Normalizing Hemp, CBD & Marijuana Business
Updated: Jun 3, 2019
In mid-December, President Trump signed the Agriculture Improvement Act of 2018 (the 2018 Farm Bill) into law, which lifted the federal prohibition on hemp production. This law also has significant implications regarding the legality of cannabidiol (CBD), a popular hemp derivative.
For decades, the United States has been the only industrialized nation where hemp was not a legally authorized crop. Hemp is characterized by low levels of tetrahydrocannabinol (THC), the primary psychoactive chemical in marijuana, and high levels of CBD, believed to have numerous therapeutic benefits. It can also be used in construction materials, clothing, paper, cosmetics, pharmaceuticals, food, and dietary supplements.
The 2018 Farm Bill’s hemp-specific provisions remove hemp with 0.3 percent THC or less from the federal definition of marijuana. Certain cannabinoid derivatives of hemp are also removed, including hemp-derived CBD.
The 2018 Farm Bill allows states to regulate hemp production if they so choose. Otherwise, federal requirements from by the U.S. Department of Agriculture (USDA) will be the default regulatory regime in all 50 states. States must submit their plans to USDA for approval prior to becoming effective. USDA has indicated that it will not begin acting on state plans it receives until it issues its own regulations regarding hemp production, which it expects to do in fall 2019.
State plans must include information concerning locations of hemp production, testing for THC concentration, disposal of noncompliant plants, compliance with the bill’s enforcement provisions, participation in law enforcement information sharing, and a certification that the state has sufficient resources to carry out its plan. As an additional step to ensure marijuana is not grown under the auspices of hemp legalization, the 2018 Farm Bill bars individuals with felonies related to a controlled substance from entering into hemp production for 10 years following conviction
Notwithstanding hemp’s new status, the legality of FDA-regulated categories of hemp products, like products containing hemp-derived CBD, is uncertain at the federal level. The 2018 Farm Bill says it does not affect or modify the Federal Food, Drug, and Cosmetic Act or the authority of the Commissioner of Food and Drugs and the Secretary of Health and Human Services. The FDA says that CBD is impermissible for use in food and dietary supplements. Therefore, at the present time CBD products currently on the market intended for ingestion, may remain unlawful. The FDA is under significant political pressure to take a more relaxed attitude toward these issues. It has indicated it will hold a public meeting in the near future to evaluate ways in which the current regulatory framework should be changed.
Another difficulty will be accounting for the various treatments of hemp and CBD under state law. The 2018 Farm Bill does not preempt state law, and states could choose to regulate hemp and hemp-derived CBD more restrictively. Hemp and certain hemp products may still come within the marijuana definition under state law. Many state attorneys general have even declared that products containing CBD come within state marijuana prohibitions subject to state enforcement.
States have chosen to react to the passage of the 2018 Farm Bill in different ways. Alabama’s attorney general announced that because of the 2018 Farm Bill, the state is altering its prior position that the sale of CBD products violates state law. Iowa is moving more cautiously. The state attorney general and state agriculture officials met in January to determine whether CBD processed from industrial hemp should be legalized. Resulting legislation is currently pending.
Not all states have reacted in tandem with the federal government. The South Dakota attorney general confirmed that CBD products would remain illegal in the state and that the law would be enforced.
There is ample evidence that the rules of the road on cannabis regulation will continue to evolve. FDA Commissioner Scott Gottlieb has said that federal legislation addressing the divergence between state and federal law regarding marijuana is inevitable and will happen soon. William Barr has said he will not go after companies that have relied on the Cole Memorandum issued during the Obama administration directing prosecutors generally not to enforce the federal marijuana prohibition in states that have legalized marijuana
Medical marijuana is legal in 33 states and the District of Columbia, with 10 of these and the District of Columbia also having legalized recreational marijuana. For financial services companies, whether and how to engage with cannabis companies operating legally under state law will thus present a growing challenge.
Change has also arrived both north and south of U.S. borders. Canada’s Cannabis Act was fully implemented on October 18, 2018. As a result, U.S. companies are faced with how to engage with companies conducting legal cannabis business there. Mexico’s Supreme Court held in October that an absolute ban on recreational marijuana use is unconstitutional. A bill introduced in November would allow companies to grow and sell marijuana for commercial, medicinal, and recreational use. Mexican legislators are still considering how marijuana legalization should be implemented.