Although consumer appetite for CBD-containing products continues to grow, and the market for such products correspondingly expands, 2020 may be another year in which the regulatory roadmap remains unsettled. On one hand, legal hemp production is is expected to increase, as the USDA is in the process of reviewing hemp production plans submitted by various States and Tribes authorized under the 2018 Farm Bill. Furthermore, a majority of states now allow the use of CBD, and a new bipartisan bill, H.R. 5587, sponsored by Rep. Collin Peterson (D-MN) has been introduced in the House of Representatives. The proposed legislation  (full text here) would amend Federal Food, Drug and Cosmetic Act to recognize edible hemp-derived CBD products as a dietary supplement.  Such developments would loosen some restrictions on the marketing of CBD products and surely support the growth of hemp-derived CBD industry in 2020.

On another front, the most recent budget request by the Trump Administration, combined with the increase in FDA warning letters in late 2019 alleging unlawful marketing of CBD products, indicates a turbulent regulatory path for manufacturers and sellers. The FDA previously expressed concerns that a lack of appropriate processing controls and practices in the industry pose a real risk to consumers. Yet, it has exhibited reasonable restraint in bringing enforcement or a litigation action against such companies, appearing to focus on those companies making the most serious types of medical claims about their CBD-containing products or using CBD as a food additive.

The Trump Administration budget request for 2020-2021 hints that such restraint may soon be tested. With the Administration appearing to earmark $5 Million to prioritize activities relating to the regulation of cannabis and cannabis derivatives, and simultaneously focusing on “tracking and tracing of food from farm to fork,”  the FDA will likely continue to ramp up its regulatory and enforcement efforts to review health and safety issues relating to the CBD containing products.

The Takeaway

We are witnessing a brewing conflict between Congress and the FDA about how to treat commercialization of the hemp-derived CBD products, with some uncertainty about what the future holds. While the regulatory frameworks governing this industry will not remain settled in 2020, what remains certain is that FDA will continue to initiate enforcement actions against companies that market their CBD products using unproven medical claims, and may target companies using CBD as an additive to food or drinks.

At Fox Rothschild and the In the Weeds blog, we will continue to follow these developments, and bring you the most up-to-date information on the “state of play” in the hemp and CBD industries. For further information about the FDA’s regulation of Cannabis and CBD-Containing Products, I encourage you to review this helpful page on the FDA’s website.

This post was co-authored by Shahnam Sharareh, PharmD, RAC, a Princeton, NJ-based Partner in Fox Rothschild’s Intellectual Property and Pharma & Biotech practices. Shahnam can be contacted at 609-844-3030 or ssharareh@foxrothschild.com

Joseph McNelis works in Fox Rothschild’s Blue Bell, PA office. He focuses his practice on labor and employment matters, and also tracks legal developments in the cannabis industry in Pennsylvania and nationwide. Joe can be contacted at 610-397-2332 or jmcnelis@foxrothschild.com.

Last week, the California Bureau of Cannabis Control (BCC) gave notice of proposed emergency regulations that will require retailers to display their Quick Response Code certificate outside their storefronts. Distributors and retail delivery drivers will also be required to carry the certificate while transporting cannabis. The certificate will be required to be in a format set forth in the proposed regulations, including that the certificate be able to be scanned on a smartphone from a distance of three feet.  

The regulations come in response to continued reports of injuries attributed to vaping products. According to studies cited in the BCC’s Finding of Emergency and Notice of Proposed Emergency Regulations, nearly all individuals with injuries who used vaping products containing THC purchased those products from unlicensed sources. The BCC concluded that the risk of harm is greater from THC vaping products purchased from unlicensed sources.

The proposed regulations are intended to educate consumers and enable them to ensure that they are purchasing from a licensed retailer. The BCC noted that illegal retailer businesses are often mistaken for legal businesses due to having a similar appearance or name. The BCC also noted that requiring the certificate to be carried by delivery drivers and distributors will enable employees, law enforcement and others to confirm that a business is licensed.

Throughout 2019, our Cannabis Law Group has helped guide and structure deals worth more than $2 billion, facilitated industry-shaping mergers and acquisitions and served as regulatory strategists to lawmakers in preparation for the far-reaching changes that come with legalizing medical and recreational cannabis.

Responding to the evolving needs of businesses in the legalized cannabis industry, the group publishes several valuable resources: two state-by-state surveys of marijuana laws – a National Survey on Marijuana Laws and Regulations and a National Survey on Marijuana in the Workplace and Drug Testing Laws; a Cannabis Industry State Tax Guide; and this blog, “In the Weeds,” that monitors developments in marijuana law and business.

As a testament to the services we provide our clients in this highly regulated industry, the firm’s Cannabis Law Group has been named a 2019 “Practice Group of the Year” by Law360. The prestigious list “honors the firms behind the litigation wins and major deals that resonated throughout the legal industry in the past year.”

To read more about this announcement, and Fox Rothschild’s Cannabis Law Practice Group, click here!

This blog typically focuses on legal issues and developments affecting stakeholders operating within the cannabis industry. However, the legal dichotomy surrounding cannabis (i.e. federal law defines”marijuana” as an illegal controlled substance, but more than 30 states have legalized medical marijuana and about a dozen jurisdictions have legalized marijuana for recreational or “adult use”) also presents challenges for other industries and business. Some of the most common and difficult of these challenges are those faced by businesses seeking to craft employment policies that comply with state and federal laws surrounding the workplace, employee drug testing, and employee marijuana use.

With its newly published  “National Survey on Marijuana in the Workplace and Drug Testing Laws,” attorneys from Fox Rothschild’s Labor & Employment and Cannabis Law practices have created a state-by-state guide to help businesses navigate these complex and sometimes thorny issues. This survey was prepared and will be maintained by attorneys Dori K. Stibolt  and Joseph A. McNelis III.

Fox’s “Marijuana in the Workplace” national survey is a quick reference resource to the relevant laws and regulations governing how workplaces should respond to the growing trend of legalizing marijuana for medical and recreational use in jurisdictions throughout the United States. In particular, the survey provides links to laws and regulations governing medical marijuana, recreational marijuana, and occupational drug testing laws in each state where marijuana has been legalized, as well as summaries of important court rulings interpreting these rules.

Understanding that the state of cannabis law is by no means static, the survey will be regularly updated as new laws are passed and opinions are handed down across the county.

Click here to check out the Survey:

Click here to learn more about the Survey.

Dori K. Stibolt is a Partner in Fox Rothschild’s West Palm Beach, FL office. Dori is a skilled litigator whose practice centers on labor and employment claims, trust and estate matters and business disputes. She frequently defends and counsels management, companies and employers in labor and employment litigation matters pertaining to discrimination, harassment, retaliation, leave/restraint, whistle-blower claims, wage and overtime claims and ADA access suits (including online access); and cannabis issues. Dori can be contacted at 561-804-4417 or dstibolt@foxrothschild.com

Joseph McNelis focuses his practice on employment and litigation matters. He regularly counsels clients on maintaining compliance with state and federal employment laws, and handles litigation matters in the Pennsylvania state courts and in federal courts throughout Pennsylvania, New Jersey, and the Midwest. Joe frequently writes and speaks about developments in the cannabis sector, and tracks legal issues in this highly regulated industry in Pennsylvania and nationwide. Joe can be contacted at 610-397-2332 or jmcnelis@foxrothschild.com.

Franchising is an emerging issue for operators in the cannabis industry, both for companies that voluntary adopt the franchise model to expand their business, and for those who may find they have become an “accidental franchise.”

Light bulb symbol composed of cannabis, illustrating concept of cannabis-related patents

Fox Rothschild attorneys Eleanor Vaida Gerhards and Matthew R. Kittay have authored a primer that explores both ends of this spectrum, outlining the benefits of the franchise model for cannabis operators as well as strategies to avoid falling into the accidental or inadvertent franchise trap. To learn more, check out Cannabis Franchising: Opportunities and Legal Perils.

Eleanor Vaida Gerhards is a partner in Fox Rothschild’s Corporate department and Co-Chair of the Franchising & Distribution Practice Group.  Eleanor is a Certified Franchise Executive, a designation received from the Institute of Certified Franchise Executives, who works with startup and established franchise clients in structuring franchise programs, drafting franchise documents and counseling clients on regulatory compliance matters. She also handles matters related to master franchising, multi-unit licensing and area-development business arrangements. Eleanor also represents franchisors and franchisees in connection with the acquisitions and sales of franchise businesses. Eleanor can be reached at egerhards@foxrothschild.com or 215.918.3642.

Matthew R. Kittay is National Co-Chair of Fox Rothschild’s Mergers & Acquisitions Practice Group and Chair of the Firm’s New York Corporate team. Matthew has deep experience in structuring mergers and acquisitions and securing private equity and venture capital for a wide range of companies, particularly in the technology, software, cannabis, manufacturing and health care sectors. He is ranked by Chambers USA as a leading corporate attorney for his transactional work with clients in the cannabis sector, and in 2019, Matt was named by The National Law Journal as a Trailblazer in Cannabis Law. Matt can be reached at mkittay@foxrothschild.com or  212.878.7978.

 

 

As has been reported here and all over, the passage of the 2018 Farm Bill has led to a massive boom in the sale and marketing of products containing Cannabidiol (CBD). Indeed, everywhere from your local grocery store to hip, big-city smoothie shop now carry an array of products infused with CBD.

Although the 2018 Farm Bill did remove the federal prohibition on the manufacture and sale of hemp–and by extension, hemp-derived CBD–the U.S. Food and Drug Administration (FDA) quickly stepped in to make clear that the Agency had jurisdiction to regulate certain CBD-containing products under the Federal Food, Drug, and Cosmetic Act (FD&C Act).  The FDA has not yet issued formal Regulations explaining what types of products may run afoul of the FD&C Act. However, over the past year, the FDA has made clear through its statements and enforcement actions that it has two priorities in this arena: (1) companies claiming that its CBD products can prevent, diagnose, treat, or cure serious diseases such as cancer; and (2) companies using CBD as an additive to food or drink.

Cannabis leaf in warning sign

In further clarifying its position against CBD marketed products as a dietary supplement or as a food additive, the FDA announced on November 25 that it has issued warning letters to 15 companies alleging illegal sale of products containing CBD in violation of the FD&C Act. (Click here for the FDA’s formal announcement of the warning letters). Despite some prior indications that FDA continues to explore pathways for lawful marketing of the CBD containing products, and that the Agency is open to engage with the State and local regulatory partners to further clarify the requirements under the FD&C Act, the message coming from the FDA was loud and clear.

Based on the current scientific information supporting the safety of CBD in food, the FDA cannot conclude that CBD is generally recognized as safe (GRAS) among qualified experts for its use in human or animal food.  The common theme among the issued warning letters was that the manufacture of such products employed an overall marketing strategies that inferred that the product can be used to prevent or treat a disease, as drugs, in violation of FD&C Act.

Among commonly problematic phrases in the issued warning letters are the following:

  • “CBD relieves pain and inflammation”
  • “studies show that CBD prevents human experimental psychosis and is effective in open case reports and clinical trials in patients with schizophrenia, with a remarkable safety profile.”
  • “Not only does the research show that CBD benefits including being effective in fighting breast cancer cells, data also suggest that it can be used to inhibit the invasion of lung and colon cancer, plus it possesses anti-tumor properties in gliomas and has been used to treat leukemia.”
  • “CBD lowers incidence of diabetes”
  • “several pre-clinical reports showing anti-tumor effects of CBD…have found reduced [cancer] [sic] cell viability, increased cancer cell death, decreased tumor growth, and inhibition of metastasis.”
  • “CBD for opioid addiction”
  • “A potential new treatment for opioid addiction has been found in a new review of previous research of cannabidiol (CBD).”
  • “10 little known uses for CBD” include “PTSD”, “Fibromyalgia”, “Schizophrenia”, “Diabetes”, etc…
  •  CBD  “Inhibits cancer cell growth”
  • “There is extensive scientific and clinical research, including research by the US government, which exposes CBD’s potential as a treatment for a wide range of conditions, including…  “ADD and ADHD, ” “Alcoholism,” “Antibiotic-resistant Infections,” “Autism,”…
  • “CBD Oil infused balm is a powerful topical cream designed for sore muscles, or areas where pain is felt.”
  • “CBD Pain Relief Roll-on GEL”
  • “CBD can help with many skin conditions. CBD has anti-inflammatory properties that can help with acne, psoriasis, and eczema.”

Unless approved by the FDA, use of any such phrases in any medium; website, social media, packaging, to market the CBD products for treatment of diseases or for other therapeutic uses for humans and/or animals will be viewed as a violation of section 201(g)(1) of the FD&C Act, 21 U.S.C. 321(g)(1).  Therefore, companies selling CBD-containing products must review their marketing and advertising materials in conjunction with warning letters issued by the FDA, and continue to monitor further enforcement efforts by the Agency.

For more information about the FDA’s regulation of Cannabis and CBD-Containing Products, I encourage you to review this helpful page on the FDA’s website.

This post was co-authored by Shahnam Sharareh, PharmD, RAC, a Princeton, NJ-based Partner in Fox Rothschild’s Intellectual Property and Pharma & Biotech practices. Shahnam can be contacted at 609-844-3030 or ssharareh@foxrothschild.com

Joseph McNelis works in Fox Rothschild’s Blue Bell, PA office. He focuses his practice on labor and employment matters, and also tracks legal developments in the cannabis industry in Pennsylvania and nationwide. Joe can be contacted at 610-397-2332 or jmcnelis@foxrothschild.com.

The Illinois House of Representatives recently passed amendments to Senate Bill 1557, which made some material changes to Illinois’ Adult-Use Cannabis Laws. The bill is now on its way to the governor for his signature and will not be effective until then. However, it is crucial to get ahead of these material changes so you can plan accordingly.

Below are some key changes to Senate Bill 1557 from the recently approved House Floor Amendments No. 1 and 2.

Municipality Taxes

  • Cities and counties can begin collecting cannabis taxes on July 2020 rather than September 2020. (55 ILCS 5/5-1006.8)

Banking

  • The Secretary of the Department of Finance and Professional Regulations cannot take any actions against savings banks or holding companies that provide financial services or loans to cannabis-related businesses or individuals solely because they offer those services to the cannabis industry. (205 ILCS 205/9002)

Consumption Areas

  • Limited cannabis consumption areas to tobacco retailers and cannabis dispensaries (with municipal authorization). Bars and restaurants are no longer allowed to provide cannabis consumption areas. (410 ILCS 82/35)

Licensed Activities

  • Allows Early Approval Adult Use Cultivation License holders to process and transport cannabis-infused products. (410 ILCS 705/1-10)
  • Allows Early Approval Adult Use Dispensing License holder to sell cannabis-infused products. (410 ILCS 705/1-10)
  • A licensed dispensing organization must contract with a licensed private security contractor to provide on-site security at all hours of operation. (410 ILCS/15-70)
  • Medical cannabis cultivation centers, dispensary organization, and their officers and agents cannot make political contributions. (10 ILCS 5/9-45)

License Applications

  • Principal Officers are not required to submit to a fingerprint and background check when applying for an Early Approval Adult Use Dispensing Organization License at a secondary site. (410 ILCS 705/15-20)
  • After receiving a Conditional Adult Use Dispensing Organization License, the organization must be able to show it continues to meet all requirements for holding such license; rather than just proof it meets the financial requirements. (410 ILCS 705/15-25)
  • An individual or entity cannot hold more than 10 adult-use dispensing license. This includes all types of adult-use dispensing licenses. (410 ILCS 705/15-36)
  • Lowered the required score to receive a transporting organization license from 85% to 75%. (410 ILCS 705/40-15)
  • An applicant’s tax records, in addition to one of the previously required documents, can now establish proof of an individual’s primary residence. (410 ILCS 705/1-10)
  • Proof of residency to show Illinois ownership can now be established with either 5 years of tax records or two of the following: 1) a signed lease with the applicant’s name; 2) property deed that include the applicant’s name; 3) school records; 4) a voter registration card; 5) an Illinois driver’s license, an Illinois ID card, or an Illinois Person with a Disability ID card; 6) a paycheck stub; 7) utility bill; or 8) any other proof of residency or other information necessary to establish residence. (410 ILCS 705/15-30)
  • If an applicant cannot locate a secondary site in the initial approved region within 360 days, because of local bans, the geographic restrictions may be waived and a new region may be recommended. (410 ILCS 705/15-20)
  • Social Equity Incubation commitments must be for a minimum of 1 year. (410 ILCS 705/15-15)

Expungements and Criminal Activities

  • All existing notations on individuals driving records regarding that person’s registration as a qualified person or caregiver will be removed. (410 ILCS 130/60)
  • Individuals can receive DUIs for operating a watercraft or snowmobile while operating under the influence of cannabis. (410 ILCS 705/10-35)
  • A person can no longer be considered an unlawful user or addicted to narcotics solely as a result of possession or use of cannabis or cannabis paraphernalia in accordance with the Illinois Cannabis Laws. (410 ILCS 705/1-7)
  • The definition of a Minor Cannabis Offenses was changed to include violations of the Cannabis Control Act concerning no more than 30 grams of cannabis or cannabis products. Those offenses shall automatically be expunged if committed prior to June 25, 2019 and if the conviction was not associated with an arrest for a violent crime. (20 ILCS 2630/5.2)

Anti-Revolving Door Policies

  • No officer or member, or spouse or immediate family member may hold an ownership interest in a licensed cannabis business establishment while in office or within a period of 2 years immediately after leaving office. This does not include owning a passive interest in a publicly trading company. (5 ILCS 430/5-45)
  • No State employee who works for any State agency that regulates cannabis license holders and who participated personally and substantially in the award of licenses cannot hold an ownership interest in any cannabis license during State employment or within a period of 2 years immediately after termination of State employment. (5 ILCS 430/5-45)
  • No officer of the executive branch or State employee of the executive branch with regulatory or licensing authority shall within a period of 1 year immediately after termination of State employment, accept employment or receive compensation from a person or entity if that State employee participated personally or substantially in regulating or licensing of such individual or entity. (5 ILCS 430/5-45)
  • No State employee who personally or substantially participated in the award of State contracts or State contract change orders in excess of $25,000 cannot accept employment or receive compensation from an individual or entity who received such contract within 2 years immediately after termination of State employment. (5 ILCS 430/5-45)

In December 2018, Congress passed the 2018 Farm Bill. While Congressional passage of the “Farm Bill” is a relatively regular occurrence, the latest iteration had big implications for the Hemp Industry, because of a provision of the bill which removed hemp from the definition of “marijuana” under the Controlled Substances Act. While this opened up the market for US-based hemp producers, many questions still remained about federal regulation of hemp and the hemp industry.

Field of Hemp

After several months of waiting, the United States Department of Agriculture issued interim regulations on October 29, 2019 addressing issues such as licensing, interstate transportation and THC testing and sampling. Fox Cannabis attorneys Jared Schwass and Jesse Harris provide detailed analysis on these interim regulations here (and re-published below).

For any questions about the USDA’s interim hemp production regulations, please contact Jared Schwass at 415.651.1487 or jschwass@foxrothschild.com, Jesse Harris at 215.299.2864 or jesseharris@foxrothschild.com, or any member of Fox Rothschild’s Cannabis Law Practice Group.

 

USDA Releases Interim Hemp Production Regulations

November 1, 2019

By Jared Schwass and Jesse M. Harris

The United States Department of Agriculture recently released interim hemp production regulations that lay the groundwork for legal hemp cultivation. The interim regulations, outlined below, tackle state and federal hemp requirements, including licensing, interstate transportation and THC testing and sampling. These interim rules will become final after the USDA considers proposed revisions during a 60-day public comment period ending on December 30. States and tribes are now allowed to submit their own hemp farming regulation plans for review and approval by the USDA.

To the extent applicable, hemp farmers and businesses that deal with hemp cultivation should be prepared to comply with these federal standards as well as determine whether their jurisdictions intend to adjust or add any hemp production rules that may differ from the USDA’s.

Background

The Agriculture Improvement Act of 2018 (2018 Farm Bill) declassified “hemp” and “hemp-derived products” from the Controlled Substance Act (CSA) and opened the door for states to allow legal hemp cultivation and production. However, hemp farming had remained inconsistently regulated state-to-state given the lack of federal oversight in the area. The USDA’s interim regulations will regulate hemp production on a national scale, but will allow latitude for states to implement their own USDA-approved hemp production programs.

State Program Requirements

  • Pursuant to the 2018 Farm Bill, states and tribes can regulate hemp production within their jurisdiction if they submit a plan to the USDA and the Secretary of Agriculture approves it.
  • Regulations do not preempt state or tribe laws and allow each jurisdiction to apply more restrictive regulations than the USDA.
  • USDA regulations provide minimum requirements for the state and tribe plans. To be considered for approval, state and tribe plans must contain the following rules:
    • Licensing requirements;
    • Data collection and information about the land on which hemp is produced;
    • Procedures for testing the THC concentration levels of hemp;
    • Procedures for disposing of noncompliant plants;
    • Compliance provisions; and
    • Procedures for handling violations.

Licensing Requirements

  • If a state or tribe does not obtain USDA approval for their plan, prospective hemp producers in those jurisdictions must apply for a hemp production license through the USDA. Otherwise, prospective hemp producers must apply for a hemp production license with the state or tribal authority that has a USDA-approved hemp production plan.
  • The USDA will begin accepting license applications 30 days after the effective date of these regulations.
    • For the first year, license applications can be submitted any time.
    • For all subsequent years, license applications and renewals must be submitted between August 1 and October 31.
  • Hemp licenses issued through the USDA will be valid for three years and do not automatically renew.

License Transfers

  • USDA regulations state that hemp producer licenses are strictly nontransferable.
  • A license modification is required when the licensed business is sold to a new owner or when hemp is produced in a new location not described on the original application. In essence, the USDA will allow ownership transfers and allow a licensed hemp producer to grow in new locations without applying for a new license.

Interstate Transportation

  • USDA regulations expressly state that no state or tribe may prohibit the interstate transportation or shipment of hemp produced in accordance with their regulations, the 2014 Farm Bill or any approved state or tribe plan.

THC Testing and Sampling

  • THC testing and sampling of hemp crops must occur within 15 days before harvest.
  • Sampling must be performed by a USDA-approved sampling agent, or a federal, state or local law enforcement agent authorized by the USDA.
  • THC testing must be performed by a laboratory registered with the Drug Enforcement Agency (DEA) to handle controlled substances under CSA and DEA regulations.
    • An additional USDA requirement under consideration would have laboratories obtain ISO 17025 certification, as well as comply with the policies and procedures of the “Laboratory Approval Program” administered by the Laboratory Approval Service.
  • Regulations provide for certain post-decarboxylation methods of testing to account for the potential conversion of THCA into THC.
  • A “Measure of Uncertainty” calculation will be applied to the THC testing results to determine the “Acceptable hemp THC level,” which is the standard for determining THC concentration compliance.
  • Interim regulations do not address testing hemp crop for pesticides or insecticides.

Last week, my colleagues wrote about AB 1291, which expanded upon the requirement for California cannabis companies with 20 or more employees to enter into labor peace agreements. A handful of other laws of note have recently been passed in California.

Industrial Hemp

SB 153 sets the stage for compliance with the 2018 Farm Bill by requiring the state to submit its hemp regulatory plan to the USDA by May 1, 2020. The bill also:

  • revises existing laws related to cultivation and testing of hemp to be consistent with the state regulatory plan
  • provides registration requirements, and
  • expands the Industrial Hemp Advisory Board

Universal Symbol for Vape Cartridges and Pens

AB 1529 provides details regarding the “universal symbol” labeling and packaging requirements for vape pens and cartridges. Notably, the minimum size for the required symbol has been reduced to ¼ inch high by ¼ in wide, which will allow for easier placement of the symbol on products. The symbol must be engraved, attached via a sticker, or printed in black and white.

Testing Requirements

AB 404 allows the BCC to authorize retesting of products that failed testing as a result of equipment problems, staff errors or other circumstances that compromised the testing. The bill also allows testing labs to amend certificates of analysis to correct minor errors.

State Tax Deductions

AB 37 will allow California companies to deduct business expenses on their state tax returns. This will be a big help for cannabis businesses, which have historically not been able to deduct those expenses as a result of Internal Revenue Code 280E and California’s policy of treating income in the same manner as it is treated federally.

Equity-Based Developments

SB 595 requires the state licensing agencies to develop and implement a program that allows for deferrals or waivers of fees for certain needs-based applicants. SB 34 allows cannabis products to be provided at no charge for certain low-income patients.