Cannabis-derived extracts are one of the hottest trends in the consumer products industry. Sales of consumer products containing cannabidiol (CBD) are reported to exceed $510 million in 2018. Experts predict that the market for CBD products could grow to $22 billion by 2022. Hemp oil can now be found in all types of consumer packaged goods (CPG), ranging from lip balm to energy drinks and beyond. Last October, the New York Times asked, “Why is CBD Everywhere?” It’s a good question—especially for lawyers—because CBD’s legality remains largely in flux.
What Is CBD?
Hemp and marijuana are both varieties of the Cannabis sativa plant. Various cannabis extracts can be sourced from different parts of the cannabis plant—the most common extracts used in consumer products are hemp seed oil and CBD oil. Hemp seed oil is produced by cold-pressing the seed of a hemp plant. CBD oil is produced from the leaves and flowers of either a marijuana plant or a high‑CBD hemp plant. Marijuana has high amounts of THC, the psychoactive ingredient that produces the “high” of marijuana (and the compound that makes marijuana a Schedule I narcotic under the Controlled Substances Act). Hemp, on the other hand, typically contains only trace amounts of THC.
Because psychoactive effects are often attributed to THC, it is rarely used as an ingredient in consumer products. CBD, on the other hand, is considered to have no psychoactive properties and is becoming a popular ingredient, alongside hemp seed oil.
While hemp seed oil differs from CBD oil, the legalities of the two are intertwined.
Legality Under the 2018 Farm Bill
The Farm Bill, a mammoth spending bill reauthorized by Congress every five years, shapes federal food and agriculture policy. The 2018 Farm Bill reauthorized many expenditures from the Agricultural Act of 2014 and was signed by President Trump on December 20, 2018.
The 2018 Farm Bill changed the landscape for hemp-derived products, including those containing CBD oil. The bill defined hemp, which is defined as any part or derivative of the cannabis plant with 0.3% or less THC, as an agricultural product. It also removed hemp grown under certain conditions in the United States from the Controlled Substances Act. It expanded the definition of industrial hemp from the 2014 Farm Bill, which had granted states the ability to create hemp production pilot programs. Under the 2018 Farm Bill, states and tribes can submit a plan and apply for primary regulatory authority over the production of hemp. A state plan, among other elements, must keep track of land, testing methods, and disposal of plants or products that exceed the allowed THC concentration. Because of this change in status, certain grants, loans, and credit previously not available to the hemp‑farming industry may soon become available.
CBD & the U.S. Food & Drug Administration
Despite the changes in the 2018 Farm Bill, the Food, Drug, and Cosmetic Act (FDCA) currently poses issues for the legality of CBD. The FDCA forbids the adulteration or misbranding of food and drugs in interstate commerce. The U.S. Food and Drug Administration (FDA) holds the position that all cannabinoids, including CBD, are impermissible additives that adulterate food and dietary supplements for both humans and animals. The FDA does not differentiate between the sources of CBD, whether from cannabis or hemp, but rather considers all CBD to be an illegal food ingredient, regardless of its source. While the FDA has been relatively silent on CBD in cosmetics, the agency recently approved a prescription form of CBD, Epidolex, to treat childhood seizures, suggesting that the FDA may exercise its authority to regulate CBD as a prescription or as an over-the-counter drug.
On March 1, then FDA Commissioner Dr. Scott Gottlieb, announced at a House Appropriations Committee meeting that the FDA would be holding public meetings in April 2019 in order to hear from regulated parties on how to regulate CBD, stating, “I understand Congress wants there to be a pathway for CBD to be available” but that it was “not a straightforward issue.” Dr. Gottlieb discussed the possibility that CBD in low concentrations could be added to food or used as a dietary supplement but that CBD in high concentrations could remain a pharmaceutical product, allowing the FDA to “preserve the incentive to study CBD as a pharmaceutical product.”
Less than four days later, on March 5, Dr. Gottlieb resigned from the position of Commissioner of the FDA, creating even more uncertainty as to how and when the agency would develop a pathway to legalization of broader use of CBD.
Almost two dozen states are now in the process of considering legislation to specifically resolve the relationship between the THC threshold and CBD oil categorization. Most states currently define industrial hemp as a variety of the Cannabis sativa plant with a THC concentration of not more than 0.3%. States have defined the product using a variety of terms, such as “hemp extract” and “CBD oil,” specifying concentration for THC and CBD.
Prior to passage of the 2018 Farm Bill, over forty states allowed some form of cultivation of hemp for commercial, research, or pilot programs under the 2014 Farm Bill. Only nine states prohibited the cultivation of hemp. Several states have recently clarified their respective positions on CBD under state law, though most do not distinguish between CBD that is derived from hemp versus that derived from marijuana.
While California often stands apart from federal regulators, the California Department of Public Health (CDPH) made it clear in July 2018 that state law banned hemp-derived CBD in food products, aligning with the FDA’s current stance. The CDPH explained: “California incorporates federal law regarding food additives, dietary use products, food labeling, and good manufacturing practices for food.” 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.” At the same time, edible products containing THC or CBD may be sold in state-regulated dispensaries.
Sourcing & Legal Risks
Despite advances in federal law, the passage of the 2018 Farm Bill does not render all CBD legal, and manufacturers must take care to ensure and document that the CBD they use in their products comes from legal sources. For example, any CBD derived from cannabis plants with more than 0.3% THC (marijuana) remains illegal under federal law. Under the 2018 Farm Bill, CBD is only legal if it is (a) derived from hemp; and (b) produced by a licensed grower, consistent with the 2018 Farm Bill and respective federal and state regulations. While states are moving quickly and several states have CBD pilot programs well underway, the necessary state licensing and regulatory programs to grow hemp legally may take months or years to establish.
Regulatory enforcement action is a known risk for sellers of hemp and CBD products. Consumer protection laws that provide statutory remedies against companies that sell adulterated, mislabeled, misbranded, or contaminated products remain a risk for companies marketing products containing CBD. In 2018, the FDA issued warning letters to companies making false or misleading health claims regarding the effects of CBD or cannabis-derived ingredients. Of course, consumer class action lawyers, now well-versed in targeting health and wellness claims, may soon follow. Because the legality of CBD depends on the sourcing and manufacturing practices used to produce it, attention to supply chain controls and ingredient quality is more important than ever for CPG companies looking to enter this emerging market.