Tag: Cannabis

Cannabis and District Courts: Are Those Courthouse Doors Closed Too?

We have written many times over the past few years about how the bankruptcy courts are off-limits to state-legalized cannabis businesses.  This past year brought no new relief to the cannabis industry, and the doors to the bankruptcy courts remain shut.  Are the other federal courts off-limits as well?  A recent district court decision from the Southern District of California sheds some light on this issue, and indicates that the district courts are at least partially open to participants in legal cannabis businesses.

Factual Background

The facts of Indian Hills Holdings, LLC v. Frye are relatively straightforward.  Plaintiff Indian Hills Holdings (“IHH”), Construction & Design Professional Corp. (“CDP”) and its principal Christopher Frye (“Frye” and, together with CDP, the “Defendants”) entered into a contract whereby IHH paid Defendants to purchase Cultivation “Adult” Extreme Cubes (the “Cubes”).  Defendants in turn contracted with ICT Centurion Investments, LLC (“ICT”) to purchase the Cubes.   The Cubes were marketed as a “fully integrated growing container system” used in indoor cannabis cultivation.  When ICT sold the Cubes to another party, Defendants were unable to deliver the Cubes to IHH.  Defendants refused to return the money, and IHH sued, asserting breach of contract, unjust enrichment and fraud claims.

A default judgment was entered against CDP for failing to respond to IHH’s complaint.  Frye, however, filed a motion to dismiss the complaint, arguing in part that IHH did not have standing to bring its claims.  Noting that Frye only “cursorily” raised the standing issue and that the “issue is a complex one”, the court reframed Frye’s argument as follows:

  • The contract is illegal under the Controlled Substances Act, 21 U.S.C. §§ 801, et seq.(the “CSA”);
  • Federal district courts will not enforce contracts that violate federal law;
  • Because federal district courts will not enforce contracts that violate federal law, IHH lacks an “actionable injury”; and
  • Because IHH lacks an actionable injury, the district court does not have subject matter jurisdiction.

Legal Analysis

The court began its analysis by considering whether the parties’ contract violated the CSA.  Section 863(a) of the CSA makes it unlawful to sell or offer for sale “drug paraphernalia,” which is defined to include “any equipment, product, or material of any kind which is primarily intended or designed for use in manufacturing … a controlled substance.”  Because the Cubes are used to grow cannabis, and because cannabis is a controlled substance, the sale of the Cubes would seemingly violate section 863(a) of the CSA.  However, the CSA contains an exemption, whereby section 863 does not apply to any person authorized by state law to manufacture, possess or distribute drug paraphernalia.  California allows the manufacturing of drug paraphernalia, which would include the Cubes.  As a result, the court wrote that the contract “may fall within the CSA exemption.” Additionally, the court noted that the U.S. Department of Justice has declined to enforce the CSA’s prohibition on the sale of marijuana when the marijuana is bought or sold in accordance with state law.  For these reasons, the court concluded that enforcing the parties’ contract would likely neither violate the CSA nor public policy.

While the contract may be legal, the court still had to consider whether assuming jurisdiction over the dispute would result in a violation of federal law.  After all, federal courts will not assume jurisdiction over a dispute where the court will be required to order a legal violation.  The question therefore became whether a plausible remedy existed for IHH that would not require the court to order such a legal violation.   The court held that it could fashion a remedy without violating the law by simply awarding IHH monetary damages.  A judgment for money damages, unlike an award of specific performance, would not result in IHH obtaining the Cubes and growing cannabis.  Instead, the result would be a return of the monies paid by IHH to Defendants for the Cubes.  The court’s ruling was consistent with prior cases involving state-legalized cannabis business, where the courts found ways to provide relief without violating the CSA.  E.g., Polk v. Gontmakher, 2021 U.S. Dist. LEXIS 53569 (W.D. Wash. Mar. 22, 2021) (noting that “recent case law involving cannabis-related business contracts does not espouse an absolute bar to the enforcement of such contracts”); Mann v. Gullickson, 2016 U.S. Dist. LEXIS 152125 (N.D. Cal. Nov. 2, 2016) (court may consider breach of contract claim arising from sale of cannabis business when “it is possible for the court to enforce [the] contract in a way that does not require illegal conduct”).

Takeaways

As the legalized cannabis industry continues to grow and develop, market participants will undoubtedly need access to courts.  The bankruptcy courts remain off-limit, thus requiring distressed cannabis businesses and their creditors to turn to state-law insolvency proceedings (e.g., assignments for the benefit of creditors; receiverships).  To those in the industry, it may be a welcome relief to know that at least some federal district courts have made themselves available to these parties and that these courts thus far have shown a willingness to adjudicate disputes arising from the cannabis industry.  However, any party seeking their day in federal court needs to ensure that they are not asking the court to grant relief that would violate federal law, including the CSA.  This means that while money damages should be available, specific performance of the contract is likely off the table.

Article By Mark A. Salzberg of Squire Patton Boggs (US) LLP

For more cannabis legal news, click here to visit the National Law Review.

© Copyright 2022 Squire Patton Boggs (US) LLP

Tribal Cannabis Tourism and Current Status of Federal Legislation Impacting the Cannabis Industry

As Tribes expand their economic endeavors into the cannabis industry, the growth of cannabis tourism is a natural development. Below, we offer details on how cannabis tourism could support Tribal governments’ economic development efforts. We also provide an update on the status of pending federal legislation that could bring positive impacts to the cannabis industry.

Cannabis Tourism

With the pandemic continuing to take a toll on the tourism industry, many U.S. states and territories are exploring ways to help that industry recover. One potential savior for tourism is cannabis. As states went into varying levels of lockdown in early 2020, businesses deemed “nonessential,” including recreational facilities, gyms, bars, restaurants, etc. were forced to shut down. However, early into lockdown, cannabis was deemed “essential” in California, a designation other states with functional cannabis markets quickly adopted. In total, nearly 30 states, along with the District of Columbia and Puerto Rico, deemed cannabis businesses essential. This triggered some major changes in the industry, including:

With all of these changes, cannabis tourism has developed into a potentially rewarding industry that Tribal governments might be able to cultivate as part of efforts to recover economic losses suffered by their tourism and other businesses

What is Cannabis Tourism?

Cannabis tourism is most generally characterized as a destination-based industry that attracts tourists because cannabis is legal in that location. But the industry can take many forms. For example, tourists might visit a dispensary to learn more about the development of cannabis crops, stay at a “bud and breakfast,” tour a cannabis farm or growing facility, or dine at a restaurant with cannabis-infused dishes. Cannabis tourism can also have a positive knock-on effect for many other Tribal businesses.

How can Tribes Participate?

Interested Tribes can create specific cannabis-centered tourist destinations. One example is opening a farm or growing facility that is similar to a wine vineyard, where consumers can tour the facility and sample the products. This concept would serve multiple functions in that the farm would supply dispensaries while providing a tourism destination that would benefit hotels, restaurants, and the local economy.

Another route is to add cannabis tourism into existing tourism infrastructure. Tribes can take advantage of their land base and natural resources by offering cannabis hikes or camping expeditions, where participants are able to experience nature while partaking. Tribes with resort properties can offer CBD-infused massages at their spa, include CBD and hemp products at their gift shops, or offer travel packages designed for cannabis tourists. The idea behind this approach is to utilize the Tribe’s existing tourism infrastructure to provide new cannabis tourism options.

Federal Cannabis Legislation Update

The following is an update on pending federal legislation that would impact the cannabis industry. Summaries of previous cannabis legislative developments are provided in past articles..

The Democrats control both the House and the Senate (with Vice President Harris acting as the tie-breaking vote in the 50-50 Senate) but passing any cannabis legislation in the current Congress might prove difficult. The filibuster rules require 60 votes for a bill to pass the Senate, so any cannabis legislation would need relatively strong bipartisan support.

The future of federal cannabis law remains unclear, but Tribes interested in the cannabis industry can start taking steps now to establish the necessary framework to support this new area of Tribal economic enterprise.

Article By Robert A. Conrad and Laura E. Jones of Van Ness Feldman LLP

For more biotech, food, and drug legal news, click here to visit the National Law Review.

© 2021 Van Ness Feldman LLP

Same As It Ever Was: FDA Reiterates That CBD Cannot Be Included in Food or Dietary Supplements

While we enter a new season this week, the same cannot be said for the FDA which, on November 16, reiterated that its approach to regulating the cannabidiol (CBD) industry will be “the same as it ever was”—a regulatory minefield. Grail Sipes, acting Deputy Center Director for Regulatory Policy at the FDA’s Center for Drug Evaluation and Research, emphasized the agency’s position that it needs additional CBD research and safety data before the agency will consider CBD for uses beyond prescription drugs, including usage as a food additive or dietary supplement. This, she said, is because “clear answers to many important questions are still lacking, such as what adverse reactions may be associated with CBD from hemp-derived products and what risks are associated with the long term use of these products.”

So why should industry stakeholders care about the FDA’s opinion anyway? Wasn’t hemp-derived CBD legalized at the federal level by the Agriculture Improvement Act of 2018, also known as the Farm Bill?

Yes, but as we discussed in a previous blog post, the FDA and FTC have overlapping enforcement authority over CBD marketing, with the FDA having primary authority over labeling. The FDA has previously issued guidance stating that CBD can be used as an ingredient in cosmetics so long as it does not cause the product to be “adulterated or misbranded.” However, a product containing CBD cannot be marketed as a drug absent FDA approval—a lengthy and costly process. Companies marketing CBD products must therefore ensure compliance with the FDA’s labeling requirements and guidance regarding CBD products.

The FDA has not been shy to issue warning letters to CBD companies that fail to heed the agency’s labeling requirements and guidance. Starting in April 2019, the FDA (together with the FTC) began issuing warning letters to companies marketing CBD products as treatments and cures for a variety of diseases and illnesses. Those agencies continued to issue warning letters for marketing and labeling violations throughout 2019, largely for improper health-based claims about CBD products (those letters are described in more detail here and here). The most recent iteration came in 2021 when the agencies issued two warning letters to companies selling over-the-counter (OTC) drugs for pain relief that contained CBD. Sipes made clear the FDA will continue to monitor the CBD marketplace and issue warning letters to companies making improper health claims in her November 16 comments.

Given these comments, we can expect the cat-and-mouse game between federal regulators and CBD companies that push the marketing envelope to continue. To mitigate the risk of falling within the FDA’s crosshairs, CBD companies must ensure compliance with the various state and federal regulations governing the labeling and advertising of their products. We provided several marketing dos and don’ts in a previous blog post. But given the FDA’s unchanging position, the biggest takeaway remains the same: don’t make claims that a CBD product “can prevent, treat, or cure” or a disease.

Article By Rachel L. Sodée and J. Hunter Robinson of Bradley Arant Boult Cummings LLP

For more news on biotech, food, and drug law, click here to visit the National Law Review.

© 2021 Bradley Arant Boult Cummings LLP

In Historic Vote, Alabama House of Representatives Passes Medical Cannabis Bill

In February a bill to legalize, regulate, and tax non-smokable medicinal cannabis passed through the Alabama Senate on a 21-10 vote. Progress on the bill slowed after moving to the House. The medical cannabis bill passed both House committees it was assigned to in April.

On Tuesday the medical cannabis bill was set to receive a final vote on the floor of the House. Earlier that day, the bill easily cleared two House procedural votes by a vote of 69-31 and 71-20, to allow the bill to be brought to the House floor for a final vote. However, a handful of House lawmakers filibustered the final vote through speaking objections on the House floor. On Thursday morning the medical cannabis bill was again back on the House floor for another day of debate. The morning session started off with gusto, as both supporters and detractors appeared ready to fight with amendments, counter-amendments, and impassioned floor speeches filling the morning. Around 12:30 p.m. the House finally took a final vote on the medical cannabis bill, and it passed by a vote of 68-34. The medical cannabis bill will now head back to the Senate for concurrence or conference committee.

This is a historic day in Alabama politics, as this is by far the closest Alabama has come to passing a medical cannabis bill. Similar bills had previously passed through the Alabama Senate three times, in three separate sessions. This is the first time, however, a medical cannabis bill has come up for a full vote on the House floor – much less passed the House.

We will continue to monitor this bill as the Senate again takes it up for either concurrence or further consideration. That could happen as early as today, or it could be later this month.

© 2021 Bradley Arant Boult Cummings LLP

This article was written by Whitt Steineker of Bradley law firm.

For more information about cannabis legislature, please visit the NLR Food & Drug section. 

Virginia Accelerates Adult-Use Cannabis Legalization

We previously highlighted the Virginia Legislature’s move to legalize adult-use cannabis.  This week the Virginia Legislature passed a bill legalizing adult-use cannabis.  In doing so, Virginia greatly accelerated the timeline for legalization.

Prior drafts had set a 2024 date for legalizing the possession of recreational cannabis.  The bill passed this week when Lieutenant Governor, Justin Fairfax, broke a 20-20 tie in the Virginia Senate legalizes adult possession of an ounce or less of cannabis beginning on July 1, 2021.

While the new law legalizes recreational possession and allows Virginia residents to grow up to four cannabis plants beginning July 1st, Virginia still isn’t likely to begin licensing recreational cannabis retailers until 2024.  Likewise, the new bill doesn’t allow existing medical cannabis dispensaries to begin selling to adults for recreational use.

Copyright © 2021 Womble Bond Dickinson (US) LLP All Rights Reserved.

 

ARTICLE BY Morgan E. Persinger of Womble Bond Dickinson (US) LLP
For more articles on cannabis, visit the NLR Biotech, Food, Drug section.

Madison Takes ‘Pot’shot at Wisconsin, Joins Growing List of Municipalities to Decriminalize Cannabis

In November 2020, the Common Council for the City of Madison, Wisconsin, passed ordinances decriminalizing the possession and use of small amounts of cannabis or cannabis derivatives within city limits. With those ordinances, which became effective on Friday, December 4, 2020, Madison joins a number of other Wisconsin municipalities that have decriminalized the possession and use of marijuana in some form or fashion. One alderman called the decriminalization long overdue, adding that it was “preposterous and outrageous” that the Wisconsin State Legislature had not moved to legalize and regulate cannabis as have many other states across the country.

According to the “drafter’s analysis” of Section 23.20 of the Madison General Ordinances as amended, an individual 18 years of age or older may possess or consume up to 28 grams of medically prescribed cannabis or cannabis derivatives if he or she “has a prescription for said possession.” The ordinance allows an individual to “consume cannabis or cannabis derivatives on private property with the permission of a person who is lawfully on the property or on public property with the permission of the owner, landlord or tenant.”

The ordinance does not apply to state-owned property, nor does it permit marijuana smoking where cigarette smoking is prohibited by Wisconsin’s ban on indoor smoking.

Unlike some of the marijuana legislation across the country, Madison’s decriminalization rules do not contain specific employment protections. As such, employers can still prohibit employees from possessing, using, and being under the influence of marijuana at worksites in Madison. Further, the possession and use of marijuana is still prohibited by federal law. Thus, although off-duty possession and use of marijuana may be legal at the local level in Madison, it does not entitle the individual to protection from employment discrimination under Wisconsin’s lawful products statute.

Nevertheless, it is possible for issues related to marijuana use to trigger employment law protections. Under the Wisconsin Fair Employment Act (WFEA), for example, individuals convicted of crimes, including drug-related offenses, cannot be excluded from employment on that basis unless the facts and circumstances of their crimes substantially relate to the jobs for which they are employed (or are applying). Further, the WFEA and the Americans with Disabilities Act distinguish between current use of illegal drugs, which is generally not protected, and drug addiction, which is a disability for which discrimination is prohibited and reasonable accommodation can be required.

Madison’s ordinances became effective on the same day that the United States House of Representatives passed the Marijuana Opportunity Reinvestment and Expungement (MORE) Act of 2019 (H.R. 3884), a historic, but largely symbolic, bill to decriminalize marijuana at the federal level. While the U.S. Senate is not expected to follow suit, the House’s passage of H.R. 3884 is further indication that public sentiment regarding marijuana is changing. Indeed, during the November 2020 election, all six state ballot initiatives to legalize marijuana passed—four for recreational use (Arizona, Montana, New Jersey, and South Dakota), and two for medical use (Mississippi and South Dakota).

Employers may want to monitor these developments at the federal, state, and local levels, and adjust their policies and procedures accordingly.

© 2020, Ogletree, Deakins, Nash, Smoak & Stewart, P.C., All Rights Reserved.
For more articles on cannabis, visit the National Law Review Biotech, Food, Drug section.

Smoking Cannabis Legally in Illinois: What’s an Employer to Do?

On January 1, 2020, Illinois joined the growing number of states that allow the sale and use of marijuana for personal and recreational use. The law has been so popular that most of the cannabis dispensaries in Illinois sold out of their supply within the first week.

So, what now for employers in Illinois? May they tell workers who get stoned on a break that they must leave the workplace? Can they still maintain a drug-free workplace? Can they still do drug testing? The answer to all three questions is yes; however, as explained below, there are important steps that an employer must take should it decide to discipline an employee. While there will be much to work out as Illinois navigates its new cannabis laws, employers may maintain the same standards at work that they had before the law became effective. But they need to know and follow the new law’s requirements.

Parameters of the New Law

On January 1, 2020, the Cannabis Regulation Tax Act (CRTA), 410 Ill. Comp. Stat. Ann. 705/10 et seq., became law, permitting personal and recreational cannabis use for all individuals 21 years of age or older. Under the CRTA, Illinois residents may possess 30 grams of cannabis flower, 500 milligrams of a THC-infused cannabis product and 5 grams of cannabis concentrate for personal use.

The CRTA will not be interpreted to diminish workplace (includes buildings, real property and parking lots under control of the employer and used by the employee to perform job duties) safety. The act identifies and allows employers to adopt certain cannabis policies relating to use, consumption, storage and impairment to further protect employee safety, such as:

  • Employers are allowed to adopt a reasonable zero-tolerance policy for its employees or require a drug-free workplace.
  • Employers are permitted to adopt employment policies relating to drug testing, smoking, consuming, storing and using cannabis while an employee is at the workplace, performing job duties or on call.
  • Employers may prohibit an employee from using cannabis or from being under the influence of cannabis while at the workplace, performing job duties or on call.
  • Employers may undertake disciplinary measures or terminate an employee’s employment for violating a reasonable workplace drug policy.

A Fine Line

One of the trickier aspects for Illinois employers will be making a determination of when an employee is impaired or under the influence of cannabis. The law provides that an employer can express a “good faith belief” that the employee manifests certain articulable symptoms that decrease or diminish the employee’s job performance and responsibilities. The CTRA identifies a number of symptoms an employer may consider in finding an employee is impaired or under the influence, such as “symptoms of the employee’s speech, physical dexterity, agility, coordination, demeanor, irrational or unusual behavior, or negligence or carelessness in operating equipment or machinery; disregard for the safety of employee or others, involvement in any accident that results in serious damage to equipment or other property; disruption of a production of manufacturing process; or carelessness that results in any injury to the employee or others.”

When an employer takes any action against an employee for being under the influence of cannabis, the CTRA requires that an employee be provided a reasonable opportunity to challenge the basis of an employer’s determination. Employers should notify an employee in writing of its determination and invite the employee to state their case as to why the employer’s determination may be incorrect before it takes an adverse action against the employee. All activity in the appeal process should be documented.

Employers’ Rights and Liability

Some good news for employers is that the CTRA does not create or imply a cause of action against an employer for the actions taken relating to an employer’s reasonable workplace drug policy. IL LEGIS 101-593 (2019), 2019 Ill. Legis. Serv. P.A. 101-593 (S.B. 1557) (WEST). Actions taken relating to an employer’s reasonable drug policy include subjecting an employee or applicant to a drug and/or alcohol test, nondiscriminatory random drug testing, disciplining employees, termination of employment or withdrawing an offer for employment because of a failed drug test. The amendments to the CTRA now expressly limit an employer’s liability for disciplining or terminating employment resulting from a failed drug test. Further, the amendments to the CTRA clarify and reinforce an employer’s ability to administer pre-employment and random drug testing policies.

Employers must be careful, however, to not take action against an employee when the use of cannabis is after work hours. The Right to Privacy in the Workplace Act was amended, effective January 1, 2020, 820 Ill. Comp. Stat. Ann. 55/5, to specifically prohibit employers from terminating employment because of an employee’s personal or recreational use of lawful products (including cannabis) outside of the workplace during nonworking, off-call hours. In the event an employee is disciplined or employment is terminated because of cannabis use outside of the workplace during off-duty hours, an employee may bring a discrimination cause of action under the Right to Privacy in the Workplace.

It is anticipated that there will be tension between individuals contesting an employer’s determination that he/she was impaired or under the influence of cannabis at the workplace with the contention that any use was during off-duty hours. For instance, what if an employee used cannabis four hours before starting a shift? The employee may claim protection under the Right to Privacy in the Workplace, whereas the employer may argue the employee was nonetheless under the influence in the workplace. This tension is exacerbated by the fact that there is currently no test to determine how recently an individual has used, consumed or smoked cannabis. Further, there is no test that determines how high or low cannabis levels are in an individual.

Illinois employers will need to understand and follow the CTRA laws and Right to Privacy in the Workplace laws. Employers should prepare specific written policies to address these new issues.

© 2020 Wilson Elser

ARTICLE BY David M. Holmes of Wilson Elser Moskowitz Edelman & Dicker LLP, with assistance from Gabriela C Herrera (Law Clerk-Chicago).
For more on the intersection of recreational cannabis & employment law, see the National Law Review Labor & Employment law section.

FDA Issues Warning Letters, Cautions Consumers on Unapproved CBD Products

Nearly a year after the 2018 Farm Bill legalized hemp nationwide, the legal status of one of its most popular products, cannabidiol (CBD), is becoming clearer.

On Nov. 25, the U.S. Food and Drug Administration (FDA) issued a revised consumer update regarding unapproved CBD products and issued a new round of warning letters to CBD retailers selling products in violation of the Food, Drug and Cosmetics Act (FDCA). The agency also warned of potential health risks and safety concerns associated with numerous unapproved CBD products. The FDA publicized its determination that CBD cannot be considered as Generally Recognized as Safe (GRAS) under federal law, foreclosing one of the regulatory paths available to the FDA for allowing CBD as a food ingredient.

These recent actions underscore the FDA’s interpretation that food products, unapproved drugs, dietary supplements and cosmetics containing CBD sold in interstate commerce often violate the FDCA.

FDA warning letters

In this recent round of enforcement efforts, the FDA issued fifteen warning letters to CBD companies selling a variety of products in interstate commerce, including balms, capsules, oils, tinctures, lotions, gummies, chews and sprays that were marketed for use by adults, children and animals.

The letters outline the FDA’s legal analysis which concludes that the products at issue were marketed in interstate commerce as unapproved new drugs, misbranded drugs, adulterated foods or improperly labeled as dietary supplements in violation of the FDCA. The crux of this analysis is that CBD is an active ingredient in an approved drug as well as other drugs under clinical investigation.

These products triggered FDCA violations in a variety of ways:

  • Unapproved new drugs – CBD products making claims to prevent, diagnose, mitigate, treat or cure serious diseases, such as cancer, AIDS, schizophrenia and diabetes.
  • Misbranded drugs – CBD products marketed as drugs that also fail to bear adequate directions for use.
  • Dietary supplement labeling – Improperly using the label “dietary supplement” when it does not meet the definition under the FDCA.
  • Adulterated human food – CBD products marketed as conventional human foods and contain a drug approved by the FDA.

Each warning letter identified an “unapproved new drug” violation with products making aggressive health claims surrounding cancer or other similar serious conditions, suggesting the FDA continues to focus its efforts at “egregious, over-the-line” health claims as referenced by former FDA Commissioner Scott Gottlieb.

FDA consumer update

The FDA simultaneously issued a consumer update, signaling that unapproved CBD products remain prohibited under the FDCA. The agency noted it has seen only limited data about CBD safety and that some of the data points to risks that should be considered before taking CBD.

The FDA warned that unapproved CBD products may pose safety risks and make unproven health claims. The FDA fears consumers may put off getting proper diagnosis, treatment or supportive care due to unsubstantiated claims associated with CBD products.

Additionally, the FDA noted the information it currently has “underscores the need for further study and high quality, scientific information about the safety and potential uses of CBD.” The consumer update further notes:

  • No FDA evaluation of CBD products – There has been no FDA evaluation of whether unapproved CBD products are effective for their intended use, what the proper dosage might be, how they could interact with FDA-approved drugs or whether they have dangerous side effects or other safety concerns.
  • Potential health risks – Specifically, the FDA also identified some of the potential risks associated with using CBD products, including liver injury and male reproductive toxicity. Other potential health risks remain unknown to date, including the effects of sustained daily usage by adults as well as the effects on children, breastfed newborns and developing fetuses.
  • Side effects – Other side effects include drowsiness, gastrointestinal distress and increased irritability and agitation.
  • Unregulated manufacturing process and product safety is unknown – The manufacturing process of unapproved CBD drug products has not been subject to FDA review and the effects of CBD containing potentially unsafe levels of contaminants, such as pesticides and heavy metals, are unknown.

CBD remains a legal product

Despite this recent action from the FDA, hemp-derived CBD remains a legal product under federal law, but it must be marketed without violating the FDCA. Additionally, the warning letters and consumer update highlight that the FDA is targeting its enforcement to companies engaged in interstate commerce and making egregious, unsubstantiated health claims.

As is the case with other cannabis issues, the disconnect between state and federal law means companies are finding ways to bring products to market while limiting their risk. However, stakeholders must be aware of the risks under state and federal law when marketing any product containing CBD.

Expect more information from the FDA soon

The consumer update also notes that the FDA is “evaluating the regulatory frameworks that apply to certain cannabis-derived products that are intended for non-drug uses, including whether and/or how the FDA might consider updating its regulations, as well as whether potential legislation might be appropriate.” More information will be coming soon from the FDA, but it may be awhile before CBD can be marketed legally as a food ingredient or dietary supplement under federal law.

Copyright © 2019 Godfrey & Kahn S.C.

More on FDA CBD Regulation via the National Law Review Biotech, Food & Drug law page.

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.

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.