united kingdom cbd food

Last week, the Food Standard Agency (“FSA”), the agency responsible for protecting public health in relation to food in England, Wales and Northern Ireland (collectively, the “UK”), cleared a path for the sale of CBD-infused food for the next 12 months.

Specifically, the FSA is giving the CBD industry until March 31, 2021 to submit valid novel food authorization applications to ensure these products meet specific safety standards. Following the March 31, 2021 deadline, only products for which a valid application has been submitted will be allowed to remain on the market.

Although the UK recently severed its ties with the European Union, the FSA has opted to align its policy with that of the European Food Safety Authority (“EFSA”). The EFSA guidance on cannabinoids strongly echoes the U.S. Food and Drug Administration (“FDA”)’s in that it mandates that all food products infused with hemp or its derivatives receive a pre-market approval under the European Union “novel food” regulation because these products were not significantly used as a food or food ingredient before May 15, 1997.

According to the reporting of Hemp Industry Daily, CBD companies wishing to sell into the UK market will send approval plans to the EFSA through the end of 2020, at which point all applications will be transferred to the FSA.

So for now, the sale of CBD-infused foods is lawful in the UK so long as these products are:

  1. Properly labeled, including free of health claims;
  2. Safe to consume; and
  3. Do not contain THC or other controlled substances.

Despite the fact that the FSA gave the green light on the sale of CBD-infused foods, the agency also warned consumers about its potential side effects.

Based on a scientific report issued by the country’s Committee on Toxicity of Chemicals in Food, Consumer Products and the Environment (“COT”), the FSA guidelines warn pregnant and nursing women “not to consume CBD products” and recommends that healthy adults limit their daily dosage to no more than 70 milligrams, which is the equivalent of 28 drops of 5% CBD oil.

After reviewed scientific data of Epidiolex previously used by European and foreign health authorities, including the FDA, for the approval of the drug, the COT concluded that because the data was intended for pharmaceutical and not over-the-counter use, the “trade-off between risks and benefits that does not apply to food.”

Therefore, in drafting this new policy, the FSA opted for a pragmatic approach that balances the consumer demand for CBD-infused food products with the protection of public health and provides much needed clarification about the legality of selling and marketing CBD-infused foods.

That being said, the guidelines also create some serious challenges for the industry. Indeed, the novel food application process is a demanding and onerous process. Unless a blanket authorization will cover each end-form of CBD (this issue has yet to be clarified by the FSA), this would mean that only a handful of CBD companies could afford applying. This, in turn, would consolidate these products and offer a monopoly to the companies that manage to secure an approval.

Nevertheless, the FSA guidelines are a step in the right direction because they  encourage the Hemp-CBD industry to work together, educate and advise, but also set an example for other regulatory agencies, including the FDA, in forging a clear path for the sale and marketing of these products around the globe.

kern county cannabis marijuana

Last week, I presented oral argument to the Fifth District Court of Appeal in support of the people’s right of referendum. Long story short, the Kern County Board of Supervisors banned medical marijuana dispensaries in 2011, the people protested via referendum petition, and to this day the County has refused to comply with the legal mandate to submit the ban to voters before giving it effect. The County contends that they may reenact a protested ordinance after the passage of time; however, neither the California Constitution nor the Elections Code allow for such limitation on the people’s right to referendum.

The Court of Appeal granted our motion for calendar preference in light of the upcoming March election, at which the people and the Board of Supervisors have submitted competing ballot measures on medical marijuana for consideration by the voters.

Measure D is a people’s initiative measure, meaning it originated with the people, and will be submitted to a vote of the people. If and when the people adopt this measure (it would need to get more votes than Measure E), the Kern County Board of Supervisors will not have the ability to amend or repeal it. In other words, the Kern County electorate would gain control over the issue.

Enter Measure E. The County Board has demonstrated over the past decade that it is unwilling to relinquish control over the issue of medical marijuana, and has persistently interferes with the will of the voters. Upon the qualification of Measure D for the ballot, the County Board cooked up Measure E, which would give the Board full control over the issue. If the voters approve Measure E, the Board could amend or repeal it at any time in the future.

The Board’s agenda, as shown through its actions over the past decade, is to continue to ban medical cannabis in Kern County. The Board’s proposal of Measure E is yet another maneuver to silence the voices of the electorate and maintain control over the issue.

The initiative and referendum are powerful direct democratic tools reserved to Californians to use when their institutions are unresponsive. Measure D is the people’s way of taking control on this issue and giving power their voices. We believe the voters in Kern County are smart enough to see through the County’s intentions with Measure E, and expect it to be rejected in March.

psilocybin cannabis

There is a bona fide movement underway with psilocybin. Decriminalization occurred last year in Denver, Oakland and Santa Cruz, and that was just a start: nearly 100 other cities are looking at decriminalizing psychedelics. At the state level, ballot measures are out for signature in California and Oregon. Federally, legislation has been proposed to allow research into psychedelic drugs, alongside calls for decriminalization.

On the commercial side, well-funded private companies (for- and non-profit) are pushing ahead with Food and Drug Administration (FDA) psilocybin studies, patent acquisition, and registration of other intellectual property. Many of these private companies are set to go public. Others are public already. All in all, a race is underway to explore the attributes of psychedelic mushrooms and to leverage their promise in commercial applications.

Because psilocybin and other entheogens are Schedule I drugs in the United States (and strictly controlled under international law), the comparison is often made between what is happening with psilocybin and what happened with marijuana over the past few decades. It’s not a terrible comparison, but it’s not perfect either. Below is a high-level survey of psilocybin, contrasting the lay of the land with historical cannabis progress.

Like cannabis, psilocybin will advance on two tracks

On the first track, psilocybin is moving ahead via initiatives and initiated ordinances, just like marijuana from 1996 to the present. The scope of the psilocybin initiatives is similar to the early marijuana ballot measures in that they focus primarily on decriminalization. These initiatives do not contemplate a commercial model and it seems unlikely that they will be lucrative. They certainly do not yet resemble the second wave of “retail model” initiatives that became standard with medical and adult use cannabis. Mushrooms and cannabis are very different in nature.

The second track for psilocybin is the pharmaceutical model. We also saw this with cannabis, first with synthetic drugs and then with Epidiolex (the first non-synthetic cannabis drug to win FDA approval). With psilocybin, this second track is moving faster. The FDA already has granted “breakthrough therapy” status to a pair of psilocybin applicants for depression-related formulas, after approving another antidepressant designed to mimic hallucinogenic ketamine last year.

On those tracks, psilocybin will advance slower (and faster) than cannabis

Psilocybin will continue to be decriminalized around the United States in 2020 and beyond. But that is not the same thing as broad legalization. The closest we may get to “legalization” will be in proposals such as Oregon’s Measure 34, which goes beyond mere decriminalization to create a state-sanctioned “patient and caregiver” framework. This type of proposal envisions psilocybin-assisted therapy in controlled environments. It rules out the retail model entirely.

On the pharmaceutical side, the FDA’s willingness to grant breakthrough therapy status to psychedelic drugs, as mentioned above, has put psilocybin approvals in an expeditious place. Research companies, along with FDA, are seemingly “all in” on psilocybin’s potential in battling treatment-resistant depression. The funding and sophistication required are definitely there.

This targeted pharmaceutical approach will serve psilocybin promoters well, as contrasted with cannabis, which has been touted broadly and amorphously for every use from chronic pain to Alzheimer’s disease. Expect psilocybin to move more quickly than cannabis on the pharma track. Concurrently, expect the groundswell of broader “legalization” efforts to continue, even if we never see psychedelics sold at retail.

Cannabis legalization helped pave the way for psilocybin

Any legal right of adults to decide what to put into their own bodies must be re-litigated with every controlled substance. That was true 100 years ago with alcohol, it’s true with cannabis, and it’s going to be true with psychedelics going forward. Much of this litigation happens in the court of public opinion. People begin to believe that prohibition is useless, that incarcerating people for using drugs is wrong and that new rules are needed. This is how we ended up with laws from the 21st Amendment to the U.S. Constitution (1933), to California’s Proposition 215 (1996) to Oregon’s proposed Measure 34 (2020).

For at least several years, most Americans have supported the medical use of psychedelic drugs. As I previously discussed in a close reading of Oregon’s proposed Measure 34, the “legalization” model is similar to the trail blazed by locally cannabis. When enough cities and states move along the continuum from prohibition to decriminalization and beyond, the legal status quo becomes untenable. People will push this hard; people will try things. At some point, federal policy finally evolves and change becomes inevitable. All of that should happen this decade with psilocybin.

As in the cannabis space, we are fortunate to have clients working on the both the research/commercial side of psilocybin, as well as decriminalization. And we will continue to chart developments with psychedelics in general as things progress. Until then, and for more on psilocybin, check out the following posts:

trump cannabis marijuana

At this point, it probably feels to most people like the federal government is standing down when it comes to state-legal cannabis and cannabis businesses. It started back in 2013 with the Cole Memo when U.S. Deputy Attorney General James M. Cole opined in a memorandum that U.S. attorneys shouldn’t really prioritize federally illegal cannabis activities in states that robustly regulated cannabis and cannabis businesses (so long as eight main enforcement priorities were honored by the states).

This hands off approach was amplified by the 2014 FinCEN guidelines, which opened the doors on cannabis banking, a huge, positive development for the industry at the time. Then there was a bit of a downturn in January 2018 when then acting U.S. Attorney General rescinded all Department of Justice (DOJ) guidance (including the 2013 Cole Memo) regarding any federal enforcement position on state legal cannabis, fully returning to all U.S. Attorneys to go after state-legal cannabis according to the resources and priorities in their own jurisdictions.

Notably, none of the foregoing had any impact on actual federal law–enforcement memos do not represent changes in law and don’t do anything to amend the law. However, way back in 2014, Congress passed on omnibus budget bill that contained hard-fought-for language around protections for state medical cannabis laws. Section 538 of this budget bill contained the following language:

None of the funds made available in this Act to the Department of Justice may be used, with respect to the States of Alabama, Alaska, Arizona, California, [every other medical marijuana state], to prevent such States from implementing their own State laws that authorize the use, distribution, possession, or cultivation of medical marijuana.

Many legal experts and scholars speculated that Section 538 wouldn’t have too much of an impact on state legal medical cannabis businesses since the exact language, on its face, really only stops the DOJ from spending money on “interfering” with the enumerated states’ ability to implement their medical cannabis programs (notably, the law ignores adult-use cannabis programs and businesses).

Nonetheless, Section 538 proved to be hugely important in the Ninth Circuit courts of the United States (which make up a large portion of the medical cannabis states in America). The impact of the United States v. McIntosh cannot be overstated.  The Ninth Circuit Court of Appeals interpreted Section 538 to mean that the DOJ could not prosecute the individual principals of state law-compliant medical cannabis businesses. And the effect of that case produced the result in the MAMM case, the notorious Kettle Falls Five case, and was very likely responsible for the DOJ’s dismissal of the Harborside forfeiture case. The bottom line? Section 538 has real power to protect medical cannabis businesses from enforcement actions by the federal government.

Congress has consistently renewed Section 538 in some form in its annual budget bills (it’s changed names a couple of times from the Rohrabacher-Farr Amendment to the Rohrbacher-Blumenauer Amendment, named for the Congressional leaders who championed it and continued to keep it alive). Now though, Section 538 faces a new threat of elimination by President Trump, indicating that maybe the Feds aren’t really done with state-legal cannabis enforcement.

Notably, Trump has tried to delete Section 538 before (and so did Obama) but he’s been routinely ignored by Congress. In his 2021 budget proposal, Trump is at it again–section 538 is omitted from the white houses’s budget proposal. Only time will tell if members of Congress will fight against the proposed deletion. We imagine that they will, given the number of Americans that are now in favor of cannabis legalization generally and where hundreds of jobs and robust state revenue has been created on the back of cannabis legalization– including for medical applications.

The other positive boon here is the fact that the sitting U.S. Attorney, Bill Barr, made clear when testifying before Congress that spending time, money, and resources going after state-legal cannabis businesses isn’t really within the DOJ’s current interests, and that the DOJ would continue to adhere to the principles contained in the 2013 Cole Memo (so far, that seems to have held true).

It’s troublesome to see Trump go back and forth on medical cannabis (and legalization) and to watch him try to end the only real federal protection that exists for any form of cannabis business in the country. What’s clear to us though is that cannabis enforcement isn’t necessarily a priority one way or the other for this administration, and we can’t know yet if that’s ultimately a good or a bad thing. So, stay tuned.

cannabis oral agreement

A lawyer I know once told me that the primary motivation behind drafting a contract should not be making each party’s obligations clear or negotiating better terms, but instead should be ensuring that when there is litigation,  that party is in the best possible position to win. Having written and litigated numerous contracts, I could not agree more. There is so much that parties can miss if they are not looking forward towards inevitable disputes. But an even better way to put oneself in a terrible position in a dispute (and to cause more disputes) is to do handshake deals.

For those of you who aren’t lawyers, there are two main types of contract: written contracts and oral agreements (i.e., handshake deals). There can also be some kinds of implied contracts, but I won’t get into that here. Decades ago, people did not enter into written cannabis agreements for very obvious reasons. But from a modern lawyer’s point of view, there are almost zero circumstances in which parties should still enter into oral agreements. In fact, there are numerous reasons why parties should not do so, and I’ll flag some of the more important ones below. All in all, I would be suspect of anyone saying “you don’t need a contract for this deal”.

First, oral agreements are not enforceable in many circumstances. There is a very old legal doctrine called the “statute of frauds”, which all or nearly all states have adopted, and which lists certain kinds of contracts that are not enforceable unless in writing. In California, for example, the statute of frauds includes contracts that can’t be performed in a year (goodbye multi-year terms in handshake deals), leases with more than one year terms, contracts for the sale of real property or an interest in real property, etc. This can be a huge problem for people who have handshake deals who may learn too late that they have no recourse in the courts in a dispute.

Second, they will cost tons of time and money. One thing I’ve heard many times before is that it will be much more expensive to have a lawyer draft X type of contract than just to get started on work. What most non-lawyers don’t think about is how much the inevitable blow back will be if they use an oral agreement. Because the terms aren’t set out in writing, and because people generally have terrible memories, the likelihood of disputes over what the parties are actually supposed to do under a handshake deal are much, much higher. In some cases, disputes are virtually guaranteed.

To that point, if a party under a handshake deal has to sue the other party, the litigation will be much more complicated. In every kind of breach of contract suit, the party alleging breach has to prove the existence of a contract. It’s very easy to do if there is a written contract: generally, you just produce and properly authenticate the contract. If the deal is a handshake one, you will have to have people testify about (1) the fact that there was an agreement, and (2) what the terms were. And the other side is almost guaranteed to testify that the terms were different or that the contract was never made. Sure, parties can dispute the existence or validity of written contracts (someone could claim their signature was forged, for example), but the existence/validity of a contract is rarely at issue in those cases because you can look at and hold a written contract and evaluate such claims pretty easily.

Third, you don’t get to recover any attorneys’ fees! The general rule in the U.S. is that each party bears its own attorneys’ fees in litigation. In other words, you pay your lawyer for litigating your dispute, whether your win or lose. Some laws will force the losing party to pay the other party’s attorneys’ fees (for example, in some trade secret cases). But for straight breach of contract cases, the only way to get your fees paid back if you win, in most cases, is to have an attorneys’ fees provision in the contract. I have never once heard a party legitimately trying to claim that their handshake deal included an attorneys’ fees provision; in fact, that would be a guaranteed way to lose face in front of a court.

Fourth, and along the same lines, no arbitration. I just wrote a post about why arbitration is such a good idea for cannabis companies. The gist is that arbitration avoids going to federal court, where the court is much more likely to toss a case on the grounds that cannabis is federally illegal. Parties generally cannot be forced into arbitration unless they agree to it, either at the point of a dispute being initiated (the party who would benefit from getting the case thrown out would never do this), or in a written contract. Here too, I have never heard of someone arguing that there was an oral agreement to arbitrate.

Fifth, good luck complying with the regulations! Every state’s broad cannabis regulations touch virtually every part of a business’ operations. It is always good practice to address the things that the parties must do or cannot do to comply with the regs in a written contract. For example, if a contract would render parties owners or financial interest holders in a licensed cannabis business, it’s a good idea for the contract to obligate that party to make disclosures. Without it, the party could refuse to do so and jeopardize the other party’s license. If the parties enter into handshake deals, there is virtually no visibility into regulatory compliance. It’s probably not a good defense to an enforcement action that a contract wasn’t written and a licensee was confused as to how they should comply.

All of this is to say, oral contracts are a bad idea. Parties don’t need to have 80-page deals for every minor transaction, but getting something down in writing almost always helps. That said, I do plan to write a post in the near future about how it can be equally terrible to have a contract that is too short. There is a healthy balance when it comes to contract drafting, but the main point is that almost all problems inherent in oral contracts can be avoided, and in many cases very easily.

For more on this under-discussed but very important issue, check out the following:

ohio cannabis hemp

The Agriculture Improvement Act of 2018 (“2018 Farm Bill”) legalized hemp by removing the crop and its derivatives from the definition of marijuana under the Controlled Substances Act (“CSA”) and by providing a detailed framework for the cultivation of hemp. The 2018 Farm Bill gives the US Department of Agriculture (“USDA”) regulatory authority over hemp cultivation at the federal level. In turn, states have the option to maintain primary regulatory authority over the crop cultivated within their borders by submitting a plan to the USDA.

This federal and state interplay has resulted in many legislative and regulatory changes at the state level. Indeed, most states have introduced (and adopted) bills that would authorize the commercial production of hemp within their borders. A smaller but growing number of states also regulate the sale of products derived from hemp.

In light of these legislative changes, we are presenting a 50-state series analyzing how each jurisdiction treats hemp-derived cannabidiol (“Hemp CBD”). Today we turn to Ohio.

Hemp cultivation in Ohio is regulated by the Ohio Department of Agriculture (“ODA”). Notably, Ohio was among the first states that got a 2018 Farm Bill hemp production plan approved by the USDA. Way to go, Buckeyes! People who want to grow hemp in Ohio will need to obtain licenses from the ODA and hemp cultivated there is subject to testing requirements established by the USDA’s interim hemp rules.

When it comes to Hemp-CBD, the state has not dialed in its regulatory regime. The ODA is in the process of reviewing public testimony before adopting rules affecting the processing of Hemp CBD products. In late 2019, there was a public hearing concerning proposed processing rules that would govern many different types of Hemp-CBD products (as of today, those regulations haven’t been officially adopted). It’s important to note that these rules would not let anyone go and start processing. Instead, licenses would be required and it looks like the state’s requirements will be pretty comprehensive.

The products that the rules would govern include “hemp buds, flowers, cigarettes, cigars, shredded hemp, cosmetics, personal care products, dietary supplements or food intended for animal or human consumption, cloth, cordage, fiber, fuel, paint, paper, particleboard, and any other product.” So basically, anything under the sun. Notably, the rules anticipate the production of Hemp-CBD products (e.g., cosmetics and food) but also anticipate the use of hemp in all kinds of other products that will not be marketed for Hemp-CBD content (e.g., paint and fuel). These rules are therefore extremely comprehensive.

These rules would also impose some strict requirements on manufacture, including pretty standard things that our hemp attorneys see in other states. This includes testing and labeling, to start.

In sum, while Ohio probably isn’t anywhere near the top of the list when people think about states that allow hemp, it’s actually more friendly than a lot of other large states (looking at you California). While states like California are still in prohibitionist mode for all kinds of Hemp-CBD products, states like Ohio are taking the wheel. For more updates on Ohio’s Hemp-CBD laws, stay tuned to the Canna Law Blog.

For previous coverage in this series, check out the links below:

cannabis cyber crime marijuana

One of our Washington cannabis clients recently learned that its employee was the target of a cybersecurity attack. The employee, who was following instructions via a messaging app, wired money to an individual at the request of who he believed to be an owner of the company. That was not the case! The employee had fallen victim to a cybersecurity attack. Our client has asked us to publish this post as a public service announcement to other cannabis businesses.

These attacks are becoming more and more prevalent as we continue to communicate online. In this case, the employee was a victim of “phishing,” which is a scheme where a fraudster impersonates another person to induce individuals to reveal information or, in this case, send money. Other cybercrimes include data breaches, where hackers obtain sensitive information by breaching a company’s secured files and then use that information for identiy theft, blackmail, or to commit other crimes.  Cybercriminals can operate across the globe meaning that anyone online can quickly become a target. Marijuana businesses in Washington State (and elsewhere) need to be aware of the risk of cyber attacks as we enter a new decade.

No industry is safe from the threat of a cyber-attack or other security incidents relating to technology. However, nefarious online fraudsters may see a unique opportunity in the marijuana industry. Marijuana businesses generally have a lack of access to traditional financial services and therefore deal with a lot of cash. By way of example, compare a restaurant to a marijuana business. A restaurant is inevitably going to deal with cash. Diners may pay an entire bill using cash or may leave a cash tip after charging their meal. But, it’s unlikely that a restaurant’s owner will pay its employees and vendors in cash. Most restaurants also don’t require that their customers pay only in cash.

Now consider a standard marijuana business. Washington’s recreational marijuana market is one of the oldest in the country and many marijuana businesses in Washington can obtain a checking account. However, marijuana retailers are generally operating on a “cash-only” business model as credit card companies like Visa and Mastercard will not process transactions that involve the sale of federally illegal substance. That means retailers often have large amounts of cash to deal with each day. Some of that cash may go directly to pay producers and processors for products on the retailer’s shelves. Regardless of the type of license, many marijuana businesses often have large amounts of cash at hand.  It is therefore not unheard of for an employee of a marijuana business to field requests that involve wiring cash to a given account or otherwise undertake a transaction that might seem odd in any other industry. Lack of access to financial services has made the unusual normal in the marijuana industry.

Cybercriminals may also be drawn to marijuana businesses due to the illicit nature of marijuana under federal law. As we’ve written probably a million times, marijuana is illegal under federal law. That makes reporting cybersecurity events more challenging due to the risk of self-incrimination. A marijuana business may not want to “make waves” by reporting to federal agencies like the Department of Justice (DOJ) or the Federal Bureau of Investigation (FBI). However, it’s worth noting that the FBI has sought out tips relating to corruption in the cannabis industry. Nevertheless, federal prohibition does, at the very least, complicate the ability of marijuana businesses to report cybercrime. Those concerns are not as pronounced if reporting to local law enforcement in states that have legalized marijuana.

If you’re concerned about scams, here is a nonexhaustive list of steps that you can take to mitigate cybersecurity risks before they happen:

Internal policies

Adopt or update a policy where employees are to obtain confirmation by phone before sending money to any person outside of the usual course of business. This doesn’t mean that a person needs to check in before paying a known vendor, but would prevent an employee from wiring money based solely on messages or email.

Check usernames and email addresses

If I email someone, my name will show up as “Daniel Shortt” and my email will read “daniel@harrisbricken.com.” Someone who was impersonating me could list their name as “Daniel Shortt” even if their email address was “ScammyMcScammerson@fraud.net.” The same concept is true with usernames. On twitter, my name is “Daniel Shortt” and my handle is @dshortt90. A fraudster could change his or her name to Daniel Shortt with a handle of @dshort90. This is even trickier as my handle is very close to the fraudster’s (my name has two t’s at the end). Employees should be on the lookout for these fake emails and usernames.

Implement a protocol for reporting security events

If you’ve been targeted once chances are you’ll be targeted again, perhaps in a more sophisticated manner. You want to be able to get the news out without exposing your others to security threats. Forwarding an email to another worker just increases the risk of that person clicking on a link to install malware or engaging with a fraudster. Establishing protocols to send screenshots of suspicious messages or forward them to a designated fraud account are some examples of dealing with this issue.

Audit your existing security procedures

This can be done in house or by hiring a consultant or attorney. If you don’t have a security protocol in place, that’s an even bigger reason to audit your company’s operations. That way you can identify risks before they happen.

Protect your passwords and other sensitive information

You may want to require that your employees use multi-step authentication software when signing into company accounts. This usually requires that a person confirm their login on a separate device such as a smartphone app or link sent via text. Make sure your employees are not sending passwords through email or messaging services. Passwords should also be complex and changed regularly.

If you do fall victim to a cybersecurity attack make sure to respond quickly and notify others in your organization about the threat. You should also reach out to your organization’s lawyer or in-house counsel to discuss next steps, which may include reporting to law enforcement.

cbd label market fda

Last week, I attended Portland’s Hemp CBD Connex, an annual event that highlights the vast potential of hemp and CBD.

Of interest to me–because my practice focuses on the regulatory framework of CBD products–was a panel entitled “Weeding Through the CBD Jungle: How to Grow, Run and Be Successful.” This panel was led by two experienced industry leaders: Stuart Bennett, VP of Contract Manufacturing for Canopy Growth, and Alex Rullo, Executive VP of Strength of Hope. Both panelists discussed the dos and don’ts of selling and distributing CBD products in interstate commerce and stressed the importance of complying with the CBD laws of each state in which a product is sold. This was music to my ears!

As you already know if you follow our blog, the Food and Drug Administration (“FDA”) has taken the position that CBD-infused foods and dietary supplements cannot be lawfully sold or marketed in the United States. Yet, states have adopted their own approaches to regulating CBD products that are not necessarily consistent with the FDA’s current position.

Some states, including Colorado and Oregon, allow the manufacture and sale of all CBD products, including food, dietary supplements, smokable products, and cosmetic products. Other states, like Idaho, strictly prohibit the production and/or sale of any such products. A handful of other states, including California, have banned certain categories of CBD products (usually food and dietary supplements) but seem to take no issue with the sale of other products, such as CBD cosmetics.

In addition, some states that have legalized the sale of Hemp CBD products impose their own regulations, including but not limited to labeling and testing requirements.

As we previously discussed, CBD manufacturers and distributors selling their products in interstate commerce should familiarize themselves with labeling and marketing laws in each state where they plan on placing their products. As a rule of thumb, companies should adopt the most stringent rules, such as those imposed by Indiana, Texas and Utah, to ensure compliance across state lines.

While it’s impossible to cover all state labeling and marketing laws in one blog post, I thought I would provide a brief overview of the label components that have become standard in the industry:

The FDA’s General Labeling Requirements

Every state that authorizes the sale of CBD products also mandates, in one way or another, that the labels of CBD products sold within their borders be labeled in accordance with the Food, Drug and Cosmetic Act (“FDCA”). Under the FDCA, the labels of any product sold in the United States must contain four basic elements:

(1) An identity statement, which indicates what the product is;
(2) A net weight statement;
(3) A list of all ingredients, which in states like New Mexico and Colorado, must clearly identify hemp and CBD. This requirement makes it difficult for companies that are steering clear from using the term “CBD” in an attempt to mitigate the risk of enforcement action. For more information on this issue, please read here; and
(4) The name and address of the manufacturer, packer or distributor along with their street address.

Scannable Bar Code or QR Code

A growing number of states are mandating the use or a scannable bar code, QR code link or web address linked to a document containing information, pertaining to:

  • the batch identification number;
  • the product name;
  • the batch date;
  • the expiration date, which in some states like Indiana, must be not more than two (2) years from the date of manufacture;
  • the batch size;
  • the total quantity produced;
  • the ingredients used; and
  •  certificate of analysis.
FDA Warning Statement

States like Colorado require that the following statement appear on CBD product labels: “FDA has not evaluated this product for safety or efficacy.”

No Medical or Health Claims

As we have discussed at length, the FDA has limited its enforcement actions against CBD companies that make outrageous and unfounded health claims about the therapeutic values of their products. Nevertheless, many states demand that the labels of CBD products sold within their borders be free of any health claims. It’s important to understand that drug claims don’t need to be explicit. If a company implies that its product can be used to treat a disease, the FDA and local authorities may conclude that the product is a drug.  Consequently, if a CBD company makes any medical, disease, or bodily structure or functional claims or implications about its products, the FDA will likely conclude that the company is marketing unapproved drugs in violation of the FDCA.

Ensuring compliance with the labeling and marketing laws (and policies) of each state in which a CBD product is sold can be challenging, yet it is a crucial step in mitigating the risks of enforcement action by federal and state agencies.

cannabis marijuana insurance exclusions

Previously I wrote about insurance generally (see here) and products liability insurance specifically (see here). Today I want to look at some policy exclusions to point out potentially problematic terms that you may notice when reviewing your insurance contract during your annual insurance audit.

First, I need to mention some truths that I believe are accurate in the insurance context, based upon my many years of interacting with business clients:

Many business owners never read their policies. Insurance contracts are often dozens or hundreds of pages long. They are complicated, and they are not written like other contracts, which makes them worse to read than a normal business contract. This results in many business owners meaning to read the contract but rarely getting beyond the coverage jacket on the first page of the policy.

Many business owners never have anyone on their team read their policies. Business owners generally intend to (and do) delegate the insurance review and renewal to someone on their executive team, but that rarely results in anyone reading the contract beyond the first page of the policy. Many insurance owners do not want to pay their lawyer to review their policies, so they will often rely on their broker to assure them as to what coverage they have. Because insurance claims arise only intermittently, the importance of the insurance contract seemingly pales when compared to supply and customer contracts that are the lifeblood of the business, so these tend to fall by the wayside until the next annual renewal.

The right insurance broker or agent can be your ally. First, some terminology. An insurance broker represents an insurance buyer, and an insurance agent represents one or more insurance companies. If you are familiar with real estate, you can analogize to the commercial insurance context. An insurance broker is similar to a real estate buyer’s agent, while an insurance agent is similar to a real estate dual agent who represents both the buyer and the seller in a transaction. Each of these individuals can be helpful to you in the right context with the right motivation. An insurance broker will always be your ally because they work for you and can shop your needs around to various insurance companies. An insurance agent is generally “captive” to the company or companies they represent and has to sell you insurance products offered by those companies, but they are still motivated to sell you a good product to keep your recurring business year after year. In both scenarios, you will not know all of the types of policies that are available, even if you are familiar with the basic insurance policies: commercial general liability, employment practices, workers’ compensation, directors & officers, property casualty, product liability, commercial vehicle, business interruption, and key person insurance. It is better to rely on someone within the industry than try to decipher the purchasing process by yourself.

Insurance companies are not your friends. I know many insurance agents and brokers, and many are good people who are motivated to provide good service, but there is a reason why companies hire good, experienced law firms to help negotiate with insurance companies when they want to make a claim for a loss against their policy. I also know many lawyers who work for insurance companies doing “insurance defense work” where they fight hard to help their insurance company clients avoid paying out funds to their insured. It is not pretty to be on either side of the table. But you do not want to try to navigate the technical and complex morass by yourself.

Let’s shift from these general points to the topic of insurance riders:

Insurance riders explained. A cannabis company growing hemp or marijuana will typically obtain a commercial general liability policy in response to a statutory requirement to carry insurance, like this language from Washington:

The licensee shall at all times carry and maintain commercial general liability insurance or commercial umbrella insurance for bodily injury and property damage arising out of licensed activities. The limits of liability insurance shall not be less than one million dollars.

(a) This insurance shall cover such claims as may be caused by any act, omission, or negligence of the licensee or its officers, agents, representatives, assigns, or servants.

(b) The insurance shall also cover bodily injury, including disease, illness and death, and property damage arising out of the licensee’s premises/operations, products, and personal injury.

These broad categories above are, in theory, the items that will arise in the life of a cannabis company, but the ubiquitous insurance riders (contract amendments) chip away at this protection. Your policy will not cover every event on purpose, even if you try to buy the most comprehensive policy you can find. And if you do want to procure a policy that covers every potential event, it will almost always be too expensive for your budget. It is to your benefit to audit your policies and understand what events are and are not covered and know your business well enough to know what events are most likely to arise based upon your business plan.

When auditing your insurance coverage, pay close attention to the insurance riders that appear at the end of most sections of an insurance contract. After reviewing hundreds of pages of insurance policies as part of my due diligence for a recent M&A transaction, I point out the following language from actual insurance policies that may cause the typical cannabis business owner to pause:

  1. This policy does not cover seeds, seedlings, vegetative plants, flowering plants, or harvested material that is not yet finished stock.
  2. This insurance does not apply to bodily injury and property damage arising directly or indirectly from alcoholic beverages.
  3. This [workers’ compensation] policy excludes volunteers and employment practices liability.
  4. This [workers’ compensation] policy does not cover business owners.
  5. This policy excludes nutraceutical substances such as essential oils.
  6. This policy excludes vaporizing devices.
  7. The insured must notify the company regarding a change of ownership. (This is not, strictly speaking, an exclusion like the others above, but it was significant enough that I wanted to include it here.) This clause becomes relevant in the M&A context and is different from the standard change of control language in other contracts (like bank financing agreements) that could impact whether you decide to do a stock deal or asset deal. A change of ownership impacts the covered company’s experience rating, and insurance companies love any excuse to reassess a company’s risk profile, find increased risk, and raise a premium as a result.

Attorneys get paid to deal in details. Often business owners believe they are covered by an event when they really are not, but you have to look beyond the insurance coverage jacket and diagram the effect of your insurance riders. This is why we always recommend a comprehensive insurance audit at least once per year.

For more information on the twists and turns of insurance policies, see the following posts:

washington cannabis marijuana

Last month, two pieces of legislation were introduced to the legislature that could substantially alter Washington State’s advertising laws: HB 2350 and HB 2321. Each bill would tighten advertising restrictions for cannabis businesses, particularly with regard to advertising that could appeal to youth. Both bills were filed pre-session, and both already have moved into the Committee on Commerce and Gaming. The bills are summarized below.

HB 2350

This bill, “[r]elating to preventing youth marijuana consumption by updating marijuana advertising requirements,” sets forth new advertising requirements intended to reduce youth exposure to marijuana by prohibiting billboards for advertising marijuana. The legislation also seeks to “provide more flexibility for the use of signs and advertisements by marijuana licensees at their licensed premises.”

Existing regulations already prohibit licensees from placing any sign or advertisement for marijuana or marijuana products within 1,000 feet of the perimeter of a school grounds, playground, recreation center or facility, child care center, public park, library, or game arcade that does not restrict admission to persons twenty-one years or older. However, existing regulations also allow for the placement of billboards, which are currently limited to displaying text that “identifies the retail outlet by the licensee’s business or trade name, states the location of the business, and identifies the type or nature of the business.” These billboards cannot depict marijuana or any marijuana products. The purpose of these restrictions is to limit retailers to placing billboard advertisements that provide the public with directional information to the licensed retail store. However, HB 2350 would prohibit all billboards placed by marijuana licensees, regardless of content.

The one concession made in HB 2350 is that the Liquor and Cannabis Board (“Board”) would no longer be able to limit the number or size of on-premises signs or advertisements used by a marijuana licensee at their licensed location.

HB 2321

The second pending piece of legislation, HB 2321, also aims at reducing youth access to all products intended for consumption by adults over the age of 21. Although retailers would no longer be limited to two signs of limited size outside the licensed premises, the Board would be tasked with ensuring that signs are not appealing to youth or those under twenty-one, and sets forth penalty minimums for violations.

This piece of legislation also specifically targets vapor-product retailers, with vapor products not including “any product that meets the definition of marijuana, useable marijuana, marijuana concentrates, marijuana-infused products, cigarette, or tobacco products.”

Regulations around advertising have been constantly evolving since the passage of I-502. The last major regulatory changes surrounding billboard and outdoor advertising went into effect in 2017, when the following restrictions took effect:

  • Licensees are limited to two signs, at a maximum of 1,600 square inches, that are permanently affixed to a structure or building on the licensed premises;
  • Sign spinners, sandwich boards, inflatables, toys, cartoons, movie characters, people in costumes – all prohibited;
  • Signs are limited to identifying the licensee, location, and nature of the licensed business;
  • Signs and logos cannot contain images of plants or marijuana products, including images that indicate “the presence of a product, such as smoke, etc.”

But billboards in particular have long been a source of contention, since meeting the perimeter restrictions is often difficult, especially in densely populated, urban areas. We will continue following the progress of both of these bills, and will update readers if and when a rule change takes place.