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Cannabidiol (CBD) Regulatory Landscape and Enforcement Risks

June 10, 2021 (16 min read)

By: Cori Annapolen Goldberg, Adam Brownrout, and Sung Park, Reed Smith LLP

This article provides an overview of the federal and state agencies regulating hemp and cannabidiol (CBD) products, as well as an overview of current federal and state regulations and requirements for the marketing and sale of CBD products.

Federal Legalization of Industrial Hemp and CBD

Prior to 2018, industrial hemp and industrial hemp-derived compounds, such as CBD, were considered marijuana under federal law. Until that time, marijuana compounds were identified as Schedule 1 substances under the Controlled Substances Act of 1970 (CSA).1

The Agricultural Improvement Act of 2018 (2018 Farm Bill), which became U.S. law in December 2018, expressly removed hemp from the definition of marijuana under the CSA, thereby legalizing industrial hemp and industrial hemp-derived compounds. Under the 2018 Farm Bill, hemp was 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% on a dry weight basis.”

Along with legalizing industrial hemp, the 2018 Farm Bill also assigned to the U.S. Department of Agriculture (USDA) federal regulatory authority for production of industrial hemp. Importantly, however, the 2018 Farm Bill also included a carve-out provision under which the U.S. Food and Drug Administration (FDA) retained its ability to regulate products subject to the federal Food, Drug and Cosmetic Act (FDCA).

USDA Oversight

The 2018 Farm Bill tasked the USDA with promulgating regulations and guidelines to establish and administer a program to encourage production of hemp in the United States. The USDA issued its final rule for hemp production on January 15, 2021. The USDA rule became effective on March 22, 2021. The final rule, which regulates the growth and production of hemp (but not CBD products), allows states and Indian tribes the option of either submitting to the USDA for approval of a proposed hemp regulation plan or agreeing to submit to the USDA’s general requirements. As of March 22, 2021, the USDA has approved the plans of 23 states, two U.S. territories, and 41 tribes. According to the USDA final rule, all state and tribe plans submitted to the USDA must include the following:

  • A description of the land used for hemp production
  • Sampling and testing procedures for the delta-9 tetrahydrocannabinol (THC) in the hemp crop
  • A plan for the disposal of hemp containing more than the allowable 0.3% THC
  • Procedures for the inspection of hemp producers and their hemp crop
  • Maintenance of a database including information on state hemp production, land use, and producer information

The USDA rule also notably prohibits states from interfering with the interstate transportation of industrial hemp grown pursuant to a USDA-approved state-hemp production plan. However, as mentioned, the USDA rule does not govern the marketing, sale, and production of CBD products. Oversight of the marketing, sale, and production of CBD products remains with the FDA.

FDA Oversight

While the 2018 Farm Bill provided the USDA with oversight of hemp production, it also left intact the FDA’s authority over certain hemp and hemp-derived products (cosmetics, dietary supplements, food, and drugs). The 2018 Farm Bill explicitly did not amend the FDCA, meaning that hemp and hemp products must be compliant with the FDCA and its related regulations.

The FDA’s regulation of CBD products varies depending on whether the product is a cosmetic, a drug, or a food or dietary supplement. The FDA is presently working on developing comprehensive guidance for companies manufacturing, selling, and marketing CBD products.

CBD Cosmetics

Section 201(i) of the FDCA2 defines cosmetics as “articles intended to be rubbed, poured, sprinkled, or sprayed on or introduced into, or otherwise applied to the human body or any part thereof for cleansing, beautifying, promoting attractiveness, or altering the appearance.” Although certain ingredients are prohibited from inclusion in cosmetics under the FDCA, that is not the case for hemp or hemp-derived ingredients, including CBD. However, even though cosmetics may contain hemp or hemp-derived compounds, under FDA authority, these products must still comply with FDCA requirements—namely, products may not be adulterated or misbranded.

Under Section 601 of the FDCA,3 a cosmetic product is adulterated under the FDCA, if, among other reasons, “it contains any poisonous or deleterious substance which may render it injurious to users.” A cosmetic product is misbranded under Section 602 of the FDCA4 “if its labeling is false or misleading” or if it fails to comply with other regulatory requirements for labeling.

As discussed later in this article, the FDA has focused its enforcement efforts in the CBD space on products that bear claims that render the products misbranded or unapproved new drugs under the FDCA. That said, pursuant to the FDCA, hemp and hemp-derived compounds, such as CBD, may be legally marketed and sold as cosmetics under federal law if they comply with FDA regulations.

Food and Dietary Supplements

Unlike cosmetics, the FDA has repeatedly and explicitly stated that CBD may not be added to food and dietary supplements because under the FDCA, a food or dietary supplement may not contain ingredients that are also active ingredients in an FDA-approved drug product.

In 2018, the FDA approved CBD as the active pharmaceutical ingredient in Epidiolex, a seizure medication for children. This meant that under the FDCA, CBD could no longer be added to food or dietary supplements, absent additional guidance from the FDA. In fact, in a series of responses to frequently asked questions about CBD regulation, the FDA made its position even clearer that dietary supplements cannot lawfully contain CBD and that such products are regarded as unapproved new drugs. Specifically, FDA has indicated that CBD has not been approved as a food additive and does not meet the statutory definition of a dietary supplement.

However, in December 2018, the FDA determined that certain parts of the hemp plant (hulled hemp seed, hemp seed protein powder, and hemp seed oil) are Generally Recognized as Safe (GRAS) for human consumption and, thus, may be lawfully marketed in food products, so long as very specific criteria set forth in the GRAS Notification Letters are met. This criterion includes, but is not limited to, the specific types of food products to which the GRAS substances may be added as well as the technical requirements for processing the GRAS substances.

FDA Enforcement Actions

The FDA has issued several warning letters to companies manufacturing CBD products that the FDA deems misbranded or adulterated in violation of the FDCA. Typically, the FDA has sent these letters to companies selling products that the FDA considers misbranded based on the inclusion of unlawful health claims in marketing materials, including, most recently, statements related to CBD’s alleged treatment of aches or pain. For example, the FDA has questioned the following health claims:

  • “CBD has been demonstrated to have properties that counteract the growth of [and/or] spread of cancer.” July 22, 2019 Warning Letter to Curaleaf, Inc. 
  • “[P]ossible uses for CBD include helping with skin problems such as acne, autism, ADHD, and even cancer. It’s often used in conjunction with traditional treatments to provide extra help. Children can use high amounts of CBD safely and without any risk.” October 10, 2019 Warning Letter to Rooted Apothecary LLC.
  • “CBD was administered after onset of clinical symptoms, and in both models of arthritis the treatment effectively blocked progression of arthritis.” March 28, 2019 Warning Letter to PotNework Holdings, Inc.
  • CBD “[m]ay reduce anxiety and depression.” December 22, 2020 Warning Letter to Bee Delightful.
  • “Importantly, CBD products also offer a viable alternative to opioids and other medications that carry strong side effects and the potential for addiction.” December 22, 2020 Warning Letter to New Leaf Pharmaceuticals, LLC.
  • “Our all natural plant-based ingredients, like organic menthol, are strong enough for even your toughest pain.” March 15, 2021 Warning Letter to Honest Globe, Inc.
  • “For temporary relief of occasional: . . . minor aches and pains . . . Stiffness of muscles, joints and tissues.” March 18, 2021 Warning Letter to BioLyte Laboratories, LLC.

Companies receiving warning letters from the FDA have 15 days from receipt to respond with evidence of how they will correct the violations. Failure to respond or correct the violations may result in further legal actions, including product seizure and injunction of sales.

FTC Oversight

Although the 2018 Farm Bill did not explicitly provide the Federal Trade Commission (FTC) with oversight of hemp and hemp-derived products, the FTC has remained active in monitoring and attempting to regulate the market because of its authority over advertisements. Under the FTC Act,5 it is unlawful to advertise that a product can prevent, treat, or cure human disease unless the claims are substantiated (at the time they are made) by reliable and competent scientific evidence. Therefore, pursuant to the FTC Act, the FTC has issued numerous warning letters (often jointly with the FDA) to CBD companies making various health claims without scientific evidence and clinical studies to support the claims. In December 2020, the FTC issued a press release announcing that it had begun issuing monetary fines for deceptive claims related to CBD products. According to the release, “companies made unsupported claims that their oils, balms, gummies, coffee, and other goods could treat serious diseases such as cancer and diabetes.” The orders settling the FTC’s complaints also bar the offending companies from similar deceptive advertising in the future and require that they have scientific evidence to support any health claims they make for CBD and other products.

State Regulation of Hemp and CBD

Although the USDA has provided guidance on hemp production and the FDA has provided some guidance on the use of CBD in FDA-regulated products, a comprehensive and uniform regulatory scheme for hemp products does not exist at the federal level.

In the absence of federal guidance, some states have developed their own requirements for the sale and marketing of CBD products, including rules for testing and labeling CBD products. Nearly half the states have developed such rules, while other states are either working to develop rules or have merely accepted the realities of an unregulated CBD market while awaiting further FDA guidance.

CBD companies doing business in a state—including selling or marketing CBD products—are subject to the requirements of that state. In most states, CBD product regulation is handled by the state’s Department of Agriculture or Department of Health.

CBD Product Labeling / Testing Requirements

In states where comprehensive regulatory schemes have been adopted (e.g., Utah, Florida, and Colorado), certain core requirements for CBD product labeling and testing requirements have been consistently included in the state regulatory schemes. State requirements typically include:

  • A requirement that all CBD products be registered with the state (this responsibility typically falls on the manufacturer, and not the retailer, of the CBD product)
  • A requirement that a certificate of analysis for the product’s source of hemp be available and include:
    • The CBD and THC levels of the tested hemp plant by dry weight
    • Test results indicating the presence of any solvents, pesticides, microbials, and heavy metals
    • The hemp batch ID number
    • The date the certificate of analysis was issued
    • The testing laboratory’s method of analysis
  • A requirement that product labels conform with FDA regulations (e.g., no unsupported health claims)
  • A requirement that product labels contain a scannable bar code, QR code, or website containing a link to the certificate of analysis

Despite the lack of uniform testing and labeling requirements across the states, a company can generally lessen its risk of both state and federal enforcement actions by ensuring that CBD products are labeled and tested in compliance with the above requirements.

Companies should also ensure that there are no further state requirements, in addition to the above. As discussed below, state regulations are constantly shifting and, to mitigate risk and ensure compliance, companies should actively monitor and comply with state regulatory developments.

Alternative Hemp Derivatives (and Delta-8 THC)

Although CBD is the most well-known industrial hemp derivative, the market has seen an influx of alternative hemp derivatives. Of these alternative derivatives, Delta-8 tetrahydrocannabinol (Delta-8 THC) has gained the most attention and popularity. Delta-8 THC is a cannabinoid derived from the chemical conversion of hemp-derived CBD into Delta-8 THC. At first glance, Delta-8 would seemingly appear to be legal under the Farm Bill framework as it is derived from legal hemp-derived CBD. However, in August 2020, the DEA released an interim final rule on hemp, hemp-derived CBD, and alternative hemp-derived cannabinoids which stated in part, that, “[a]ll synthetically derived tetrahydrocannabinols remain schedule I controlled substances.” Neither the interim final rule nor any federal law, including the CSA, expressly defines “synthetically derived tetrahydrocannabinols.” By its plain meaning, a synthetic material is something produced by chemical or biochemical synthesis. Because Delta-8 THC is produced via chemical synthesis, albeit using legal CBD, and without further guidance from the DEA, the interim final rules suggest that the DEA may consider Delta-8 THC as a “synthetically derived tetrahydrocannabinol,” and thus, illegal.

State Regulation of CBD in Food

Although the FDA has explicitly held that CBD may not be added to food products in interstate commerce, some states (e.g., Utah, Maine, and Colorado) have, in direct contravention of FDA guidance, explicitly legalized the sale and marketing of CBD food products. Other states (e.g., California, Washington, and New York) have also explicitly stated that CBD food products are illegal until the FDA issues further guidance on the matter.

Despite its stance on CBD food products, it is possible that the FDA will defer to state regulations as it continues to develop a comprehensive regulatory scheme. However, the interstate transportation of CBD food products implicates federal law and thus, to avoid the risk of federal enforcement actions, CBD food products should be manufactured, produced, and sold only within the boundaries of the state where legal. Even then, the federal government is likely to find an interstate commerce hook based upon use of the internet, federal mail service, or components of the product. For example, if the paper used in the labeling of a product was made out of state or with ink from out of state, that is likely to be enough of a hook to constitute interstate commerce and subject a company to federal oversight and enforcement efforts.

Class Action Lawsuits

Companies must accurately market the amount of CBD in their products. Plaintiffs across the country have filed a spate of federal class actions claiming that companies are misrepresenting, and thus falsely advertising, the actual amount of CBD in their products. In most of these actions, plaintiffs claimed that companies have overstated the actual amount of CBD in their products. In one case, the plaintiff alleged that a company falsely claimed its products to be THC-free.6

In addition, companies must take care to monitor where they are selling their products and whether the products are legal in those jurisdictions. Several lawsuits filed in federal court in California by consumer-plaintiffs have stated that the plaintiffs would not have purchased the products if they understood them to be illegal in California at the time of purchase.7 Notably, a number of these cases have been indefinitely stayed by courts given the uncertainty in the CBD legal landscape. In Dasila, the court indefinitely stayed the action because it is “unclear how the Court can adjudicate Plaintiff’s claims given the lack of clarity as to which of Defendants’ CBD Products are drugs, dietary supplements, or food products, and what standards apply to those Products.” The court further opined that “[c]onsistent guidance and uniform administration are therefore needed in this area, particularly given potential safety concerns.” For now, some courts have decided to leave regulation of the cannabinoid products to the FDA prior to acting on a plaintiff’s claims.

Navigating the Patchwork of State and Federal Regulations

CBD regulations on both the state and federal levels are constantly evolving. It can therefore be incredibly difficult to properly assess and ensure that hemp and hemp-derived products are complying with all applicable regulatory requirements.

However, companies in this industry can substantially lower the risk of state and federal enforcement actions against them by taking the following steps:

  • Ensure that products comply with all applicable FDA regulations, including, but not limited to, refraining from making unlawful health claims about products containing CBD.
  • Avoid adding CBD products to food or dietary supplements. If companies choose to do so, they should ensure that production and sales are confined solely to a state in which such products are legal and, even then, should understand that there is still federal legal risk associated with such actions.
  • Review and follow all applicable state regulations concerning CBD products, including, but not limited to, complying with all labeling and testing requirements.
  • Ensure that all CBD products, and the hemp crop from which the CBD was derived, were tested by a reputable, independent laboratory. Additionally, maintain all certificates of analysis and documentation regarding the testing processes.
  • Ensure that claims set forth in all labeling, packaging, marketing, and advertising of CBD accurately reflect any test results and are otherwise fully substantiated before the claims are made.

Unless and until the FDA issues comprehensive regulations for the testing, labeling, and marketing of CBD products, companies producing, selling, and marketing CBD products will have to grapple with the patchwork of conflicting state and federal regulations and the risk of class action litigation. However, CBD companies can help avoid the pitfalls of these regulations and potential regulatory enforcement by reviewing and staying abreast of new developments in the ever-changing legal landscape.

Cori Annapolen Goldberg is a partner in Reed Smith’s Life Sciences Health Industry Group. She focuses her practice on FDA regulatory issues for the food, drug, medical device, and cosmetic industries across the supply chain, including companies investing in these industries. Cori has regulatory, transactional, and investigational expertise. Cori specializes in providing legal and strategic advice regarding communications with FDA; pre-submission meeting requests and product approval submissions to FDA; product labeling, advertising, and promotion; clinical research considerations across the product life cycle; and corporate compliance concerns. She assists clients during FDA inspections, in responding to FDA 483s and Warning Letters, and with recalls and market withdrawals of products. With the passage of the 2018 Farm Bill, Cori has advised product manufacturers, distributors, and retailers on FDA regulatory compliance considerations surrounding CBD products. Cori is a Board Member of the Life Sciences Advisory Board for Lexis Practical Guidance, and she is also a member of the New York State Bar Association’s Committee on Cannabis Law.

Adam Brownrout is an associate in Reed Smith’s Global Commercial Disputes practice, based in San Francisco. Adam’s practice focus is on commercial litigation including business disputes, product liability actions, and class action defense. Adam is also a member of Reed Smith’s Cannabis team, where he advises clients on cannabis and hemp regulatory solutions to ensure risk mitigation and compliance with complex federal and state statutory frameworks.

Sung Park is an associate in the Life Sciences Health Industry Group in the Washington, D.C. office of Reed Smith. Sung provides counsel to companies during both the pre-market and post-market phases of product life cycles. He guides companies in developing, distributing, and marketing FDA-regulated products and, when necessary, in responding to regulatory and administrative enforcement actions by federal and state agencies such as FDA, USDA, and state attorneys general offices.

To find this article in Lexis Practical Guidance, follow this research path:

RESEARCH PATH: Cannabidiol (CBD) Regulatory Landscape and Enforcement Risks in Practical Guidance.

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1. 21 U.S.C.S. §§ 801–971 (Ch. 13 Drug Abuse Prevention and Control). 2. 21 U.S.C.S. § 321(i). 3. 21 U.S.C.S. § 361. 4. 21 U.S.C.S. § 362. 5. 15 U.S.C.S. §§ 41–58. 6. Darrow v. Just Brands USA, Inc. et al., No. 1:19CV07079 (N.D. Ill. Oct. 28, 2019); Ahumada v. Global Widget LLC, No. 1:19-cv-12005-ADB (Mass. Sept. 24, 2019). 7. McCarthy v. Charlotte’s Web Holdings, Inc., No. 5:19-cv-07836 (N.D. Cal. Nov. 30, 2019); Dasila v. Infinite Product Co., No 2:19-cv-10148 (C.D. Cal. Nov. 27, 2019).