By Seth Mailhot, Steve Levine, Emily Lyons, Megan Herr 1 Comment
On August 20, 2020, the Drug Enforcement Administration (DEA) published an Interim Final Rule on industrial hemp and hemp derivatives (the interim rule), which immediately went into effect, to conform DEA regulations with the Agriculture Improvement Act of 2018 (the 2018 Farm Bill).
The 2018 Farm Bill effectively removed industrial hemp from the definition of “marijuana” in the Controlled Substances Act (CSA). Additionally, tetrahydrocannabinols contained in industrial hemp, such as cannabidiol (commonly known as CBD), were also removed from the purview of the CSA.
The 2018 Farm Bill defines hemp as:
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.
Accordingly, because cannabis and its “derivatives, extracts, [and] cannabinoids” are not considered “marihuana,” so long as their delta-9 tetrahydrocannabinol (THC) concentration is at or below 0.3% on a dry weight basis, the regulation of hemp fell outside the authority of the DEA. However, the DEA’s interim rule attempts to draw a hard line in the sand as to when the plant, and any products derived therefrom, are considered “marihuana,” thereby still subject to the DEA’s purview.
Specifically, the interim rule promulgates the DEA’s position that hemp processors can convert otherwise legal hemp into illegal “marihuana,” thereby bringing it back under the DEA’s authority, if such processing and extraction increases the THC content above the 0.3% THC threshold, even momentarily. Specifically, the interim rule states:
[T]he definition of hemp does not automatically exempt any product derived from a hemp plant, regardless of the Δ9-THC content of the derivative. In order to meet the definition of ‘hemp,’ and thus qualify for the exemption from [S]chedule I, the derivative must not exceed the 0.3% Δ9-THC limit. The definition of ‘marihuana’ continues to state that ‘all parts of the plant Cannabis sativa L.,’ and ‘‘every compound, manufacture, salt, derivative, mixture, or preparation of such plant,’ are [S]chedule I controlled substances unless they meet the definition of ‘hemp’ (by falling below the 0.3% Δ9-THC limit on a dry weight basis) or are from exempt parts of the plant (such as mature stalks or non-germinating seeds) . . . As a result, a cannabis derivative, extract, or product that exceeds the 0.3% Δ9-THC limit is a [S]chedule I controlled substance, even if the plant from which it was derived contained 0.3% or less Δ9-THC on a dry weight basis.
Accordingly, the DEA’s stance creates a substantial risk for processors who will be considered to be in possession of a Schedule I controlled substance during the extraction process if the THC content exceeds the 0.3% THC threshold at any point during processing, an almost inevitable result of the extraction process. Nevertheless, the interim rule states:
the definition of hemp does not automatically exempt any product derived from a hemp plant, regardless of the Δ9-THC content of the derivative. In order to meet the definition of ‘hemp,’ and thus qualify for the exemption from [S]chedule I, the derivative must not exceed the 0.3% Δ9-THC limit.
Although the DEA impliedly recognizes the fact that hemp processing can result in a temporary increase in THC content, it still took the position that, should the THC content exceed 0.3% THC at any point during the extraction process, processors will be considered to be in possession of a Schedule I controlled substance, regardless of whether the finished product complies with federal law.
Just some of the many hemp-derived CBD products on the market today.
Consequently, the interim rule creates significant criminal risk for anyone processing industrial hemp, as the DEA has asserted that the processing of hemp into extracts, derivatives and isolated cannabinoids (which are arguably legal under the 2018 Farm Bill) can result in unintentional violation of federal law, thereby subjecting processors to the risk of significant criminal liability. That said, the interim final rule does not appear to be a shift in DEA policy since the passage of the 2018 Farm Bill in December 2018, nor has DEA issued any warnings to industrial hemp manufacturers or otherwise signaled a change in enforcement policy by issuing the Interim Final Rule.
In addition, the DEA took several other steps in the interim final rule towards the deregulation of hemp products:
Adding language stating that the definition of “tetrahydrocannabinols” does not include “any material, compound, mixture, or preparation that falls within the definition of hemp set forth in 7 U.S.C. § 1639o”.
Removing from Schedule V a “drug product” in an FDA-approved finished dosage formulation that contains cannabidiol (CBD) and no more than 0.1 percent (w/w) residual tetrahydrocannabinols (e.g. Epidiolex).
Removing DEA import and export controls for hemp extract that does not exceed the statutory 0.3% THC limit.
In May 2019, there were 4,400 reports of tornadoes, hail and high winds across the U.S. That’s the highest number of similar weather incidents on record since 2011. This increasing number of weather incidents has a huge effect on the cannabis industry, which has turned more frequently to outdoor cultivation since legalization.
While outdoor cultivation can develop the flavor of the cannabis crop, much like wine, it also brings with it some unique challenges. Each component of the weather – wind, rain, temperature – plays a role in whether a crop succeeds or fails. While conditions one year may easily lead to a bumper crop, the conditions the following year may not be as favorable. And as the weather becomes more volatile due to climate change, growers are ever more at risk, especially when they aren’t insured.
Evan Stait, author and commercial account executive for HUB International
Unfortunately, traditional crop insurance isn’t available for outdoor cannabis cultivators, primarily because of a lack of data on yield performances – and the impact the weather has on yields. Insurance companies don’t create policies until they have the data to back the policy. But meanwhile, the growers are assuming all the risk.
Enter parametric insurance. Parametric insurance is a program that pays out after a certain parameter is met. In the case of cannabis growers, the parameters are weather-related. The policy is triggered when the weather varies from the average – if there is too much rain during a specific period of time, for example, or an occurrence of large hail. Because the policy is related to average weather, it has to be tailored to the specific growing region – which means the parameters for Colorado won’t be the same as a policy for Maine.
For cannabis crops, coverage can be created for the following parameters:
Rain (recorded in inches of rainfall over a period of time)
Wind (recorded in miles per hour)
Early freezing (using recorded temperatures)
Hail (measures intensity and size of the hail)
Drought (for non-irrigated plots)
Once a parameter has been set, the policy starts to pay out at the strike point, or the average measurement specified in the policy. Coverage continues to pay out until the exhaust point, or the entire limit of the coverage is paid out. It works well because it’s straightforward: The further away from the average, the more the likelihood of catastrophic loss.
Parametric insurance isn’t for everyone. It’s a program designed to fill gaps that exist within the traditional insurance system. Nor is it designed to stand alone. But it can protect outdoor cannabis cultivators from weather risks that are truly beyond their control, especially given the hardening property insurance market.
In addition, it works for two simple reasons:
Simplicity: Recorded weather events leave no room for ambiguity or dispute. You don’t even need an adjuster to guide the claims process. The official weather data proves what happened.
Correlation: There is a high degree of correlation between measurable weather events and potential damage to outdoor crops.
Parametric coverage is not widely available. Many insurance professionals may not even know of it. But with the property insurance market hardening and a growing need to protect you and your cannabis business from weather-related disaster, parametric coverage may be your best bet. Make sure you speak to a broker who knows about it.
In a press release published last week, the Oklahoma Medical Marijuana Authority (OMMA) announced they have awarded their seed-to-sale traceability contract to Metrc, a national company with contracts for the same service in 14 other states.
According to OMMA Interim Director Dr. Kelly Williams, working with Metrc will help them protect public health, by expediting recalls. “The seed-to-sale system will greatly expand our compliance capabilities and improve the effectiveness and speed of any future recall efforts,” says Dr. Williams. “It will also allow us to detect unusual patterns that may indicate product diversion.”
Metrc has begun work towards their rollout of the system, which they expect to have ready by February 2021. “We know that businesses will have many questions in the coming weeks, and we will answer them as quickly as possible,” says Dr. Williams.
Oklahoma legalized medical cannabis in 2018 and the market has expanded considerably. There are more than 300,000 patients and almost 10,000 licensees. It has the highest number of dispensaries per resident in the country.
Jeff Wells, CEO of Metrc, says Oklahoma has done a good job so far in developing one of the fastest growing markets in the country. “We’re honored Oklahoma selected Metrc to implement the state’s first cannabis tracking system,” says Wells. “With one of the fastest growing medical cannabis markets in the United States, the OMMA has done a tremendous job developing this new industry, and we’re excited to support its ongoing success. We look forward to working with state regulators and licensees to launch our system and ensure cannabis products are safe and secure for patients.”
On Tuesday, September 22, the Vermont Senate voted (23-6) to pass a bill that would legalize, tax and regulate adult use cannabis sales. The bill, S. 54, was approved by 92-56 in the Vermont House of Representatives last week. The bill has now made it to Governor Phil Scott’s desk, where although he has not said whether or not he’ll sign it, supporters think it is likely he will.
Vermont Gov. Phil Scott
If the Governor signs this piece of legislation into law, it’ll make Vermont the 11th state to regulate and tax cannabis sales. The Marijuana Policy Project (MPP) has a helpful summary of the legislation you can find here.
Back in 2018, Vermont actually voted to legalize adult use possession and cultivation of cannabis, just not to tax and regulate it. Governor Scott signed that bill into law, which is why some supporters are hopeful he will sign S. 54 into law as well.
Currently, only Vermont and Washington D.C. have legislation that legalized cannabis, just not the sale of it. Technically speaking, it is still illegal to sell cannabis in D.C. or Vermont.
The Vermont Senate is also expected to pass a bill that would automatically expunge criminal records for past low-level cannabis possession charges. Check out the MPP summary for that bill here.
Communicating with consumers through the telephone—either by text messages or by calls—is a great way to engage with them. Indeed, a recent analysis of text messaging trends reveals that most consumers check their cell phones more than 20 times a day, with almost 20% saying they check it more than 50 times.1 Text messages have a nearly five-times higher open rate than email, and the average consumer has 96 unread emails in his inbox compared to about one unread text message at any given time.2 In short, used properly, text messaging is an effective medium to reach consumers. And cannabis companies have embraced texting with open arms, especially given that other forms of advertising currently are off limits to the industry.
But with the utility of text messaging consumers comes substantial risk. Cannabis companies are frequent targets of private litigation arising out of their texting practices. Over the past two years, dozens of class action lawsuits alleging unlawful text messages have been filed against cannabis companies, including well-known multistate operators and less recognizable ones. Most of these cases are ongoing and may rightfully be considered “bet the company” litigations. For example, a pending case against cannabis delivery company Eaze Solutions, Inc. alleges that unsolicited text messages were sent to 52,104 individuals.3 Assuming each putative class member received just one text from Eaze, the statutory damages exposure ranges between $26 million and $78 million. The court twice has rejected proposed class settlements of $1.75 million and, later, $3.5 million as being too low. Given the potential exposure, before cannabis companies click the send button on a text message, they need to ensure that they’re abiding by the law.
At the federal level, the Telephone Consumer Protection Act (TCPA) regulates all types of text messages, telemarketing and transactional/informational alike. Generally speaking, the TCPA governs how text messages are sent (i.e., manually versus automatically dialed), and how calls are conducted and voicemail messages delivered (live representative versus “artificial or prerecorded voice”).4 The TCPA also contains do not call rules applicable to marketing messages. The TCPA is enforced by the Federal Communications Commission (FCC) and, notably, through private lawsuits, including class actions. Under the TCPA, a private plaintiff can seek statutory damages of $500 for each unsolicited autodialed text message (or unsolicited call that utilizes an artificial or prerecorded voice or delivers a prerecorded message). If a solicitation text is sent to a telephone number registered on the National Do Not Call Registry or the cannabis seller’s own internal do not call list, the statutory damages are “up to” $500 per call or text. In all cases, statutory damages may be trebled to $1,500 if the TCPA violation was committed either knowingly or willfully.
These rules fit atop myriad state telemarketing and do-not-call laws, which may be more restrictive than the TCPA.
While I could fill up this entire website with the various calling and texting issues with which sellers generally struggle under the TCPA—such as the use of artificial or prerecorded voices and prerecorded messages, how to handle reassigned numbers, revocation of consent issues, etc.—this article focuses on the basic rules governing how cannabis companies can text consumers, and what types of consent they need to do so under the Act.
Overview of TCPA’s Consent Rules
Under the TCPA, a seller is required to have a consumer’s “prior express consent” in order to send an autodialed non-marketing text message to a cell phone; The consent rule for autodialed marketing text messages to cell phones are different in that they require “prior express written consent” (EWC). No consent is needed in order to manually send a text message (and note that “manually” does not necessarily mean that an individual must dial all ten digits and click send from a standard smartphone).
“Prior express consent” is a lower level form of consent and generally exists where a consumer voluntarily has provided her telephone number to the seller.
“Prior express written consent,” on the other hand, is a heightened consent standard requiring a written agreement bearing (1) the signature of the person called (either traditional “wet” signature or an electronic/digital one) that clearly authorizes the seller to deliver or cause to be delivered to the consumer telemarketing messages; and (2) the telephone number to which the signatory authorizes such telemarketing messages to be delivered. If the seller utilizes an autodialer to send a marketing text message to a cell phone, then the written agreement with the consumer must also clearly and conspicuously disclose both that (a) the text may be sent using an autodialer, and (b) the consumer is not required to provide his consent as a condition of purchasing any goods or services. This EWC to be contacted must have been provided by the consumer before the text is sent. Unlike the lower standard for prior express consent, the mere provision of a cell phone number to the seller does not constitute the required EWC to be contacted at that number via an autodialer marketing purposes.
Confusing enough? Don’t worry, a table summarizing the current TCPA consent rules is below:
What Type of Text Are You Sending?
Generally, the type of consumer consent that is needed to send a text message is a function of the type of text and how it is being sent. “Telephone solicitations” are subject to more restrictions than purely informational or transactional text messages. The TCPA defines “telephone solicitation” to be “the initiation of a [text] message for the purpose of encouraging the purchase or rental of, or investment in, property, goods, or services.”
On the other end of the spectrum lie pure informational or transactional text messages. These are communications designed to provide information, rather than promote products and services (in the case of informational calls), and to “facilitate, complete, or confirm a commercial transaction that the recipient has previously agreed to enter into” (in the case of transactional calls). For example, customer satisfaction survey texts and texts to confirm orders and deliveries are informational and transactional, respectively.
Finally, the TCPA also covers a third category of text messages—“dual purpose” texts. These are texts with either a customer service or informational component as well as a marketing one. Because courts and the FCC take an expansive view of what constitutes telemarketing, dual purpose texts are treated as pure marketing messages and subject to the more rigorous standards to obtain the requisite level of consumer consent.
Common examples of texts that cannabis companies send and the corresponding level of consent needed are as follows:
Autodialed Text Messages: Under the TCPA, an autodialer is defined to be equipment, which has the capacity to store or produce telephone numbers to be called using a random or sequential number generator, and to dial such numbers without a requisite level of human involvement. However, there currently is a “significant fog of uncertainty” as to what is and is not an autodialer, with different courts reaching conflicting decisions as to, for example, whether simply dialing from a curated list of targeted telephone numbers constitutes autodialing, or whether the numbers on that list must have been randomly or sequentially generated in order for a platform to constitute an autodialer.
While proceedings are ongoing at the FCC to clarify the autodialer definition, the Supreme Court recently agreed to decide the autodialer issue during its next term in a TCPA case filed against Facebook; a decision is expected by May or June 2021. Notably, in mid-September 2020, the Department of Justice filed a “friend of the court” brief taking the industry-favorable position that a platform itself must randomly or sequentially generate the telephone numbers that it texts to be considered an autodialer under the statute.
Texts sent by autodialer (whether the autodialing functionality is actually used to send the text or not) require consent from the recipient. Note that this rule generally applies to both individual and business cell phone numbers. As long as the text is not a solicitation message, then consent may be obtained orally. Alternatively, if a consumer provides his cellular telephone number to you via an online lead form or during the checkout process, then this should be sufficient to constitute “prior express consent” to receive autodialed non-solicitation texts, such as order confirmations or delivery updates. The key to obtaining prior express consent, however, is that the consumer provide you with his telephone number voluntarily.
However, EWC is required to send a text for marketing purposes using an autodialer. The EWC requirements are described above and examples of EWC are below.
Note that, under the TCPA, the seller has the burden of demonstrating that it had the requisite level of consent to send the text in question. Thus, cannabis companies should maintain records evidencing such consent. A good rule of thumb is to maintain such records for a period of five years from the date of text, which covers the TCPA’s statute of limitations and the limitations periods under most state telemarketing laws.
Manually-Dialed Text Messages: If a cannabis company manually sends text messages—e., using a device that does not have the capacity to autodial—then no special consent is needed. However, even for manually-dialed texts, applicable do not call lists must be checked.
Texts to Numbers on Do Not Call Lists: The TCPA also prohibits companies from sending marketing texts to consumers whose telephone numbers are registered on either the National Do Not Call Registry or the seller’s own internal do not call list, unless an exemption applies, such as calls with the consumer’s EWC or to consumers with whom the seller has an “established business relationship.”5 The TCPA’s do not call rules are agnostic to how a telephone number is dialed, whether it be manually or by automated means. Be sure to scrub against relevant do not call lists.
Best Practices for Obtaining Proper Consent
As noted above, for autodialed non-marketing text messages to cell phones, the lower level of simple “prior express consent” is required. Prior express consent is deemed to exist by virtue of a consumer having provided his telephone number to a cannabis company, either orally or in writing.
EWC for autodialed solicitation text messages, however, requires more. First, specific disclosures must be made “clearly and conspicuously” to the consumer. Specifically, a consumer should be advised and agree that, by providing his telephone number to the cannabis company, he is agreeing (1) to receive potentially autodialed (2) marketing text messages, and (3) that he is not required to provide his consent as a condition of making a purchase. This disclosure should not be placed beneath a submission button on a lead form or checkout page (unless an unchecked check box is utilized to demonstrate that the consumer has reviewed and accepted the disclosure); it needs to be unavoidable. The disclosure should be presented in readable, crisp font, both in size and in color, that contrasts against its background. For example, the following disclosures likely would pass muster to demonstrate EWC:
As you may now appreciate, the TCPA is a minefield (and this article just scratches the surface). However, with planning and a good compliance program, the law can be navigated to minimize risk while, at the same time, allowing for communications with cannabis consumers. Remember, an ounce of compliance now can lead to a pound of litigation prevention later.
Disclaimer: Using, distributing, possessing, and/or selling marijuana is illegal under existing federal law. Compliance with state law does not guarantee or constitute compliance with federal law. This informational overview is not intended to provide any legal advice or any guidance or assistance in violating federal law.
References
Zipwhip, 2020 State of Texting, at 4 (2020).
Id. at 11.
See Lloyd v. Eaze Solutions, Inc., No. 3:18-cv-05176 (N.D. Cal.).
Although the TCPA utilizes the term “calls,” courts have found the statute applies with the same force to text messages. This article focuses on text messaging but most of the principles extend to calls as well.
There are two types of “established business relationships” (EBRs) under the TCPA: (1) inquiry EBRs and (2) transactional EBRs. Pursuant to a transactional EBR, a seller may text a consumer whose telephone number is listed on the National Do Not Call Registry for up to 18 months after the consumer’s last purchase, delivery, or payment—i.e., from the date of the seller’s last transaction with the former customer—unless the consumer asks the seller to stop calling him. In that case, the seller must honor the do not call request by placing the consumer’s telephone number on its own internal do not call list. Under an inquiry EBR, the seller may text a consumer who has inquired about its products or services, but only for up to three months. Again, if the consumer asks the seller to stop calling within that three-month timeframe, it must honor the request and add the consumer’s telephone number to its internal do not call list. Telephone numbers on the seller’s internal do not call list should remain on that list indefinitely or until the consumer subsequently provides her prior express written consent (or explicitly asks to be removed from the internal do not call list); a new EBR will not override an internal do not call request. Indeed, as to the latter, the Federal Trade Commission and several state attorneys general made this point clear in their briefing in a recent TCPA and Telemarketing Sales Rule litigation then-pending in Illinois federal court; the practical reason for the rule is that a consumer may wish to do business with a seller yet not receive telemarketing calls.
In September of 2019, Charles Wilcoxen fell seriously ill after vaping cannabis oil from a cartridge. Just days after he began experiencing symptoms he was hospitalized and later diagnosed with lipoid pneumonia, the mysterious lung illness now known as EVALI associated with the 2019 vape crisis.
Wilcoxen spent three days in the hospital and ever since he was diagnosed, he has been unable to exercise, return to work full time or even play with his daughter. Attorneys for Herrmann Law Group representing Wilcoxen filed a product liability lawsuit, Wilcoxen v. Canna Brand Solutions, LLC, et al., in Washington State Court, naming six cannabis companies as defendants: Canna Brand Solutions, Conscious Cannabis, Rainbow’s Aloft, Leafwerx, MFused and Janes Garden.
This image came from the complaint filed, alleging that Mr. Wilcoxen believes this was a CCELL product.
Canna Brand Solutions, the primary defendant named in the complaint, is a packaging supplier and distributor for CCELL vaping products (heating elements, pens and batteries) in the state of Washington. The complaint alleges that Wilcoxen believes he used a CCELL vape. CCELL is a Chinese company, which makes it notoriously difficult to pursue legal action against them, hence why Canna Brand Solutions was listed as a defendant instead.
On August 31, 2020, Judge Michael Schwartz dismissed all claims against Canna Brand Solutions. “All claims asserted by Plaintiff against Canna Brand in the above-mentioned matter shall be voluntarily dismissed without prejudice and without costs or fees to any of the parties to this litigation,” Judge Schwartz says in the dismissal. Judge Schwartz dismissed the case without prejudice, meaning it could be brought to the court again should the plaintiff’s attorneys decide to do so.
With the allegations against Canna Brand Solutions focusing on CCELL products, it seems that the case was dismissed largely due to a lack of evidence connecting exactly which product resulted in the illness, as well as the lack of culpability for a distributor of products they did not manufacture.
These are the vape cartridges that Mr. Wilcoxen purchased
Daniel Allen, founder and president of Canna Brands Solutions, claims that the product mentioned in the complaint did not come from his company. “We stand by our high quality and customizable CCELL vaporization products,” says Allen. “We feel vindicated in this case by the judge’s decision, which shows the claims against our company and products were completely unfounded from the beginning.”
He also added that the quality and safety of the products they distribute is their highest priority. “The product in question involved in this case did not come from Canna Brand Solutions,” says Allen.
Wilcoxen’s illness and subsequent long-term lung injury is extremely unfortunate. Thousands of people have been hospitalized and 68 deaths have been confirmed by the CDC. The CDC is still calling the illness EVALI (e-cigarette, or vaping, product use-associated lung injury). According to the CDC, there is no real known cause of EVALI, but they have found that vitamin E acetate is “strongly linked” to the outbreak. Knowing that, it is entirely possible that Mr. Wilcoxen’s illness was a result of one of the cannabis products he consumed, just most likely not anything that came from Canna Brand Solutions. A closer look at the contents with an independent lab test of the THC oil he consumed could shed some more light on what exactly caused the illness.
I would venture to guess that one of the products he consumed did have vitamin E acetate. Because the case was dismissed without prejudice, it could be brought to the court again if, say, Mr. Wilcoxen’s attorneys were to obtain more evidence, such as an independent lab report showing vitamin E acetate in the contents of one of the products he consumed. If Mr. Wilcoxen’s attorneys can figure out which product actually contained vitamin E acetate, perhaps the lawsuit could get a second shot and Mr. Wilcoxen could have a greater chance at getting some long-overdue and much-deserved restitution.
As employers in the cannabis industry adapt to making their businesses run and thrive in the age of COVID-19, federal, state and local jurisdictions have issued new laws and regulations providing rules and guidance on returning employees to work. Employers in the industry should be aware of, and prepare for, these rules moving forward.
Federal guidance regarding COVID testing and employees’ return to the workplace:
The EEOC has already stated that employers may administer COVID-19 tests before initially permitting employees to enter the workplace. In its September FAQs, the EEOC confirms that employers may conduct periodic tests to ensure that employees are COVID free and do not pose a threat to coworkers and customers. The EEOC also clarified that employers administering regular COVID-19 tests is consistent with current Centers for Disease Control and Prevention (CDC) guidance and that following recommendations by the CDC or other public health authorities such as the Food and Drug Administration (FDA) regarding employee testing and screening is appropriate. The EEOC acknowledges that the CDC and FDA may revise their recommendations based on new information, and reminds employers to keep apprised of these updates.
COVID questions for employees
The EEOC also confirmed that employers may ask employees returning to the workplace if they have been tested for COVID-19, which, presumably, permits employers to ask if the employee’s test was positive or negative. Please note that an employer’s right to ask employees about COVID testing is based on the potential threat that infected employees could pose to others if they physically return to work. As a result, the EEOC clarified that asking employees who exclusively work remotely and/or do not physically interact with other employees or customers about potential COVID-19 status would not be appropriate. The EEOC also stated that an employer may not directly ask whether an employee’s family members have COVID-19 or symptoms associated with COVID-19. This is because the Genetic Information Nondiscrimination Act (GINA) generally prohibits employers from asking employees medical questions about family members. However, the EEOC clarified employers may ask employees if they have had contact with anyone diagnosed with COVID-19 or who may have symptoms associated with the disease.
Sharing information about employees with COVID
The Americans with Disabilities Act (ADA) requires employers to confidentially maintain information regarding employees’ medical condition. The EEOC’s updated FAQS clarify that managers who learn that an employee has COVID may report this information to appropriate individuals within their organization in order to comply with public health guidance, such as relaying this information to government contact tracing programs. Employers should consider directing managers on how, and to whom, to make such reports, and specifically instruct employees who have a need to know about the COVID status of their coworkers to maintain the confidentiality of that information. The EEOC also clarified that workers may report to managers about the COVID status of a coworker in the same workplace.
California state guidance on employees returning to work
The state of California also recently released a “COVID-19 Employer Playbook” which provides guidance on employees to return to work. That playbook states that employees with COVID related symptoms may return to work 24 hours after their last fever, without the use of fever-reducing medications, if there had been an improvement in symptoms and at least 10 days had passed since symptoms first appeared. This was also indicated in the California Department of Public Health (CDPH) Order, issued in June, about responding to COVID-19 in the Workplace.
More recently, on August 24th, the CDPH released similar guidance which reiterates when employees who have tested positive for COVID could return to the workplace when: (1) at least 10 days have passed since symptoms first appeared; (2) at least 24 hours have passed with no fever (without the use of fever-reducing medications), and (3) their other symptoms have improved. Conversely, individuals who test positive for COVID and who never develop symptoms may return to work or school 10 days after the date of their first positive test.
Employers should also check local public health orders for their county when determining how and when to return an employee who has recovered from COVID-19. It is important to also confer with your employment counsel when implementing new policies and procedures related to COVID-19, particularly given that the guidance issued by government authorities continues to evolve at a rapid pace.
Return to work laws on the horizon
Finally, a number of local governments in California such as the City of San Francisco, Oakland and Los Angeles have enacted return-to-work ordinances generally requiring employers to offer available positions to former employees who have been separated from employment due to coronavirus related business slowdowns or government-issued shutdown orders. The California legislature is also in the process of enacting a potential law that would similarly require employers in the state to offer vacant job positions to former employees whose employment ended due to COVID.
While the San Francisco ordinance only addresses positions in San Francisco and the Oakland and Los Angeles ordinances primarily address large employers in the hospitality and restaurant industries, cannabis industry employers should strongly consider offering vacant job positions to former employees whose employment ended due to COVID in order to comply with these ordinances and other potentially applicable future laws and in an effort to avoid potential legal claims from former employees.
Employers are strongly advised to consult with counsel to make sure they are following the requirements of these new laws and regulations.
All major industries took a hit during the COVID-19 pandemic, but in many states, cannabis dispensaries were labeled as essential, which has allowed the industry to continue with some alterations. The impact now will come from what innovations and improvements the industry can leverage going forward.
From changes to protocols and buyer behaviors to supply chain disruptions, there were many new hurdles for the industry in addition to the ones cannabis businesses already faced, such as funding. But the silver lining could be that businesses within the cannabis industry become less of a specialty and more ‘every day’ than ever before.
The effects of the pandemic on the cannabis industry
Overall, the industry has fared well, in part thanks to its distinction as an essential service in states where cannabis is legal. It’s possible states made this decision for the same reason that alcohol businesses were deemed essential in most places: hospitals are not equipped during pandemic times to take care of people who are being forced to detox or those suffering from anxiety because they don’t have access to their legal drug of choice.
In a multitude of ways, cannabis businesses have adapted to bring calm in a storm while at the same time making manufacturing adjustments to meet the CDC guidelines. For example, there is more attention placed on individually pre-packaged products for single use; something that is less sharable as an experience but eminently practical.
Another area that has shifted a little is in the limiting of the exchange and interaction between business owners and staff relative to the customers. It’s all in the aim of mitigating the risk of exposure, but it has changed the dynamic in many cannabis businesses. This is the new normal for the time being and the industry has adapted well.
Ultimately, retail cannabis businesses today are no different than the retail of candy, cigarettes or alcohol. Certainly, segments of the industry have still struggled. Lack of tourism and the curbside/take out circumstances at dispensaries took their toll. But without the opportunity to still conduct business in some capacity, 50-60% of all operators would have gone out of business. Plus, as many people use cannabis to offset medical symptoms, including pain management, there is a legitimate need for cannabis to be available. The pandemic has provided the opportunity for many who might not have tried it before to give it a chance to help them medicinally.
Behaviors have changed, including those of buyers
Driven by consumer interests, many dispensaries have adapted to provide curbside pickup options, delivery of online orders and more. That has meant that the customer also needs to be more knowledgeable about cannabis: the experienced consumer knows what they like and want and can make their choices at a distance. Someone who is new to cannabis use might find navigating the choices and options a little more difficult, without the help of experienced staff. The breadth of material online and the ability of some dispensaries to share content that helps the consumer to make choices, in the absence of walking around the dispensary, have been additional tools at the disposal of businesses.
That said, the cannabis industry today is not a vastly different one: it is adapting to the new rules and new reality. Whether this way of doing business—at a distance—is a temporary or permanent solution will be dependent upon what federal and state regulators dictate in the months ahead, but there is likely to be ongoing demand for being able to order online and keep social distance protocols in place.
An interesting example is the Ontario Cannabis Store (OCS) in Ontario, Canada. This is a government run shop that has retail as well as a robust online presence, with free delivery during the pandemic. This has facilitated an increase in new customers, which had already jumped, post legalization. People who might have felt uncomfortable going into a dispensary can still learn about cannabis online and order it, from the relative comfort and safety of their sofa.
Supply chain disruptions and the cannabis industry
The industry has long been focused on overseas suppliers. With the arrival of the pandemic and restrictions on obtaining products from other countries, supply chains have been disrupted for many cannabis businesses. That has forced many to shift their supply chains to more local manufacturers, in North and South America.
In the long run, this should have a positive impact for the industry, so that despite the short-term disruption to the supply chain, which is having an impact on the industry as a whole, there could be an upside for local producers, growers and manufacturers. It will take time to know how this will all play out.
Funding and other issues for the cannabis industry
For a new cannabis startup in these times, the key will be what it has always been for any business, just to a greater degree: due diligence. Companies that want to open a cannabis business, whether during the pandemic or not, need to evaluate the opportunity as one would any investment. It’s all about the numbers: data for the industry as a whole and specifically from competition. These days, that data is widely available and more and more consultants and investors have expertise in this industry. “Overall, there is more interest in the industry than ever before”
It’s vital to be extremely well versed, particularly for businesses that are relatively new in the industry, because the single biggest issue for many has and will continue to be funding and investment. The cannabis industry is no different than any other business, except for the fact that it is a specialty business. With that comes the need to look for funding among investors who have some knowledge or appreciation for the industry.
Some of the key concerns traditional investors will have include:
Regulatory differences from state to state: since cannabis is still illegal at the federal level, there can be an array of hurdles at state and local level that make cannabis businesses trickier to work with.
There are religious based/morality issues for some lenders in dealing with the industry. These aren’t dissimilar from issues with other industries such as adult entertainment and gaming. It’s also fair to point out that, morality aside, these industries have thrived in the last several decades.
So, while traditional banking institutions will often deal with the proceeds from the cannabis industry, including allowing bank accounts for these businesses, there is far less of a chance that they would invest in a cannabis business, for fear of risking their license. They can even go so far as to refuse to include income from a cannabis business in the determination of a loan application.
There are more unique lending or investing groups that either specialize in cannabis or are starting to open their books to specialize in cannabis. Overall, there is more interest in the industry than ever before, as it becomes normalized in American society: more participants and more insiders of the industries that are willing to invest in the right idea.
Will legalization be more likely in the future?
The fact that cannabis businesses and dispensaries have been deemed essential services during the pandemic, where they legally operate, has shed new light on the relevance of these businesses and the advantages of more widespread legalization.“Consumers will help drive the innovations as they demand clean consumption methods”
In fact, the pandemic has normalized a lot of new behaviors, including the acceptable use of cannabis to help with stress and anxiety. People are, perhaps thanks to staying at home more, doing the legwork to understand how cannabis could be useful to them in managing their stress. The medicinal benefits of cannabis have long been researched and understood: consumers are coming into the fray to express their interest in it, which can only fuel the possibility of more widespread legalization.
Add to this the fact that the cannabis industry is a growth industry. There are companies and jobs that aren’t coming back, post-pandemic. There is an opportunity to grow the cannabis industry to the general benefit of many, both as business owners and employees. The revenue generated from taxation following legalization would also benefit many state coffers. Federal level legalization would be the panacea to eliminate the mixed message, state by state regulation that currently exists.
Opportunities for innovation, moving forward
As more and more people become interested in the industry, and as cannabis use is normalized within society through legalization, the opportunities for the industry can only expand.
For an industry that started on the simple concept of smoking cannabis, the advances have already been legion: edibles, nanotechnology-based formulations for effective, clean consumption and many more innovations.
In a world that increasingly sees smoking as a negative, for the obvious impact to lung health, there are so many opportunities to grow the industry to find consumption methods that are safe and still deliver the impact of the inhaled version.
Here again, consumers will help drive the innovations as they demand clean consumption methods. The technology is available to make this possible; it only takes innovation and education to find the best ways to move this industry forward.
As legalization expands—and particularly if it is dealt with at the federal level—the industry will be able to capitalize on existing infrastructure for manufacturing and distribution, allowing new businesses to grow, get funded and thrive in the new normal.
One of the biggest challenges that cultivators, processors and distributors face in doing business is the requirement to track the product at every step in the production process, from seed to sale. When you add the wide range of label sizes and requirements across the supply chain, labeling can feel overwhelming. While business systems such as METRC, BioTrack, MJFreeway and others are key, integrating accurate and secure barcode labeling with those systems will streamline the end-to-end process while meeting traceability requirements. Here are some things to consider, no matter what role in the cannabis supply chain you play.
Cultivation: Where Tracking and Labeling Starts
Cultivation is where the tracking process begins – integrating barcode labeling METRC, BioTrack, MJ Freeway from the start will streamline the end-to-end process
It’s crucial to implement accurate labeling processes from the beginning, whether growing for a customer or your own vertically integrated operation. The cannabis industry is faced with strict labeling regulations for a variety of cannabis products. Start with a labeling system that can integrate with METRC, BioTrack, MJ Freeway or other seed to sale software solutions. Your barcode labeling solution should also include label approval requirements, so you have role-based access and transparency with label changes and print history in case of issues or recalls. Whatever cannabis labeling regulations your business faces, label design software helps you create compliant cannabis labels throughout the supply chain, from grower to consumer.
Radio Frequency Identification (RFID) Labeling
Select regulations require growers to leverage RFID technology to track the location of the plants in their grow houses. RFID technology also enables accurate real-time inventory analysis and helps reduce manual labor costs, as well as errors that can occur with manual counting. To accurately encode RFID tags with variable plant data, be sure you are using a barcode labeling system that can enable easy RFID tag encoding that integrates data from all your business systems. Fastening RFID tags to plants across your grow house floor enables quick and easy location tracking, and RFID reading removes the need for a manual line of sight and allows hundreds of tags to be read at the same time, speeding up shipping and receiving.
Lab Testing
After a plant is cultivated, a certain percentage is sent to a lab to be tested to ensure its proper strain, weight and compound makeup. After your product has been lab tested, leverage the data from your certificate of analysis to accurately display on your cannabis product labels, including:
Pass/fail chemical testing
Final date of testing & packaging
Identification of testing lab
Cannabinoid profile & potency levels
Efficiently display lab testing results on product labels with the use of a QR code for the consumer to review the independent lab’s certificate of analysis
Processing and Production: Tracking and Labeling After the Plant Has Been Harvested
A lot of information needs to go on a cannabis label. Whether you’re producing pre-rolls, packaged flower, edibles, beverages, topicals or cartridges, your labeling software must have the capability to create a wide variety of label sizes with barcodes that encode a large volume of data, while also being fully compliant and showing consumer appeal.
Your cannabis labeling software should do the following for you:
Support database integration to populate variable data from METRC, BioTrack, and other systems
Import high-resolution artwork and leverage with dynamic barcodes and variable data
Contain barcode creation wizards for 1D & 2D barcodes
Automate weigh & print
RGB/CMYK color matching
Feature secure label approval processes, label change tracking and print history
Offer WYSIWYG (What You See is What You Get) printing
Automatically trigger printing directly from scales and scanners when cannabis is weighed
Automatically integrating data with your barcode labeling software improves regulatory compliance, security and reduces manual processes that can lead to labeling errors
Integrate labeling with your seed to sale software solution to automatically trigger label printing by an action in your seed to sale system or by monitoring a database. By integrating your label printing system with your seed to sale traceability system, you can expect to minimize errors, increase print speeds and maximize your ROI. Your business system already holds the variable data such as product names, license number, batch or lot codes, allergens, net quantity, cannabis facts, warning statements and more. By systematically sending this data to the right label template at the right time, labeling becomes an efficient and cost-effective process.
Distribution: labeling for consumer and industry demands
The ability to manage and distribute inventory efficiently is critical in the cannabis market. Warehouses and distributors need to ensure proper storage, handling and traceability of product, from the warehouse to the truck.
Leverage your labeling software to easily create:
Packaging labels
Shipping labels
Case & pallet labels
Inventory labels
If you use the same data for your documents and labels, consider moving document printing into your label design software for greater efficiency. An advanced label creation and integration software enables label and document printing standardization by allowing multiple database records to be on one file. That means when new documents or labels come into your database, your software can seamlessly integrate.
Dispensaries can benefit from integrated seed to sale labeling for traceability, speed to market
Whether you’re a small outlet or a large dispensary, you benefit from integrated barcode labeling that starts from the beginning of the process. How? When barcode labeling software is integrated with seed to sale software, product is fully traced throughout the entire process, from tagging each plant at cultivation to identifying the consumer at point of sale, and accurately communicating that data back to METRC, BioTrack and other critical systems. Some dispensaries do package raw flower onsite, which many times means manually weighing, recording and entering the weight on the label, which is a time consuming and error-prone process. Integrating weigh and print functionality with barcode software enables dispensaries to use the action of weighing raw flower to automatically trigger the label print job. The variable weight is then accurately and automatically populated on cannabis flower package labels, creating an accurate and efficient on-demand labeling process for dispensaries. With efficient labeling processes, time spent creating, correcting, approving and printing labels will be reduced, getting product on the shelves faster.
The consumer-facing CBD industry operates in a regulatory gray zone even as it grows in prominence. Illegal to market as an unapproved drug, dietary supplement or food additive under the Food, Drug & Cosmetic Act, nevertheless, the CBD industry has flourished with ingestible products widely available. With the increased consumer interest in CBD, headwinds in the form of mislabeled or contaminated products and unsubstantiated therapeutic claims, combined with regulatory uncertainty, continue to be a drag on legitimate market participants and consumer perception of CBD products. The regulation of hemp-derived CBD falls under the purview of the Food and Drug Administration (FDA) and its charge to protect the public health. Despite having jurisdiction to regulate CBD products, the FDA has done little to bring regulatory certainty to the CBD marketplace. However, the FDA, with the assistance of the National Institute of Standards and Technology (NIST), recently took important steps that can be described as “getting their ducks in a row” for the eventual regulation of hemp-derived CBD in consumer products. Always looming is the threat of criminal enforcement of the Controlled Substances Act (CSA) by the Department of Justice’s Drug Enforcement Administration (DEA) for plants and products not meeting the definition of hemp.
Prior to July 2020, the FDA’s regulation of the CBD industry was limited to a public hearing, data collection, an update report to Congress on evaluating the use of CBD in consumer products, and issuing warning letters to those marketing products for treatment of serious diseases and conditions. The FDA recognizes that regulatory uncertainty does not benefit the Agency, the industry or consumers and, therefore, is evaluating a potential lawful pathway for the marketing of CBD products. In furtherance of this effort, the FDA took several recent actions, including:
Producing a CBD Testing Report to Congress1
Providing draft guidance on Quality Considerations for Clinical Research2
Sending a CBD Enforcement Policy to the Office of Management and Budget for pre-release review and guidance3
Not to be overlooked, the NIST announced a program to help testing laboratories accurately measure compounds, including delta-9 tetrahydrocannabinol (THC) and CBD, in marijuana, hemp and cannabis products, the goal being to increase accuracy in product labeling and to assist labs in identifying THC concentrations in order to differentiate between legal hemp and federally illegal marijuana. These actions appear to be important and necessary steps towards a still be to determined federal regulatory framework for CBD products. Unfortunately, a seemingly innocent interim final rule issued by the DEA on August 21, 2020 (Interim Final Rule), may prove to be devastating to hemp processors and the CBD industry as a whole.4 While the DEA describes its actions as merely conforming DEA regulations with changes to the CSA resulting from the 2018 Farm Bill, those actions may make it exceedingly difficult for hemp to be processed for cannabinoid extraction without violating the CSA in the process.
FDA Report to Congress “Sampling Study of the Current Cannabidiol Marketplace to Determine the Extent That Products are Mislabeled or Adulterated”
On July 8, 2020, the FDA produced a report to the House and Senate Committees on Appropriations detailing the results of a sampling study to determine the extent to which CBD products in the marketplace are mislabeled or adulterated. The study confirmed what the FDA, Congress and the marketplace already knew – that in this regulatory vacuum, there are legitimate concerns about the characteristics of consumer CBD products. These concerns include whether products contain the CBD content as described in the label, whether products contain other cannabinoids (including THC) and whether products were contaminated with heavy metals or pesticides. With these concerns in mind, the FDA tested 147 CBD and hemp products purchased online for the presence of eleven cannabinoids, including determinations of total CBD and total THC, and certain heavy metals. The key tests results included the following:
94% contained CBD
2 products that listed CBD on the label did not contain CBD
18% contained less than 80% of the amount of CBD indicated
45% contained within 20% of the amount listed
37% contained more than 20% of the amount of CBD indicated
49% contained THC or THCA at levels above the lowest concentration that can be detected
Heavy metals were virtually nonexistent in the samples
The structure of cannabidiol (CBD), one of 400 active compounds found in cannabis.
Due to the limited sample size, the FDA indicated its intention to conduct a long-term study of randomly selected products across brands, product categories and distribution channels with an emphasis on more commercially popular products. In furtherance of this effort, on August 13, 2020, the FDA published a notice soliciting submissions for a contract to help study CBD by “collecting samples and assessing the quantities of CBD and related cannabinoids, as well as potential associated contaminants such as toxic elements, pesticides, industrial chemicals, processing solvents and microbial contaminants, in foods and cosmetics through surveys of these commodities.”5
Even though this report was not voluntarily produced by the FDA, rather it was required by Congress’ Consolidated Appropriations Act of 2020, it importantly solidified a basis for the need for regulation. With less than half of the products tested falling within the 20% labeling margin of error, this suggests rampant and intentionally inaccurate labeling and/or significant variability in the laboratory testing for cannabinoids.
NIST Program to Help Laboratories Accurately Measure Compounds in Hemp, Marijuana and Cannabis Products
Proper labeling of cannabinoid content requires reliable and accurate measurement of the compounds found in hemp, marijuana and cannabis products. As part of NIST’s Cannabis Quality Assurance Program, NIST intends to help labs produce consistent measurement results for product testing and to allow forensic labs to distinguish between hemp and marijuana.6 As succinctly stated by a NIST research chemist, “When you walk into a store or dispensary and see a label that says 10% CBD, you want to know that you can trust that number.” Recognizing the lack of standards due to cannabis being a Schedule I drug for decades, NIST intends to produce standardized methods and reference materials the help labs achieve high-quality measurements.
NIST’s efforts to provide labs with the tools needed to accurately measure cannabis compounds will serve as an important building block for future regulation of CBD by the FDA. Achieving nationwide consistency in measurements will make future FDA regulations addressing CBD content in products achievable and meaningful.
FDA Industry Guidance on Quality Considerations for Clinical Research on Cannabis and Cannabis-Derived Compounds
On July 21, the FDA released draft guidance to the industry addressing quality considerations for clinical research of cannabis and cannabis-derived compounds related to the development of drugs. These recommendations are limited to the development of human drugs and do not apply to other FDA-regulated products, including food additives and dietary supplements. However, by indicating that cannabis with .3% or less of THC can be used for clinical research and discussing testing methodologies for cannabis botanical raw material, intermediaries and finished drug products, the FDA is potentially signaling to the consumer-facing CBD industry how the industry should be calculating percentage THC throughout the product formulation process.
While testing of botanical raw material is guided by the USDA Interim Final Rule on Hemp Production,7 the FDA warns that manufacturing processes may generate intermediaries or accumulated by-products that exceed the .3% THC threshold and may be considered by the DEA to be Schedule I controlled substances. This could be the case even if the raw material and finished product do not exceed .3% THC. The FDA’s guidance may eventually become the standard applied to regulated CBD products in a form other than as a drug. However, through its guidance, the FDA is warning the CBD industry that the DEA may also have a significant and potentially destructive role to play in the manufacturing process for CBD products.
FDA Submits CBD Enforcement Policy Guidance to the White House
On July 22, 2020, the FDA submitted to the White House Office of Management and Budget a “Cannabidiol Enforcement Policy – Draft Guidance for Industry” for its review. The contents of the document are not known outside of the Executive Branch and there is no guarantee as to when, or even if, it will be released. Nevertheless, given the FDA’s interest in a legal pathway forward for CBD products, the submission is looked upon as a positive step forward. With this guidance, it is important to remember that the FDA’s primary concern is the safety of the consuming public and it continues to collect data on the effects of ingestible CBD on the human body.
It is doubtful that this guidance will place CBD products in the dietary supplement category given the legal constraints on the FDA and the lack of safety data available to the FDA. The guidance likely does not draw distinctions among products using CBD isolate (as found in Epidiolex), full or broad spectrum hemp extract, despite the FDA’s expressed interest in the differences between these compositions.8 Instead, the FDA is more likely to establish guardrails for CBD ingestible products without authorizing their marketing. These could include encouragement of Good Manufacturing Practices, accuracy in labeling, elimination of heavy metal and pesticide contamination, and more vigorous enforcement against marketing involving the making of disease claims. The FDA is not expected to prescribe dosage standards, but may suggest a maximum daily intake of CBD for individuals along the lines of the U.K.’s Food Standards Agency guideline of a maximum of 70 mg of CBD per day.9
Identifying concerns in the current marketplace; promoting accuracy in testing; highlighting the line between FDA regulation and DEA enforcement; and proposing guidance to the industry all appear to be signs of substantial progress on forging a regulatory path for ingestible CBD products.
The DEA’s Interim Final Rule Addressing Derivatives and Extracts Could Have a Devastating Impact on the Cannabinoid Industry
The seemingly benign Interim Final Rule published by the DEA in August with the stated intent of aligning DEA regulations with the changes to the CSA caused by the 2018 Farm Bill’s definition of hemp could cut the legs out from under the hemp-derived CBD industry.10 Claiming it has “no discretion with respect to these amendments,” the DEA rule states that “a cannabis derivative, extract, or product that exceeds the 0.3% delta-9 THC limit is a schedule I controlled substance, even if the plant from which it was derived contained 0.3% or less delta-9 THC on a dry weight basis.”11 Under this interpretation of the 2018 Farm Bill language and the CSA, it is unclear whether processors of hemp for cannabinoid extraction would be in possession of a controlled substance if, at any time, a derivative or extract contains more than 0.3% delta-9 THC even though the derivative or extract may be in that state temporarily and/or eventually falls below the 0.3% threshold when included in the final product. It would not be unusual for extracts created in the extraction process to exceed 0.3% delta-9 THC in the course of processing cannabinoids from hemp.
The implications of the rule may have a chilling effect on those involved in, or providing services to, hemp processors. It is known, as revealed by the Secretary of the USDA to Congress, that the DEA does not look favorably on the legalization of hemp and development of the hemp industry. The DEA’s position is that the rule merely incorporates amendments to the CSA caused by the 2018 Farm Bill’s definition of hemp into DEA’s regulations. In doing so, the DEA made explicit its interpretation of the Farm Bill’s hemp provisions that it presumably has held since the language became operative. What is not known is whether this changes the DEA’s appetite for enforcing the law under its stated interpretation, which to date it has refrained from doing. Nevertheless, the industry is likely to respond in two ways. First, by submitting comments to the Interim Final Rule, which will be accepted for a 60-day period, beginning on August 21, 2020. Anyone concerned about the implications of this rule should submit comments by the deadline. Second, by the filing of a legal challenge to the rulemaking on grounds that the rule does not correctly reflect Congressional intent in legalizing hemp and, consequently, the rulemaking process violated the Administrative Procedure Act. If both fail to mitigate harm caused to the CBD industry, the industry will have to look to Congress for relief. In the meantime, if the hemp processing industry is disrupted by this rule, cannabis processors holding licenses in legal states may be looked upon to meet the supply needs of the CBD product manufacturers.
The Interim Final Rule also addresses synthetically derived tetrahydrocannabinols, finding them to be Schedule I controlled substances regardless of the delta-9 THC content. This part of the rule could impact the growing market for products containing delta-8 THC. While naturally occurring in hemp in small quantities, delta-8 THC is typically produced by chemically converting CBD, thereby likely making the resulting delta-8 THC to be considered synthetically derived.
The hemp-derived cannabinoid industry continues to suffer from a “one step forward, two steps back” syndrome. The USDA’s highly anticipated Interim Final Rule on hemp production (released Oct. 31, 2019) immediately caused consternation in the CBD industry, and continues to, due to certain restrictive provisions in the rule. Disapproval in the rule is evident by the number of states deciding to operate under their pilot programs for the 2020 growing season, rather than under the conditions of the Interim Final Rule.12 With signs of real progress by the FDA on regulating the CBD products industry, yet another interim final rule could undercut the all-important processing portion of the cannabinoid supply chain by injecting the threat of criminality where there is no intent by processors to violate the law. It is not a stretch to suggest that both the USDA and FDA are being significantly influenced by the DEA. The DEA’s Interim Final Rule is just another troubling example of the legal-illegal dichotomy of cannabis that continues to plague the CBD industry.
References
U.S. Food & Drug Admin., Report to the U.S. House Committee on Appropriations and the U.S. Senate Committee on Appropriations, Sampling Study of the Current Cannabidiol Marketplace to Determine the Extent That Products are Mislabeled or Adulterated (July 2020).
U.S. Food & Drug Admin., Cannabis and Cannabis-Derived Compounds Quality Considerations for Clinical Research: Guidance for Industry(July 2020).
U.S. Food & Drug Admin., Cannabidiol Enforcement Policy: Draft Guidance for Industry (July 2020).
Implementation of the Agriculture Improvement Act of 2018, 85 FR 51639 (Aug. 21, 2020) (to be codified at 21 C.F.R. §§ 1308, 1312).
U.S. Food & Drug Admin., Collection and Analysis of Products Containing CBD and Cannabinoids, Notice ID RFQ_75F40120R00020 (Aug. 13, 2020).
Agricultural Improvement Act of 2018, Pub. L. 115-334, title X, 10113 (codified at 7 U.S.C. §§ 1639o-1639s).
U.S. Food & Drug Admin., Report to the U.S. House Committee on Appropriations and the U.S. Senate Committee on Appropriations, Cannabidiol (CBD), p. 14 (March 2020).
U.K. Food Standards Agency, Food Standards Agency Sets Deadline for the CBD Industry and Provides Safety Advice to Consumers (Feb. 2020) at https://www.food.gov.uk/news-alerts/news/food-standards-agency-sets-deadline-for-the-cbd-industry-and-provides-safety-advice-to-consumers.
See supra n. 4.
Id.
U.S. Dept. of Agriculture, Status of State and Tribal Hemp Production Plans for USDA Approval (as of Aug. 26, 2020).
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Specifically, the interim rule promulgates the DEA’s position that hemp processors can convert otherwise legal hemp into illegal “marihuana,” thereby bringing it back under the DEA’s authority, if such processing and extraction increases the THC content above the 0.3% THC threshold, even momentarily. Specifically, the interim rule states:
