As a child of the 80s it’s strange to see CBD and hemp retail businesses on the corner. Indeed, 11 states now have legalized recreational marijuana, and over half of the states have medical marijuana programs. Even stranger for me as a lawyer is the growth of the legal issues surrounding the marketing and sale of these now legalized products. This has been particularly true with rapid growth in individuals opening business to sell approved hemp and CBD products since 2018.
The President signed The Agriculture Improvement Act of 2018, Pub. L. 115-334, (the 2018 Farm Bill) into law on Dec. 20, 2018. This paved the way for CBD and hemp retail sales. The law changed certain federal authorities relating to the production and marketing of hemp, defined as “the plant Cannabis sativa L. and any part of that plant, including the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with a delta-9 tetrahydrocannabinol concentration of not more than 0.3 percent on a dry weight basis.” In other words, cannabis plants and derivatives that contain no more than 0.3 percent THC on a dry weight basis are no longer controlled substances under federal law. Of course, the CBD/Hemp must come from licensed growers as Federal law will still consider CBD a narcotic if it was not supplied by a licensed hemp cultivator.
Regardless of the THC concentration, any cannabis-derived product is still subject to the Food and Drug Administration’s (FDA) regulations. The FDA has, however, been slow to issue clear guidance as to that types of CDB that may be sold and specific labeling requirements. Though it is very possible, the FDA will issue these final CBD regulations by the summer of 2021.
That does not mean CBD and Hemp retail businesses re without guidance. Thus far the guidance has come in the form of existing laws and the FDA’s warning letters it issued since passaging the Farm Bill.
The FDCA prohibits the marketing of food (i.e., conventional food and dietary supplements) that contains substances that were first recognized in the marketplace as drugs—because they have been either approved or studied as drugs. In addition, over the last several years, the FDA has sent multiple warning letters citing “food products to which CBD had been added and CBD products marketed as dietary supplements.” The FDA has explained these warning letters, “allowing drug ingredients in foods can undermine the drug approval process and diminish commercial incentives for further clinical study of the relevant drug substance. It also raises questions about the safety to consumers of exposure from broader consumption of such ingredients.”
In addition, in a March 2020 report, the FDA hinted at how it is enforcing hemp and CBD products:
- Products that are marketed with claims of therapeutic benefit, such as treating or curing serious diseases;
- Products that contain contaminants, including THC; and
- Products marketed with false or misleading claims or directed toward vulnerable populations (e.g., children).
In addition, marketing CDB to cure, treat or prevent diseases without reliable and competent scientific evidence may violate the Federal Trade Commission Act.
As things stand now, the FDA appears to be satisfied if the CBD product is not a food additive, is not marketed as a dietary supplement, and does not make health claims related to treating, preventing, or curing a disease.
However, these rules and regulations stand to change at any time as this is still very much a developing area. Moreover, nearly every state has amended its state laws to conform with the Farm Bill. However, there are differences from one state to the next on just exactly how that attempt to comport to the Farm Bill. Indeed, some states seem to have laws which appear to conflict with some of the FDA’s limitations.
Mississippi’s CDB and Hemp Law
Mississippi amended its laws in 2019 to align with the Federal Farm Bill. See, Miss. Code Ann. 41-29-113 (as Amended in 2019 by House Bill 1547). This bill removed hemp-derived CBD oil products with a ratio of 20 to 1 (CBD and THC) from the Schedule I controlled substance list.
In addition, Mississippi passed the Mississippi Hemp Cultivation Action in 2020 (Senate Bill 2725) authorizing the cultivation of hemp in Mississippi. Currently the only legal option for a producer to cultivate hemp in Mississippi is to get a hemp license from the U.S. Department of Agriculture (USDA) under the USDA Domestic Hemp Production Program. An applicant will not receive a USDA hemp production license if the applicant has been convicted of a felony related to a controlled substance in the last 10 years. The USDA hemp production licenses are active for three years. However, I suspect Mississippi will become more active in regulating Hemp production in the coming years .
The Banking Challenge
Finding a reliable bank and credit card processor can be challenging under the sometimes incongruent laws. Under a technical reading of some applicable laws, money collected from a Hemp or marijuana-based business can be considered laundered and place a bank at risk of seizure by the federal government. Banks also risk losing their Federal Reserve account, besides facing social scrutiny. For these reasons, many banks have been reluctant to accept deposit from CBD and Hemp businesses. The AFE (Secure and Fair Enforcement) Banking Act is slowly inching its way through Congress and if passed should provide clarity to the banks to accept Hemp and marijuana-based business accounts.
Similar issues surround locating a payment processing company for credit cards.
However, the ability to find companies willing to accept deposits and process charges is rapidly changing. Though there appears to be a general increase in fees over more traditional businesses.
As a general rule, companies who comply with the Farm Bill (derived from industrial hemp that contains less than 0.3% THC) can ship their products anywhere in the United States. Though a few states may have additional limits. However, the various shipping companies have taken different position of if they will ship and of any limitations. The USPS recently amended its regulations providing for the shipping of CBD products.
The regulations and applicable laws continue to develop across the country. While there is an ongoing effort to bring these laws in line with one another, we are still not quite there. As a result, before opening any business handling, growing or selling hemp or CBD, a careful review should be taken to ensure compliance with the regulatory maze which currently exists.
If you have more questions, please contact Jonathan Masters
The information contained in this article is for general guidance on matters of interest only. The application and impact of laws can vary widely based on the specific facts involved. Given the changing nature of laws, rules and regulations, there may be omissions or inaccuracies in information contained in this report or laws may have changed or been reinterpreted. Accordingly, the information here is provided with the understanding that the authors are not providing legal, tax, or other professional advice and services and should not be used as a substitute for consultation with legal or other competent advisers for individual and specific advice.