Feds Take Steps to Increase Hemp Producers’ Access to Capital

The Department of Treasury released new guidance yesterday that makes it much easier for banks to serve hemp producers. This comes on the heels of the USDA interim rules governing hemp nationwide. 

Basically, the new guidance says that banks no longer need to file ‘suspicious activity reports’ with Treasury for hemp producers since the crop is now largely legal under federal law. Suspicious Activity Reports (or SARs) are a fairly burdensome regulatory requirement for banks that require a great deal of diligence. This new guidance not only reduces the regulatory burden; it also reduces legal exposure banks may face by working with clients in the hemp industry. This should mean a greater willingness on the part of federally chartered banks to work with hemp producers, which, in turn, will result in greater access to capital.

This is also important because of likely trickle down effects. Insurers, for example, will likely become more eager to work with the hemp industry as access to capital increases.

Of course, banks will still need to ensure that their clients are complying with state and federal laws governing hemp, and will need to conduct necessary diligence to avoid banking illegal marijuana operations with products containing THC in excess of 0.3%. In addition, banks will need to remain cautious about clients who work with CBD in food products given the FDA’s hostility to that practice.

All in all, I see this as another positive step in the long game toward broader legalization.

Class Action Lawsuit Brought Against CBD Company for Deceptive Advertising

Just a week after the U.S. Food and Drug Administration (FDA) stated that it could not give CBD a “generally recognized as safe” designation, a proposed class action has been filed against a CBD company in California. The complaint alleges that Infinite Product Co.’s CBD products are misleadingly labeled and illegal to sell because they use CBD as an additive to food and topical cream products in violation of federal law. The “generally recognized as safe” designation allows a substance to be used as a food additive without going through the FDA’s approval process. Currently, there is no federal regulation that allows the use of CBD as a food additive. This proposed class action could be the first of many against CBD companies offering consumer products and food containing CBD as an additive, and may provide further impetus to the FDA to provide more guidance related to CBD products.

CBD Largely Banned in NYC

New York City is nine days into a CBD prohibition. Straight from the NYC Health Department website: “As of July 1, 2019, the Health Department is embargoing food and drink products that contain CBD – the products will have to be returned to the supplier or discarded.” And beginning October 1, 2019, NYC will begin fining retailers and food service establishments that sell CBD products.

With this ban, New York joins a number of other large cities, including Los Angeles, Portland (Oregon), San Diego, and Seattle. Each of these cities is relying on the hardline position of the FDA that CBD as a food additive is illegal, period.

It should be noted that the July 1 CBD ban is the latest iteration of a months-long process in NYC where the City has taken an increasingly hardline approach to CBD. As early as last February, the City announced it was banning the sale of CBD in food service establishments. But enforcement has been lax – this newest policy promises to strengthen enforcement and expands the ban to include retailers. We will have to watch and see if this increasingly restrictive approach to CBD in NYC (and other major cities) creates a template for other jurisdictions.

The FDA Thinks There “May Be” Some Products That Add CBD to Food – What Are They Gonna Do About It?

Last week, the FDA made yet another effort to clarify the status of CBD under federal law with a “What you need to know” webpage. The FDA continues to state that, aside from Epidiolex, it “has not approved any other CBD products.” Yet, the FDA acknowledges, in what may be the understatement of the century, that “we are aware that there may be some products on the market that add CBD to a food.” You think? Square that acknowledgment with the fact that, according to the Washington Post, more than 1,000 CBD-infused products are now available online, or with Carl's Jr. rolling out a CBD-infused special sauce burger in Denver for 4/20 Day. 

While the FDA goes through its process and tries to figure out what to do about CBD, the industry isn’t waiting around. It seems like the feds are going to have a lot of catching up to do. But as regulations do roll out, eventually, this could change the enforcement landscape. A broad prohibition simply can’t be meaningfully enforced since the number of violations is astronomical, but more tailored regulations by the FDA could prove easier to enforce, depending on what they look like. For now, we’ll keep monitoring.

The Latest USDA Guidance on Hemp Law

The United States Department of Agriculture (USDA) Office of General Counsel issued some guidance last week on its view of the current legal status of hemp. The takeaways are:

1. Hemp is no longer a Schedule I Controlled Substance under federal law.
2. At the moment, states cannot prohibit the interstate transport of hemp (or hemp products) lawfully produced under the 2014 Farm Bill. Why the 2014 Farm Bill, when the 2018 Farm Bill just became law, you might ask? Well, point 3 gets to this.
3. The 2018 Farm Bill loosened the requirements for hemp to be grown legally, but this more relaxed regime only takes effect after the USDA publishes the necessary regulations. Once these regulations are published, then states and tribes may not prohibit the interstate transport of hemp produced under a state or tribal plan or under a license issued by the USDA.
4. While states and tribes cannot prohibit the commerce of hemp legally grown elsewhere, they can enact and enforce laws which prohibit the growth of hemp within their territory.
5. The Food and Drug Administration (FDA) retains authority to regulate hemp under applicable FDA laws. In other words, the FDA can and will continue to crack down on those who make unapproved therapeutic claims related to CBD, and may continue to regulate the addition of CBD to food products.

Overall, this guidance is probably good news for those who are growing or sourcing their product legally, and want to reach a national market. It could also be interpreted as another baby step in the direction of nationwide legalization of one species of cannabis.

The TSA Warms up to CBD in Words, but What About Deeds?

So the TSA claims to have changed its policy over the weekend to permit travelers to carry hemp-derived CBD products with them in flight. The TSA website has been updated to state that “products/medications that contain hemp-derived CBD or are approved by the FDA are legal as long as it is produced within the regulations defined by the law under the Agricultural Improvement Act of 2018.” 

At first read, this seems like oils, gummies, topicals, edibles – they’re all a go! Prepare for take off! But then we get down to enforcement and implementation, and I’m left scratching my head. The Agricultural Improvement Act of 2018 (or the 2018 Farm Bill, as it’s better known) does legalize hemp and hemp products, but only when grown under certain requirements, with state and/or federal approval. How on earth is a TSA agent going to know whether your CBD is derived from hemp that was legally grown in Kentucky or illegally grown in Texas? (Texas may be a bad example since hemp/CBD is about to be legalized there too, but you get the point.)

I for one doubt that TSA agents will be specially trained in the legality of CBD and hemp. The more likely scenario is that this change in TSA regulation is intended to accommodate FDA-approved Epidiliox, the first federally approved drug containing CBD. If any other form, it’s hard to know how TSA agents will treat CBD for the foreseeable future.

What Is Going on in the World of Hemp?

Anyone involved in the hemp and CBD industry in Maine has been on a roller coaster ride this year. On December 20, 2018, hemp became (kind of) legal federally. But then the U.S. Food and Drug Administration said that non-approved food products containing CBD remained illegal. Then Maine regulators started telling retailers that they weren’t allowed to sell food products containing CBD, only to walk that position back. In response, the State Legislature passed LD 630, which legalizes the sale of food products containing CBD. Meanwhile, at the federal level, the FDA appears to be taking the position that virtually any CBD product meant for human consumption is illegal. 

Where does this leave us? Folks in Maine appear to be safe from enforcement for the time being, with the notable exception of those who make explicit claims that CBD has therapeutic benefits. If you’re growing, processing, or selling hemp and CBD, though, it’s unlikely that the feds are going to knock down your door tomorrow, and LD 630 is keeping the State at bay for now. But watch out, because rulemaking is coming, and we’re sure to see rules that aim to limit the import (and perhaps the export?) of CBD products, create strict labeling and testing standards, and limit the use of CBD in animal food. There will be more details on a lot of the specifics here in future posts, but the situation is certainly fluid. 

Bottom line: Legalities aside, it seems to be full speed ahead in Maine, with a few notable restrictions. Avoid making public claims of therapeutic benefits (like "CBD cures cancer"). Make sure that your product is clean, free of mold and pesticides, etc. and has a THC content below 0.3 percent. Do what you can to ensure your product is accurately labeled. (Check out this study, which concludes that 70 percent of CBD products are inaccurately labeled in terms of CBD content.) And be aware of quickly changing laws and rules at the state and federal level that could impact your business.