New Law Removes Major Barrier for Hemp-based CBD Industry

On December 12, 2018, Congress passed the 2018 Farm Bill (The “Agriculture Improvement Act of 2018” or the “Bill”), which includes provisions that exempt Cannabis plants with lower than 0.3% THC content (also called “Hemp”) from the Controlled Substances Act (CSA). Once signed into law, the Farm Bill effectively legalizes the production, commercialization, and interstate shipment and sale of hemp and hemp-derived products like cannabidiol or “CBD”. Each state (including Indian Tribes and U.S. Territories) will eventually be able to regulate hemp production like any other agricultural commodity, as long as the U.S. Department of Agriculture (USDA) approves its plan to monitor and regulate the plant’s production.

The term ‘hemp’ means the plant Cannabis sativa L. and any part of that plant, including the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with a delta-9 tetrahydrocannabinol concentration of not more than 0.3 percent on a dry weight basis.

This is a BIG win for:

Hemp Farmers. The law will permit commercial agricultural farmers to participate in the production of this valuable commodity. The hemp plant is quite versatile and can be used to produce textiles like clothing, rope, and paper in addition to CBD.

Hemp Companies. Companies that manufacture and sell hemp-based products will soon be able to source regulated (and, therefore, consistently higher quality), domestically cultivated and manufactured products from across the country without violating federal law. This also provides access to financial outlets, such as banking and capital markets, not previously available to the hemp industry because of its illegality at the federal level. As a result, companies can expect more opportunity for growth and investment in the hemp industry.

Hemp Consumers. The presence of clear regulation of product and the likely addition of many more industry players in the market means that competition will drive innovation, quality, and pricing. That means better products at lower prices for consumers. In addition, consumers will have the comfort of knowing the products they buy for their families are safe and legal.

When will the law take effect?

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Hemp production and sale in a state will not be lawful until a State receives approval from the USDA of its plan to regulate hemp. To be approved, a State’s plan must establish (i) a mechanism for tracking and maintaining information regarding land where hemp is produced in the State; (ii) a procedure for testing THC content; (iii) a procedure for disposing of plants and products produced in violation of the Bill; (iv) enforcement procedures for complying with the Bill; (v) a procedure for conducting random, annual inspections of hemp producers within the State; (vi) a procedure for submitting required information to the USDA; and (vii) certification that the State has the resources and personnel to carry out the plan. Once submitted, the Department will have 60 days to approve or deny a State’s plan. If the State’s plan complies with all of the requirements listed, the USDA must approve the plan. If not, the State may amend its plan to comply with the requirements, or it will be unlawful to produce hemp in that State.

The USDA will develop a plan to issue licenses to hemp producers in States with approved plans—licenses will be required in order to lawfully produce and sell hemp and its derivatives. The Bill also provides a mechanism by which licensed hemp producers who grow cannabis plants that exceed the THC limitation of 0.3% can submit a plan to correct the violation, rather than being charged with a crime or losing their license.

What does the Farm Bill mean for my CBD company?

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Companies that purchase and sell hemp-derived CBD products have been operating for many years without clarity regarding the legality of their businesses. Some companies have been subject to enforcement from FDA or DEA or state authorities, and many have operated “under the radar”, simply accepting the risk that their businesses do not have adequate protection under the law. The new law will remove some of the federal prohibitions against hemp and hemp-derived CBD products, making it federally legal to cultivate, produce, and possess those products in States with approved regulatory plans.

The Farm Bill does not eliminate all legal barriers to industry operators, but it does significantly change the risks of entry. We will likely see much broader participaition by new market entrants and even institutional investors.

Though the industry will likely still be highly regulated, CBD companies no longer have to worry about unlawfully importing hemp and hemp-derived products from other States, so long as the states exporting the products have Department-approved regulatory programs. This also means that entities which produce hemp and hemp-derived products may now be able to more easily obtain federal trademark protections for their brand.

What hasn’t changed?

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The Farm Bill does not modify the position of the Federal Food and Drug Administration (FDA), nor the Federal Food, Drug, and Cosmetic Act (21 USC 201 et seq.). According to the FDA, CBD products, regardless of their source, are not permissible dietary supplements (food additives) and cannot be marketed as “drugs” if they have not been approved as such. This means CBD companies should continue to refrain from making any statements that suggest or imply their products can or should be used in the diagnosis, cure, mitigation, treatment, or prevention of disease, and should continue to place relevant disclaimers on all product labels, websites, and other marketing tools. You can read the FDA’s full statement here.

CBD companies should also remain mindful of applicable federal and state regulations, and properly vet all vendors to ensure their products comply. Companies purchasing legal hemp should verify the sellers’ state licensure and laboratory testing for proper THC levels.

Contact a Nixon Law Group attorney to learn more about how the 2018 Farm Bill can help you expand your CBD wellness company.