Category: Drug & Cosmetic Law

FDA Issues Warnings to 15 Companies for Illegally Selling Products Containing CBD

On November 25, 2019, the U.S. Food & Drug Administration (“FDA”) published a press release, published a revised Consumer Update, and announced the issuance of new warning letters to 15 companies for illegally selling and marketing various products containing hemp-derived cannabidiol (“CBD”).

To quote the FDA:

“Today’s actions come as the FDA continues to explore potential pathways for various types of CBD products to be lawfully marketed.  This includes ongoing work to obtain and evaluate information to address outstanding questions related to the safety of CBD products, while maintaining the agency’s rigorous public health standards.  The FDA plans to provide an update on its progress regarding the agency’s approach to these products in the coming weeks.”

In the meantime, however, these steps appear to be an effort to stem the tide of proliferation of CBD products on the market – and the growing consumer demand for those products.  It is great that the FDA intends to provide an update on its efforts to develop a regulatory pathway for CBD products under the Federal Food Drug & Cosmetic Act (“FD&C Act”).  But, it is frustrating that the FDA still refuses to identify a set date for that update – or, to publicly commit to a meaningful resolution of the regulatory uncertainty that persists for CBD products today.

A Reminder: Don’t Make Unsubstantiated Claims

As made clear in prior FDA warning letters – and the 15 letters released on November 25th – there continues to be significant regulatory risk in the labeling and marketing of CBD products for sale in interstate commerce.  However, the FDA’s enforcement efforts still appear to be focused on companies and products that engage in the most egregious violations of the FD&C Act – including those making disease claims and those marketed to (or for use by) children and other vulnerable populations.

Among other things, this round of warning letters address the following major issues:

  • Marketing products for use by children and other vulnerable populations.
  • Including a supplements facts panel on product labels, which indicated the company’s intention to market the product as a dietary supplement.
  • Marketing products that are intended for use in the cure, mitigation, treatment, or prevention of diseases and/or intended to affect the structure or any function of the body.
  • Posting materials on the companies’ social media websites that link to a third party’s content indicating that CBD can be used in the cure, mitigation, treatment, or prevention of diseases and/or intended to affect the structure or any function of the body.
  • Misbranding products intended to be marketed as drugs.
  • Marketing human and animal food containing CBD in interstate commerce.
  • Marketing unapproved new animal drugs by selling pet products containing CBD that are intended for use in the diagnosis, cure, mitigation, treatment, or prevention of disease in animals and/or intended to affect the structure or any function of the body of animals.

Many of these issues have been referenced in prior actions and warning letters released by the FDA.  By now, it should be clear to all market participants that it is illegal (and irresponsible) to market your CBD products as a cure for cancer, Alzheimer’s, diabetes, or other medical diseases, ailments, or conditions.  CBD companies should heed this clear warning and stop the practice.  Just don’t do it.

The New Concerns

This round of enforcement action seems to signal that the FDA is taking a more aggressive stance on its view of CBD health and safety issues.  The press release and the consumer update both indicate that the FDA has broad safety concerns about CBD products, that there exist many unanswered questions and data gaps about CBD toxicity, and that some of the data available to the FDA raises serious concerns about potential harm from CBD.

The consumer update contains troubling statements like “CBD has the potential to harm you, and harm can happen even before you become aware of it,” and “CBD can cause liver injury.”  But, no direct evidence or substantiation for these claims is linked to the consumer update or press release.  Instead, the consumer update attempts to draw a corollary line between the data obtained from trials performed in connection with one FDA-approved CBD drug and the non-pharmaceutical products available on the market today.  Equating that data against the products available to consumers today does not produce an apples-to-apples comparison.  There are likely different scientific outcomes from, and different levels of toxicity caused by, the delivery of high dosages of concentrated CBD to mice in a clinical laboratory setting versus the relatively low dosages of CBD found in many food and supplement products available to consumers today.

More scientific research is absolutely needed on the efficacy and safety of CBD used in products intended for human consumption.  And that research will come in time.  But, the information released by the FDA this week appears to be an overstatement of the potential health risks associated with CBD products – at least, as they are known today.  There are health risks associated with bad products – and there are bad products on the market today – but that merely highlights the need for clear regulatory guidance from the FDA.

The Future of CBD

The FDA recognizes that there is a significant public interest in CBD.  It also recognizes that there are reports of CBD products containing potentially harmful contaminants, such as pesticides and heavy metals.   Yet, despite that strong interest and recognition of a need for regulation in the industry, the FDA has delayed its development and implementation of meaningful regulatory guidance for CBD companies.  That continuing delay does a disservice to the industry and to the general public.

Companies that cut corners and sell CBD products containing potentially harmful substances need to be regulated out of existence.  Consumers deserve to know that the CBD brands they purchase and use have been responsibly grown, responsibly and safely manufactured, and are free from potentially harmful substances, like heavy metals and pesticides.  And well-intentioned, responsibly operating CBD companies need and deserve clear regulatory guardrails within which they can safely – and legally – operate their business.

Unfortunately, it appears that regulatory uncertainty will continue to persist until there is more scientific data to support the safety and efficacy of CBD in consumer products.  Obtaining that additional research and data will take time, so the industry may face a long slog until the FDA identifies a clear, detailed regulatory “pathway forward” for CBD.  Until then, it is important for CBD companies to carefully consider the FDA’s position on CBD and the warnings sent this week, and to incorporate those factors into their internal compliance practices as they develop, produce, advertise, and sell their products in interstate commerce.

© 2019 Ward and Smith, P.A.. All Rights Reserved.

For more on cannabidiol/CBD regulation, see the National Law Review Biotech, Food & Drug law page.

Three NBA Players Suspended for Drug Violations

The NBA commenced its new season on 22 October with the battle for Los Angeles, as Kawhi’s Clippers edged the Lakers this time. But, less than three weeks into the new season, attention has turned to off-the-court matters; three NBA players who were active on rosters last season have been suspended for testing positive for banned substances.

Wilson Chandler of the Brooklyn Nets tested positive for Ipamorelin, a growth hormone during the summer. The number 1 pick of last year’s draft, DeAndre Ayton tested positive for a diuretic whilst the Atlanta Hawks’ John Collins tested positive for Growth Hormone Releasing Peptide-2, a synthetic drug found to increase appetite and food intake.

The three players have been suspended without pay for 25 games for violations of the NBA/National Basketball’s Player Association (NBPA) Anti-Drug Program.

The terms governing the Anti-Drug Program are set out in the NBA’s Collective Bargaining Agreement (CBA), entered into between the NBA and the NBPA. The NBPA negotiates the terms of the CBA on behalf of NBA players. The CBA regulates a wide variety of matters relevant to the operation of the NBA.

Amongst other things, the CBA governs:

  • the share of “Basketball Related Income” between the players and the league;
  • the team salary cap and tax structures;
  • rules on player contract terms, including salaries and duration;
  • free agency – the process by which out-of-contract players can engage in contract discussions with other NBA teams;
  • rules on trading players; and
  • the aforementioned Anti-Drug Program.

The current CBA was entered into in 2017, and is due to run until the end of the 2023-24 season. The terms of the Anti-Drug Program are set out in Article XXXIII of the current CBA. The new CBA increased penalties for positive tests for performance-enhancing drugs from 20 games to 25 games for first violations. There was also an increase in suspension periods for second violations from 45 games to 55 games. A third positive test continues to result in the player’s expulsion from the league.

Section 9 of the Anti-Drug Program provides that players who have been found to have taken performance-enhancing drugs may have penalties reduced or rescinded through arbitration. Section 19 provides a defence if the player can present:

clear and convincing evidence that he bears no significant fault or negligence for the presence of the drugs in his test result.

This means the player must not have known or suspected, and could not have reasonably known or suspected, that he was taking, ingesting, applying or using the banned substance. Further, the player must establish how the substance entered his system. This is a high evidential bar to meet.

Nevertheless, Ayton is appealing the findings. Diuretics can be used to help the body remove evidence of other banned substances. Ayton’s follow-up tests revealed no traces of other banned substances. The NBPA is preparing to take the case to arbitration, invoking the section 19 ‘unintentional ingestion’ defence, to appeal the decision. Collins intends to appeal the test results on the same basis, claiming that the offending substance derived from a supplement that “unbeknownst to me, had been contaminated with an illegal component”.

An impartial arbitrator will now review the arguments raised by the players and sustain, reduce or rescind the suspensions.

Performance-enhancing drug suspensions are relatively rare in the NBA. ESPN analyst Bobby Marks described the recent spate of suspensions as “unprecedented”. It will be interesting to see how the arbitration proceedings unfold and whether the penalties are changed.

© Copyright 2019 Squire Patton Boggs (US) LLP

For more on the NBA and related news, see the National Law Review Entertainment, Art & Sports law page.

In The Weeds: Key Intellectual Property Takeaways For The Cannabis Industry

1. Patent Filings Are Rapidly Increasing

The number of patent filings at the United States Patent and Trademark Office (“PTO”) directly correlates to the rise of cannabis legalization. According to Magic Number, a data analytics company, between 2017 and 2018 the PTO issued almost 250 cannabis-related patents—more than in the previous seven years combined. These filings cover a range of inventions, including medical treatments and pharmaceutical compositions, cultivation techniques, vaporizers, and cannabis-infused products like toothpaste, coffee beans, and alcoholic drinks. With this uptick in patent filings, the volume of cannabis-specific prior art is on the rise as well. Those interested in obtaining patent protection in the cannabis industry should not fall behind their peers nor wait until the prior art field has fully developed. Early filing is critical.

2. Cannabis is Still Illegal Under Federal Law

Despite the growing number of patent filings, it is important to recognize that processing and distributing cannabis is still illegal under the federal Controlled Substance Act. Recent scholarly articles have argued that federal courts should not entertain most cannabis patent infringement suits due to illegality. Nonetheless, some courts have allowed these cases to proceed on the merits. United Cannabis Corporation v. Pure Hemp Collective Inc. is the first trial involving a cannabis patent in federal court. Specifically, the patent in dispute relates to the extraction of pharmaceutically active components from plant materials (e.g., liquid cannabinoid formula including THC). The plaintiff filed a patent infringement suit against a competitor maker of CBD products. In April 2019, a judge ruled in favor of United Cannabis Corporation by rejecting the argument that the plaintiff’s formulations are not patent eligible. Although the legal status of cannabis is not an issue in the case, it is important to remember that cannabis is not legalized at the federal level and that federal case law is still developing.

3. Design Patents can be a Valuable Component of an IP Portfolio

Design patents are a valuable form of protection in the cannabis space and are often a good alternative to utility protection. While 10 percent of patents issued overall are design patents, less than one percent of cannabis-related filings are designated as design patents. Design patents are quicker and cheaper to obtain; this may be desirable for fast-developing and/or cost-conscious companies and particularly for products having short life cycles. Design patents are particularly valuable for covering the ornamental aspects of well-known cannabis-related products, such as vaporizers, to deter wholesale copying. Business owners should consider the role design patents may play in protecting their products.

4. Trademark Filings are Similarly Increasing

Roughly 110 new cannabis-related federal trademark applications are filed each month since Congress approved the 2018 Farm Bill 11 months ago. Among other things, the Farm Bill removed “hemp” from the list of controlled substances under the Controlled Substances Act. This removal created an avenue for federal trademark registrations covering certain goods and services derived from hemp that contain no more than 0.3 percent THC. However, all other cannabis related products are currently ineligible for trademark protection due to its illegality. Namely, trademark law requires that the goods in connection with a particular trademark must be lawfully sold or transferred in commerce. To provide some flexibility given the tension between state and federal law for cannabis, trademark applicants should file applications using broad wording for the goods and services, which can allow applicants to narrow as needed to obtain a trademark registration. To register a cannabis-related trademark at the federal level, the cannabis-related business should be prepared to argue that the goods or services associated with the mark are not illegal under the Controlled Substances Act. Additionally, trademark registrations may be available in certain states for cannabis-related products and services. Although state registrations do not offer nation-wide protection, a company should consider filing for state trademark protection in conjunction with federal trademark flings. Companies should consider filing applications in states where cannabis is legalized.

5. IP Protection Strategy Beyond the United States

As of 2018, more than thirty countries have legalized cannabis, in one form or another, according to Marijuana Business Daily. The World Intellectual Property Organization notes that approximately 10,246 cannabis-related applications have been filed since 1978 under the Patent Cooperation Treaty, with 6,137 applications coming after 2008. Thus, the trends and recommendations above regarding domestic protection of cannabis are, likewise, relevant on the international stage. Likewise, companies should also consider foreign trademark filings in countries that have legalized cannabis. In particular, most foreign countries follow a first-to-file rule when it comes to trademarks. As a result, it is important to consider foreign trademark filings as early as possible.

Closing

With the drastic increase of cannabis-related patent and trademark applications, companies need to act quickly to protect their innovations in this rapidly growing industry. With cannabis-related patents, despite the uncertain legal landscape, early filings may be unexpectedly successful, given the infancy of the prior art field. With cannabis-related trademarks, companies should ensure that the goods or services associated with that trademark are not illegal under the Controlled Substances Act. Companies should also continue to monitor developments on a state-by-state and nation-by-nation basis. Given trends, it is expected that legalization will continue to expand to additional jurisdictions.

 

Copyright 2019 K & L Gates

ARTICLE BY Matthew S. Dicke, Sana Hakim, Kevin T. McCormick and Brittany Kaplan of K&L Gates.
For more in cannabis industry news, see the National Law Review Biotech, Food & Drug law page.

FDA Toughens Enforcement of Homeopathic Products

FDA recently announced that it was taking two significant actions with respect to products marketed as homeopathic drugs, suggesting that increased enforcement related to these products is imminent. Homeopathy is a form of alternative medicine that is based on the idea that illnesses and their symptoms can be treated by small doses of ingredients that produce similar symptoms in healthy people.

First, the Agency has withdrawn Compliance Policy Guide (CPG) Sec. 400.400, entitled “Conditions Under Which Homeopathic Drugs May be Marketed.” The CPG was issued in 1988 and described an enforcement policy that permitted unapproved homeopathic drugs to be marketed if certain conditions related to labeling, ingredients, manufacturing, and other considerations were met. In withdrawing the CPG, the Agency observed that products that seemed to meet the criteria described in the CPG nonetheless caused or could have caused serious harm.

Second, the Agency has revised its draft guidance entitled “Drug Products Labeled as Homeopathic.” The revised draft guidance describes enforcement priorities for homeopathic drugs marketed without required approval. According to the revised draft guidance, these priorities include:

•Products with reports of injury that, after evaluation, raise potential safety concerns.  For example, MedWatch reports on other information submitted to the Agency can indicate or signal a potential association between the product and an adverse event, medication errors, or other safety issues.

•Products that contain or purport to contain ingredients associated with potentially significant safety concerns. For example, potentially significant safety concerns are raised by products that contain or purport to contain:

– An infectious agent with the potential to be pathogenic;

– A controlled substance, as defined in the Controlled Substances Act, 21 U.S.C. 812;

– Multiple ingredients that, when used in combination, could result in possible interactions, synergistic effects, or additive effects of the various ingredients; and,

– Ingredients that pose a risk of toxic, or other adverse effects, particularly when the ingredients are concentrated or in low dilution presentations (e.g., 1X, 2X, or 1C), or are not adequately controlled in the manufacturing process.

  • Products for routes of administration other than oral and topical. . . .
  • Products intended to be used for the prevention or treatment of serious and/or life-threatening diseases or conditions. . . .
  • Products for vulnerable populations. . . .
  • Products with significant quality issues. . . .

The revised draft guidance stresses that “nothing in the FD&C Act exempts homeopathic drug products from any of the requirements related to approval, adulteration, or misbranding, including labeling requirements.” It further emphasizes that “any homeopathic drug product that is being marketed illegally is subject to FDA enforcement at any time.”

©2019 Greenberg Traurig, LLP. All rights reserved.

For more FDA regulations, see the National Law Review Biotech, Food & Drug law page.

Cannabis Coming to the Northeast? Governors of NY, NJ, CT and PA Adopt “Core Principles” to Implement Adult-Use Legislation.

On October 17, 2019, Governor Cuomo of New York, Governor Lamont of Connecticut, Governor Murphy of New Jersey and Governor Wolf of Pennsylvania co-hosted the first Cannabis Regulation and Vaping Summit to create a set of uniform principles each state can implement through its adult-use legislation to standardize regulations across the region.

The summit resulted in an agreed-to set of core principles for rolling out adult-use legislation, including (1) market regulation and empowerment, (2) public health, (3) public safety and enforcement, and (4) vaping best practices. Also attending the summit were representatives from Rhode Island, Massachusetts and Colorado.

Market Regulation and Empowerment

When creating adult-use legislation and regulation, the states will implement agreed-to guidelines to set cannabis tax structures and to ensure that social justice initiatives are key components of the legislation. The guidelines discussed include:

  • Implementing social equity initiatives to ensure industry access to those disproportionately impacted by the war on drugs
  • Maintaining awareness of the need to ensure a fair and competitive market by deploying strategies such as limiting the number of licenses or license types
  • Implementing a similar overall tax structure for cannabis products between the four states
  • Providing guidance to open up banking to the industry
  • Implementing meaningful social justice reform such as expediting expungements or pardons and waiving associated fees.

Public Health

Concerned that decreasing production costs might lead to inexpensive high-potency products, the four governors agreed to standardized product safety and testing requirements and impose restrictive advertising requirements to ensure youth are not targeted. These principles include:

  • Prohibiting advertising and product forms that target minors
  • Restricting advertising to audiences that are for the most part over the age of 21
  • Banning adverting and products that appeal to youth, such as flavored cannabis products
  • Restricting cannabis sales to purchasers over the age of 21
  • Collecting and sharing cannabis use data to better understand public health outcomes
  • Limiting the cannabis possession amount and limiting the overall THC content of products to discourage over-consumption and accidental overdose.

Public Safety and Enforcement

To help ensure highway safety and improve options for testing cannabis impairment in the field, the states agreed to the following guidelines:

  • Uniform treatment of drug recognition expert evidence
  • Uniform standard for blood or saliva tests
  • Training for drug recognition experts
  • Methods for sharing information on suspected “bad actions” in legal markets
  • Law enforcement strategies to police the illicit market.

Vaping Best Practices

The states agreed to principles to regulate the entire vaping industry, including vapes containing nicotine, CBD and THC. Using the following guidelines, the states will share strategies and solutions for investigating illicit THC vape pens and regulating filler oils and carrier fluids:

  • Banning or regulating the sale of flavored vapes to reduce use among youth
  • Implementing vape product safety standards for nicotine and cannabinoids that include diluents, excipients and cutting agents
  • Regulating temperature control for vape heating mechanisms
  • Increasing enforcement actions to prevent sale to minors.

New York will aim to pass adult-use legislation during the 2020 legislative session, which begins in January. It is expected that Governor Cuomo will include a cannabis plan in his budget proposal, as he did last year.

© 2019 Wilson Elser

For more cannabis regulation, see the National Law Review Biotech, Food & Drug Law page.

AB 1291 Forces California Cannabis Companies To Sign “Labor Peace Agreements” With Unions, But Statute May be Unconstitutional

 

On October 12, 2019, Governor Newsom signed Assembly Bill 1291 (“AB 1291”) into law, which requires companies to sign a so-called “labor peace” agreement with a union or risk losing their cannabis license; thereby, strengthening already union-friendly statewide cannabis law. AB 1291 was supported and endorsed by various unions, including the United Food and Commercial Workers Western States Council, a 170,000-member branch representing thousands of cannabis workers. This bill, as well as other California statutes and local laws, signals a growing insistence by state and local regulators that employers doing business in California accept pro-union requirements. However, many of these new pro-union laws, including AB 1291, may be unconstitutional.

The main takeaways of AB 1291 are as follows:

  1. Effective January 1, 2020, California cannabis license applicants must sign so-called labor peace agreements with a union within 60 days of their 20th hire or risk losing their cannabis license.
  2. Employers and business associations seeking to challenge AB 1291, and other similar state or local union-related ordinances, are encouraged to speak with experienced labor counsel to discuss their options.
  3. Employers seeking to comply with AB 1291 and sign labor peace agreements should conduct due diligence on the labor unions they are considering entering into negotiations with. Not all unions are the same. Additionally, businesses should be thoughtful about what they agree to put into a labor peace agreement to satisfy the requirements under California’s cannabis laws. For example, these agreements are frequently mistakenly referred to as “neutrality agreement.” Neutrality agreements typically contain a commitment from the employer to remain “neutral” through a union organizing campaign. In contrast, AB 1291 does not use the term “neutral(ity)” and, thus, arguments can be made that strict “neutrality” is not required under the statute and may not need to be included in the labor peace agreement. Thus, employers should speak with experienced labor counsel before negotiating labor peace agreements with unions.

Background

Since its adoption into law in 2018, the Medicinal and Adult Use of Cannabis Regulation and Safety Act (“MAUCRSA”) has required applicants for state cannabis licenses with 20 or more employees to “provide a statement that the applicant will enter into, or demonstrate that it has already entered into, and abide by the terms of a labor peace agreement.”1 (Cal. Bus. & Prof. Code § 26015.5(a)(5)(A).) A labor peace agreement, as defined under California’s cannabis laws, must contain the following commitments, at a minimum:

  1. Employer shall not “disrupt” efforts by the union to “communicate with, and attempt to organize and represent” the employer’s employees;
  2. Employer shall give the union “access at reasonable times to areas in which the employees work, for the purpose of meeting with employees to discuss their right to representation, employment rights under state law, and terms and conditions of employment;” and
  3. Union and its members shall not engage in picketing, work stoppages, boycotts, and any other economic interference with the employer’s business.

(Cal. Lab. & Prof Code § 26001(x).)

Effective January 1, 2020, AB 1291 requires an applicant for a state license under MAUCRSA with 20 or more employees to provide a notarized statement that the applicant will enter into, or demonstrate that it has already entered into, and abide by the terms of a labor peace agreement. If the applicant has less than 20 employees and has not yet entered into a labor peace agreement, AB 1291 requires the applicant to provide a notarized statement as a part of its application indicating that the applicant will enter into and abide by the terms of a labor peace agreement within 60 days of employing its 20th employee. By expanding the scope of the crime of perjury, AB 1291 imposes a state-mandated local program and authorizes the Bureau of Cannabis Control, the Department of Food and Agriculture, and the State Department of Public Health to revoke or suspend a license for a violation of these requirements.

AB 1291 May Be Unconstitutional

AB 1291 poses substantial questions as to whether it is unconstitutional due to preemption by the National Labor Relations Act (“NLRA”) under two complementary preemptions doctrines: Garmon and Machinists. In San Diego Building Trades Council v. Garmon, 359 U.S. 236 (1959), the U.S. Supreme Court declared that the states are constitutionally barred by the U.S. Constitution’s supremacy clause from regulating conduct that NLRA protects, prohibits, or arguably protects or prohibits. Garmon preemption exists to protect the National Labor Relations Board’s (“NLRB”) primary jurisdiction and to preclude a state’s interference with its interpretation and enforcement of the integrated regulatory scheme that is the NLRA. Indeed, Congress delegated exclusive authority to the NLRB because it sought to establish a single, uniform national labor policy that would be unaffected by the vagaries of state law or shaped by local attitudes or prejudices. (Garner v. Teamsters Union, 346 U.S. 485, 490 (1953).) In Machinists v. Wisconsin Employment Relations Comm’n, 427 U. S. 132 (1976), the U.S. Supreme Court similarly declared that the NLRA forbids states to regulate conduct that Congress intended “to be unregulated because left ‘to be controlled by the free play of economic forces.’” Together, Garmon and Machinists preempt state and local policies that would otherwise interfere with the “integrated scheme of regulation” and disrupt the balance of power between labor and management embodied in the NLRA.

It appears AB 1291’s purpose is to afford unions greater rights than provided under the NLRA and make it easier for unions to organize cannabis employers. AB 1291 arguably presents the type of state interference in labor-management relations that Garmon and Machinists preemption forbids. For example, in Golden State Transit Corp. v. City of Los Angeles (“Golden State I”), 475 U.S. 608, 616 (1986), the Supreme Court held that while the NLRA “requires an employer and a union to bargain in good faith, … it does not require them to reach agreement,” nor does it demand a particular outcome from labor negotiations.” The substance of labor negotiations, and the results therefrom, are among those areas Congress intentionally left to the free play of economic forces when it legislated in the field of labor law. (Id.) In that case, the Supreme Court found that Machinists preempted the City of Los Angeles’ (“City”) refusal to renew a taxi cab company’s license when it failed to reach an agreement with striking union members. By conditioning the renewal of the taxi cab franchise on the acceptance of the union’s demands, the City effectively imposed a timeline on the parties’ negotiations and undermined the taxi cab company’s ability to rely on its own economic power to resist the strike. (Id. at 615.) The Supreme Court held that the City could not pressure the taxi cab company into reaching a settlement and thereby “destroy[] the balance of power designed by Congress, and frustrate[] Congress’ decision to leave open the use of economic weapons.” (Id. at 619.)

The facts of Golden State I are instructive here. Like the taxi cab company in Golden State I, California cannabis businesses now face a Hobson’s “all or nothing” choice under AB 1291. If a cannabis business refuses to negotiate a labor peace agreement with a labor organization, it effectively loses the right to do business in California. But if the cannabis business negotiates a labor peace agreement, the union knows full well that it can hold out for significant concessions in exchange for its members giving up one of their most valuable economic weapons – the power to strike.

The U.S. Supreme Court’s decision in Chamber of Commerce v. Brown, 554 U.S. 60 (2008) is also instructive. At issue in Brown was California’s Assembly Bill 1889 (“AB 1889”), prohibiting certain private employers from using state funds to “assist, promote, or deter union organizing.” (Id. at 63 [quoting Cal. Govt. Code §§ 16645.1–16645.7].) The Court held that AB 1889 was unconstitutional. As explained by the Court, the current text of Sections 7 and 8 of the NLRA are amendments made to the NLRA in 1947 as part of the Labor Management Relations Act, also known as the Taft Harley Act, for the purpose of overturning earlier NLRB precedent. The NLRA was amended in in several key respects. First, it emphasized that employees “have the right to refrain from any or all” union activities. (29 U.S.C. § 157.) Second, it added Section 8(b), which prohibits unfair labor practices by unions. (29 U.S.C. § 158(b).) Third, it added Section 8(c), which protects speech by both unions and employers from regulation by the NLRB. (29 U.S.C. § 158(c).) Specifically, Section 8(c) provides:

The expressing of any views, argument, or opinion, or the dissemination thereof, whether in written, printed, graphic, or visual form, shall not constitute or be evidence of an unfair labor practice under any of the provisions of this subchapter, if such expression contains no threat of reprisal or force or promise of benefit.

With the amendments, Section 8(c) “manifested a “congressional intent to encourage free debate on issues dividing labor and management.” (Id. at 6-7.) That Congress amended the NLRA, rather than leaving to the courts the task of correcting the NLRB’s decisions on a case-by-case basis, is “indicative of how important Congress deemed such ‘free debate.’” (Id. at 7.) In addition, Sections 8(a) and 8(b) “demonstrate that when Congress has sought to put limits on advocacy for or against union organization, it has expressly set forth the mechanisms for doing so.” (Brown, 554 U.S. at 67.) Moreover, “the amendment to §7 calls attention to the right of employees to refuse to join unions, which implies an underlying right to receive information opposing unionization.” (Id.) “[T]he addition of §8(c) expressly precludes regulation of speech about unionization so long as the communications do not contain a ‘threat of reprisal or force or promise of benefit.” (Id. [internal quotation omitted].) Thus, based on these overriding principles, the Court concluded that “California’s policy judgment that partisan employer speech necessarily interfere[s] with an employee’s choice about whether to join or to be represented by a labor union” and struck down AB 1889. (Id. at 68 [internal quotation omitted].)

AB 1291 is arguably no different. By forcing unwilling cannabis businesses to negotiate and accept labor peace agreements, AB 1291 compels a result Congress deliberately left to the free play of economic forces. The NLRA does not allow state and local governments to interfere with employer rights to communicate with employees regarding unionization under Section 8(c). Nor does it allow state and local governments to “introduce some standard of properly balanced bargaining power . . . or to define what economic sanctions might be permitted negotiating parties in an ideal or balanced state of collective bargaining.” (Machinists, 427 U.S. at 149-50.) Yet, this is exactly what AB 1291 appears to do. Accordingly, AB 1291 may be unconstitutional.

1 A labor peace (aka a labor harmony agreement) is essentially a contract between an employer and an organized labor union in which the employer agrees to help the union organize the employer’s workforce (i.e., unionize) by providing, for example, certain information or agreeing not to interfere with the union organizing efforts, in exchange for the union’s agreement not to strike or cause other disruption in the employer’s workforce during a union organizing campaign. Because these agreements open the door to union activity within the workplace, they should not be entered into casually. Rather, unionization may result in increased labor costs, contractual contributions to union pension plans, loss of flexibility, and adherence to union rules set forth in a legally binding contract. In addition, once a union is recognized or certified as the collective bargaining representative of employees, it is practically impossible to terminate that relationship. Indeed, only after a costly and divisive decertification election can a workforce return to the merit-based and flexible non-union environment.

Copyright © 2019, Sheppard Mullin Richter & Hampton LLP.

For more on union regulation, see the National Law Review Labor & Employment law page.

California Tackles Big Pharma’s Anticompetitive ‘Pay for Delay’ Practices That Slow Down Lower-Cost Generic Drug Development

California Gov. Gavin Newsom has signed AB 824, known as the “Pay-for-Delay” bill, blocking pharmaceutical companies from paying generic drug makers to not develop and bring lower-cost medicines to market. The law makes these so-called “reverse payment” settlements of patent disputes – which the Federal Trade Commission says cost consumers $3.5 billion a year – “presumptively anticompetitive.”

The new law provides that an agreement resolving a patent infringement claim is anticompetitive if the generic drug or biosimilar drug makers receive anything of value from the brand name company that’s claiming infringement, and if the generic maker agrees to slow-walk or stop research, development, manufacture, marketing, or sales of a generic product for any period of time. Exceptions are made in cases in which an agreement promotes competition.

The state Attorney General is authorized to seek civil penalties within four years of any violations of the law. Other remedies would be available under California’s Cartwright Act, Unfair Practices Act, or unfair competition laws.

Sidestepping Competition

The FTC has prosecuted brand name and generic drug companies and has sued to stop these reverse payment agreements which allow drug companies to “sidestep competition.” Earlier this year, for example, the FTC announced a global settlement of three separate federal antitrust lawsuits involving subsidiaries of pharmaceutical manufacturer Teva Pharmaceuticals Industries Ltd.

There is no legitimate pro-competitive justification for pay-for-delay of generic drugs by brand name pharma companies. It's the consumer who pays the price. In one of the cases, Teva’s Cephalon company paid four generic drug manufacturers $200 million to back off on their plans to sell a generic version of Cephalon’s Provigil, a medication used to treat excessive sleepiness caused by sleep apnea, narcolepsy, or shift-work sleep disorder. Teva, which was able to delay the generic version for six years, agreed in its settlement to create a $25 million consumer fund and pay $69 million plus another $200,000 to cover the state’s legal fees. Teva was also barred from engaging in reverse-payment patent settlement agreements for 10 years.

In another instance, the FTC announced the settlement of its case against Endo Pharmaceuticals Inc., which paid Impax Laboratories $112 million not to go to market with a competing generic version of Endo’s Opana ER – a pain reliever in the opioid family.

Collusive Arrangements

Attorney General Xavier Becerra, AB 824’s sponsor, wrote that these kinds of pay-for-delay agreements are “collusive arrangements between brand-name drug companies and rival drug manufacturers” that allow the companies to charge monopolistic prices. “Pay-for-delay agreements hurt consumers twice – once by delaying the introduction of an equivalent generic drug that is almost always cheaper than the brand name and second by stifling additional competition because we know that when multiple manufacturers of generic drugs compete with each other, prices can be up to 90% less than what the brand name drug cost originally,” Becerra wrote.

Supporters of the bill included Health Access of California, the California Labor Federation, and the Small Business Majority. Another supporter, the California Public Interest Research Group, said brand-name drugs cost an average of 10 times and sometimes 33 times more than generics, adding that brand-name companies make billions in sales while generics are delayed.

All Those Opposed

The Association for Accessible Medicines (AAM) opposed the bill, saying it “penalizes procompetitive patent settlements that significantly expedite generic and biosimilar access.” Besides, the group argued, a federal framework already exists to review patent settlements, citing FTC v. Actavis, the 2013 decision in which the Supreme Court held that a brand drug manufacturer’s reverse payment to a generic competitor to settle patent litigation can violate the antitrust laws. The Supreme Court refused to call these agreements presumptively unlawful, instead saying the FTC had to prove its case as it would in any other “rule of reason” cases. The likelihood that a pay-to-delay settlement would have anticompetitive effects “depend[s] on its size, its scale in relation to the payor’s anticipated future litigation costs, its independence from other services for which it might represent payment, and the lack of any other convincing justification,” the Supreme Court ruled.

The pro-industry pro-tort reform Civil Justice Association of California called the bill “an enhanced, steroid infused codification” of the California Supreme Court’s 2015 decision in In re Cipro, which followed the U.S. Supreme Court’s FTC v. Actavis ruling.

Biopharmaceutical company Biocon opposed the bill for, it said, replacing the FTC with the State of California in the commission’s role as prosecutor of anticompetitive conduct.

The FTC’s Competition Bureau has been keeping track of the effectiveness of the Supreme Court’s FTC v. Actavis decision. In May 2019, FTC Chairman Joe Simons announced: “The data are clear: the Supreme Court’s Actavis decision has significantly reduced the kinds of reverse payment agreements that are most likely to impede generic entry and harm consumers.”

Commentary

There is simply no legitimate procompetitive justification for pay-for-delay settlements. There is simply no legitimate procompetitive justification for pay-for-delay settlements. They are explicit agreements between competitors to restrain competition and serve only to keep pharmaceutical prices unnecessarily high in this country. According to FTC data, pay-for-delay settlements cost consumers billions of dollars per year.

AB 824 simply aligns the law with the reality of this burden on the consumer, creating a presumption that such settlements are anticompetitive and requiring the settling parties to demonstrate why this is not the case. In fact, AB 824 essentially codifies the rule the FTC argued should govern pay-for-delay settlements in Actavis.

Critics of the law will challenge its legality, including its constitutionality under the dormant commerce clause. And while it may not withstand these legal challenges, AB 824 is an encouraging sign that lawmakers are beginning to understand the negative impact that pay-for-delay settlements have on competition in the pharmaceutical industry. We hope more states follow suit.

© MoginRubin LLP

ARTICLE BY Jennifer M. Oliver and Timothy Z. LaComb of MoginRubin. Edited by Tom Hagy for MoginRubin LLP. Photo of “worried man” by Nik Shuliahin via Upsplash.
For more on pharmaceutical regulation, see the National Law Review Biotech, Food & Drug law page.

Mayo Clinic Reports Vaping Injuries Resemble Chemical Burns

The Centers for Disease Control and Prevention (CDC) announced that over 1,000 people became ill from vaping e-cigarettes, including 18 deaths. Now, research by the Mayo Clinic of Arizona suggests the lung damage may be the result of chemical burns.

The CDC announced that 77% of the injured vapers were using e-cigarettes with tobacco and THC products, and 17% were using only nicotine. The CDC partnered with state-based health care services and research hospitals to try to determine the cause of the recent spike in vaping lung damage cases.

The Mayo Clinic of Arizona is one of the first to release data derived from recent cases. The research team tested lung biopsy samples from 17 patients, including two who have since died from the condition. All 17 biopsies suggested that the lung injuries were most likely caused by “direct toxicity or tissue damage from noxious chemical fumes.” These fumes are generated from the vaporized e-cigarette liquids. Researchers said it does not appear that the build-up of lipids, reported earlier as a possible cause of the lung damage, was a factor in these 17 patients.

According to Dr. Larsen, the senior author of the study, “It would seem prudent based on our observations to explore ways to better regulate the industry and better educate the public, especially our youth, about the risks associated with vaping.”

COPYRIGHT © 2019, STARK & STARK

For more on vaping regulation, see the Nationa Law Review Biotech, Food & Drug law page.

House Vote on Cannabis Industry-Related SAFE Banking Act Scheduled for September 2019

As early as September 23, 2019, the United States House of Representatives is expected to vote on the widely anticipated Secure and Fair Enforcement (SAFE) Banking Act. First introduced in both chambers of Congress in 2017, re-introduced in the House in March of 2019, and amended this past June, the SAFE Banking Act has garnered bipartisan support as a necessary solution to the dilemma created by conflicting federal and state cannabis law regimes, particularly as it relates to financial service providers.

According to a press release issued by the House Committee on Financial Services on March 26, 2019, committee chairwoman, Representative Maxine Waters (D-CA), remarked, the SAFE Banking Act “addresses an urgent public safety concern for legitimate businesses that currently have no recourse but to operate with just cash.” The Act joins the ranks of congressional efforts such as the Rohrabacher-Farr amendment to omnibus spending bills, Section 728 of the Consolidated Appropriations Act of 2019, the pending Blumenauer amendment, and proposed Strengthening the Tenth Amendment Through Entrusting States (STATES) Act—all of which seek to reconcile the federal government’s failure to enact comprehensive marijuana and, until recently, hemp policy despite widespread support on the state and local level. Status in the Senate is uncertain, as the chair of the Banking Committee has indicated an intent to poll those in Idaho, a state that has failed to legalize any form of cannabis, regarding the issue.

Today’s cannabis industry encompasses the growth, processing, distribution, and other ancillary services related to both hemp and marijuana. While hemp and marijuana are both derived from the plant Cannabis sativa L, they are legally distinguished on both a federal and state level by their THC content. As a result, marijuana remains a controlled substance under federal law, while hemp, boasting lower THC levels, is classified as an agricultural product within the purview of the United States Department of Agriculture (USDA). This federal distinction, however, has not prevented more than 40 states from legalizing marijuana for medical and/or recreational adult use. Unfortunately, the businesses that choose to take advantage of such progressive state marijuana laws must do so without the support of traditional financial institutions that businesses, particularly minority and women-owned, rely on to fund and protect their financial growth.

According to §4(a) of the bill’s text, the SAFE Banking Act will shield depository institutions that serve cannabis-related businesses from federal penalties in states and Indian country where “cultivation, production, manufacture, sale, transportation, display, dispensing, distribution, or purchase” of cannabis is legal. In particular, the Act will prohibit regulators from terminating or limiting deposit or share insurance of financial instruments because an institution’s client participates directly or indirectly in the cannabis industry. Regulators will also be prohibited from penalizing institutions for authorizing, processing, clearing, settling, billing, transferring, reconciling, or collecting payments for a legitimate cannabis-related business for payments made by any means, including a credit, debit, or other payment card, an account, check, or electronic funds transfer. Perhaps, most importantly, the Act will also require the Federal Financial Institutions Examination Council (FFIEC) to develop uniform guidance and examination procedures for depository institutions serving cannabis-related businesses.

For financial institutions and insurance providers operating in states where cannabis is legal, this creates an immense opportunity and incentive to assist industry participants as they strive to protect and invest their monetary assets without putting the institutions they rely on at risk of federal prosecution. However, because protections under the SAFE Banking Act only apply when legitimate cannabis-related businesses are involved, monitoring clients’ compliance with relevant state laws will be particularly important. In the absence of clear federal marijuana policy and official hemp regulations under the 2018 Farm Bill, in addition to constantly evolving state laws and regulations, this may prove especially challenging. As such, in anticipation of the Act’s passage, financial institutions should enlist the support of experienced legal counsel to ensure the necessary processes for monitoring clients’ compliance are in place. In addition, those seeking to benefit under the Act should still pay close attention to due diligence requirements promulgated by the Financial Crimes Enforcement Network (FinCEN), although many concerns should be alleviated by the Act’s prohibition on civil or criminal prosecution solely based on the provision of financial services or investing income derived from such services.

NOTE: Cannabis as defined under the Act only references marijuana. However, in practice, the bill’s passage should alleviate apprehension surrounding hemp, as many financial institutions and their affiliates have refrained from offering services to hemp businesses under the current financial legal framework, even in the wake of the 2018 Farm Bill and pending USDA regulations.

Read the bill’s text here.

© 2019 Dinsmore & Shohl LLP. All rights reserved.

This article was written by Jennifer K. Mason, Michael G. Dailey and Ambur C. Smith of Dinsmore & Shohl LLP.
For more marijuana & cannabis legislation, see the National Law Review Biotech, Food & Drug law page.

A Win for Hemp in Court, and What it (Might) Mean for North Carolina

The hemp and cannabidiol (“CBD”) industries today face substantial uncertainty, and they lack clear Federal rules, regulations, and guidance within which governments and businesses can safely operate.

That dearth of guidance has, to some degree, left individual states to wrestle with how best to regulate and control the production and sale of hemp and hemp-derived products within their own borders.  At the epicenter of this struggle to address and regulate hemp in North Carolina is “smokable hemp.”

Where Do Things Stand in North Carolina?

When we last commented on the state of legislative efforts in North Carolina, the House of Representatives – along with local and state law enforcement agencies and county district attorneys – were fighting hard to kill the smokable hemp market in our state.  The proposal set forth in the current version of the NC Farm Act of 2019 (“SB 315”) seeks to immediately ban and reclassify smokable hemp as marijuana (the Senate version of the bill included a ban as well but on a much more delayed timeline), and to subject its cultivation, sale, possession, and consumption to the same criminal and civil penalties as those for marijuana.  The arguments and justifications for this ban have shifted over time, but generally include: that failing to ban smokable hemp will create “de facto” marijuana legalization in our state; that hemp and marijuana are indistinguishable in appearance and smell; that law enforcement will lose probable cause for drug-related searches and seizures; and that they will have to purchase expensive equipment to perform THC analysis in crime labs; that they will have to retire or retrain drug-sniffing canines (yes – this is apparently more important to House Republicans than the livelihood of our farmers and citizens’ civil liberties); that officers will have to be retrained and assigned to other jobs within their departments; and a general unwillingness to police and enforce marijuana laws differently in the future.

Since then, additional changes have been made to SB 315 – none of which are industry-friendly – and the bill was passed and approved by the House by a vote of 63 to 48.  Among other things, the revised House version of SB 315:

  • More broadly defines the technical definition of “smokable hemp” to mean all “harvested raw or dried hemp plant material, including hemp buds or hemp flowers, hemp cigars, and hemp cigarettes.” This overly broad, sweeping definition appears to cover and include the entire hemp plant once it is harvested.
  • Classifies smokable hemp as marijuana and criminalizes the manufacture, distribution, dispensing, delivery, sale, purchasing, or possession of smokable hemp in our state. Violations are punishable by civil and criminal penalties, including possible prosecution for a Class I felony.

Fortunately, SB 315 is not law.  The North Carolina Department of Agriculture and the North Carolina Senate – especially Senator Brent Jackson – have continued to showcase their support for the hemp and CBD industries.  Following its passage in the House, SB 315 was immediately referred to the Committee on Rules and Operations of the Senate, and there have been no indications so far that the bill will be considered for a concurrence vote this session – let alone be finalized, passed, and sent to Governor Cooper for signature or veto.

The Struggle is Real

North Carolina is not alone in its struggle.  Other states are also considering – and some have passed – legislative bans that, in effect, criminalize the production, sale, transportation, and possession of smokable hemp.  Indiana is one such state.  In response to the Agriculture Improvement Act of 2018 (the “2018 Farm Bill”), Indiana enacted and signed into law Senate Enrolled Act No. 516 (“SEA 516”) on May 2, 2019.

SEA 516 adopted the 2018 Farm Bill’s definition of hemp.  However, SEA 516 also criminalizes the manufacture, finance, delivery, and possession of smokable hemp, which it defines as “a product containing not more than three-tenths percent (0.3%) delta-9 tetrahydrocannabinol (THC), including precursors and derivatives of THC, in a form that allows THC to be introduced into the human body by inhalation of smoke.”  The definition of smokable hemp in SEA 516 specifically includes “hemp bud” and “hemp flower.”

On June 28, 2019, a group of hemp industry plaintiffs filed suit (the “Indiana Lawsuit”) in the United States District Court for the Southern District of Indiana (the “Federal Court”), challenging the constitutionality of SEA 516’s smokable hemp provisions on the basis that they are preempted by federal law.  Shortly thereafter, the plaintiffs moved for a preliminary injunction that would temporarily halt Indiana’s enforcement of the smokable hemp ban pending the outcome of the case.  The State opposed that request, and the parties briefed their positions and presented their arguments to the Federal Court for consideration.

On September 13, 2019, the Federal Court granted the plaintiffs’ request for a preliminary injunction (the “Preliminary Order”)[1].  In doing so, at least for the time being, the Federal Court has prohibited the State of Indiana from enforcing the portions of SEA 516 that criminalize the manufacture, financing, delivery, or possession of smokable hemp.  It is important to remember that the Preliminary Order is not a permanent or “final” injunction and the Indiana Lawsuit is still ongoing.  But, the Preliminary Order is strongly worded and seems to forecast an ultimate outcome that favors the hemp and CBD industries.

How Does the Indiana Lawsuit Affect Us?

Just like Indiana’s SEA 516, North Carolina’s SB 315 adopts a definition of “smokable hemp” that differs from the definition of “hemp” set forth in the 2018 Farm Bill.  SB 315 classifies smokable hemp as “marijuana,” and in doing so, attempts to criminalize the manufacture, distribution, dispensing, delivery, purchase, or possession of smokable hemp in North Carolina.  These actions appear to be expressly preempted by Federal law.  They also preclude the transportation of hemp or hemp products in or through North Carolina in direct contravention of the 2018 Farm Bill’s express prohibition on restricting the transportation of hemp and its derivatives in interstate commerce.

SB 315’s restrictions on smokable hemp also appear to violate conflict preemption principles.  In the Preliminary Order, the Federal Court states that “the plain language of the 2018 Farm Bill, as well as statements from its legislative sponsors, reflect Congress’s intent to de-stigmatize and legalize all low-THC hemp, including its derivatives and extracts, and to treat hemp as a regulated agricultural commodity in the United States.”  Provisions of law that seek to criminalize the manufacture, distribution, dispensing, delivery, purchasing, or possession of smokable hemp (including hemp bud and hemp flower) – “hemp derivatives of the kind specifically legalized under the 2018 Farm Bill – frustrates these congressional purposes and objectives.”

Further, the Preliminary Order indicates that the anti-preemption provision of the 2018 Farm Bill only applies to hemp production, which means that states can enforce laws “prohibiting the growing of hemp” within their borders.  As noted by the Federal Court in its Preliminary Order, states (like, North Carolina) are free to place limits on the acreage that can be used to grow hemp within their borders or to dictate the type of seeds that can be used or planted by growers.  But, states may not pass laws that interfere with the right to transport in interstate commerce hemp – including hemp derivatives like “hemp buds” and “hemp flower” – that has been lawfully produced.  SB 315’s smokable hemp provisions, as they stand today, do just that.

The Preliminary Order also discredits many of the arguments raised to date by opponents of smokable hemp in North Carolina, including:
  • That there is no evidence that Congress ever contemplated, let alone had the intention of, legalizing smokable hemp with passage of the 2018 Farm Bill.

The Federal Court dismissed this argument by stating that “[t]he 2018 Farm Bill’s expansion of the federal definition of hemp and removal of all low-THC hemp from the federal list of controlled substances evinces a clear congressional objective to legalize all forms of low-THC hemp, including” smokable hemp.  This analysis can be easily applied to arguments raised by House Republicans and law enforcement groups that, during the 2015 legislative session, our General Assembly never contemplated the legalization of smokable hemp when it passed the industrial hemp research pilot program authorizing legislation.

  • That legalization of smokable hemp (or a failure to re-criminalize smokable hemp) will create significant obstacles for law enforcement agencies to enforce and prosecute North Carolina’s laws against marijuana.

In response to nearly identical arguments and public policy considerations raised in the Indiana Lawsuit, the Federal Court recognized that “the fact that local law enforcement may need to adjust tactics and training in response to changes in federal law is not a sufficient basis for enacting unconstitutional legislation.”

So What Comes Next?

Industry advocates and opponents alike will continue to monitor the Indiana Lawsuit. With limited case law to rely upon, the Federal Court’s final decision, though non-binding, will likely have a ripple effect in North Carolina and other jurisdictions across the country. For now, our hope is that the North Carolina Senate will continue to refuse a concurrence vote on the House version of SB 315 – and, that the Preliminary Order will chill additional efforts (like those occurring in North Carolina) to classify “smokable hemp” as marijuana or to otherwise ban, restrict, or criminalize possession of the plant.

[1] C. Y. Wholesale, Inc. et al., v. Eric Holcomb, Governor, in his official capacity, et al., S.D. Ind., No. 1:19-cv-02659-SEB-TAB (Doc. 31) (September 13, 2019).

© 2019 Ward and Smith, P.A.. All Rights Reserved.

For more on marijuana, cannabis & hemp-derived product regulation, see the National Law Review Biotech, Food & Drug law page.