Category: Hemp

Industrial Hemp and the Banks: Slow Going

We have spilled a lot of ink on this blog related to the 2018 Farm Bill, which legalized hemp at the federal level. It’s huge news. And there are so many ramifications, from food law to trademarks to the environment for financial services. This blog post is going to cover financial institutions and hemp at about 10,000 feet. Since late December, we’ve had many clients come to us with frustrations about the ongoing lack of access post-Farm Bill, and questions about how things will play out in 2019.

To frame this issue, it’s important to summarize what the Farm Bill actually is and does. In a recent post, we explained that “the 2018 Farm Bill modified the Controlled Substances Act (the ‘CSA’) to exempt hemp from the definition of marijuana. Not only is hemp now clearly excluded from this definition and thus not a scheduled drug, but states and tribes also cannot prohibit the distribution of hemp.” Seems easy, right?

If only. Going forward, hemp will be subject to stiff regulation at the state and federal levels. For example, although hemp is no longer a controlled substance under the CSA, the Farm Bill reserves certification rights to the Department of Agriculture over state and tribal industrial hemp production “plans.” Those plans will be nuanced, and what any given state’s plan will look like next year is unknown. That fact alone may be the biggest reason that most financial institutions are still on the sidelines.

Financial institutions are also conservative by nature. We represent a handful of banks (and a larger handful of credit unions), and we give those outfits advice on banking hemp and marijuana. A few of these clients are relatively nimble and bold, but at the end of the day they are still banks. They have directors who worry about individual liability, lawyers and officers who worry about byzantine state and federal laws and policy, and shareholders and members who may see outsized risk and steep learning curves. When banks move into these areas, they tend to offer limited services, which are seldom more than basic merchant accounts.

Financial institutions also understand that when a new piece of federal regulation is enacted, it takes some time for rules to be written in support of the new law (both federally and by states), for programs to be staffed and built, for guidance to issue, etc. Finally, there is often a wave or two of litigation to interpret the administrative environment. All of that happens over the course of years and not months, and all of that will happen with hemp and the Farm Bill. Like the rest of us, financial institutions cannot see around corners and will be watching closely.

So what does all of this mean? Ultimately there will be banking, but banks and credit unions will not come in all at once. When they do come in, the early actors will probably provide services for hemp clients that looks similar to what is out there today in states like Washington and Oregon for hemp and marijuana businesses. This means limited access to institutional lending, ongoing compliance reporting and audits, and short leashes overall. Everything that happens will be fluid and consistent with best practices for high-risk industries.

Ending prohibition is a lot of fun, but then you get to wake up and go to work. We are optimistic that the hemp industry will have ample banking options. It will take some time, though. In the meantime, we will continue to monitor this issue and other hemp-related matters closely. Stay tuned.

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FDA Enforcement Against Hemp-CBD Products Has Begun

Not OK per FDA.

On January 3rd, according to the owner of a smoke shop in Yuma, Arizona, officials from the Food and Drug Administration (FDA) seized a variety of CBD products from the store’s shelves. The officials took fewer than fifty items and told the owner to anticipate follow-up paperwork within seven to ten business days.

According to the owner’s account, FDA officials had stopped by the shop a few days earlier and asked what products were edible and intended for humans. When those officials returned, they informed the owner that CBD cannot be sold for human consumption.

This squares with what we have written about extensively, and also with what FDA Commissioner Scott Gotlieb has stated:

[I]t’s unlawful under the FD&C Act to introduce food containing added CBD or THC into interstate commerce, or to market CBD or THC products as, or in, dietary supplements, regardless of whether the substances are hemp-derived. This is because both CBD and THC are active ingredients in FDA-approved drugs and were the subject of substantial clinical investigations before they were marketed as foods or dietary supplements. Under the FD&C Act, it’s illegal to introduce drug ingredients like these into the food supply, or to market them as dietary supplements. This is a requirement that we apply across the board to food products that contain substances that are active ingredients in any drug.”

Gottlieb also made clear that things like claiming CBD or cannabis products cure diseases prior to undergoing FDA approval are not lawful, and that the FDA will not hesitate to warn consumers and initiate enforcement actions against CBD companies. The enforcement against the Yuma store seems to indicate that those enforcement actions have begun in earnest.

There seems to be a good amount of misunderstanding about how the passage of the Agriculture Improvement Act of 2018 (or the “2018 Farm Bill”) affects the legality of selling industrial hemp-derived CBD products. But to reiterate, nothing in the 2018 Farm Bill alters the FDA’s position on CBD pursuant to the Federal Food, Drug, and Cosmetic Act (FDCA). Here are some additional highlights from that statement:

  • The FDA will continue to enforce the law, including the FDCA, in an effort to protect patients, the public, and to promote the agency’s goals of promoting public health;
  • Products containing cannabis or cannabis-derived compounds, including CBD, will be subject to the same regulations and requirements as other non-cannabis FDA-regulated products;
  • Hemp or hemp-derived CBD products that are “marketed with a claim of therapeutic benefit, or with any other disease claim” must be approved by the FDA before being introduced into interstate commerce;
  • Hemp or hemp-derived CBD products marketed “for use in the diagnosis, cure, mitigation, treatment, or prevention of diseases” are considered drugs and must be approved by the FDA before they are marketed for sale in the United States; and
  • It is “unlawful under the FDCA to introduce food containing added CBD or THC into interstate commerce, or to market CBD or THC products as, or in, dietary supplements, regardless of whether the substances are hemp-derived.”

It remains to be seen whether the FDA will introduce new regulations pertaining to the sale of hemp-derived CBD products intended for human consumption. For now, the agency has indicated that its position on CBD products is clear. We’ll be watching closely to see if this enforcement action constitutes a ramp-up of enforcement against CBD companies nationwide.

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The Even More Perplexing State of Hemp CBD in California

We’ve got you covered on California, hemp, FDA and CBD.

A few months ago, I wrote a blog post about the precarious state of industrial-hemp derived CBD in California. Since then, as everyone knows, President Trump signed the Agricultural Improvement Act of 2018 (or “Farm Bill”). A lot of people think that in the wake of the Farm Bill, hemp-derived CBD (“Hemp CBD”) is now completely legal. This is in many cases a wildly inaccurate misconception—especially in California. Now, the legal status of Hemp CBD is arguably even more confounding than it was then. And it was pretty bad.

What did the 2018 Farm Bill Actually Do?

Before getting into California Hemp CBD laws, it’s important to discuss what the new Farm Bill even changes. If you follow us here at the Canna Law Blog, you know we’ve written pretty comprehensively on this topic. For a brief overview, the 2018 Farm Bill modified the Controlled Substances Act (the “CSA”) to exempt hemp from the definition of marijuana. Not only is hemp now clearly excluded from this definition and thus not a scheduled drug, but states and tribes also cannot prohibit the distribution of hemp. However, as I explain below, that doesn’t necessarily mean hemp or Hemp CBD can be sold without state restrictions.

The current Farm Bill also gives the U.S. Department of Food and Agriculture (the “USDA”) authority to oversee state hemp regulatory programs. For example, states and tribes must submit plans to the USDA for implementing regulatory schemes, and these plans must be approved by the USDA. In the event that they aren’t, the USDA can implement its own plan.

One other interesting component of the Farm Bill is that crop insurance coverage could be extended to hemp, meaning hemp crops could actually gain federal insurance. In a state like California that is prone to natural disasters, this is critical.

These aren’t all the changes that the new Farm Bill brought along, but they are some of the key ones. Now, on to California.

Hemp CBD in Food/Beverages in California

Over the summer, the California Department of Public Health (“CDPH”) issued its now infamous FAQs (the text is here), which took the position that:

[A]lthough California currently allows the manufacturing and sales of cannabis products (including edibles), the use of industrial hemp as the source of CBD to be added to food products is prohibited. Until the FDA rules that industrial hemp-derived CBD oil and CBD products can be used as a food or California makes a determination that they are safe to use for human and animal consumption, CBD products are not an approved food, food ingredient, food additive, or dietary supplement.”

Under California law, “food” is defined as “[a]ny article used or intended for use for food, drink, confection, condiment, or chewing gum by man or other animal” and “[a]ny article used or intended for use as a component of any article designated” in the foregoing definition. What this means is that the CDPH views anything that counts as food or drink that’s intended for human or animal consumption as unlawful.

On an important side note, the Medicinal and Adult-Use Cannabis Regulation and Safety Act (or “MAUCRSA”) defines “cannabis” to exclude industrial hemp (and therefore doesn’t regulate industrial hemp), and instead incorporates provisions of the California Health and Safety Code which leave the regulation of hemp cultivation to the California Department of Food and Agriculture (“CDFA”). The CDPH expressly cited this issue in MAUCRSA back in response to the 45-day comment period for its proposed regulations to note that the CDPH doesn’t have jurisdiction over regulating industrial hemp. This doesn’t mean that the CDPH can ban hemp in other things (like manufactured cannabis, see below), but it just means that under MAUCRSA, the CDPH can’t start issuing hemp regulations.

Back to the main story, it was pretty clear after the FAQs were issued that the CDPH wouldn’t continue to tolerate sales of foods or beverages with Hemp CBD for long. But we weren’t aware of any sort of enforcement efforts or actual regulations by the CDPH regarding Hemp CBD in foods or beverages. However, after the Farm Bill wound its way through Congress but before Trump signed it, there was some question on whether the Farm Bill would negate the CDPH FAQs.

A few days before the Farm Bill was signed, I wrote a post predicting that the 2018 Farm Bill would not do away with the FAQs. This was because the FAQs are based on the CSA’s prohibitions on hemp as well as the federal Food and Drug Administration’s (“FDA”) stance that Hemp CBD foods are not permissible. The Farm Bill changed the CSA, but not the position of the FDA.

In fact, while the ink from Trump’s signature on the Farm Bill was still drying, the FDA issued a statement (see here) telling companies to pump the brakes and that it still regulates hemp and CBD in at least medicines and foods. In an accompanying Q&A document, the FDA takes the fairly unequivocal position (see response to Q.13) that it is illegal to introduce into interstate commerce food that has CBD in it.

So what is going to happen now? As noted above, we aren’t yet aware of any enforcement actions in California. We’re also unlikely to see any sort of new guidance from the feds during the shutdown or in the immediate future thereafter. But localities may be taking a very different approach.

For example, the L.A. County Department of Public Health’s Environmental Health Division (“LADPH”) published an undated PDF concerning industrial hemp in food and saying that the LADPH will begin actually enforcing them: “Effective July 1, 2019, prohibited use of industrial hemp derived products in food will be considered adulterated and cited by [LADPH] as a violation resulting in a deduction of two (2) points on the official inspection report.”

This is one of the first instances we’ve seen of a county taking an official enforcement position on CBD food products, and interestingly comes on the heels of the L.A. Department of Cannabis Regulation (“DCR”) creating an attestation (which I wrote about here) for businesses who sell hemp products to advise that those products don’t fit within the legal definition of cannabis.

Now it seems like we have our first glimpse of what is going to happen when companies sell CBD foods or beverages. While this is only in L.A., we can assume that other counties will follow suit and may be even more aggressive in their pursuit of these hemp CBD food companies.

What is much less clear though is what this means for simply manufacturing or distributing food products that contain hemp CBD. The CDFA’s website Q&As still say that “California law does not currently provide any requirements for the manufacturing, processing, or selling of non-food industrial hemp or hemp products.” It seems like we will need to wait and see what the final answer is.

Licensed Cannabis Products

Cannabis products will generally contain at least some level of CBD naturally. But what about adding CBD from an industrial hemp source to a manufactured product under the Medicinal and Adult-Use Cannabis Regulation and Safety Act? Well, the CDPH (which governs the manufacture of all cannabis products in California) says no. In the proposed final regulations (no. 40175(c)), the CDPH states pretty clearly that, “A manufacturer licensee shall only use cannabinoid concentrates and extracts that are manufactured or processed from cannabis obtained from a licensed cannabis cultivator.” With this regulation, the CDPH has effectively cut Hemp CBD out of the manufacturing process altogether.

Alcohol Products

In 2018, the California legislature passed a piece of legislation that prohibits cannabis or alcohol licensees from introducing Hemp CBD (or THC) to alcoholic beverages. You can read more about that here.

Dietary Supplements and Medicinal Products

The FDA’s statement makes clear that it will retain jurisdiction over CBD products making medicinal claims, and the accompanying Q&A (see response to Q.12) says that the FDA views dietary supplements containing CBD as unlawful. That said, the FDA notes that there is at least a path towards FDA approval. For what it’s worth, the FDA’s not all talk—see the case of Epidiolex (and see subsequent statement by California’s Attorney General, Xavier Becerra, on Epidiolex). Also, the same day that it issued the statement discussed above, the FDA issued a companion statement listing as generally recognized as safe (“GRAS”) hulled hemp seed, hemp seed protein powder, and hemp seed oil. The FDA is making clear that it’s willing to work with the CBD industry, but it will probably not be cheap.

Vaporizers and Other Products

We recently wrote a comprehensive post about Hemp CBD in vape cartridges. What we said then still holds—it’s a grey and undefined area. This is probably another area that the FDA may eventually regulate given its similar work with nicotine-based vape products. But given the shutdown and just the general speed of regulators, we’re unlikely to know anytime soon.

For what it’s worth, the FAQs are only tailored to food, but it’s possible that regulators could view all products containing Hemp CBD intended for human consumption as unlawful. This seems a bit less likely to happen right away because the CDPH and other agencies have had ample chance to do this but haven’t. But it’s certainly possible, and we’ll make sure to keep you informed of any developments.

Cultivation

We know that at least for cultivation, California’s recent bill SB-1409 (which we’ve written about here and here) was intended to create an application and registration scheme for cultivators. Now that the Farm Bill will require states to submit plans to the USDA for hemp production, it’ll be interesting to see what happens with SB-1409.

Packaging and Labeling

Anyone in the California cannabis game knows that the packaging and labeling regulations are tough, ever-changing, and hard to comply with. The point of these laws seems straightforward—regulators want people to know what they are consuming, and to ensure that cannabis products are properly labeled so that people don’t unwittingly ingest cannabis. They also want to avoid false and misleading claims in labeling.

Because CBD products in California are either in grey or quasi-illegal areas, things aren’t so clear. There aren’t specific packaging and labeling laws for it here, so people who still are selling these products are operating in a labeling wild west. This is different from states like Oregon or Indiana, which have actually begun to figure out how some CBD products should be labeled. We published a post recently on the complexities of and in many cases lack of instruction for hemp labeling laws at the FDA level—and the fact that there may not be guidance for another year or two.

The FDA’s Q&As (see response to Q.15) note that in deciding whether to institute enforcement actions, the FDA will now consider factors, such as “agency resources and the threat to public health.” This may be the FDA’s way of saying that in light of its limited resources, it’s going to spend its enforcement power on those companies selling dangerous products or making false or misleading health claims. One thing we do already know is that the FDA has already sent warning letters to companies that have marketed CBD as new drugs, in the FDA’s view. So in post-shutdown mode, we may see the FDA step in more aggressively on enforcement, especially for products and claims that it views as unlawful.

With the passage of the Farm Bill comes the possibility of a completely new playing field for industrial hemp producers. It appears that the question of whether IRS Code 280E (which prohibits deductions for any amount paid or incurred in carrying on any trade or business that consists of trafficking in a Schedule I or II controlled substance under the CSA) will apply to hemp producers is now settled.

But what about issues like banking or federal intellectual property protections? While it seems like these may be a reality soon, the answer is not as clear cut. If the FDA starts using its enforcement powers against companies that make Hemp CBD foods, for example, it’s certainly possible that banks will still stay away from those companies or that the USPTO won’t register their trademarks. It’s all too soon to say how this will play out, so stay tuned to the Canna Law Blog.

It may seem difficult to understand why cannabis, which is still prohibited federally, is at the state level treated more liberally than Hemp CBD. But the reason is clear—there are strict regulatory testing and quality assurance requirements for cannabis, there will be a track-and-trace system in place to ensure that only white market sources are used, and there are tight packaging and labeling rules that create uniformity in how cannabis products are identified to consumers.

That level of regulatory security doesn’t really exist yet for Hemp CBD and so regulators and lawmakers are naturally more concerned about products that they cannot trace, that may not be labeled at all, and that have undergone zero testing. When Hemp CBD is regulated more like cannabis, regulators may very well relax some of their positions.

Stay tuned to the Canna Law Blog as we will be sure to follow and interpret each and every development in this complex and fast moving space.

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Hemp-CBD and FDA: Labeling Dietary Supplements

Get the inside AND the outside right.

There is no doubt that the enactment of the 2018 Farm Bill, which legalized industrial hemp by removing the crop from the Controlled Substance Act’s definition of “marijuana,” will lead to increased sales and growing opportunities for hemp-derived cannabidiol (“Hemp-CBD”) companies in the new year. In fact, we have already seen an uptick in new and current client inquiries, even in the past few weeks.

As we previously explained, however, there is little information provided by the Food and Drug Administration (“FDA”) about how Hemp-CBD products, including foods, dietary supplements, and cosmetics, should comply with the basic mandatory requirements imposed by the FDA. According to a report released by the Brightfield Group, we will need to wait another 18 to 24 months before the FDA makes a decision regarding the approval of Hemp-CBD products.

Until then, Hemp-CBD companies should handle these uncertainties and the lack of specificity regarding the legal status of Hemp-CBD by being extremely prudent when marketing their CBD products. To that end, we previously discussed the FDA labeling rules and regulations imposed on foods. We now turn to the marketing and labeling requirements imposed on dietary supplements.

For the last three years, the FDA has taken the position that CBD is excluded from the definition of “dietary supplement” under the Federal Food, Drug & Cosmetic Act (“FDCA”) because CBD is an active ingredient in FDA-approved drugs and was the subject of substantial clinical investigations before it was marketed as a dietary supplement.

In response to the federal agency’s position on CBD not qualifying as a dietary supplement, an increasing number of Hemp-CBD companies have embraced a change in nomenclature and have begun manufacturing products that contain hemp extracts standardized for total cannabinoid content rather than isolated CBD. The challenge of course is to not highlight the CBD content in the dietary supplements. Yet, aside from general legal risk, it is important to understand that the terminology “hemp extract” will not shelter a Hemp-CBD company from FDA enforcement should the amount of CBD present in the dietary supplement be higher than other cannabinoids.

In addition to navigating the muddy waters surrounding the product’s nomenclature, Hemp-CBD companies that manufacture, package or distribute dietary supplements must also ensure that their labels contain the basic required components. Generally, a dietary supplement label must include:

  1. An Identity Statement: For example, “dietary supplement” or “botanical supplement”.
  2. A Net Quantity of Contents Statements: An accurate statement of the quantity of the content in weight, measure, or numerical count.
  3. An Ingredient Statement: A list of the product’s ingredients in descending order of predominance by weight in the product.
  4. A Responsibility Statement: The name and place of business of the manufacturer, packer, or distributor.
  5. A Nutrition Statement: Must appear by way of a prescribed format that provides detailed “Nutrition Facts” and “Supplement Facts” on the product.

Each component must appear in the correct format, or the product will be considered misbranded and subject to FDA enforcement action, unless an exemption applies.

Lastly, Hemp-CBD companies must refrain from making claims that their dietary supplement prevents, diagnoses, treats or cures serious diseases, such as cancer. The FDA deems any product containing a health claim as a drug for human use and must go through the FDA drug approval process before it is marketed in the U.S.

As this post highlights, the marketing and labeling rules surrounding CBD, or more accurately, hemp extract dietary supplements are incredibly complex and nuanced. Also, given the lack of precise FDA guidelines regarding Hemp-CBD products, companies in this space should consult with attorneys who specialize in federal regulations to discuss the potential liability of introducing their product into interstate commerce and ensure the legally defensible marketing of their products.

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The 2018 Farm Bill and Hemp CBD Vape Products Manufacturing in California

Last week, the 2018 Farm Bill became law. Included in that law is a milestone provision that removes hemp from the Controlled Substances Act (CSA), and another that prohibits states from preventing transportation or shipment of hemp or hemp products across state lines– even if a state has itself outlawed hemp or hemp products. However, following passage of the Farm Bill, the Food and Drug Administration (FDA) issued a statement virtually ensuring that regardless of changes to the CSA, the FDA will effectively maintain the prohibition on most uses of CBD until further notice, because it retains control over the safety of foods and dietary supplements that include cannabis or cannabis products.

A quick review of some relevant terminology for context: The cannabis plant (Cannabis sativa L.) is cultivated in many strains, with varying levels of the psychoactive ingredient tetrahydrocannabinol (THC) and the non-psychoactive ingredient cannabidiol (CBD), along with hundreds of other constituent ingredients. The Farm Bill amends the CSA to define “hemp” (formerly referred to as “industrial hemp”) as the cannabis plant, any parts of the cannabis plant, and all derivatives therefrom, to the extent they contain a THC concentration of not more than 0.3% on a dry weight basis (i.e. not psychoactive). Any cannabis plant or derivative with more than 0.3% THC remains a Schedule I controlled substance that is illegal under the CSA.

The FDA’s statement clarifies that with respect to foods and dietary supplements, absent further action by the FDA, CBD-infused food or dietary supplements still cannot be legally sold in interstate commerce, even if the Farm Bill mandates that interstate transport and shipment of hemp and hemp CBD must be allowed. The FDA has also taken the position that if CBD-infused products of any kind are marketed as having medical uses or disease-curing properties, they will be subject to FDA regulation as “drugs” under existing law.

But a question that has not yet been answered is how these recent developments affect the legality of hemp-derived CBD extract oil used as an additive in vape products, which is a common application for CBD, but which is not within the realm of foods or dietary supplements. Electronic nicotine delivery systems such as vape pens are regulated separately by the FDA as tobacco products, but it’s unclear how a hemp CBD-only (i.e. containing no tobacco-derived or cannabis-derived products) vape pen would fare under federal law post-Farm Bill. It’s also not clear how the FDA would view hemp CBD as a standalone additive to vape products, and whether it would fall within FDA regulatory purview.

Here in California, it’s also unclear how the Department of Public Health (CDPH), the agency charged with regulating manufactured cannabis products in the state, will view hemp CBD use in vape products. We’ve previously looked at the muddy state of California hemp CBD regulation. Although current CDPH regulations allow cannabis-derived CBD as an additive in licensed manufacturing of cannabis vape products, they also mandate that “[a] manufacturer licensee shall only use cannabinoid concentrates and extracts that are manufactured or processed from cannabis obtained from a licensed cannabis cultivator.” This would seem to foreclose hemp CBD altogether as an option for manufacturing licensees. However, California cannabis statutes make clear that regulated cannabis does not include hemp, and that hemp is an entirely separate regulated substance for which only cultivation is currently regulated by state law.

We already know that the CDPH has determined that hemp CBD will not be a permitted food additive until either the FDA says it is or the CDPH determines it is safe for human consumption, even though cannabis-derived CBD is already allowed as a food additive under state law. And although it may seem reasonable for CDPH to seek to prohibit licensees from using any CBD (including hemp CBD) derived from unlicensed sources, as well as to prohibit unlicensed persons from manufacturing at least cannabis-derived CBD from any source given that existing regulations restrict it, we will not know for sure how the state is going to deal with hemp CBD use in vape products until CDPH issues guidance as it did with respect to hemp CBD as an additive to foods.

So what does all of this mean? Despite passage of the 2018 Farm Bill legalizing hemp, it may not have helped much with the confused state of regulation in California and other states. Use of hemp CBD in vape products is still a grey area at best, and use of hemp CBD as a food additive is still prohibited in California. There appears to be interest in passing California legislation regulating the sale of hemp CBD, and perhaps this legislation will also address the use of CBD in manufacturing in a way that reconciles potential inconsistencies with existing state cannabis regulations as well as federal deregulation. For now, this might be the first time in modern history that a cannabis substance appears to be treated more permissively by the federal government than California—at least for now.

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Oregon Cannabis: State of the State

Here we are at the end of 2018, which means it’s time for the third annual “State of the State” post on Oregon cannabis (the 2017 post is here and the 2016 post is here). The year 2018 was truly remarkable in the Oregon industry, and we saw a lot of change, from regulatory evolution to industry consolidation to overall market dynamism. Below is a high-level summary of what we are seeing in the industry as we move into the new year.

Competition is intense.

The marijuana market is saturated with both licensees and product. October is always the peak month for harvest, and the Portland Business Journal, by way of OLCC, reports that producers brought in 2.54 million pounds that month (measured in wet weight). This was a slight increase from 2.48 million harvested pounds in 2017. For the full year, production was running 9% higher than 2017, and wholesale prices fell by more than 50% from mid-2017 to mid-2018. As any store owner will tell you, retail prices have fallen significantly too.

In addition to product saturation in the market, the number of licensees has continued to grow. OLCC issued an additional 300+ producer licenses in 2018, bringing the total number to 1,110. There are also 1,141 additional producers awaiting licensure. With respect to retail, there are now 606 active dispensaries in the state, including 173 of them in the City of Portland alone. Although OLCC officially “paused” its review of all new applications submitted after June 15th, we don’t see the market becoming less competitive anytime soon.

The M&A market is also intense.

There are no readily available statistics on the number of purchases and sales of marijuana businesses statewide. Anecdotally though, the amount of this activity coming through our office is remarkable. In the past 12 months, we have handled more cannabis business mergers and acquisitions than we ever could have predicted. These transactions range from people giving up failed businesses for a song, to leading local brands joining forces, to the seemingly never-ending stream of reverse mergers and acquisitions involving Canadian public companies. Although Oregon is no longer the only state to allow non-resident ownership, we don’t see a slowdown in this type of activity anytime soon. Expect Oregon to remain a buyer’s market in 2019.

The rules are pretty settled…

Oregon’s statutory changes and administrative rules didn’t change radically in 2018– at least compared to the past few years. OLCC continues to work around the edges, as with the recent push to end the alternating proprietor arrangement and to tighten up the definition on banned “added substances” in finished products. Overall, though, much of the legislative and agency efforts were centered on black market eradication and on building out the industrial hemp program. We applaud both of those efforts.

… But people keep stepping in it.

If the leading 2018 activity for our Portland marijuana business lawyers was buying and selling businesses, dealing with administrative violations was a close second. OLCC has stepped up its efforts program-wide in this manner: It begins with application scrutiny and extends through notices of violation against licensed operators. Certain violations are unfortunately common. Those include “financial interest” violations (yes, lenders must be disclosed), unapproved site changes, camera issues and manifest issues. We are seeing the same types of things, over and over, from companies large and small. Although many of these matters can be settled, they require extreme care and attention, and are best avoided through vigilant compliance.

People are suing each other.

We mentioned litigation last year, and this year is no different. Some of these disputes stem from business failure, undocumented transactions or deals gone south. We still come across the odd con job. There are also more exotic matters like RICO lawsuits and nuisance battles between marijuana and hemp farms. As long as the industry continues to evolve at its current rapid pace, we expect to see more litigation than in other commodities markets.

Hemp just keeps getting bigger.

This has been another big practice area for our office. Industrial hemp demand skyrocketed in 2018 with the CBD craze. Many Oregon farms and processors capitalized, with the number of Oregon Department of Agriculture (ODA) growers rapidly expanding from 233 to 568. As compared to OLCC licensing, acquiring a hemp grower’s or handler’s registration from the ODA is fast and easy, and restrictions on sale are far less cumbersome. Now that hemp is legal nationwide, we only expect this trend to continue into 2019.

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Breaking News: FDA Issues Statements on CBD and Industrial Hemp (and What it Means for California)

Yesterday, President Trump signed the 2018 Farm Bill, paving the way for industrial hemp legalization. Within hours, the U.S. Food and Drug Administration (“FDA”) Commissioner, Scott Gottlieb, issued a statement clarifying the FDA’s position on industrial hemp.

The FDA’s position: Just because industrial hemp is legal doesn’t mean that you can put it in food or call it medicine.

Gottlieb was quick to point out that even though the Farm Bill modified the Controlled Substances Act, the FDA still retains the authority to “regulate products containing cannabis or cannabis-derived compounds under the Federal Food, Drug, and Cosmetic Act” (or “FDCA”). Gottlieb went on to state that the FDA fully intends to exercise that authority:

[I]t’s unlawful under the FD&C Act to introduce food containing added CBD or THC into interstate commerce, or to market CBD or THC products as, or in, dietary supplements, regardless of whether the substances are hemp-derived. This is because both CBD and THC are active ingredients in FDA-approved drugs and were the subject of substantial clinical investigations before they were marketed as foods or dietary supplements. Under the FD&C Act, it’s illegal to introduce drug ingredients like these into the food supply, or to market them as dietary supplements. This is a requirement that we apply across the board to food products that contain substances that are active ingredients in any drug.”

Moving on, Gottlieb was careful to point out that the FDA is open to taking steps to clearing pathways for those who wish to seek FDA approval—as it did for Epidiolex. And in fact, the statement incorporates yet another statement by the FDA issued yesterday which concluded that the FDA “has no questions about Fresh Hemp Food’s conclusion that the following ingredients are GRAS under their intended conditions of use: hulled hemp seed (GRN765), hemp seed protein powder (GRN771), and hemp seed oil (GRN778).”

But Gottlieb was careful to cite, in general terms, a number of different kinds of conduct by companies selling products containing CBD that, according to the statement, are unlawful. These include things like claiming CBD or cannabis products cure diseases prior to undergoing FDA approval. And Gottlieb noted that the FDA will not hesitate to warn consumers and even initiate enforcement actions. In that sense, status quo prevails.

What does this mean for California? We’ve written pretty extensively on the California Department of Public Health’s FAQs which take the position that industrial hemp derived food products are unlawful. In fact, we wrote just days ago that the Farm Bill was unlikely to change the core of the FAQs. The FDA’s statement from yesterday in combination with the FAQs seem to hammer home that in California, CBD in food products will not be considered lawful unless the FDA and CDPH say otherwise.

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BREAKING NEWS: Farm Bill Signed, Industrial Hemp is Now Legal

Hooray for hemp!

Today the US takes a major step forward in cannabis reform! The 2018 Farm Bill legalizes industrial hemp, and was just signed into law by President Trump. Industrial hemp will now be treated like an agricultural commodity, not a controlled substance. Our in-depth look at the hemp provisions in this new Farm Bill is available here.

Hemp has been booming in popularity these last few years and this latest development is only likely to do accelerate market growth. This is in large part due to the increased interest in cannabidiol (CBD) derived from industrial hemp. With reform comes regulation. We expect the Food and Drug Administration to start reevaluating hemp-derived food products, cosmetics, dietary supplements, and drugs. It may take some time for the FDA to actually approve a hemp-derived product, but that day is coming a lot faster in light of this Bill. You can read more about cannabis and the FDA here:

As this Bill just passed, we plan to watch carefully how things develop. Will businesses selling Hemp-CBD now be able to obtain federal trademark protections? How long until California rethinks it’s much maligned CBD-FAQs? If industrial hemp is going to be more widely distributed, what does that mean in terms of product liability? Will other states or even the feds follow Indiana’s guidance on Hemp-CBD labeling? Does hemp legalization mean that US companies can finally enter the international cannabis market?

These are just a few of the questions we’ll continue to write about in this new era of legal industrial hemp. And there will be many more. Even with this new legislation, hemp law will always be complicated due to its close proximity to marijuana. The two both come from the cannabis plant after all. Despite the uncertainty, one thing does seem clear: 2019 is going to be the year of hemp!

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Will the 2018 Farm Bill Open the Door to CBD Trademarks?

It seems that FDA holds the key.

With everyone discussing the passage of the 2018 Farm Bill and its implications for the booming cannabidiol (CBD) industry, there is much speculation as to how the legalization of industrial hemp will affect the treatment of CBD by multiple government agencies, including the United States Patent and Trademark Office. Will the legalization of industrial hemp open the door to federal trademark protection for CBD products? Unfortunately, the answer is not yet clear.

I’ve discussed the “legal use in commerce” requirement for federal trademarks at length in other posts, so I won’t go into too much detail here. But the gist is that in order to procure federal trademark protection for your mark, the goods and/or services for which you are claiming trademark protection must be legal pursuant to federal law. Because the manufacture, distribution and dispensing of cannabis is illegal under the Controlled Substances Act, the lawful use in commerce requirement cannot be met.

But what about CBD? If my CBD products are “legal under federal law,” why can’t I obtain federal trademark protection? Part of the issue that remains, even in light of the legalization of industrial hemp, is that the FDA still says that CBD cannot be sold for human consumption unless it has undergone the agency’s drug approval process. Currently, Epidiolex is the only FDA-approved CBD-based drug, which was rescheduled to Schedule V of the Controlled Substances Act (CSA) in September.

The DEA now defines CBD drugs as follows:

Approved cannabidiol drugs. A drug product in finished dosage formulation that has been approved by the U.S. Food and Drug Administration that contains cannabidiol . . . derived from cannabis and no more than 0.1 percent (w/w) residual tetrahydrocannabinols.”

This definition creates three conditions for a product to be an approved CBD drug. As such, it must:

  1. Be FDA approved;
  2. Be derived from cannabis; and
  3. Have less than .1% THC.

And at least for now, nothing in the 2018 Farm Bill changes this. Without a formal policy change or a change to the FDA’s position, we anticipate that the USPTO will treat CBD products much the same as they have to date, although we wouldn’t be surprised to see a good amount of debate around the subject.

The most informative case that helps to illustrate the USPTO’s current position on CBD trademarks is the Stanley Brothers case.

On December 5, 2014, Stanley Brothers Social Enterprises, LLC filed a U.S. federal trademark application for CHARLOTTE’S WEB, to be used on “plant extracts, namely, hemp oil sold as a critical component or ingredient of dietary supplements.” That application has been alive and the subject of multiple office actions from the examining attorney since, including a final office action that was issued on April 20th of this year (harsh). This final office action is very interesting, because the refusal to register the mark was made final for unlawful use in commerce on two grounds: Lack of compliance with the Controlled Substances Act (CSA) and lack of compliance with the federal Food, Drug & Cosmetic Act (FDCA). I’ll take each of the USPTO’s lawful use determinations in turn.

The Examining Attorney used a pretty standard argument in deeming the Applicant’s goods unlawful pursuant to the CSA stating:

“[i]n this case, the items or activities in the application with which the mark is used involve a per se violation of federal law. See In re Brown, 119 USPQ2d at 1352. Specifically, federal law prohibits the sale, distribution, dissemination and possession of marijuana. That is, under the [CSA] prohibits, among other things, manufacturing, distributing, dispensing, or possessing certain controlled substances, including marijuana and marijuana-based preparations.”

The Examining Attorney goes on to note that the Applicant’s specimens submitted with its application show that the “goods are dietary supplements infused with or which are comprised of cannabidiol (CBD) which is derived from what applicant has called industrial hemp plants which is grown in Colorado.” The Applicant also provided a statement to the USPTO that the goods are “comprised of CBD derived from the plant Cannabis sativa L and that applicant obtains the CBD from more than just the mature stalks and sterilized seeds of the plant. Applicant processes the entire plant including the resins, stalks, stems, buds and flowers …”. Therefore, the Examining Attorney deemed Applicant’s CBD to be derived from the portions of the hemp plant that are unlawful under the CSA.

This argument could become obsolete with the passage of the 2018 Farm Bill.

However, the Examining Attorney also determined that the Applicant’s goods are not in compliance with the FDCA, which prohibits the introduction or delivery for introduction into interstate commerce of a food to which has been added a drug or a biological product for which substantial clinical investigations have been instituted and for which the existence of such investigations has been made public. 21 U.S.C. §331(11). The U.S. Food and Drug Administration (FDA) has stated that substantial clinical investigations of cannabidiol have begun and thus products containing CBD may not be sold as dietary supplements. Applicant plainly indicates that its goods are a dietary supplement, both in its application and on its website, and the Examining Attorney analyzes why CBD does not fall into any of the FDA exceptions that would allow it to be marketed as such.

In wrapping up his analysis, the Examining Attorney made a final argument entitled “The 2014 Farm Bill Did Not ‘Legalize’ Hemp on a National Level.” The Applicant here argued that “its goods are not prohibited under either the CSA or the FDCA [because] the 2014 Farm Bill, 7 U.S.C. Section 5940, has effectively overruled the FDCA as well as the CSA by declaring that hemp is a legal product at the federal level and that all things made from hemp are, therefore, legal.” Applicant also argued that the omnibus law prohibits the expenditure of federal funds to prohibit the transportation, processing, sale or use of hemp that is grown or cultivated under the 2014 Farm Bill. Here’s the relevant portion of the 2014 Farm Bill:

“[N]otwithstanding the Controlled Substances Act, or any other federal law, an institution of higher education or a State department of agriculture may grow and cultivate hemp if (1) the industrial hemp is grown or cultivated for the purposes of research conducted under an agriculture pilot program or other agricultural academic research and (2) the growing or cultivating of the industrial hemp is allowed under the laws of the State in which such institution of higher education or State department of agriculture is located and such research occurs.” 7 U.S.C. Section 5940(a).

And here is the Examining Attorney’s succinct response:

“Although applicant is correct that the cited portion of the Farm Bill states that ‘industrial hemp’ is Cannabis sativa L which is less than 0.3 percent tetrahydrocannabinol (THC) on a dry weight basis, the Farm Bill did not make ‘hemp’ and everything made or extracted from hemp ‘legal’ on a nationwide basis as applicant contends. Section 7606 of the 2014 Farm Bill, 7 USC Section 5940, merely allowed universities and/or state departments of agriculture to create pilot programs to grow Cannabis sativa L with a THC content of less than 0.3 percent for purposes of conducting academic or scientific or marketing research. However, this marketing research did not extend to general commercial activity nor did it make all hemp related goods ‘lawful’ on a federal level. The 2014 Farm Bill provision, for example, did not allow those participating in a state pilot program to sell seeds or plants to consumers in other states nor did it allow for goods made under the program, such as applicant’s dietary supplements, to be sold in states which have not established similar pilot programs … The Federal Register notice goes on to state that Section 7606 of the 2014 Farm Bill, 7 USC Section 5940, did not amend the federal Food, Drug and Cosmetic Act’s requirements for obtaining FDA approval for new drug applications or the requirements for conducting clinical trials and research prior to such approval, or the FDA’s oversight of marketing claims such as those in the Warning Letter addressed to applicant. With regard to the Controlled Substances Act, the Farm Bill provision did not alter the provisions of the CSA that apply to the dispensing, distribution and manufacture of drug products containing controlled substances. ‘Manufacturers, distributors, dispensers of drug products derived from cannabis plants, as well as those conducting research with drug products, must continue to adhere to CSA requirements.’ Federal Register, Vol. 81, No. 156 (August 12, 2016). With regard to ‘marijuana,’ a Schedule I prohibited substance, this means that anything which falls within the statutory definition of marijuana, 21 USC Section 802(16), cannot be distributed or disseminated in interstate commerce. This means that if applicant is extracting CBD from all parts of the Cannabis sativa L plant, as applicant has stated, then the goods are marijuana and cannot be sold in interstate commerce under the CSA.”

Obviously, with the legalization of industrial hemp pursuant to the 2018 Farm Bill, a large portion of the Examining Attorney’s argument for denying the Stanley Brothers trademark protection would be irrelevant. However, the FDA-based reasons for denial still stand, and we’ll be waiting in anticipation to see how FDA’s position on CBD changes, if at all. Ultimately, it seems that the FDA holds the key when it comes to federal trademark protection for CBD products.

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What the 2018 Farm Bill Could Mean for CBD in California

The federal 2018 Farm Bill is likely to become law in the very near future. If it does, it will redefine the hemp industry nationwide. We intend on writing more in the near future as to the specifics of the 2018 Farm Bill, but one interesting question is what effect it will have on California’s industrial hemp and CBD policies.

As anyone in the California hemp business knows, the Department of Public Health (“CDPH”) issued a FAQ policy guideline over the summer which took the position that industrial-hemp derived CBD in food products is unlawful. The FAQ justified this position in part because the federal Controlled Substances Act included industrial hemp as a Schedule I drug, and in part because the federal Food and Drug Administration (“FDA”) had concluded that it was unlawful to place THC or CBD into food products.

The 2018 Farm Bill, if it passes, will essentially amend the Controlled Substances Act to take industrial hemp out of the definition of marijuana. In essence, this would make industrial hemp derived products lawful products. The question then is: Will the 2018 Farm Bill negate the FAQ?

The answer is probably not. Even though the Controlled Substances Act may be amended and some of the underlying support for the FAQ may be undermined, that won’t change the fact that the FDA has not concluded that CBD in food products is lawful. While the CDPH certainly could change its position, the de-scheduling of industrial hemp won’t necessarily change the FDA’s positions right away. In the meantime, it’s safe to conclude that the FAQ still stands.

Ultimately, the 2018 Farm Bill is likely to have far-reaching impacts throughout the industrial hemp industry. We’ll make sure to keep you updated along the way.

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Breaking News: Industrial Hemp Legalization is Happening!

At long last, it’s finally happening: The 2018 Farm Bill has made it out of conference and been approved by the Senate. It currently awaits approval from the House, which is expected this week. If Donald Trump signs the 2018 Farm Bill before the current legislative session ends on December 21, industrial hemp will be legal under U.S. federal law. Though we still are likely a few years out from full marijuana legalization, it appears that 2019 is going to be the “Year of Hemp” if Washington D.C. can make this happen before the deadline. Now, we’ll turn to the long awaited hemp-related text of the 2018 Farm Bill, as agreed to by the House and Senate. A copy of the full 2018 Farm Bill is available, via the U.S. Hemp Roundtable, here.

Some key provisions of the 2014 Farm Bill remain. “Industrial hemp” still means parts of the cannabis plant, whether growing or not, with less than 0.3% THC on a dry weight basis. Cannabis with more than 0.3% is still considered marijuana and is still classified as a schedule I substance. Additionally, the 2014 Farm Bill’s hemp provisions will continue for a year after the 2018 Farm Bill is signed. That means that the agricultural pilot programs that we know and love will stick around for a little bit longer.

However, the new version of the Farm Bill differs significantly in that industrial hemp is explicitly defined to include “all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers” of industrial hemp. Technically, this isn’t necessarily a change in the sense that industry stakeholders (including yours truly) have long interpreted the 2014 Farm Bill to make derivatives and cannabinoids from industrial hemp legal. Now that interpretation has been codified into US law.

The CSA will also explicitly exempt “hemp” from the definition of marijuana. That means that the CSA will acknowledge two different types of cannabis, hemp and marijuana. Hemp is an agricultural commodity. Marijuana is a controlled substance. The problems that plague the marijuana industry including the lack of access to banking, bankruptcy, and federal intellectual property protections should no longer impact businesses dealing solely in industrial hemp. This distinction will also likely lead to increased research by the FDA and other agencies, and remove any question as to whether industrial hemp producers are subject to IRC 280e, which prohibits the taking of deductions related to the trafficking of Schedule I or II controlled substance.

The questions of the interstate transfer of industrial hemp is also addressed. Section 10114 of the 2018 Farm Bill states the following:

TRANSPORTATION OF HEMP AND HEMP PRODUCTS. — No State or Indian Tribe shall prohibit the transportation or shipment of hemp or hemp products produced in accordance with subtitle G of the Agricultural Marketing Act of 1946 (as added by section 10113) [the provisions on industrial hemp] through the State or the territory of the Indian Tribe, as applicable.
This is a major development as the 2014 Farm Bill did not require states to make any distinction between hemp and marijuana. The new provision means that states that don’t adopt an industrial hemp program cannot interfere with the transportation or shipment of industrial hemp. Though this may not go so far as to require each state to allow the sale of industrial hemp or hemp products, including Hemp-CBD, it does prevent states from interfering with the distribution of industrial hemp.

The 2018 Farm Bill also gives Indian tribes the authority to regulate industrial hemp. This is an important change as the Menominee tribe, who’s territory falls within the state of Wisconsin had its initial hemp crop destroyed by DEA agents. A Federal Court ruled that the 2014 Farm Bill required that hemp be cultivated in compliance with state law and therefore, because Wisconsin had not implemented an agricultural pilot program to research industrial hemp, that the Menominee tribe could not legally cultivate hemp. The 2018 Bill explicitly gives tribes the ability to implement programs allowing the cultivation of industrial hemp.

One of the reasons the 2014 Farm Bill’s hemp provisions have been so murky is that no federal agency was given regulatory authority over hemp. The 2018 Farm Bill addresses this by appointing the United States Department of Agriculture (USDA). The USDA will oversee a state or tribe’s regulatory authority over industrial hemp. The state or tribe will submit a plan to monitor and regulate the production of industrial hemp and the USDA will have 60 days to review the plans. Plans must track the land where hemp is cultivated, procedures for testing hemp and disposing of non-compliant hemp, and indicate how the state will enforce against violations of the 2018 Farm Bill.

The 2018 Farm Bill covers penalties for violations of approved state or tribal plans and breaks them into the following categories:

  • Negligent Violations occur when a hemp producer unintentionally violates a state or tribal plan for hemp cultivation by failing to provide a legal description of the land where hemp will be cultivated, failing to obtain the required license or authorization from the state or tribe, or produces cannabis with more than 0.3% THC. Producers who commit a negligent violation shall enter into and comply with a plan established by a state or tribe to correct the violation. The corrective action plan must include a date by which the producer corrects the violation and require that the producer periodically report to the state or tribe on compliance for no less than two years. Producers who commit negligent violations will not be subject to criminal or civil enforcement action beyond agreeing to submit to a corrective action plan. However, if a producer commits three negligent violations within a five-year window
  • Other violations occur when a hemp producer acts with a “culpable mental state greater than negligence.” Other violations could cover things like intentionally growing THC-rich marijuana under the guise of industrial hemp or completely disregarding the industrial hemp rules. Other violations will be referred to the Department of Justice or the “chief law enforcement officer of the State” where the industrial hemp is grown.

The 2018 Farm Bill will prohibit “any person convicted of a felony relating to a controlled substance” under state or federal law before, on, or after the date when the Farm Bill passes to produce hemp under the 2018 Farm Bill or participate in a state or tribal hemp program for a period of 10 years following the date of conviction. This prohibition will not apply to any person lawfully growing hemp with a license, registration, or authorization under a 2014 Farm Bill agricultural pilot program prior to the 2018 Farm Bill enactment. In addition, anyone who makes a false statement on an industrial hemp application will also be banned from the industry.

Finally, the 2018 Farm Bill would also extend federal crop insurance coverage to industrial hemp, meaning that the feds will actually insure a cannabis crop. Hemp producers can also apply for USDA certification and grants, as with other agricultural commodities.

Expect us to write more on this in the near term. This is an important day in the history of cannabis reform and will have a major and positive impact on the cannabis industry.

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CBD Companies Should Prepare Now for Product Liability Claims

We counsel our cannabis (and non-cannabis) clients extensively on product liability issues, and have warned them that the federal illegality of their products will not shield them from the same products liability risks faced by companies in other industries. We extend the same warnings to our cannabidiol (CBD) clients, who, if they are operating outside of a state-run cannabis licensing regime, are actually in a position of even greater risk. Lack of regulation in the CBD space is to the detriment of consumers, who often cannot be certain what ingredients the products they purchase actually contain, or whether those products are safe and free of contaminants.

It’s only a matter of time before harmed consumers start suing CBD companies alleging defective, dangerous, or mislabeled products (and Proposition 65 violations). Here are some posts we’ve written about product liability in the cannabis industry, which are highly relevant to CBD companies as well:

Recently, Vice published an alarming article about a new study that detected synthetic marijuana and a compound in cough syrup in one CBD company’s vape products. The article summarizes the findings of Michelle Peace, a toxicologist and vaping expert at Virginia Commonwealth University who evaluates how electronic cigarettes are being used for substances other than nicotine. Peace received a tip that a product supposedly containing only CBD had psychedelic effects for a consumer. Upon further testing, she discovered that out of nine products tested, four contained synthetic marijuana (5-fluoro MDMB-PINACA (5F-ADB)) and one contained dextromethorphan, an ingredient in cough syrup.

Unfortunately, these findings do not surprise us. We’ve long been wary of the proliferation of CBD products with very little regulation from federal or state governments. Some states have taken steps to combat these unregulated products. In July of this year, the California Department of Public Health’s Food and Drug Branch (CDPH) issued an FAQ on CBD in food products stating:

“[A]lthough California currently allows the manufacturing and sales of cannabis products (including edibles), the use of industrial hemp as the source of CBD to be added to food products is prohibited. Until the FDA rules that industrial hemp-derived CBD oil and CBD products can be used as a food or California makes a determination that they are safe to use for human and animal consumption, CBD products are not an approved food, food ingredient, food additive, or dietary supplement.”

In California, CBD products derived from marijuana and produced by licensed cannabis manufacturers may be sold, but unregulated, industrial-hemp-derived products intended for consumption may not.

So, what should CBD companies be doing to protect themselves from consumer product liability claims? Of course, we recommend implementing robust testing protocols that are in line with those required by state agencies of cannabis manufacturers. The first step in protecting your company is ensuring that your products are safe. In the same vein, be sure that everything you state about your product is accurate.

And oftentimes, one of the best ways to mitigate against product liability claims is to institute a product recall, and having a product recall plan in place will facilitate this. In crafting that plan, below are some recommendations we’ve made before, which bear repeating:

  1. Create an overall recall strategy.
  2. As part of your recall plan, create definitions and standards for classes of recall and the depth and scope of any given recall. If your state or local laws do not provide basic recall standards for cannabis businesses, check out the FDA’s website under Guidance for Industry: Product Recalls, Including Removals and Corrections.
  3. Appoint a recall committee within your company, to be led by experienced personnel capable of evaluating and investigating product complaints to determine if a recall is warranted. This also entails your developing a product complaint form that will be utilized by customers. It is important to learn about product problems as early as possible.
  4. Develop a complaint receipt and evaluation method to ensure your product complaint processing and investigations are logical, efficient, and comprehensive. There are few things worse than receiving product safety complaints and then ignoring them until the situation is out of control.
  5. Truly ponder what your product complaint investigation will entail. What facts should your recall committee be gathering when seeking to determine if a product complaint is valid or if a recall is warranted? What should your recall look like, as based on the facts and circumstances and the threat your product may pose to consumers and vendors?
  6. Create a distribution list so your product recall committee can quickly and easily identify all affected products and product lots for disposition and potential destruction. The distribution list should — at minimum — include the names of all affected consumers and vendors, their contact information, and the dates on which the products were sold to them or consumed by them, and it should also include any side effects, injuries, or illnesses resulting from product use. Time is of the essence here. Our firm had a regional food client that inadvertently failed to issue a recall notice to one of many supermarket chains to which it sold its food. This supermarket chain was so angry about having been kept out of the loop that it refused ever to purchase our client’s product again. Then other supermarket chains learned of our client’s failure to notify this one supermarket company and they too ceased all of their purchasing. Needless to say, our client company no longer exists. Don’t let this sort of thing happen to you.
  7. Institute a method of stock recovery so all tainted product in inventory is effectively quarantined from sale and distribution.
  8. Generate your recall notice and be very careful with your wording in how you alert vendors and consumers to the recall. You want to effectively communicate that a product has been affected and how to deal with that, but you also want to minimize whatever liability your product problems may create for the company. On a case by case basis, consideration should also be given to drafting a press release to help the company’s PR. For this you absolutely need attorney help.
  9. Make sure to as quickly as possible (preferably in advance) alert your outside advisors (your lawyers, your insurance broker, etc.) regarding your recall.
  10. Set out in your recall plan your options for product disposition. Will you destroy a product? Cleanse and then repurpose it? Lay out your options in your plan now so you are not scrambling to try to figure out your possible options later, when you have no time to do so.
  11. Record everything you do. Document every effort you make and record all your communications with consumers and vendors. If there is a legal action later, you will want to be able to show the court that you took all reasonable steps to ensure consumer safety.

In addition to the foregoing, we also recommend regular compliance audits to ensure that your procedures are safe, legal and effective. It is only a matter of time before CBD product liability claims start to proliferate, and CBD companies should prepare for that reality now.

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