Hemp in the U.S. – Not Quite a Genie Unleashed

This blog grapples with a common misunderstanding about hemp and hemp-derived CBD in the United States, specifically the belief that everyone is now freely permitted to cultivate and sell hemp and products containing hemp-derived CBD. In truth, the hemp genie remains confined by some very significant regulations and restrictions, some of which we summarize below and some of which we summarized in an earlier blog this year (specifically, requirements imposed by the FDA).

Hemp & The 2018 Farm Bill

Hemp is a type of cannabis plant with no or extremely low concentrations of the psychoactive compound known as THC, the ingredient in marijuana associated with “high” feelings. As a cannabis plant, hemp also contains cannabidiol or CBD, which is another of the 80+ active chemicals in marijuana. Under federal law, for cannabis to be defined as “hemp” the plant cannot contain more than 0.3 percent THC. For decades, federal law did not differentiate hemp from other cannabis plants, all of which were effectively made illegal in 1937 under the Marihuana Tax Act and formally made illegal in 1970 under the Controlled Substances Act — the latter banned cannabis of any kind.

By now, most people in the cannabis industry have heard that the federal government legalized hemp and hemp-derived products at the end of 2018, when Congress passed and President Trump signed the Agriculture Improvement Act of 2018 (the “2018 Farm Bill”). Specifically, the 2018 Farm Bill:

  • allows the transfer of hemp and hemp-derived products across state lines for commercial and other purposes;
  • puts no restrictions on the sale, transport or possession of hemp or hemp-derived products, so long as those items are produced in a manner consistent with law;
  • promotes hemp research (see § 7605), including by extending the Critical Agricultural Materials Act to include hemp research (see § 7501);
  • makes hemp farmers eligible for certain protections under the Federal Crop Insurance Act in the event of crop losses (see § 11101); and
  • removes hemp-derived products from Schedule I status under the U.S. Controlled Substances Act (see § 12619).

However, it’s important to note that the 2018 Farm Bill did not specifically de-criminalize CBD, so CBD from cannabis plants other than hemp remains a Schedule 1 prohibited drug. Even today, “marihuana” broadly remains a Schedule 1 prohibited drug under the Controlled Substances Act, even though the 2018 Farm Bill provides that “marihuana” does not include “hemp, as defined in section 297A of the Agricultural Marketing Act of 1946.” (see § 12619). Unfortunately, the U.S. Drug Enforcement Agency has repeatedly taken the position that CBD is a “marijuana extract” prohibited under the Controlled Substances Act even if it was produced from hemp. And courts have upheld this determination. See Hemp Indust. Ass’n v. U.S. DEA (9th Cir. 2018) 720 Fed.Appx. 886. The unanswered question remains whether all CBD is a Schedule 1 prohibited substance under the Controlled Substances Act because CBD is a “marihuana extract” even though the 2018 Farm Bill has legalized both hemp and all hemp “extracts” and “derivatives.” Interestingly enough, the 2018 Farm Act does expressly de-schedule THC found in hemp.

On balance, we believe the intent and effect of the 2018 Farm Bill was the legalization of both hemp and CBD-products produced from hemp. And, without a doubt, this was a significant step towards legalization and national acceptance of cannabis more broadly for the promotion of human health and well-being. Many commentators have predicted the legalization of hemp to grow the CBD market from around $2 million to well over $20 billion within the next few years.  We believe a few companies are already shipping CBD products, such as oils and topical creams, across state lines.

Some Persisting Regulations

However, enthusiasm for hemp has caused many to mistakenly think hemp and hemp-derived CBD is no longer heavily regulated. In fact, now that hemp is legal in the United States, the regulations restricting its cultivation and use are growing and can be expected to grow over time. To our mind, there are essentially two very significant sets of regulations restricting the cultivation and use of hemp to make products containing hemp-derived CBD – (1) the federal Food, Drug and Cosmetic Act (the “FD&C Act”), which is enforced by the FDA; and (2) the 2018 Farm Bill itself, and the regulations likely to flow from it.

(i) Food, Drug and Cosmetic Act

As we noted in our earlier blog, immediately following the passage of the 2018 Farm Bill, the FDA’s acting Commissioner, Dr. Scott Gottlieb, issued a stern warning to the cannabis industry to remind us that the FDA has authority to regulate products containing cannabis or cannabis-derived compounds even those coming from hemp.

Of particular interest, Dr. Gottlieb’s message and the accompanying Q&A posted on the FDA’s website present several important legal conclusions made by the FDA with regard to cannabis and cannabis-related products, even those from hemp:

  1. That “the FDA requires a cannabis product (hemp-derived or otherwise) that is marketed with a claim of therapeutic benefit, or with any other disease claim, to be approved by the FDA for its intended use before it may be introduced into interstate commerce. . . .” This drug marketing approval process involves both pre-clinical and human clinical testing and can often cost in excess of $1 billion in R&D costs to reach market.
  2. That foods and beverages infused with THC and CBD cannot be sold and transported across state lines, even if derived from hemp.
  3. That CBD cannot be viewed as a dietary supplement under the FD&C Act.
  4. That certain parts of the hemp plant can be lawfully added to foods and drinks because they contain no CBD or THC, specifically hulled hemp seeds, hemp seed protein and hemp seed oil.
  5. That the FDA is planning to host public discussions and pursue other initiatives aimed at accelerating cannabis authorizations, both as food additives and as potential new drugs for the treatment of diseases and disorders.

Until then, the FDA can be expected to treat CBD products as “snake oil” and manufacturers should be aware that snake oil salesmen can face both hefty fines and jail time.  Notably, since the enactment of the 2018 Farm Bill, the FDA has continued to issue warning letters to companies engaged in the sale of CBD products. Manufacturers of hemp-derived CBD (just like any other cannabis producers) are therefore strongly encouraged to work with their legal counsel when crafting marketing and promotional materials.

(ii) 2018 Farm Bill

Equally important, the 2018 Farm Bill — and an unrelated, recent action by the Department of Justice — creates exceptions to this Schedule I status for hemp and hemp-derived products if and only if that hemp is produced in a manner consistent with the Farm Bill, associated federal regulations, association state regulations, and by a licensed grower.

The Farm Bill invites every state and Indian territory interested in having “primary regulatory authority over the production of hemp” to submit a plan for hemp’s regulation to the USDA for approval. (see § 10113 SEC. 297B State and Tribal Plans.) The 2018 Farm Bill also provides (in a way very similar to state health insurance exchanges under the Affordable Care Act) that cultivators operating in any state that hasn’t submitted an acceptable plan for the regulation of hemp will be regulated directly by the USDA, which regulations must by law require a process for the licensure of hemp cultivators. (Farm Bill, § 10113 SEC. 297C Department of Agriculture.)  Hemp cultivation before the approval of a regulatory plan, either a state plan or adoption of regulations by the USDA, is prohibited without a specific exemption.

At this time, we believe only Kentucky has submitted a hemp regulatory plan to the USDA for approval; a decision from the USDA is expected soon. We are unaware of any regulations for hemp production and licensure from the USDA itself. Like many in the industry, we await these with bated breath.

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