CHEAT SHEET ■■ . ■■ Outliers. ■■ CBD. ■■ Transport. Industrial hemp is a Canada, the United Hemp-produced Changes are expected, non-intoxicating variety States, and Uruguay (CBD) but for now, industrial of that can are among the handful products are subject hemp itself cannot be be used in everything of countries to legalize to heavier production transported over US from fabrics and textiles, cannabis for nonmedical and sale restrictions state lines — but some foods and beverages, to use. Both Canada in the United States of its products can be. cosmetic and medicinal and the United States and Canada than other products, and more. similarly regulate hemp products. industrial hemp, requiring licenses for cultivation.

32 ASSOCIATION OF CORPORATE COUNSEL Managing the Risks of Hemp Products: 7 QUESTIONS ABOUT HEMP YOU’RE TOO AFRAID TO ASK

By Kristen Chittenden and Alex Malyshev

If you live in North America, you’ve likely seen a myriad of products touting the benefits of “CBD,” the non-intoxicating that pop culture claims can cure anything from anxiety to sleeplessness — claims that have gotten more than one company into trouble with federal regulators. For in-house counsel who work for companies that sell CBD products (which include candles, oils, beer, wine, tea, and lotions, just to name a few), or any industrial hemp product, it is important to know how the law has changed — and what is still unsettled.

ACC DOCKET DECEMBER 2019 33 MANAGING THE RISKS OF HEMP PRODUCTS: 7 QUESTIONS ABOUT HEMP YOU’RE TOO AFRAID TO ASK

This article addresses some frequently heroin, LSD, GHB, or MDMA (but own. While there is some uncertainty asked questions about the current state not cocaine, which has an accepted as to whether industrial hemp grown of industrial hemp. It seeks to provide medical use, and is therefore listed as in accordance with the 2014 Farm Bill practical answers to questions about an Schedule II).3 (which was for research purposes only) area of law that is both fascinating and Because of federal prohibition, no qualifies for the protections afforded in a state of flux. industrial hemp was legally cultivated to “industrial hemp” under the 2018 in the United States from the time of Farm Bill, cultivating industrial hemp Q: What is “industrial hemp”? the CSA to 2014, though certain hemp without a license issued by a state es- A: In short, it is non- byproducts were imported.4 In 2014, sentially means cultivating . intoxicating cannabis. Congress passed the Agricultural The 2018 Farm Bill contains a sliding The slightly longer answer is that many Act of 2014 (2014 Farm Bill),5 which scale of penalties tied to the cultivation people confuse industrial hemp and carved out industrial hemp from the of marijuana that does not qualify as marijuana. They are both varieties of general definition of marijuana based industrial hemp (ranging from “know- cannabis, but they are bred for differ- on THC content and allowed for ing” to “innocent” violations).9 ent uses and distinguished based on its lawful cultivation in connection their genetic make-up and chemical with industrial research programs. In Q: Who can grow hemp in composition. Industrial hemp, under December 2018, US President Trump the United States? its current legal definition, is a variety signed the Agriculture Improvement A: This is a state-by-state question, of cannabis, specifically Act of 2018 (2018 Farm Bill) into but a license of some sort is required. L., which contains only trace amounts law,6 removing industrial hemp and Those states that have participated (less than 0.3 percent on a dry weight its derivatives from Schedule I; lay- in the 2014 Farm Bill Pilot Program basis) of delta-9 ing out how industrial hemp may be have taken different approaches (THC), the “intoxicating” ingredient legally cultivated in accordance with to the broadness of their licenses. found in cannabis, and high levels of a plan adopted or approved by the US Nevertheless, each had certain crite- cannabidiol (CBD). THC and CBD are Department of Agriculture (USDA); ria that potential cultivators had to the two best-known compounds found and eventually permitting transporta- meet and, generally speaking, many in cannabis, with the latter considered tion of industrial hemp across state more people applied for licenses than non-intoxicating (and one of the major lines (notwithstanding any state-level are available. While more applications uses for hemp in the United States).1 prohibition on the cultivation or sale are likely to be accepted in coming of hemp).7 years due to the expansion of the Q: Is it legal to grow industrial Although the USDA takes the posi- programs under the 2018 Farm Bill hemp in the United States? tion that the de-scheduling of industri- (for instance, Kentucky has approved A: That’s a complicated question with an al hemp was self-executing, it does not over 1,000 applications to cultivate equally complex answer. The best answer mean that industrial hemp can be free- up to 42,000 acres of hemp in 2019), is yes, under certain conditions, and ly grown.8 The 2018 Farm Bill only al- a licensing process will still be in those conditions are in a state of flux. lows the cultivation of industrial hemp place. It is useful to look at the rule Industrial hemp used to be a major ag- in accordance with rules developed by Kentucky submitted to the USDA ricultural crop in states like Kentucky states or Native American tribes and on Dec. 20, 2018 (the day the 2018 in the 18th and 19th centuries, and approved by the USDA, or the USDA Farm Bill was signed into law) as an its fiber was used to make rope and rules, where the state has opted to use example, but each state’s licensing canvas during the Age of Sail.2 It fell those rules instead of developing its process may vary.10 out of favor with the US government and certain business interests in the early 20th century (culminating in the  Kristen Chittenden is general counsel and corporate secretary at Lykes Bros. Inc. She is also passage of the Marijuana Tax Act in chair of the ACC Small Law Department Network. [email protected] 1937), and was ultimately swept up in the drug war as part of the US Federal Controlled Substances Act (CSA) in the 1970s. The CSA treated all Alex Malyshev is counsel at Carter Ledyard & Milburn LLP, and the co-chair of its Cannabis, marijuana (including non-intoxicating Hemp & CBD Industry Practice. He is also the chair-elect of the Young Lawyers’ Advisory Board at industrial hemp) as a Schedule I con- Meritas Law Firms Worldwide and active in the network’s cannabis practice. [email protected] trolled substance — no different than

34 ASSOCIATION OF CORPORATE COUNSEL Q: What about Canada, and beyond? Q: Can you transport hemp/ However, before shipping A: That depends on the country. hemp products over state lines? industrial hemp in its raw Canada defines hemp in a way A: As it stands today, certain form (sometimes called similar to the United States under its industrial hemp products can be Cannabis Act. Other countries, which transported over state lines, but biomass), one needs to use the more general definition of others, including industrial hemp be sure that the industrial cannabis under the Single Convention itself, need to wait until the USDA hemp was actually grown on Narcotic Drugs of 1961, do not approves industrial hemp cultivation in accordance with rules distinguish between the two. rules under the 2018 Farm Bill. authorized by the 2018 It is important to understand that The 2018 Farm Bill does two things Farm Bill or, at the very industrial hemp is a legal definition for that allow people to transport indus- low-THC cannabis, not a specific plant. trial hemp and hemp products across least, some other program Canada regulates hemp under the state lines. Section 12619 amends the authorized by federal law, Cannabis Act, which defines industrial CSA to exclude industrial hemp (and such as the 2014 Farm Bill. hemp the same way the 2018 Farm Bill its byproducts) from the definition does, and requires a license to produce of marijuana if they contain less than hemp.11 The Cannabis Act also has 0.3 percent THC dry weight. Section specific regulations applicable to the 10114 preempts states and Indian truck.17 That case is winding its way possession, production, distribution tribes from prohibiting the interstate through the federal courts, and the and sale of CBD.12 As Canada’s regula- transportation or shipment of hemp USDA has disagreed with Idaho’s in- tor, Health Canada, warns: “Under the or hemp products produced in ac- terpretation.18 However, this is a novel Cannabis Act, CBD products remain cordance with subtitle G of the 2018 issue with which the courts — and Big strictly regulated and are only legal Farm Bill. Indeed, USPS will ship Sky Scientfic — are grappling. when sold in compliance with the industrial hemp and hemp-derived Act and its regulations.” A process- CBD, provided the mailer complies Q: What types of products ing license is required to manufacture with all applicable federal, state, and use industrial hemp? products containing CBD for sale, no local laws pertaining to industrial A: Potential uses seem to only be matter the source of the CBD. hemp production, processing, distri- limited by one’s imagination, but how Globally, cannabis and its deriva- bution, and sales, and retains records commercially practical those uses are is tives (such as CBD) are governed by establishing its compliance with such a different matter, considering the costs the Single Convention on Narcotic laws for “no less than two years after associated with cultivating industrial Drugs of 1961, as amended by the 1972 the date of mailing.”16 hemp, the current processing capacity, Protocol, under Articles 23 and 28.13 However, before shipping industrial and the availability of alternatives. Cannabis is a scheduled drug, which hemp in its raw form (sometimes Beyond attempting to quench the can only be used for medical purposes. called biomass), one needs to be sure United States’ thirst for CBD, indus- Therefore the production and trans- that the industrial hemp was actu- trial hemp has a variety of uses. As portation of cannabis and CBD across ally grown in accordance with rules noted by the Congressional Research national lines is strictly controlled. The authorized by the 2018 Farm Bill or, Service in 2018,19 those uses include move toward broader legalization and at the very least, some other program the following: recreational use, is a recent one. As the authorized by federal law, such as the ■■ Hemp fibers are used in fabrics Report of the International Narcotics 2014 Farm Bill. This is not anecdotal, and textiles, yarns and spun Control Board (the body charged with as Big Sky Scientific found out trying fibers, paper, carpeting, home enforcing the convention) notes in its to transport industrial hemp through furnishings, construction and most recent report: “[u]niversal and Idaho that, according to the Idaho state insulation materials, auto parts, and full implementation of the treaties is police, was not cultivated in accor- composites. put at serious risk because countries, dance with the 2018 Farm Bill. Idaho ■■ Hurds (the short woody fibers found such as Canada and Uruguay (as well does not distinguish between mari- in the stalk of the plant) are used in as states in the United States), have juana and industrial hemp. Without animal bedding, papermaking, and legalized cannabis for nonmedical the preemption afforded by the 2018 oil absorbents. u s e .” 14 Canada, and to a lesser extent Farm Bill, the Idaho state police seized ■■ Hemp seed and oilcake are used in the United States, should be seen as the a shipment of industrial hemp and a range of foods and beverages (e.g., outlier and not the rule worldwide.15 criminally charged the driver of the salad and cooking oil and hemp

ACC DOCKET DECEMBER 2019 35 MANAGING THE RISKS OF HEMP PRODUCTS: 7 QUESTIONS ABOUT HEMP YOU’RE TOO AFRAID TO ASK

dairy alternatives) and can be and buds, and it smells the same as (PHSA) because both THC and CBD an alternative food and feed marijuana,” and there is no way of are active drug ingredients in a medi- protein source. distinguishing it from marijuana cation (Epidiolex) approved by the ■■ Oil from the crushed hemp seed is except through chemical analysis FDA. The FDA’s two primary areas of used in soap, shampoo, lotions, bath that would determine the level of concern with respect to the market- gels, and cosmetics. THC in the plant. Still, as it stands ing and sale of products containing ■■ Hemp is also being used in today, the production of CBD ap- CBD are: (1) that unsupported health nutritional supplements and in pears to be one of the primary uses claims are being made with respect medicinal and therapeutic products, for industrial hemp at the moment, to what CBD can be used to treat, including pharmaceutical, as well as with that market alone expected to including Alzheimer’s Disease, cancer, a range of composite products. reach $US20 billion by 2024.24 and various other diseases;23 and (2) ■■ Hempcrete (a mixture of hemp there are wider questions about the hurds and lime products) is being Q: Is it safe to use hemp products safety and efficacy of CBD itself. The used as a building material. and are they legal to buy and sell? FDA has undertaken a rulemaking ■■ Hemp is used as a lightweight A. That depends on the product. process to address CBD marketing insulating material and in hemp From a legal perspective, follow- titled “Scientific Data and Information plastics and related composites for ing de-classification of industrial About Products Containing Cannabis use as a fiberglass alternative by the hemp as a Schedule I drug, there is or Cannabis-Derived Compounds.”24 automotive and aviation sectors. not anything particularly different On its FAQ page, and in all of its press ■■ Hemp is also promoted as a with respect to industrial products releases, the FDA is clear that the potential biodiesel feedstock and made from industrial hemp, such as marketing and sale of products con- cover crop. textiles or building materials. The taining CBD that fall under the pur- US Food and Drug Administration view of the FD&C Act and the PHSA Different varieties of industrial (FDA) also has a hands-off approach is prohibited until the FDA completes hemp are cultivated for different uses. with respect to certain categories of its rulemaking process.25 As North Carolina’s State Bureau of industrial hemp-derived consumables. The industry has taken the view Investigations explains in its memo- Specifically, the FDA has evaluated that, as long as they stay away from randum directed at “Industrial Hemp/ hulled hemp seed, hemp seed protein consumables (e.g., food and drink CBD Issues,” there are broadly three powder, and hemp seed oil, and con- “infused” with CBD) or “remedies,” the kinds of industrial hemp currently: siders them to be generally recognized FDA will not enforce its more general ■■ One variety is grown for seed oils. as safe for human consumption.22 stated views while the rulemaking pro- Oil is extracted from the seeds That is not the case, however, for cess is ongoing. In July 2019, this was and used in various products such products containing CBD. Currently, thrown into doubt, when the FDA sent as bread, shampoos, and granola the industry and the FDA are at odds a warning letter to Cureleaf Inc. stating products. about the safety and efficacy of CBD. some of its products, including a CBD ■■ One variety looks like long stalks of Companies marketing CBD products lotion and a CBD pain-relief patch, bamboo and is grown for fiber for would like the FDA to take the view were unapproved human drug prod- textiles and rope. that CBD should generally be mar- ucts.26 Whether that was the case of a ■■ One variety looks like marijuana keted as a dietary supplement under seller overreaching with respect to the and grows “buds” just like the Dietary Supplements Health and claims made in its advertising (both marijuana. CBD is extracted from Education Act (DSHEA) provisions of official and unofficial via social media), the buds.20 the Federal Food, Drug, and Cosmetic or whether it has larger implications, Act (FD&C Act), which mainly gov- remains to be seen. One concern expressed by North erns the truthfulness of product labels, There are several other issues to Carolina’s law enforcement com- packaging, and inserts and promotion- consider when it comes to CBD. First, munity (and which is a concern al material accompanying a product. certain states (and even some munici- common to other states that have The FDA takes the view that certain palities, like New York City), have rules not decriminalized marijuana) is products containing CBD, including governing the use of CBD in consum- that the third kind of hemp (which medicines, foods, and dietary supple- ables. Those rules should be consulted is the most profitable due to the ments, are subject to wider regulation if products are sold in those jurisdic- proliferation of CBD) “looks just under the FD&C Act and section tions. Second, CBD (along with THC) like marijuana, including the leaves 351 of the Public Health Service Act has been caught up in the uproar about

36 ASSOCIATION OF CORPORATE COUNSEL “vaping,” and the lung illnesses poten- 2 “An Introduction to Industrial Hemp Beyond the usual tially related to it, since CBD oils can be and Hemp Agronomy,” University of contamination issues such “vaped.” As of the writing of this article, Kentucky College of Agriculture, Food and Environment, available at www. products face, sellers need it is unclear as to whether CBD vaping kyagr.com/marketing/documents/ to be careful to make sure products will be implicated by the rules HEMP_APP_UK%20Hemp%20 the Trump administration charged the Extension%20Pub%207-18.pdf. that products they sell are FDA with drafting, or by similar state 3 21 U.S.C.A. § 812(b)(1). A Schedule in fact manufactured from I controlled substance is a drug action. Finally, consumers and resell- which (a) has a high potential for “industrial hemp” (i.e., do ers should be aware that consumable abuse, (b) has no currently accepted not contain more than 0.3 products that include CBD derived medical use in treatment in the United States, and (c) lacks safety percent THC dry weight). from industrial hemp (including CBD in use under medical supervision. oils intended for vaping) may, in fact, be 4 Federal law contained certain misbranded. Beyond the usual contami- exceptions for categories of hemp nation issues such products face, sellers derived products, which is why things need to be careful to make sure that like hulled hemp seeds, and articles of clothing manufactured from hemp fiber, products they sell are in fact manufac- were available on store shelves. See, tured from “industrial hemp” (i.e., do generally, “Hemp as an Agricultural 9 2018 Farm Bill § 10113, Sec. Commodity,” Congressional Research not contain more than 0.3 percent THC 297B, at (e) (Violations). Service (June 22, 2018), available at dry weight). Otherwise, they may face 10 December 20, 2018 Submission by the https://fas.org/sgp/crs/misc/RL32725. Kentucky Department of Agriculture. consumer claims in addition to enforce- pdf; Horn v. Medical Marijuana, Inc., Available at https://files.constantcontact. ment action by the government.27 15-CV-701, at *8 (W.D.N.Y. Apr. 17, com/64879f58201/bd72ea2b-7e09- 2019) (noting that the prior definition of 4bcc-ada3-959f21473025.pdf. marijuana, under 21 U.S.C. § 802(16), Conclusion 11 “Industrial hemp licensing application excluded “certain parts of the plant guide,” Health Canada, available at There are many legal and practical that are incapable of germination: www.canada.ca/en/health-canada/ questions that remain concerning (1) the mature stalks of the Cannabis services/publications/drugs-health- sativa plant, (2) fiber produced from industrial hemp, and in-house counsel products/industrial-hemp-licensing- the stalks of the Cannabis sativa plant, should monitor this area of law as application-guide.html (last (3) oil or cake made from the seeds accessed September 18, 2019). companies across the country start of the Cannabis sativa plant, (4) any 12 Cannabidiol (CBD), Health Canada, compound, manufacture, salt, derivative, planting, harvesting, processing, trans- available at www.canada.ca/en/health- mixture, or preparation of the mature porting, distributing, and making new canada/services/drugs-medication/ stalks, fiber, oil, or cake (excluding products from industrial hemp. ACC cannabis/about/cannabidiol.html (last resin extracts), and (5) the sterilized accessed September 18, 2019). seed of the Cannabis sativa plant.”). 13 See Single Convention on Narcotic Drugs NOTES 5 Pub. L. No. 113–79. of 1961, available at www.unodc.org/ 1 While much of the literature uses 6 Pub. L. No. 115-334. unodc/en/treaties/single-convention.html. the terms “psychoactive” and 7 2018 Farm Bill, §§7605, 10113, 14 See 2018 Report of the International “non-psychoactive” to describe the 10114, and 12619. See also, USDA Narcotics Control Board available compounds, that is not technically Legal Opinion on Certain Provisions at Sections H and K www.incb. correct, since CBD does actually interact of the Agriculture Improvement Act org/documents/Publications/ with endocannabinoid receptors in the of 2018 Relating to Hemp (USDA AnnualReports/AR2018/Annual_Report/ brain and the central nervous system. Memo), May 28, 2019, available Annual_Report_2018_E_.pdf (last See “Is CBD Really Non-Psychoactive,” at www.ams.usda.gov/sites/default/ accessed September 18, 2019). Project CBD (May 17, 2016) available files/HempExecSumandLegalOpinion. 15 Recently, Meritas Law Firms at www.projectcbd.org/science/cbd- pdf (explaining the USDA’s view that Worldwide published a white paper really-non-psychoactive (“If CBD some provisions of the 2018 Farm on the global status of cannabis can relieve anxiety or depression or Bill, like de scheduling, were self- regulation. For those interested, it psychosis, then obviously cannabidiol executing, but others only apply to is available at https://meritas.org/ is a profound mood-altering substance, industrial hemp grown in accordance mainWhitewide.aspx?link=361. even if it doesn’t deliver much by way with plans approved in accordance 16 U.S. Postal Service, Publication of euphoria. Perhaps it would be better with the 2018 Farm Bill or some other 52 Revision: New Mailability Policy to say that CBD is ‘not psychoactive federal law, like the 2014 Farm Bill). for Cannabis and Hemp-Related like THC,’ rather than repeating the 8 “Legal Opinion on Certain Provisions Products, available at https://about. familiar and somewhat misleading of the Agriculture Improvement Act usps.com/postal-bulletin/2019/ refrain that ‘CBD is not psychoactive.’”). of 2018 Relating to Hemp,” USDA pb22521/html/updt_002.htm Thus, intoxicating and non-intoxicating Memorandum (May 28, 2019) available (last accessed July 24, 2019). is the preferred nomenclature. at www.ams.usda.gov/sites/default/files/ HempExecSumandLegalOpinion.pdf

ACC DOCKET DECEMBER 2019 37 WANT MORE ARTICLES LIKE THIS? VISIT US ONLINE AT WWW.ACCDOCKET.COM.

17 See Big Sky Scientific LLC v. Idaho 25 See April 2, 2019, Statement from State Police, 2019 WL 438336 FDA Commissioner Scott Gottlieb, (D. Idaho, Feb. 2, 2019). M.D. on “new steps to advance 18 See “Legal Opinion on Certain Provisions agency’s continued evaluation of of the Agriculture Improvement Act potential regulatory pathways for of 2018 Relating to Hemp,” supra, cannabis-containing and cannabis- discussion of Big Sky Scientific in derived products,” available at www. section titled “Recent Developments.” fda.gov/NewsEvents/Newsroom/ 19 See “Hemp as an Agricultural PressAnnouncements/ucm635048.htm. Commodity,” Congressional 26 See Warning Letter to Cureleaf, Inc. Research Service (June 22, 2018), (MARCS-CMS 579289) (July 22, at 2-3, available at https://fas.org/ 2019) available at www.fda.gov/ sgp/crs/misc/RL32725.pdf. inspections-compliance-enforcement- 20 Available at www.sog.unc.edu/ and-criminal-investigations/warning- sites/www.sog.unc.edu/files/ letters/curaleaf-inc-579289-07222019. doc_warehouse/NC%20SBI%20 27 An example of this is the Horn v. Medical -%20Issues%20with%20Hemp%20 Marijuana, Inc., 15-CV-701 (W.D.N.Y. and%20CBD%20Full.pdf. Apr. 17, 2019) case, where a truck 21 See “U.S. CBD Market Anticipated driver was allowed to pursue claims to Reach $20 Billion in Sales by concerning the marketing and sale of a 2024,” BDS Analytics (May 9, 2019) CBD additive (the Dixie X Dew Drops) available at https://bdsanalytics. that was advertised as having no THC, com/u-s-cbd-market-anticipated-to- but contained THC that allegedly showed reach-20-billion-in-sales-by-2024/. up during a routine drug test and led 22 See FDA Regulation of Cannabis and to the truck driver’s termination. Cannabis-Derived Products: Questions and Answers (“Hemp Q&A”), Question No. 12 (“Can hulled hemp seed, hemp seed protein powder, and hemp seed oil be used in human food?”). Available at www.fda.gov/news-events/ public-health-focus/fda-regulation- cannabis-and-cannabis-derived-products- questions-and-answers#hempseed (last accessed July 24, 2019). 23 See “FTC Joins FDA in Sending Warning Letters to Companies Advertising and Selling Products Containing Cannabidiol (CBD) Claiming to Treat Alzheimer’s, Cancer, and Other Diseases,” FTC News Release (April 2, 2019) available at www.ftc.gov/news-events/press- releases/2019/04/ftc-joins-fda-sending- warning-letters-companies-advertising. 24 Available at www.govinfo.gov/ content/pkg/FR-2019-04-03/ pdf/2019-06436.pdf.

ACC EXTRAS ON… Cannabis

ACC Docket Articles Cannabis Conundrum: Advising Clients Top Ten Ways Marijuana Legalization Affects Doing Business in the Cannabis Industry Employers (July 2019). www.acc.com/ (March 2019). www.accdocket.com/articles/ resource-library/top-ten-ways-marijuana- advising-clients-doing-business-cannabis- legalization-affects-employers industry.cfm ACC HAS MORE MATERIAL ON THIS SUBJECT Ask Aliya: How Canada’s Legalization of ON OUR WEBSITE. VISIT WWW.ACC.COM, Marijuana Impacts Employee Policies WHERE YOU CAN BROWSE OUR RESOURCES BY (March 2018). www.accdocket.com/ PRACTICE AREA OR SEARCH BY KEYWORD. articles/ask-aliya-canada-marijuana-legal- employee-policy.cfm

38 ASSOCIATION OF CORPORATE COUNSEL A Master Class for the Next Generation of General Counsel July 21-24, 2020 | Chicago, Illinois

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