Not So Fast

What retailers need to know now about the legality of selling CBD products.

Not So Fast

March 2019   minute read

A “green” wave is sweeping the country. Marijuana is now legal for recreational use in 10 states and the District of Columbia, and a super majority of states have legalized uses for the cannabis plant in one form or another. It’s an industry with significant potential for growth and expansion, and retailers reasonably want to be involved. But confusion runs rampant about what is now allowed—and what is not—under the law.

Know the Basics

Let’s begin by defining some terms. “Cannabis” is a family of plants with two primary species—hemp and marijuana. Both marijuana and hemp contain more than 100 different compounds called cannabinoids that can affect the human body differently.

The two best known cannabinoids are cannabidiol (CBD) and tetrahydrocannabinol (THC). Although the two are nearly identical in their chemical makeup, their different molecular structures cause them to interact with the human body’s receptors in varied ways. The most important difference: THC induces psychoactive effects (it gets the user “high”), while CBD does not contain any psychoactive properties. A key characteristic of hemp-derived products is that they generally have very low concentrations of THC.

Notwithstanding the state-based “green” wave, marijuana, any compounds derived from it and associated products remain completely illegal under federal law. And the reality is that, until recently, this also was true of hemp and hemp products (like hemp-derived CBD) despite their rampant availability in the marketplace.

What changed was the December 2018 passage of the Agriculture Improvement Act (also called the Farm Bill). Tucked into the bill’s 529 pages were changes that appeared, at least at the outset, to be big news for retailers interested in participating in the hemp-derived CBD market. Most notably, the bill removed industrial hemp (and, by proxy, hemp-derived CBD) from its previous classification as a Schedule I controlled substance under the Controlled Substances Act (CSA), making it legal for interested parties to produce, distribute and dispense it.

But the 2018 Farm Bill left other federal limitations in place: It made no changes to the Food and Drug Administration’s (FDA) authority to regulate (and, thus far, effectively prevent) the interstate sales of food products, dietary supplements and certain body care products containing hemp-derived CBD under the Federal Food, Drug and Cosmetic Act (FD&C Act)—a restrictive regime that presents a significant hurdle for manufacturers interested in distributing and retailers interested in selling such products.

And this doesn’t even account for CBD’s disparate and varied treatment under state law.

CBD in a Legal Gray Area

While coffee shops may be selling CBD lattes, health food stores may be stocking CBD oils, and wellness centers may be offering CBD creams, can retailers legally sell or market hemp-derived CBD products? Based on the FDA’s recent enforcement of the FD&C Act and the patchwork of federal and state laws that leave hemp-derived CBD in a legal gray area, the answer remains complicated at best.

The 2018 Farm Bill made hemp-derived products legal under the Controlled Substances Act.
Prior to enactment of the 2018 Farm Bill, marijuana, industrial hemp and compounds derived from these plants (like CBD) were classified as Schedule I controlled substances under the Controlled Substances Act (CSA), making it a felony for any person or entity to manufacture, distribute or dispense them and for any person to aid or assist such efforts in any way.

Virtually all hemp-derived CBD products are subject to FDA approval before they can be marketed or sold.

The 2018 Farm Bill changed that, removing industrial hemp—now defined as the cannabis plant with a THC concentration of less than 0.3%—from its classification as a Schedule I controlled substance and alleviating retailers’ concerns related to—among other things—banking and insurance. But it didn’t solve all of the problems faced by retailers.

The FD&C Act still applies.
The FDA has made its position on cannabis-related products clear. As it reiterated after the 2018 Farm Bill’s enactment:

“[W]e treat products containing cannabis or cannabis-derived compounds as we do any other FDA-regulated products, meaning that they are subject to the same authorities and requirements as FDA-regulated products containing any other substance.”

Some hemp products do not require FDA approval.
In December 2018, the FDA completed its evaluation of three “generally recognized as safe” (GRAS) notices for hemp seed-derived food ingredients—hulled hemp seed, hemp seed protein powder and hemp seed oil. Some of the intended uses of these recently approved ingredients include adding them as a source of protein, carbohydrates, oil and other nutrients to beverages and food products.

Products lawfully containing these hemp-derived ingredients as described in the GRAS notices to the FDA may, therefore, be introduced into and marketed in interstate commerce without running afoul of the FD&C Act.

There are pathways to the sale of CBD products under the FD&C Act.
According to the FDA, virtually all hemp-derived CBD products—including foods, beverages, dietary supplements and body care products that make claims of therapeutic benefit—are subject to FDA approval before they can be marketed or sold into interstate commerce. No such approvals have yet been granted.

There are, however, certain regulatory pathways that could facilitate the lawful retail sale of hemp-derived CBD products under the FD&C Act. For example, even under the FDA’s current interpretation, retailers can legally sell lotions, salves and other topicals containing hemp-derived CBD, provided they do not make claims of therapeutic benefit (for example, that a particular salve will reduce inflammation or that CBD will fight anxiety and pain) and their safety of use can be substantiated.

The market that’s likely of greatest interest to retailers—food products containing hemp-derived CBD—is still out of arm’s reach (for now).
Under the FD&C Act, there are two primary barriers to selling CBD food products: its status as a food additive and its presumptive classification as a drug that has been subject to substantial (and public) clinical investigations.

For hemp-derived CBD to clear the food additive hurdle—and therefore not be subject to premarket review and approval by the FDA—the substance would have to be deemed “generally recognized as safe,” meaning that experts must recognize that the product is safe for its intended use, as has been done for the non-CBD hemp products discussed above.

While we are aware of only one CBD manufacturer that has independently self-affirmed the GRAS-status of its CBD product, other manufacturers are expected to follow suit—either self-affirming or submitting GRAS notices to the FDA for consideration. This process, however, will take time, and it isn’t the only provision restricting CBD food products from being marketed.

The second barrier for food products—and the one to which FDA Commissioner Scott Gottlieb has hitched his wagon—offers a significantly steeper climb. The FDA has repeatedly concluded that because CBD is an active ingredient in FDA-approved drugs (like the recently approved Epidiolex, a treatment for two forms of epilepsy) and was subject to substantial clinical investigations before being marketed in foods, it is unlawful to add CBD to the nation’s food supply without express regulatory action by the FDA.

Retailers should exercise caution if stocking shelves with drinks, salves or snacks that contain hemp-derived CBD.

Whether the FDA’s determination is accurate is open to interpretation and may be the subject of litigation in the future, but for now it likely remains the largest impediment to marketing and selling foods to which hemp-derived CBD has been added.

But the FDA can act here. As Commissioner Gottlieb has noted: “The FDA has authority to issue a regulation allowing the use of a pharmaceutical ingredient in a food.” Such a step would eliminate one of the major hurdles facing food products to which hemp-derived CBD has been added, and—coupled with a (preferably FDA-evaluated) GRAS conclusion—could effectively facilitate the retail sale of hemp-derived CBD food products.

In the meantime, given the lack of clarity and absent affirmative action from the FDA, hemp-derived CBD food products are not without risk. Once approved for interstate marketing and sales, however, there are tools that retailers selling such products can use to protect their names, stores and shelves. Namely, a retailer may be able to limit its liability under the FD&C Act if the retailer—in good faith—accepts a guaranty from a CBD product manufacturer regarding the federal legality of its product. Indeed, we recommend that retailers procure such guarantees, which insulate retailers from most unknowing violations of the food and drug laws under the applicable FDA regulations, for all of their products.

Such guaranties, however, likely won’t provide substantial protection for retail sales of ingestible CBD products or those to which a health claim is attached for the time being given the FDA’s stated contention regarding CBD’s illegality.

Beyond the federal landscape, hemp-derived CBD is subject to a patchwork of state laws.
While the federal framework limits hemp-derived CBD’s marketability in interstate commerce, the states are responsible for food safety within their own borders and they are all over the map on this issue—regardless of marijuana’s legal status in the state.

California and Colorado, for example, have legalized marijuana for recreational use. In July 2018, however, California’s Department of Public Health issued a public statement that hemp-derived CBD cannot be added to food in the state, relying on the FDA’s position and complying with federal law. Colorado, on the other hand, enacted legislation in May 2018 that modifies the state’s food and drug laws to make it clear that hemp-derived products qualify as legal food ingredients—counter to the FDA’s position at the federal level.

In contrast, Georgia—a state with restrictive cannabis laws on the books—has two sets of provisions that generally make the sale or distribution of any CBD products a felony: a controlled substances law that continues to classify all parts of the cannabis plant (including hemp and its extracts) as Schedule I substances, and a separate law that legalizes the use of low-THC oils for limited medicinal purposes, but, in so doing, imposes additional felony penalties for any possession or sale of any CBD products for any other use. These two provisions will continue to apply absent a change in the Georgia law even if the federal restrictions are removed.

What’s Next?

The 2018 Farm Bill removed a huge barrier to the interstate sale of hemp-derived CBD products by making the substance legal under the CSA. It now remains to be seen if and how the FDA will react and whether it will ultimately facilitate the sale of products containing hemp-derived CBD.

In his statement following the 2018 Farm Bill’s enactment, FDA Commissioner Gottlieb said that the agency will hold a public meeting in the “near future” to gather information on stakeholders’ experiences and challenges with CBD products, consider how to make existing legal pathways more predictable and efficient, and solicit input relevant to FDA’s regulatory strategy.

As with all things in Washington, D.C., whether this will result in greater action by the agency is anyone’s guess. For now, though, retailers should exercise caution if stocking their shelves with oils, salves and snacks that contain hemp-derived CBD and continue to closely monitor developments at the federal and state levels.