Background
Hypothetical fact pattern. Murray is an entrepreneur who wants to launch a CBD retailer selling knishes and sodas infused with CBD, as well as CBD lotions for skin conditions.
What is CBD? CBD is a chemical compound found in the resinous flower of cannabis, alongside tetrahydrocannabinol (THC). Although THC has psychoactive properties, the CBD compound itself is non-psychoactive and is believed by many to have therapeutic properties. CBD is extracted from cannabis through an industrial process, and the resulting oil typically contains no or very low levels of THC.1
May Murray just use any kind of CBD? No. Although CBD can be extracted from any strain of cannabis, including strains that contain THC, the 2018 Farm Bill only legalized industrial hemp, a specific strain of cannabis that contains less than 0.3% THC. All other forms of cannabis (generally referred to as marijuana) and their by-products are still listed as Schedule I controlled substances under federal law. So if Murray wants to infuse products with CBD, he may only use CBD extracted from industrial hemp and must be certain that the resulting product contains less than 0.3% THC.
May Murray legally start his own farm to grow industrial hemp and then make his own hemp-based CBD? It depends. The 2018 Farm Bill requires that, for industrial hemp cultivation and production to be legal in a state, the state needs to submit “hemp production plans” to the United States Department of Agriculture (USDA) for its approval. States are only beginning to put plans into place for approval, so hemp production and sale remain illegal in many states.
If Murray lives in a state that does not have an approved hemp production plan, may Murray buy hemp-based CBD products from another state and sell them in his own state? A number of states continue to treat industrial hemp and its by-products like every other form of cannabis – as a controlled substance. So possession or sale of hemp-based CBD products is likely a crime under a state’s law, even though it is legal under federal law (assuming it meets the federal guidelines discussed above).2
If Murray’s state allows for the cultivation of industrial hemp, what is Murray allowed to sell in his store? Unless the state law says otherwise, Murray may sell the topical products and he must ensure that these topical products do not make any health claims on their labels. Doing so would likely cause them to be considered dietary supplements, which are still illegal under FDA regulations. Under current law, however, Murray would not be allowed to sell his CBD-infused knishes and drinks. Shortly after the 2018 Farm Bill passed, the FDA made it clear that it treats hemp-based CBD as a pharmaceutical substance, since the FDA had previously approved a CBD as an active ingredient in an FDA-approved drug, Epidiolex (a drug primarily used to treat epileptic seizures). As such, hemp-based CBD may not be added to food, beverages, or dietary supplements until the FDA has issued regulations. Adding CBD to these substances would violate the Federal Food, Drug, and Cosmetic Act.
But I have seen people already selling CBD-infused food. How can they do that? They do so at their own risk of federal, state, and local enforcement actions.
When will Murray be able to legally sell CBD-infused knishes and drinks? The FDA just announced a public hearing on May 31 and a comment period, as well as the formation of an FDA working group; however, the timing of final regulations is unknown.
Reed Smith Takeaway
The market potential for industrial hemp, including consumer products containing hemp-based CBD, is huge. There is still extensive confusion over the legality of these products in their many forms. The attorneys on Reed Smith’s Cannabis Law Team continue to actively monitor the changes in rulemaking and guidance during this transition period.
Note: We are only able to provide these services in jurisdictions where ethically permitted, and reserve the right to withdraw representation if the federal government indicates that providing such legal services as described above violates federal law.
- If the resulting CBD oil contains less than 0.3% THC, then it is legal under federal law. If the CBD oil exceeds that limit, then it is considered a Schedule 1 controlled substance.
- Note that this client alert is not considering the question of federal preemption of state law.
Client Alert 2019-077
