CBD, or cannabidiol, is one of more than 100 cannabinoids in the cannabis plant. Unlike tetrahydrocannabinol (THC), CBD is not psychoactive and won’t get the user “high.” Based on growing demand, the CBD market is predicted to be valued at more than $2 billion by 2020. Fueling this trend is scientific and anecdotal evidence of CBD’s effect on anxiety, pain, inflammation, nausea and seizures, as well as its value in fighting the opioid crisis.

These health benefits have prompted the addition of CBD to many food products, ointments, oils, creams, cosmetics and pet products. But what is the legality of CBD? Isn’t a cannabinoid extracted from the cannabis plant illegal under federal law? What about state law? Like many questions involving cannabis and its cousin hemp, the answer is “it depends.” To appreciate the nuance of the answer, it is necessary to first address the relevant legal landscape and relevant federal agencies.

Marijuana versus Industrial Hemp

Under federal law, marijuana is a Schedule I controlled substance and illegal. The Controlled Substances Act (CSA) defines marijuana as “all parts of the plant Cannabis sativa L − and every compound, manufacture, salt, derivative, mixture or preparation of such plant, its seeds or resin.”

Industrial hemp is a subspecies of cannabis characterized by fibrous stalks and very low levels of THC. After many years of debate, in 2014 via the federal Farm Bill, Congress authorized state pilot programs to study the cultivation of and market for industrial hemp as a viable agricultural crop. The Farm Bill defines industrial hemp as “the plant Cannabis sativa L. and any part of such plant, whether growing or not, with a [THC] concentration of not more than 0.3 percent on a dry weight basis.” (See, Section 7606 of the Agricultural Act of 2014.) The Farm Bill’s definition of industrial hemp includes any part of the plant, including the flower. Unlike the CSA, the Farm Bill distinguishes industrial hemp from marijuana based on the concentration of THC contained in each species.

Industrial hemp under the Farm Bill is permissible if (1) “the industrial hemp is grown for purposes of research conducted under an agricultural pilot program or other agricultural or academic research and (2) the growing or cultivating of industrial hemp is allowed under the laws of the State in which such institutions of higher education or State department of agriculture is located.” It also leaves to each state the determination whether to allow cultivation of industrial hemp by instituting an industrial hemp pilot program. Currently, 35 states have industrial hemp pilot programs.

The DEA and CBD

Notwithstanding the language of the 2014 Farm Bill, in December 2016 the Drug Enforcement Administration (DEA) established a new drug code for “Marihuana Extract,” broadly defining the term as “extract containing one or more cannabinoids … derived from any plant of the genus Cannabis, other than the separated resin (whether crude or purified) obtained from the plant.” This broad definition of “Marijuana Extract” appeared to include CBD extracted from industrial hemp because it is a cannabinoid derived from a subspecies of the genus Cannabis.

This disparity between the DEA’s definition and the Farm Bill’s language prompted a lawsuit in the Ninth Circuit Court of Appeals brought by the Hemp Industries Association (HIA), which argued that Congress unambiguously excepted all parts of the industrial hemp plant to fall outside the parameters of the CSA.

Although the Ninth Circuit denied the HIA’s petition on procedural grounds and never reached a decision on the merits, the DEA nevertheless issued a clarifying statement in May 2018, explaining that “the mere presence of cannabinoids [such as CBD] is not itself dispositive as to whether a substance is within the scope of the CSA; the dispositive question is whether the substance falls within the CSA definition of marijuana.”

It is now widely understood that CBD extracted from properly sourced industrial hemp does not fall within the CSA, whereas CBD extracted from marijuana is controlled by the CSA. This distinction is colloquially known as the “source” rule.

Although the DEA has clarified its position, this does not end the inquiry as to whether CBD can be legally marketed and sold in food products across the country because one also must look to the Food and Drug Administration’s (FDA’s) position on CBD.

The FDA and CBD

The FDA is responsible for protecting the public health by ensuring the safety and efficacy of drugs and medical devices, and the safety of the nation’s food supply. It is the FDA’s position that cannabinoids, including CBD, are impermissible additives that adulterate food for both humans and animals. Unlike the DEA’s “source” rule, the FDA does not differentiate the source of CBD, but rather considers all CBD to be an illegal food ingredient regardless of source.

Since 2015, the FDA has sent a number of letters to companies that sell CBD-infused oils and food products, warning against making impermissible health claims. The most recent FDA warning letters were issued in October 2017 to four companies selling CBD products online in interstate commerce. In the letters, the FDA concludes that CBD products are in fact drugs, and not dietary supplements, under the Federal Food, Drug, and Cosmetic Act (FD&C Act) because they are intended for use in the diagnosis, cure, mitigation, treatment or prevention of disease and/or because they are intended to affect the structure or any function of the body. Accordingly, the “drugs” required FDA approval under the FD&C Act.

The FDA also concluded that CBD products are not dietary supplements under the Dietary Supplement Health and Education Act (DSHEA) because the FDA had previously authorized CBD for investigation as a new drug, for which substantial clinical research already had been conducted and made public. The FDA cited Epidiolex® and Sativex® as examples of clinical investigations regarding CBD that have been made public.

Epidiolex In June 2018, the FDA approved the first CBD-based drug, Epidiolex, for treatment of seizures associated with two rare forms of epilepsy. Despite its approval of Epidiolex, the FDA has announced that the drug cannot be legally sold in the United States because of the CSA. In its June 25 press release, the FDA states: “CBD is currently a Schedule I substance because it is a chemical component of the cannabis plant.” By definition, a Schedule I substance has no accepted medical use. To resolve this conflict, the DEA must remove CBD from Schedule I, and it has 90 days from the FDA’s approval of Epidiolex to do so.

Many commentators have rightly argued that the FDA misses the mark by claiming CBD is currently a Schedule I substance under the CSA “because it is a chemical component of the cannabis plant.” As recently made clear by the DEA, CBD is only a controlled substance if it is derived from the marijuana plant, but it is not a controlled substance if it is derived from industrial hemp because Congress specifically excluded industrial hemp from the definition of marijuana in the 2014 Farm Bill.

Unfortunately for those who want to capitalize on booming demand for hemp-derived CBD food products, this is largely a distinction without a difference and underscores the new regulatory hurdles for federal approval of cannabis- and hemp-based products. Regardless of the source of CBD, the FDA has concluded that CBD is a drug with a real health benefit that is used to treat certain epileptic seizures, and is being investigated for other medical uses. Because the FDA has made this determination, CBD cannot be freely added to food products and sold to the public.

CBD and State Regulations

Certain states also have weighed in on the legality of adding CBD or hemp to foods. While states regulate food alongside and in cooperation with the FDA, states are responsible for food safety within state borders while the FDA regulates interstate food and drug safety.

On July 6, the California Department of Public Health (CDPH) issued a public statement that CBD sourced from industrial hemp cannot be used in food in California. The CDPH relies on the FDA’s position, explaining: “California incorporates federal law regarding food additives, dietary use products, food labeling, and good manufacturing practices for food,” and that the “FDA has concluded that it is a prohibited act to introduce or deliver for introduction into interstate commerce any food (including any animal food or feed) to which THC or CBD has been added … regardless of the source of the CBD – derived from industrial hemp or cannabis.”

The CDPH distinguishes CDB added to medicinal and adult-use “manufactured cannabis products,” including cannabis edibles, which are regulated by the CDPH Manufactured Cannabis Safety Branch (MCSB). It explains that “although California currently allows the manufacturing and sales of cannabis products (including edibles), the use of industrial hemp as the source of CBD to be added to food products is prohibited.” Therefore, California now takes the position that CBD sourced from marijuana is permitted in food products but is considered a cannabis product and must be sold in licensed dispensaries. On the other hand, CBD sourced from industrial hemp is not permitted in any food product under any condition.

Texas and Indiana also have weighed in on the legality of CBD within their borders. Although both states initially took a tough stance by barring the sale of CBD-infused products, Texas is currently reevaluating its position and Indiana recently passed legislation permitting the distribution and retail sale of “low-THC hemp extract.”

An Absurd Result

These federal and state positions have created an absurd result. CBD now may be legally distributed, sold, imported or exported without restriction so long as it is from properly sourced industrial hemp, but CBD may be added to food products only if it is derived from marijuana. It is difficult to logically reconcile this “schizophrenic” state of the law. Although the FDA has always prohibited cannabinoids in food, it has to date only taken action when CBD products making health claims were sold online or were otherwise introduced into interstate commerce. The FDA’s recent approval of Epidiolex has been widely viewed as a positive development by those who want to see a change to the federal scheduling of marijuana, but it also has unexpectedly hamstrung the fledgling market for hemp-derived CBD products that are in high demand, including when used to fight the opioid crisis.

Evaluating the Risk

Some who sell hemp-derived CBD products may be tempted to keep moving forward and hope for the best. After all, that’s basically what the cannabis industry did vis-à-vis the Department of Justice and DEA in the face of federal illegality, and the FDA has remained largely on the sidelines when it comes to CBD because, until recently, few CBD products have been available in interstate commerce. California’s Department of Public Health has not yet taken any visible enforcement action on non-cannabis CBD.

Some may ask what risk there is in simply continuing to sell their products. It is tempting to focus on potential regulatory fines and penalties as the greatest risk, but tort exposure to civil lawsuits is likely the larger problem. Unlike selling federally illegal cannabis products pursuant to a state-regulated market where participants are protected under state laws, no such protection exists for sellers of CBD products that are considered adulterated and misbranded under both federal and state law. Even in states – unlike California – that have not yet announced a formal position on CBD in food products, the FDA’s position is likely sufficient for determination as a matter of law that such products cannot be sold legally.

Most states have consumer protection laws that provide statutory remedies against companies that sell adulterated, mislabeled, misbranded or contaminated products. Those statutes may provide the basis for consumer class actions brought against companies that sell allegedly adulterated or misbranded food products containing CBD. Importantly, insurance companies often decline coverage for these claims, leaving the company to fend for itself. Uninsured losses arising out of consumer class actions have proven problematic for the dietary supplement industry over the past decade.