Month: December 2019

Oregon to Crack Down on CBD-Infused Alcoholic Beverages

About a year ago, we were the first law firm to report on the legality of manufactured cannabidiol (“CBD”)-infused alcoholic beverages. Due to the growing popularity and mainstream nature of CBD-infused products, many alcohol beverage companies were surprised to read us conclude that blending CBD into their products was a risky business, even in hemp-friendly states like Oregon. Yet, last week, the Oregon Liquor Control Commission (“OLCC”) issued new guidelines that expressly state that:

[b]ased on federal law and regulations, alcohol manufacturers are prohibited by law from manufacturing alcoholic beverages which contain CBD.

In addition, the state agency announced it would begin cracking down on the sale of CBD-infused alcoholic beverages manufactured in the state starting February 2020.

As we previously explained, alcoholic beverages are regulated under federal and state law. Most states, including Oregon, mandate that manufacturers provide proof to their liquor control board that their product formula has received approval from the U.S. Alcohol and Tobacco and Trade Bureau (“TTB”).

Although the TTB oversees the regulation on alcoholic beverages, the agency works closely with the U.S. Food and Drug Administration (“FDA”) in determining whether the ingredients added to those beverages are safe for consumption and whether their use is lawful under the Food, Drug & Cosmetic Act (“FDCA”). Indeed, the FDA’s main function is to protect public health by ensuring that foods and drinks introduced into interstate commerce are safe.

As we have discussed at length since the enactment of the 2018 Farm Bill (e.g., here and here), any substance that is intentionally added to food, including drinks, is subject to FDA pre-market review and approval, unless the substance is generally recognized as safe (“GRAS”). Because the FDA has approved CBD as a drug ingredient in the treatment of epilepsy (Epidiolex), the cannabis compound cannot be also be used in and marketed as a food. As such, CBD has not been recognized as GRAS – except for three hemp seed ingredients that contain trace amounts of CBD. Therefore, the FDA treats CBD-infused alcoholic beverages as unsafe and unlawful under the FDCA.

Given its deference to FDA guidelines, it is no suprise that the TTB has refused to approve formulas of alcoholic beverages infused with CBD until the FDA designs a legal pathway for the sale and marketing of these products.

Therefore, no Oregon CBD-infused alcohol manufacturer could possibly show proof of TTB approval to the OLCC, which means none of the products manufactured and sold in Oregon are lawful.

This brings us back to the OLCC guidelines and letters issued to licensees. According to various media sources, the agency declared it was acting in response to health uncertainties as well as to bring its enforcement in line with state and federal laws. The OLCC further explained that according to the FDA, “many CBD products are untested and might actually pose a risk to human health.”

While the ban will be limited to manufactured products, the OLCC said it intends to also develop new regulations that would bar local bars and restaurants from mixing CBD into alcoholic drinks for on-premises consumption.

So whether you are an Oregon manufacturer or a bar/restaurant owner, you should steer clear of infusing your alcoholic concoctions with CBD as it is, and will soon become, an even more risky business. For more information on this issue, feel free to contact our Portland regulatory team.

Read More

Hemp-CBD Across State Lines: Nebraska

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 cover Nebraska.

Just recently, on December 20, 2019, Nebraska submitted it’s hemp cultivation plan to USDA. Nebraska’s plan outlines how it will comply with the 2018 Farm Bill and the USDA’s interim rules for hemp cultivation by addressing how the Nebraska Department of Agriculture (“NDA”) will maintain relevant producer information, sample and test hemp, dispose of hemp, inspect hemp producers, collect information on harvests, comply with enforcement provisions, and will ensure that it has the resources and personnel to regulate hemp. Nebraska’s hemp plan follows Legislative Bill 657 (“LB 657“) (codified at NE St. § 2-501 et seq.), which Nebraska’s legislature passed last year to allow for hemp cultivation under state law.

Nebraska is in the process of obtaining approval from for hemp cultivation but questions remain as to the legality of Hemp-CBD products. Last year, on November 16, 2018, Nebraska’s Attorney General issued an Opinion on CBD stating that CBD products remained illegal, despite the then-pending 2018 Farm Bill. That opinion does not appear to have been updated or rescinded. LB 657, makes it legal “to possess, transport, sell, and purchase lawfully produced hemp products.” NE St. § 2-504. However, LB 657 does not define “hemp products” and LB 657’s stated purpose is to “[a]lign state law with federal law regarding the cultivation, handling, marketing, and processing of hemp and hemp products.” NE St. § 2-502. Given the FDA’s policy on Hemp-CBD this makes the legality of specific Hemp-CBD products in Nebraska questionable at best. In addition, Lincoln Police Chief Jeff Bliemeister recently warned retailers that the sale of CBD products is not clearly legal under LB 657 and that they “could jeopardize[e]” their business if they sold these products.

Nebraska is in the process of implementing LB 657 and obtaining approval from the USDA for its hemp plan. That will certainly provide clarity for the production of hemp but questions will likely remain un-answered as to the legality of Hemp-CBD products under Nebraska law. Hopefully, they are cleared up in the new year.

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

Read More

Protecting Hemp-CBD Business Information

According to recent reports, the hemp-derived cannabidiol (“Hemp-CBD”) market is expected to grow by 700 percent by 2020 and grow to $2.1 billion by 2020. Given this significant growth forecast, sensitive business information (also known as trade secrets) has become an incredibly valuable asset for Hemp-CBD stakeholders. Realizing value from those trade secrets requires sharing them with business partners and employees. Therefore, it isn’t surprising that in the past few months our firm has drafted numerous confidentiality agreements, also known as non-disclosure agreements (“NDA”), to protect our Hemp-CBD clients’ trade secrets. This post provides an brief overview of what an NDA is and which provisions makes it a well-drafted agreement.

WHAT IS AN NDA?

An NDA is a contract in which the person receiving the sensitive information (“Receiving Party”), usually a business partners, an employee, or a customer, agrees not to share that information with any other party without the prior written approval of the owner of this information (“Disclosing Party”).

Most states, including Oregon, have adopted a version of the Uniform Trade Secrets Act (“UTSA”). Under Oregon law, a trade secret is defined as

information, including a drawing, cost data, customer list, formula, pattern, compilation, program, device, method, technique or process that:
(a) Derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; and
(b) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.”

This means that to be legally protected, business information must be valuable and its owner must take reasonable steps to keep it secret. For example, informing new employees that confidential information will be shared in the course of their employment, specifically when requiring them to execute an NDA, should prove that reasonable efforts were made.

In addition, NDAs are enforceable provided they are “fair,” meaning the NDA is not overly restrictive or unduly burdensome on the Receiving Party.

WHAT PROVISIONS SHOULD BE IN AN NDA?

Whether an NDA is needed for business or employment purposes, an effective NDA should include the following provisions:

  1. A clear definition of the confidential information that will be shared with the Receiving Party during the term of the agreement. Depending on the state law that governs the NDA, an overly broad definition could expose the Disclosing Party to legal actions and render the NDA unenforceable.
  2. The reasons for which the sensitive information is shared with the Receiving Party.
  3. Terms under which the sensitive information may be disclosed. Generally, confidential information may be disclosed to a third-party on a need-to-know basis, such as when required by law.
  4. The consequences for disclosing the confidential information, which usually include large monetary fines and a court order preventing the breaching party from continuing to disclose the protected confidential information.
  5. The length of time during which the Receiving Party must retain the information confidential. Ideally, the Receiving Party will be required to maintain the confidential information secret after their employment agreement terminates.

NDAs are a relatively inexpensive investment for companies given the protection they afford over valuable business information. Accordingly, any business, particularly those engaged in growing markets like Hemp-CBD, should consult with experienced business attorneys to help them prepare sound NDAs.

Read More

Hemp-CBD Across State Lines: Montana

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 Montana.

When it comes to Hemp CBD, there’s not a ton of guidance in Montana. Like many other states, Montana has not adopted a regulatory framework for the sale of Hemp CBD . What we do know is that the Montana Department of Public Health and Human Services (“DPHHS“) has adopted the federal Food and Drug Administration’s position on the unlawful sale of CBD-infused food and dietary supplements. The DPHHS policy is also a bit vague when it comes to manufacturing hemp products in Montana, referring companies to the FDA. This does not offer much guidance for Montana Hemp CBD companies who wish to make non-ingestible products, such as Hemp CBD topicals.

That said, the DPHHS policy really only tracks the FDA’s policy and even notes that “CBD products marketed not as food and do not make any health or health-related claims, should not be considered a workload obligation for the local health authority for possible enforcement action”. In other words, the policy recommends that only items marketed as foods and/or that make health claims should be the subject of local scrutiny. It does not take off the table the possibility that other products (like cosmetics) could be barred, but it certainly makes clear that it’s not a priority.

The cultivation of hemp is lawful and regulated in Montana. Cultivation and processing are overseen by the Montana Department of Agriculture (“MDA”). Draft sampling and testing regulations were published in August 2019 and the MDA indicated that hemp sampling is now underway in Montana.

Interestingly, MDA publishes guidance for hemp processors, which says: ” The processor license allows licensees to produce derivatives that may be included in products for food, fiber, oils, supplements or drugs (excluding THC) for the wholesale or ingredient market.” It may seem like MDA didn’t get DPHHS’ memo, but MDA goes on to note: “Hemp processors must comply with city, county, and tribal ordinances and laws. The approval of manufactured hemp derived products at the retail level continue to be subject to the laws and regulations of the United States Food and Drug Association (FDA) and the Montana Department of Public Health and Human Services (DPHHS).”

At the end of the day, this means that hemp processors will still need to follow DPHHS’ (and by extension, the FDA’s) policies when processing hemp. But this isn’t terribly clear from the hemp processor application itself, which notes that hemp can be used to make foods. This may be a reference to hemp seed oils, which are allowed in Montana and under FDA policies, but that may not be known to many people who are applying to process hemp in Montana.

Read More

Oregon Welcomes Chinese Hemp Researchers: That’s Good and Bad for International Hemp Business

If you are an eccentric person like me and follow the Oregon Department of Agriculture (“ODA”) on Twitter and have a deep interest in international business (especially the trade war with China), you will have noticed that ODA recently (and proudly) posted something that I see as both positive and negative for the hemp industry:

ODA’s #Cannabis Policy Coordinator, Sunny Summers & @OSUAgSci meet with researchers from China’s Heilongjiang Academy of Agricultural Sciences Institute of Industrial Crops to talk about how Oregon can ship #hemp to #China! #WhatWeDo #AgIsCool #TuesdayThoughts #trade #agriculture

When I saw this, I cringed a bit, even though the benefits to Oregon and the U.S. are clear:

  1. Oregon marijuana farmers who recently produced a 2x surplus of marijuana can switch to growing hemp for export markets, as long as Oregon hemp farmers can grow hemp strains that fit the definition of hemp under the newly released USDA interim final rules;
  2. other U.S. states with hemp surpluses will be able to piggyback on Oregon’s engagement with international export markets because the coveted “grown in U.S.A.” brand strategy applies to Washington, California, and Kentucky hemp just as much as it applies to Oregon;
  3. disenfranchised farmers, especially those who have seen the demand for their tobacco crops diminish, can stay on the farm and keep the U.S. heartland throbbing with crops and cash (see here);
  4. exporting hemp means that the U.S. moves closer toward addressing our trade imbalance with the rest of the world, including China (the U.S. became a consistent net exporter of LNG (liquid natural gas) in 2018); and
  5. the U.S. can export its culture of quality and innovation in hemp to the rest of the world, which will continue to provide positive external benefits across many international industries and in our recently flagging international relations.

But there are potentially negative aspects of Oregon’s Department of Agriculture engaging with Chinese researchers. I raised my eyebrows at the ODA post because in addition to this blog, our firm publishes a sister blog, the China Law Blog, where we write on international business (especially China) and frequently warn our readers to protect their intellectual property all costs, whether you are at home or abroad.

If you follow our blog or keep up with international news, you know that researchers with Chinese ties who work in the U.S. are being scrutinized more closely. In the past, they have often been heavily involved in graduate programs where a lot of U.S. R&D occurs, and U.S. academic institutions are constantly wrestling with the dynamics of: potentially losing tuition dollars from fewer mainland Chinese students enrolling in the U.S.; losing grant dollars (both from the U.S. and Chinese governments, for very different reasons); losing prestige in the U.S. for engaging too much with China; losing prestige internationally for failing to hire capable researchers who publish influential scholarly works; monetizing R&D projects; and protecting intellectual property stemming from R&D projects.

Chinese academics’ largely unfettered, unmonitored, and unprecedented access to U.S. educational institutions has provided fertile ground for Chinese economic espionage. In short, whenever China is involved, you (I’m looking at you, ODA) need to keep your eyes open. China has a publicly acknowledged program of acquiring U.S. intellectual property any way it can (at least it is publicly acknowledged and documented by U.S. authorities – see here and here), and that includes by making relationship inroads with government contacts, trade groups, educational institutions, and directly with hemp farmers and businesses.

The geopolitical ramifications of engaging in international hemp business relationships are really inescapable, whether you are a hemp farmer who “only” sells to the local market, the ODA trying to promote Oregon hemp and hemp products, a hemp trade group, or a multinational corporation engaging in a sustained and well-planned M&A program to enhance your market share in the global hemp marketplace. China and the U.S. continue to be at loggerheads over many aspects of bilateral and international trade, but even with the trade war raging at the national level, U.S. and China subnational groups continue to engage with each other, working to establish and enhance relationships that can outlast or at least mitigate the effects of the trade war.

Ultimately, Oregon is simply doing what Utah did earlier this year when Utah welcomed over 85 Chinese government officials to discuss Utah-China business relations. With ODA, our advice remains unchanged: be on your guard where China is involved. Use whatever applicable cliché you have: trust but verify; speak softly and carry a big stick; keep your friends close and your enemies closer; or tread lightly on thin ice. And make sure that you clearly understand all of the potential angles your Chinese counterparts may be working. We will work to keep you in the know as U.S. businesses try to engage further with the international hemp community.

Read More