Legal Bytes: Hemp, CBD and cannabis — How federal laws and New York’s laws will play out for industry participants

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On Dec. 20, 2018, the Agriculture Improvement Act of 2018 (Farm Bill) was signed into law. The law removed hemp from the Controlled Substances Act, meaning it is now legal throughout the United States — subject to state law — to grow, process and sell hemp and hemp products.

Stepping back for a minute, it’s important to understand the terms we’re using. There are two dominate cultivars of cannabis, Cannabis Sativa L. and Cannabis Indica. The two main components of cannabis plants that will be discussed in this article are THC and CBD. Delta-9 Tetrahydrocannabinol (THC) is the psychoactive compound in cannabis. Cannabidiol (CBD) is a non-psychoactive compound in cannabis and is the first cannabis compound to be used in an FDA-approved pharmaceutical.

In June of 2018, the FDA approved Epidiolex, produced from CBD, for treatment of seizures associated with two rare and severe forms of epilepsy, Lennox-Gastaut syndrome and Dravet syndrome. There are many other potentially beneficial applications of CBD; however, further studies must be conducted in order to determine the efficacy of CBD treatment.

Hemp, the non-psychoactive plant, is a cultivar of Cannabis Sativa L. and is defined under federal law as a cannabis plant having a THC content of less than 0.3% when dried. Various cultivars of hemp have been produced to be high fiber (for production of textiles and building materials), high CBD or other properties for which there are commercial applications.

The day the Farm Bill was signed, the FDA put out a statement regarding CBD (and THC, but nothing in the Farm Bill changed how THC is treated at the federal level) explaining how federal law and FDA regulations will affect the CBD market. One of the most concerning aspects of the emerging, and booming, CBD market is the unsubstantiated health and therapeutic claims made by purveyors of CBD. While CBD has certainly shown promise for treatment of certain ailments, it is not the panacea that some claim and, like all substances, there can be patients for whom CBD is contraindicated.

In its statement, the FDA specifically pointed to its authority to regulate any product “that is marketed with a claim of therapeutic benefit, or with any other disease claim” and the need for such product to be approved by the FDA prior to being introduced into interstate commerce. Specifically, the FDA states, “Cannabis and cannabis-derived products claiming in their marketing and promotional materials that they’re intended for use in the diagnosis, cure, mitigation, treatment, or prevention of diseases are considered new drugs […] and must go through the FDA drug approval process for human […] use before they are marketed in the US.”

Further, under the Food, Drug and Cosmetic Act (FD&C Act), it is illegal to introduce food containing an FDA approved drug into interstate commerce. Moreover, the FDA clarified that CBD or THC, whether hemp-derived or not, is subject to the FD&C Act because CBD and THC are active ingredients in FDA-approved drugs.

The use of “interstate commerce” by the FDA is interesting (perhaps more interesting to a lawyer than the average person). Interstate commerce means commerce between states, as opposed to intrastate commerce, which is commerce within a single state. Thus, one may believe that so long as a CBD retailer was selling wholly within their state, they would be abiding by the FDA’s statement. That would be true if it weren’t for Wickard v. Filburn, 317 U.S. 111 (1942) and its progeny.

In Wickard, the Supreme Court held that Filburn, a farmer who was growing wheat for private consumption on his own farm, grew wheat in excess of the amounts allowable under the Agricultural Adjustment Act of 1938 (Agricultural Act). The Agricultural Act was enacted under the Commerce Clause, which gives the power to the federal government to regulate commerce between the states. Filburn, believing there was no interstate implication to his wholly intrastate wheat growing, planted wheat in excess of allowable amounts. The federal government successfully argued to the Supreme Court if Filburn’s actions were repeated by farmers across the United States, in the aggregate, those actions would affect interstate commerce.

The Wickard case set the precedent used in more recent cases regarding the federal government’s ability to criminalize medical marijuana grown pursuant to state law. In Gonzalez v. Raich, 545 U.S. 1 (2005), the Supreme Court found that banning the growing of medicinal marijuana enabled the government to prevent or limit access to marijuana for other uses under the Commerce Clause.

That brings us back to the FDA’s statement. The FDA is charged with ensuring safe food, drugs and cosmetics for consumers. Without FDA approved clinical trials to validate statements, retailers may be misleading and harming consumers. Jumping on a local CBD retailer’s website, we can see statements that very well may violate FDA law and regulations, statements such as “There has been a wealth of scientific research regarding CBD Oil and concluded that it may be therapeutic for individuals with: anxiety, inflammation, sleep disorders, pain and many others.” Contrast that with claims made by FDA-approved pharmaceuticals, which state that a given medication will treat a certain condition. A patient may not notice the difference between a non-FDA-approved substance and an FDA-approved drug, where the substantive difference is the use of the word “may” instead of “will.” This is a risk to patients and the reason for the existence of the FDA.

In its statement, the FDA emphasized that it will take up enforcement actions against companies who violate FDA regulations and the FD&C Act. The FDA pointed to its past enforcement actions against companies that were illegally selling CBD products that claimed to prevent, diagnose, treat or cure serious diseases. Further, some of the products violated the FD&C Act because they were marketed as dietary supplements or because they involved the addition of CBD to food.

Against the backdrop of the FDA’s statement, many large companies have been adding CBD to food and beverage products for human and animal consumption. Without clinical evaluation of CBD additives in food, there is a chance that the FDA may seek enforcement actions against these companies.

A recent development in the New York hemp ecosystem is the announcement of Canopy Growth Corporation’s (Canopy) $150 million investment to establish a Hemp Industrial Park for large-scale production focused on hemp extraction to be situated in or around Binghamton. Canopy was awarded a CBD processor license for 2019 before any other 2019 applicant (which may raise the specter of a pay-to-play atmosphere in New York’s hemp and cannabis markets, a concern which has been the subject of broader conversations within the adult use cannabis legislation), which will enable it to engage in CBD extraction from hemp. What Canopy plans to do with CBD and the FDA’s likelihood of enforcement is unknown at this point.

Companies attempting to avoid FDA enforcement have begun marketing some of their products as “full spectrum hemp extract.” There is question about whether selling “full spectrum hemp extract” will run afoul the FDA’s statements against selling CBD. Full spectrum extract is an oil that contains multiple cannabinoids, including CBD, but not THC in any amounts larger than 0.3%. Some believe that by labeling their products as full spectrum hemp extract, they will avoid the FDA’s prohibition on CBD sales without approval. This is speculative at best, as if it were true, it would provide a massive loophole to both FDA regulations and the FD&C Act.

What is the takeaway from the Farm Bill and FDA’s statement? Hemp may be grown legally (in accordance with state law) and may be used in many industries such as construction and textile without regard to the FDA’s statements. Certain hemp products such as hulled hemp seeds, hemp seed protein and hemp seed oil may be sold for human consumption as the seeds do not contain CBD. However, the CBD landscape remains uncertain. Retailers should be especially careful when selling CBD or full spectrum hemp products and should absolutely avoid any and all health claims that are not validated by FDA-approved trials.

Jason W. Klimek is an associate and a member of Boylan Code’s Corporate Practice and Real Estate Groups. He concentrates his practice in business planning and development, tax planning, advising and financing.