No. But sort of. But not really.

That’s the “simple” answer to a question that gets more complicated every day. As the cannabidiol (CBD) industry continues its exponential growth, expected to eclipse the $1B mark in 2019, the question of CBD legality is urgent for a number of parties. And yet competing, even contradictory, laws at the federal and state level have created a confusing regulatory environment for entrepreneurs, investors and consumers.

The 2018 Farm Bill and CBD

Before the Farm Bill, any incarnation of the cannabis plant and its byproducts were lumped into a single category and considered a Schedule 1 drug. When President Trump signed the 2018 Farm Bill into law one of the key changes affecting the cannabis industry was the separation of “hemp” and “marijuana.” Key language in Section 1103 of the Farm Bill defines hemp 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 short, the Farm Bill descheduled industrial hemp and its byproducts as long as it stayed under the threshold of less than 0.3 percent THC. CBD is derived from the cannabis plant, whether there are significant levels of THC or not. CBD industry advocates have interpreted the language “all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers” as descheduling CBD when derived from industrial hemp. And they are “mostly” correct in this interpretation. Unfortunately, there are other federal agencies in play.

The FDA and CBD

While the United States Department of Agriculture (USDA) oversees laws related to the cultivation of industrial hemp, the United States Food and Drug Administration (FDA) oversees medicine and food additives. In recent years, CBD has emerged as a “wonder drug” with a growing list of potential benefits and has appeared as an additive in a wide range of consumer products. In addition, the FDA approved Epidiolex, the first CBD-derived drug, in 2018.

All of this has culminated in CBD being a priority of the FDA, so much so, that just a week after the Farm Bill was signed into law, the FDA issued a press release clarifying and asserting their regulatory control over all cannabis-derived compounds.

“We treat products containing cannabis or cannabis-derived compounds as we do any other FDA-regulated products — meaning they’re subject to the same authorities and requirements as FDA-regulated products containing any other substance. This is true regardless of the source of the substance, including whether the substance is derived from a plant that is classified as hemp under the Agriculture Improvement Act.”

Concurrent with the Farm Bill and the press release regarding CBD, the FDA also issued three Generally Regarded as Safe (GRAS) notices for hemp by-products: hulled hemp seeds, hemp protein powder, and hemp seed oil. Clearly demonstrating that (some) hemp products have been descheduled and cleared for use by the FDA.

The FDA’s policy is different toward CBD for two key reasons. Firstly, CBD products are largely marketed with a wide variety of therapeutic claims. In their press release the FDA notes:

“The FDA requires a cannabis product (hemp-derived or otherwise) that is marketed with a claim of therapeutic benefit, or with any other disease claim, to be approved by the FDA for its intended use before it may be introduced into interstate commerce.”

Secondly, the FDA’s approval of CBD-based drug Epidiolex, put CBD and THC into the category of “active ingredients in FDA-approved drugs” aka “medicine.” Under the Federal Food, Drug, and Cosmetic Act (FD&C Act) it is “illegal to introduce drug ingredients like these into the food supply, or to market them as dietary supplements.”

In short, the FDA does not distinguish between CBD derived from hemp or “marijuana,” and until the agency approves CBD and establishes a regulatory framework, adding CBD to food and beverages is illegal.

Has the CBD Crackdown Slowed Businesses?

While early CBD research has shown promise as a treatment for conditions like epilepsy and anxiety, as a consumer product it is unproven and has been largely unregulated until recently. In the absence of labeling standards and regulated dosage guidelines, consumers often have little understanding of what they are buying and its potential effects.

All of this uncertainty has earned greater regulatory attention for CBD, hurting the industry, if only temporarily. There have been reports of crackdowns on bakeries, restaurants and retailers selling CBD in California, New York, Maine and Ohio, just to name a few. This regulatory response has shocked and angered a number of hemp producers and CBD retailers who have invested millions into business ventures that they feel only supply the public with products that help manage health concerns.

Despite the confusing legality, the CBD industry appears to be moving full-steam ahead. In recent months, national retailers as diverse as Walgreens, DSW and Barney’s New York have announced plans (or have already begun) selling CBD products. Indicating the burgeoning CBD industry is well on the way to mainstream acceptance.

What is Next for CBD?

In February, FDA Commissioner Scott Pruitt testified before the House Appropriations Committee and said that the FDA is initiating a rule making procedure with the goal of creating “an appropriately efficient and predictable regulatory framework for regulating CBD products.” The FDA has maintained that this process will begin with a public hearing on CBD, scheduled for April. To date, no concrete details have been formalized or announced.

Further complexity struck when Pruitt unexpectedly announced his pending resignation, also scheduled for April. Without clear leadership, the future of CBD is truly unknown and will largely be dictated by whoever the Trump administration chooses to replace Pruitt. The fact that the FDA is entering a phase of leadership transition will almost certainly add delays to an already complex rule-making process.

While delays occur at the federal level, states are shifting into action. Maine recently passed an emergency law governing CBD. The emergency bill aligns the definition of hemp in Maine’s laws with the definition used in the Farm Bill. As long as CBD is derived from hemp sources, it is to be considered a food product, rather than medicine, and is cleared for use in Maine.

Ultimately, until the FDA creates a regulatory framework for CBD, it will remain illegal to add it to any food or drink products. That said, federal laws haven’t stopped the CBD industry so far…

About the author(s)

Evan Eneman
Evan has more than 18 years of experience assisting private and public companies in a variety of industries including Cannabis, Financial Services, Healthcare, Technology, Media, and Entertainment. His areas of expertise include: strategy, compliance, enterprise risk management, business process, internal controls, audit, governance, and IPO readiness. Evan also has experience founding and running an early stage venture capital firm and a branding and marketing agency dedicated to the cannabis industry. Prior to his involvement in the cannabis industry, Evan spent 12 years with a Big Four firm, advising Fortune 100 and emerging growth companies on various aspects of governance, risk, compliance, operations and strategy.