States of Confusion: What to Know If Selling CBD

CHICAGO — What CBD can retailers sell, or not? What’s the difference between marijuana and hemp, and what claims can a product make?

Jonathan Havens, a partner in the Baltimore-based law firm Saul Ewing Arnstein & Lehr LLP, recently answered these and other queries during “Your Questions on CBD Answered,” a webinar sponsored by Winsight, owner of CSP.

On the federal level, Havens explained, marijuana is a Schedule 1 drug under the Controlled Substances Act (CSA) and illegal for all purposes—despite being legal in several states. However, hemp is federally legal due to the Agriculture Improvement Act of 2018 (the 2018 Farm Bill) and is federally regulated by the U.S. Department of Agriculture (USDA), although states also play a role.

Not all hemp derivatives are legal for all purposes, however, and the Food and Drug Administration (FDA) says cannabinoids (CBD) cannot be added to food and beverages.

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Havens said each state’s requirements differ, necessitating retailers to immerse themselves in ever-changing laws and regulations and frequently interact with regulators. Also, the only real way to learn if a brand is compliant is by being in a particular market.

On the state level, state departments of agriculture oversee hemp cultivation and processing and submit hemp plans to the USDA, he said, and state and local departments of health could promulgate CBD product regulations, enforce federal requirements, or do nothing at all.

The Controlled Substances Act (CSA) does not preempt state law, and many states follow the CSA but some don’t, and several states are beginning to align their CSA with federal law.

Elsewhere, states and some municipalities have taken note of the FDA’s position, such as that CBD is not a lawful food/supplement ingredient, and have banned CBD even if it isn’t a controlled substance or have otherwise restricted CBD.

The FDA has been mostly hands-off as far as CBD products are concerned, with one major exception: If you make aggressive therapeutic or treatment claims, Havens said.

“You can operate in the CBD space, you can even sell ingestible products in the CBD space, and largely you go untouched by the FDA,” he said. “Some states take different positions, but if you start making aggressive claims, treatment claims, and we’re talking PTSD, COVID, AIDS, diabetes, neuropathy, those sorts of things, I would say that’s 95% of the enforcement action. The other 5% is kind of myriad compliance issues.”

Those issues can be current manufacturing practices, using the FDA’s logo to suggest one’s products have been approved by the FDA, etc. “But FDA has been largely hands-off,” he added. “It’s been the states that I think have been more active.”

And those making claims have mostly been brands, Havens said, not retailers. He added: “Just because something is federally legal doesn’t mean a state is OK with it.”

Havens added that product attributes or promises are still claims, even if one is not claiming to treat anything, and saying a consumer will not fail a drug test if using a product is still a claim.

“The farther away a brand is from a therapeutic claim, the better,” Havens said, and promoting wellness is probably OK.

Regarding CBD regulations on the national level and the wait for clarity, particularly on ingestibles, Havens said, “I think Congress is going to have to paint the FDA into a corner. I just don’t see the FDA moving on this quickly enough for all of our satisfaction. If the FDA issues regulations in this space, it’s going to take years for it to actually be live.”

Havens gave one bill, introduced in May, a 30% chance of becoming law this year. U.S. Sens. Ron Wyden (D-Ore.), Rand Paul (R-Ky.) and Jeff Merkley (D-Ore.), introduced the legislation to ensure hemp-derived CBD products are regulated by the FDA like other legal products used in dietary supplements, foods and beverages.

This action, they said, is essential to protecting consumer safety and treating hemp producers fairly.

On CBD inequality in California, Havens said, “You can sell CBD at a cannabis dispensary, but you can’t sell it at a c-store. Why is that? I think it’s protectionist for the cannabis dispensaries that are pretty big business in California. I don’t think it’s a safety issue because consumers are obviously consuming it where they’re getting it, whether that’s online or cannabis dispensaries.”

But, there are other states that have reevaluated and made corrections. “Iowa used to be a pretty restrictive state but just came out with, albeit, very robust regulations in the CBD space,” he said. "But they are getting there. Louisiana is tough, but if you get registered there you’re able to sell products. Utah, same thing.”

While meeting requirements is a barrier to entry, Havens said retailers should play to that. “I know people say regulatory compliance is a pain in the neck, but view it as a competitive advantage.”

When talking with partners, distributors or investors, the retailer can explain, “'Look, we spent the time to do this. We have a staggered approach across all these different states. And we know where these regulations are headed’,” Havens said.

There are three key overarching practices to which retailers should adhere, Havens said:

• Look for a responsible brand. Do its labels claim the product is a panacea? Ask the brand where their products are sold, the number of locations, etc.
• Ask a brand for copies of their licensing documents. If they can’t provide them, ask why. Also, if a brand doesn’t have its products tested by a third party, or the testing results aren’t easily accessible, ask why.
• Ask the brand if they offer protection and support. These are intertwined. Ask if they can they show evidence of a certificate of insurance. Is there a return policy in the event of enforcement action? Is there regulatory support, such as if an inspector issues a citation to a store related to the brand’s products?

The CBD Risk Spectrum, according to Havens:

• Zero to low risk: No CBD sales (no risk), topicals sold in states that permit them (low risk).
• Low to moderate risk: Topicals and ingestibles sold in states that permit them (low to moderate risk). “Soft” claims made regarding products (low to moderate risk, depending on claim language).
• Moderate to high risk: Topicals and ingestibles sold in all 50 states without regard to state-specific requirements (moderate to high risk). Aggressive therapeutic claims made regarding products (high risk).

“Because we’re in this patchwork and we’re trying to move FDA into this harmonization with the states, it’s better, in my view, if we use compliance as a differentiator,” Havens said. "Use where you sell a product as a differentiator.”

Havens said a retailer should adopt the attitude: "Even though our products are safe, we’re concerned about youth accessing our products, so we are going to sell these behind the counter.”

This, he said, is a way to voluntarily say to regulators, “You haven’t required this, but we’re doing it voluntarily.”