Anita Sabine and Jeff Edelstein are partners at Manatt, Phelps & Phillips, LLP and Jessica Borowick is an associate with the firm. Sabine is a leader in the firm's cannabis and CBD practice, while Edelstein is a partner in the advertising, marketing and media practice.
The 2018 Farm Bill was signed into law in December, removing industrial hemp and products derived from it, including CBD, from the Schedule I list of drugs under the Controlled Substances Act. As a result, industrial hemp is no longer illegal at the federal level.
What this means for the universe of CBD-related industries, including stakeholders in the food and beverage industry, is that they now can engage in transactions in hemp-derived CBD across state lines as long as the hemp contains no more than 0.3% THC, the psychoactive component of cannabis, and the hemp complies with all applicable laws at the places of origin and final destination. Hemp that contains more than 0.3% THC loses the 2018 Farm Bill safe harbor and could constitute illegal marijuana.
The 2018 Farm Bill did not legalize marijuana-derived CBD, which remains a Schedule 1 controlled substance. Nor did the 2018 Farm Bill legalize hemp seed oil or other derived products that require U.S. Food and Drug Administration approval, like food additives, dietary supplements and products claiming health benefits. Those all remain under the FDA's purview, and their status was not impacted by the 2018 Farm Bill.
Despite passage of the 2018 Farm Bill and the massive proliferation since then of foods and beverages containing CBD, hemp-derived CBD has not yet been approved at the federal level for consumption. The FDA still prohibits companies from adding CBD to food, drinks and supplements, and from making therapeutic claims about their products. The FDA has expressed concerns about the safety of ingesting CBD, and at the same time has made a commitment to exploring a regulatory framework that would allow hemp-derived CBD to become more widely available to the public. The FDA held a public hearing on the subject in May, where several representatives from the food and beverage industry provided testimony.
While the FDA's enforcement priorities could change at any time, the agency has not actively enforced the prohibitions on ingestible CBD, except when companies have advertised their CBD products as having particular health benefits. The FDA Principal Deputy Commissioner described the FDA's "biggest concern" related to passage of the Farm Bill as unsubstantiated CBD-related medical and treatment claims for serious diseases. All four FDA warning letters issued this year concerning cannabis focus primarily on that issue. Two of the four also warn the applicable companies that the inclusion of nutritional information on their products suggests that the products constitute impermissible CBD-containing food, and two of the four warn the applicable companies against marketing their products as dietary supplements.
The Federal Trade Commission has adopted a similar enforcement approach. In September, the FTC sent warning letters to three companies that sell CBD products, including "gummies," primarily because those companies advertised their products as treatments or cures for serious diseases and health conditions. An FTC official also recently cautioned advertisers that the FTC is actively monitoring CBD advertising. He noted that not all CBD products are the same, and that enforcement of the FTC's prohibition of false advertising will proceed on a case-by-case basis. This statement could be interpreted as a reminder that competent and reliable scientific evidence must be available to support not only general claims about health benefits of CBD, but also specific claims regarding individual CBD products that have varying levels and types of CBD ingredients.
On the state level, hemp-derived CBD is highly regulated. While many states have adopted laws permitting and governing the production, transport, distribution and sale of hemp-derived CBD products, the laws are constantly and rapidly evolving, and wildly differ across states. Further complicating matters, many state regulatory regimes are internally inconsistent or ambiguous. One common thread, however, is that virtually all states that have weighed in on the topic of ingestible hemp-derived CBD have adopted the same prohibition as the FDA, making it illegal to advertise or sell ingestible hemp-derived CBD products.
This is the case even in progressive states such as California, which permits the manufacturing and sale of edible cannabis, including marijuana-derived CBD products, sold in a state-licensed commercial cannabis dispensary. A California bill (AB 228) that would permit CBD in food and health supplements in California died in September after having passed the state assembly and moving quickly through several state Senate committees.
Producing and transacting in non-ingestible hemp-derived CBD products has its challenges as well. First, many states require various points of the supply chain in hemp-derived CBD products to be licensed or registered. In addition to cultivators, that could include manufacturers, distributors and the retail products themselves. Second, many states have imposed independent laboratory testing requirements, focused on verifying the percentage of THC in the CBD product, the safety of ingestible CBD products or both. Texas, for example, requires a license for the possession and storage of hemp and a separate license to process and manufacture hemp-derived CBD. The state also prohibits possession, sale, distribution and transportation of CBD oil without proof that a sample of the product has been tested and shown to have no more than 0.3% THC. Utah requires marketers and sellers of industrial hemp products, including those containing CBD, to register their products annually with the state’s Department of Agriculture along with a certificate of testing evidencing the percentage of THC, solvents, pesticides, microbials and heavy metals.
The variations between state laws extend to implementation timetables as well. Encouraged by the passage of the 2018 Farm Bill, many state legislatures introduced and passed bills in 2019 regulating general industrial hemp programs, as opposed to industrial hemp pilot programs previously authorized under the 2014 Farm Bill. However, until the U.S. Department of Agriculture develops regulations to implement the 2018 Farm Bill provisions, expected to occur by the end of 2019, at which time individual states may seek approval for primary regulatory authority, industrial hemp can be legally cultivated in the U.S. only under state hemp pilot programs authorized as part of the 2014 Farm Bill.
As a result, even in states where hemp-derived CBD has been legalized under general industrial hemp programs, until the USDA implementing rules go into effect, those general hemp programs are not available. Compounding this issue is the fact that there is no uniformity among states in their internal timetables for implementation of their general hemp programs. Many state legislatures have indicated that they will wait until the USDA implementing rules are adopted before formulating their own state implementing rules, thereby further delaying full implementation and legality of industrial hemp outside of more limited state pilot programs.
Although federal and state laws are evolving and inconsistent, food and beverage industry stakeholders can take away at least five concrete lessons based on this snapshot of the laws.
- Stakeholders that deal in hemp-derived CBD must ensure they have adequate and appropriate substantiation for all claims that they make, especially any health- and disease-related claims.
- Stakeholders should test their products on a regular basis to ensure the batches contain no more than 0.3% THC, and preserve that documentation.
- Stakeholders should implement robust compliance programs to ensure their products comply with all applicable state laws at all points of the supply chain, from the point of origin to final destination, including any licensing, registration and documentation requirements.
- When working with third-party suppliers or service providers, stakeholders should negotiate for contractual protections such as highly tailored representations, warranties and indemnities, and immediate termination rights for noncompliance with laws.
- Except in states where ingestible hemp-derived CBD is specifically permitted, like Washington, and the products are wholly produced and exclusively advertised within the state, until the FDA has approved ingestible hemp-derived CBD for human consumption, stakeholders should avoid advertising or otherwise positioning their products as foods, supplements or beverages.