies who are seeking registrations will need to be 100% sure that everything they put into their application is accurate. Even minor slip-ups could lead to ineligibility to participate in the hemp industry.

These are just a few examples of the significant changes that SB-153 might bring about. The bill isn’t guaranteed to pass, and it’s possible that it gets amended again. It’ll be a while before it’s fully implemented, but it’s clear now that the state wants to get up to speed and in compliance with the federal farm bills as fast as possible. We’ll continue to report on SB-153 and its aftermath in the coming months.

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Hemp-CBD Across State Lines: Colorado

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 have covered Alabama, Alaska, Arizona, Arkansas, and California. This week we turn to Colorado.

When it comes to hemp, few states have embraced hemp like Colorado. According to a report prepared by Marijuana Business Daily, in 2018, Colorado allocated 12,042 outdoor acres and 2.35 million square feet indoors to the cultivation of hemp. If you buy a product containing hemp, in any state across the country, it likely came from Colorado.

The state’s cultivation program is overseen by the Colorado Department of Agriculture (“CDA”). “Industrial hemp” or “hemp” means “the plant Cannabis sativa L. and any part of the plant, including the seeds of the plant and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with a delta-9 tetrahydrocannabinol concentration of no more than three-tenths of one percent on a dry-weight basis.” CDA oversees the cultivation of hemp does not regulate the processing of hemp into other products, including Hemp-CBD other than requiring that cultivators disclose agreements with Colorado hemp manufacturers.

However, in 2018 Colorado enacted House Bill 18-1295 (“HB 18-1295”), codified in part in C.R.S. 25-5-426, which establishes that the manufacturing of an “industrial hemp” or “hemp product” must comply with Colorado’s Food and Drug Act. HB 18-1295 defines an “industrial hemp product” as “a finished product containing industrial hemp that”:

  • Is a cosmetic, food, food additive, or herb;
  • Is for human use or consumption;
  • Contains any part of the hemp plant, including naturally occurring cannabinoids, compounds, concentrates, extracts, isolates, resins, derivatives; and
  • Contains a delta-9 tetrahydrocannabinol concentration of no more than three-tenths of one percent.

Manufacturers of industrial hemp products must register with the Colorado Department of Public Health and Environment (“CDPHE”).

Colorado imposes certain labeling requirements on hemp products:

  • An identity statement, which indicates what the product is (not a brand name).
  • A net weight statement.
  • A list of all ingredients.
  • The company name with an address

The label must also clearly identify that it includes hemp as an ingredient and if there is CBD, the amount of CBD and whether it is an isolate. Labels must also include the statement “FDA has not evaluated this product for safety or efficacy,” and may not contain any health claims.

In this 50-state series, we’re moving through states alphabetically. However, if we were ranking the states, Colorado would almost certainly come in first due to its full-on embrace of hemp. The state was one of the first to legalize recreational marijuana so we’d give them a pass if they were to slow things down when it came to hemp. Obviously, that’s not the route taken by the Centennial State. In addition, in light of the uncertainties surrounding how the FDA would regulate Hemp-CBD, the state has tasked CDPHE with overseeing the manufacture of products containing hemp and Hemp-CBD. Kudos to Colorado for boldly moving forward with hemp.

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