Understanding the Shifting Trends of State and Federal CBD Laws and Regulations

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A recent projection by Graphical Research found the North America cannabidiol market is expected to surpass $61.2 billion in size by 2027.

With a growing market and hands-off approach by the Federal Food and Drug Administration, states have stepped in to protect consumer safety through laws and regulations governing the manufacture and sale of CBD products. These generally include manufacturing, retail and marketing regulations to ensure these products are safely produced and sold, while many states adopt the FDA’s prohibitive positions.

The state-led regulatory environment for CBD has resulted in a complicated — and constantly changing — state patchwork of laws that is challenging for businesses and consumers to navigate. Businesses selling CBD products must not only comply with this patchwork of state laws, but also with applicable FDCA provisions, which in some cases may conflict with state laws. Businesses should work with counsel to ensure their product formulations, marketing and supply and distribution chains are compliant with state and federal law and must consider that these laws change constantly, and that some state laws may be preempted by the FDCA.

In this article, we’ll look at some of the history of CBD regulation in the United States, the trends that are dominating CBD regulation in 2021 and some of the state-specific regulations in the largest states that you should keep an eye out for.

Selling CBD Legally

Almost 3 years after the legalization of hemp in the United States, hemp-derived CBD has become a staple ingredient in consumer products, and we continue to learn more about its benefits and efficacy. But, the Federal Food and Drug Administration (FDA), who maintains regulatory oversight of consumable products containing hemp, still has not established a regulatory framework for CBD in consumable products, instead taking the prohibitive position that CBD cannot be a legal ingredient in food and dietary supplements because it has been included as an ingredient in publicly investigated and approved drugs, Sativex and Epidiolex. This prohibition arises from a provision of the Federal Food, Drug, and Cosmetic Act (FDCA) intended to preserve incentives for drug development. The FDA can make an exception to this rule, but has never done so and is currently assessing whether such an exception should apply to CBD. Certain hemp-derived ingredients, however, that are not the same ingredient as that in approved drugs, may be legally sold if compliant with the FDCA.

The FDA is engaged in a multi-year process of “evaluating the regulatory frameworks that apply to certain cannabis-derived products that are intended for non-drug uses, including whether and/or how the FDA might consider updating its regulations, as well as whether potential legislation might be appropriate.” The Brightfield Group projects CBD products will reach $5.3 billion in retail sales in 2021.

Congress recognizes the consumer safety gap left by the FDA and the need to regulate this fast- growing market. There are two bills in Congress-HR 841 and S 1698 that would allow CBD as an ingredient in dietary supplements and foods (HR 841 is limited to dietary supplements only, while S 1698 includes both dietary supplements and foods). If passed, it is likely the FDA would still impose specific labeling and other requirements for CBD products, and S 1698 expressly grants their authority to do so. Federal regulation of CBD products is welcome and long overdue, with hemp businesses eager for regulatory stability and treatment as legal enterprises.

As the FDA proceeds with its multi-year process in evaluating potential regulatory pathways, it has generally operated under an unwritten risk-based enforcement policy for CBD — which has been the status quo since the legalization of hemp. As former FDA Commissioner Gottlieb stated in 2019,  the FDA has taken “a risk-based approach where we’re going after places where CBD is being marketed in situations where we think the claims are either misleading to the point of encouraging a patient to forgo otherwise effective therapy for a medical condition or being marketed in a formulation and in a dose that’s at a level that creates significant safety concerns.” So, in practice, the FDA has exercised enforcement and identified a significant public safety concern where companies make unlawful and false and misleading drug claims (i.e, CBD cures cancer), especially with respect to life-threatening illnesses. Recently, FDA took action against companies marketing CBD topicals marketed as OTC drugs where CBD was an inactive ingredient. It is expected that FDA enforcement may increase generally, and with respect to CBD products, in the Biden administration. A potential increase in federal enforcement was also signaled by FTC in December 2020 nicknamed “Operation CBDeciet. This enforcement sweep was targeted at companies making unsubstantiated drug claims on CBD products without competent and reliable scientific evidence, with penalties including civil fines and settlement negotiations requiring customer notification and reporting requirements.

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Past CBD Laws, Changes and Variations by State

Prior to the passage of the 2018 Farm Bill, hemp-derived CBD was regulated as illegal marijuana under federal law and treated as a schedule 1 drug. Now, federal law regulates hemp — the non-intoxicating variety of the cannabis plant — as an agricultural crop. The majority of states regulate the production of hemp and CBD under federally legal hemp programs, while marijuana remains illegal under state and federal controlled substances laws (although many states allow marijuana to be sold under regulated state cannabis regimes).

In the past few years, we have seen states evolve from prohibiting CBD and classifying it as marijuana, to openly regulating it as a functional food, dietary supplement and cosmetic ingredient. As states become more knowledgeable about hemp and experienced with regulating these products, certain regulations have become more common across states — such as QR codes, labeling requirements relating to THC and cannabinoid content, inclusion of warning statements and manufacturing and testing standards.

In the FDA’s absence, in this popular consumer market, states have continued to evolve and mature in regulatory approaches. States like Colorado evolved from prohibiting commercial CBD activity to amending its food and drug laws to affirmatively allow CBD as an ingredient, improving its regulations regularly to include robust packaging, labeling and testing requirements — serving as a national model. Consumers look to certain states like Colorado for quality CBD products.

Texas, a leading agricultural state, was one of the last to adopt a hemp program in 2019, but quickly became a leader in a business-friendly regulatory approach. Texas adopted regulations for manufacturing, processing, testing and retail, including retail registrations and transport and manufacturing requirements — although banning smokable hemp products. Even Idaho, the last state to maintain outdated criminal laws classifying hemp as illegal marijuana, finally modernized its laws in 2021 to remove hemp from the state definition of marijuana.

In addition to compliance with state laws, businesses selling hemp-based products must ensure their products are lawfully marketed per the FDCA (do not make unlawful drug claims or unsubstantiated claims) and that the safety and efficacy of the products are substantiated per FDCA’s Generally Recognized as Safe (for food) and New Dietary Ingredient (for dietary supplement) requirements. GRAS ingredients in food are held to a “reasonable certainty” of safety while NDIs in dietary supplements are subject to a “reasonable expectation of safety” standard. Although FDA may not accept NDIs for CBD ingredients due to its current position, many companies are preparing them and/or conducting applicable safety studies in anticipation of a change in law by FDA or Congress and to ensure compliance. In addition, investors, service providers, major retailers, and large food and beverage companies will likely require FDA compliance from ingredient suppliers.

CBD State Laws and Regulations

As you can see from the previous section, CBD regulations vary substantially from state to state. It’s important to learn all the applicable laws for any date where you plan to manufacture or sell. Below we’re taking a high-level look at some of the current and pending regulations in the four most populous U.S. States: New York, California, Texas and Florida.

1. New York.

New York is emerging as a major market and unique model for hemp regulation. New York’s proposed hemp regulations would allow the sale of many different types of cannabinoid hemp products subject to robust regulation, including product types such as suppositories, transdermal patches, suppositories and flower products not “clearly labeled or advertised for the purpose of smoking.” The proposed law would still prohibit, however, any cannabinoid hemp product in the form of an injectable, inhaler, cigarette, cigar and pre-roll. The proposed regulations include product serving size limits, age limits for flower products, retailer registrations and  comprehensive packaging, labeling and testing requirements (including testing standards for residual solvents, heavy metals, microbials and creating separate thresholds for inhalable products). Strict labeling requirements include labels stating detectable levels of Delta 8, Delta 9 or Delta 10 THC or any marketed cannabinoid. The proposed law also contains model definitions distinguishing “full spectrum” and “broad spectrum” hemp and expressly prohibit synthetic cannabinoids.

2. California.

California’s approach to CBD products has been frustrating for many, but is poised to change significantly this year with the potential passage of a comprehensive hemp regulatory bill. For years, the California Department of Public Health (CDPH) has maintained the FDA’s prohibition on CBD as a food ingredient, additive or dietary supplement, although the prohibition is very sporadically enforced, and the California CBD market continues to grow. In 2021, the CDPH added cosmetics to its list of prohibited CBD products, a position more restrictive than the FDA and most states. State law also bans bars, liquor stores and dispensaries from selling alcoholic drinks infused with any cannabinoids, including cannabinoids derived from industrial hemp. Change is on the horizon, however, as two bills in the California legislature would allow and regulate CBD products, including food, beverages, cosmetics and dietary supplements.

3. Texas.

Texas adopted a robust consumable hemp program, amending its law so that hemp-derived cannabinoids are not considered controlled substances and adulterants. Texas’s Department of State Health Services is charged with regulating consumable hemp products, and requires licenses for manufacturers, retailers and distributors. Texas expressly allows for and regulates consumable hemp products subject to comprehensive testing and safety standards. Although the law prohibits the sale of smokable hemp products, a lawsuit resulted in a judge temporarily blocking officials from enforcing the retail ban. A bill pending in the Texas legislature would impose additional requirements including prohibitions on synthetic cannabinoids and provisions allowing hemp as animal feed.

4. Florida.

Florida boasts one of the most business-friendly and well-regulated hemp programs in the country, with the state’s Department of Agriculture implementing comprehensive regulations and permitting requirements in addition to supporting research. In Florida, anyone engaged in hemp food manufacturing, handling or sales must obtain a food establishment permit. Food safety inspectors are tasked with conducting food safety establishment inspections and taking samples to ensure compliance. Consumable hemp products are subject to state packaging, testing and licensure requirements, with smokeable products limited to individuals 21 and older.

Wrapping Up

With states adopting more sophisticated regulations, and future FDA enforcement and regulation on the horizon, businesses should ensure they are able to meet these existing standards for foods and dietary supplements so they can stay in the market. This means businesses must dedicate the time and significant capital to safety studies (including genetic toxicology studies, pharmacokinetic studies, animal toxicology studies and human clinical studies). and other requirements to meet FDA standards. In addition to safety studies, businesses should be prepared for changes in labeling requirements, limitations on THC content, serving size limitations and other requirements such as warning labels.

Article Authored by Shawn Hauser – Partner, Vicente Sederberg LLP 

Shawn Hauser is a partner at Vicente Sederberg LLP and chair of the firm's Hemp and Cannabinoids Department. Shawn helps cannabis and hemp businesses navigate the intersections between state and federal law, including hemp laws, food and drug laws, regulatory compliance, licensing, general business representation, investment, and general business matters. With more than a decade of experience in cannabis law and policy, Shawn is a go-to source for businesses, industry groups, governments, and reporters seeking opinions, analysis, and guidance on cannabis and hemp law and policy matters.

Please note: all references to “CBD” or “CBD products” within this post refers to hemp-derived CBD, not marijuana-derived CBD.

This material does not constitute legal, tax, professional or financial advice and BigCommerce disclaims any liability with respect to this material. Please consult your attorney or professional advisor on specific legal, professional or financial matters.

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