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.

State Adopts New Restrictive Policy on CBD Sales That Is, at Least in Effect, Quite Similar to the Old Policy

The Maine Department of Agriculture has begun its next phase restricting sales of CBD in the state. Readers will recall that, over the summer, the State took the position that CBD sold in Maine had to be derived from hemp grown in Maine. The reality, of course, is that only a small portion of CBD sold in Maine has its origins in Maine and that policy expired in September.

Now, the State is handing out notifications to retailers and others in the CBD business that ingestible CBD products sold at retail in Maine must be produced in Maine. Here is a copy of that notification received by one retailer in the state:

This sounds different in substance than the State’s policy over the summer. Now, CBD sold in Maine doesn’t have to be derived in Maine. But the reality is that this policy will have largely the same effects since a huge portion of the CBD that is imported into Maine has already been incorporated into food products and is shelf-ready.

Trying to understand the State’s motivations for this latest policy shift, it appears to be related to the federal ban on CBD sold in edible products. The nuance of the State’s position isn’t entirely clear, but as we hear more we will post it here.

The Non-Crackdown on Out-of-State CBD Comes to an End

About a month ago, I noted that the State wasn’t really walking the walk. At the time, the State had only recently began informing CBD vendors that any food products containing CBD derived from hemp grown outside of Maine could not be sold in Maine. This ended up being much ado about nothing. As the law changed yesterday and LD 1749 takes effect, it doesn’t appear that the State ever took any real steps to enforce what it interpreted as a prohibition on out-of-state CBD. Practically speaking, none of this matters anymore, since the prohibition on out-of-state CBD is now officially over. However, I’m re-posting here a Bangor Daily News op-ed from the  several weeks ago which begs the state for a more consistent policy with regards to CBD.

For your consideration: Maine Needs Consistent Policy on Hemp and CBD

The Non-Maine CBD Crackdown: What’s Become of It?

As we’ve previously discussed, Maine is claiming that, until September 19, food products sold in Maine cannot contain CBD grown elsewhere. So how is this policy working out in practice?

We’ve heard from several folks in the industry that the "crackdown" isn’t really materializing. Inspectors from Maine’s Department of Agriculture have been talking about this issue with some retailers in the state, but, in the instances we’ve heard about, inspectors have either told retailers that they’re not interested in checking to determine whether edibles for sale are in compliance, or the inspectors have provided a "verbal warning" to those selling non-Maine CBD products, without any explanation for what this actually means. 

I’d love to hear from anyone who has had any different experiences so far this month, but, so far, at least anecdotally, the State may be taking a conservative approach to enforcement.

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.

VLA Committee Recommends Changes to Adult Use Rules

The adult use rules necessary to launch Maine’s new market are still winding their way through the legislature, but they’ve been voted out of committee with a number of changes, and should be sent along (in one form or another) to the Governor in the next couple days. The majority report from the Veterans and Legal Affairs Committee contains the changes to the rules and some related changes to statute. This was handed out during amendment review in the committee yesterday.

While you can peruse the majority report for all the details, a couple of things stand out:

1. The committee is amending statute to state that adult use edibles are not “considered to be adulterated” under Maine’s food code. This places adult use edibles in the same ranks as medical marijuana edibles and, though in different statute, foods containing CBD. 
2. You’ll see that in Section 8 of the majority report, the legislature does not actually “redline” the rules created by the Office of Marijuana Policy. Rather, the OMP will receive these specific directives from the legislature, and it will be up to the OMP to put the rules in a final form consistent with these directives. This leaves a few things up in the air about the rules until we see the OMP’s final version. 
3. The legislature is directing the OMP to eliminate the terms “other interested parties,” “party of control” and “true party of interest” from the adult use rules. The rules will “substitute for those deleted terms the statutory terminology in Title 28-B, subchapter 2 regarding the characterization of ownership interests.” This directive should serve to bring the rules in line with the statute in terms of residency requirements for officers and directors, as well as for owners of marijuana establishments. We have in the past written on the residency requirements generally (here, here, and here). 

Stay tuned as we expect this to move quickly through the legislature and on to the Governor.

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.

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.