CBD Market Must Wait For Regulations To Ease In NC

Cannabidiol, more commonly known as CBD, has exploded in popularity in recent years. The market potential of this hemp-derived product has been the siren song of countless manufacturers, retailers and investors. Much to the market’s consternation, however, the legal status of CBD has been in limbo.

Little by little, though, the legal picture — shaped by new federal laws and the pronouncements of state and federal regulators — is coming into focus. Unfortunately for those wishing to sell CBD products in North Carolina, the news is not entirely positive.

A brief vocabulary lesson may be a helpful starting point to understand the legal landscape and its potential implications. CBD is an extract taken from the flowers and buds of marijuana or hemp plants. Marijuana and hemp are different strains of the Cannabis sativa L plant. Until recently, federal law considered both hemp and marijuana Schedule I substances under the Controlled Substances Act — the most stringently regulated category of narcotics. This changed with Congress’ passage of the 2018 Farm Bill in December, in which Congress effectively descheduled hemp under the Controlled Substances Act.

Hemp and its derivatives and extracts such as CBD may now be commercially produced, distributed and sold for the first time, provided the plant and its products contain less than 0.3 percent tetrahydrocannabinol, or THC. Because THC is the psychoactive ingredient in marijuana that produces the feeling of being “high,” a critical difference between marijuana and hemp is that hemp will not produce a “high.”

Food and Beverage Restrictions

Because CBD oil from hemp is now legal under federal law, you might think that infusing food and beverage products with CBD oil is also legal. According to the U.S. Food and Drug Administration and North Carolina regulators, you would be wrong — at least for now.

Immediately after the 2018 Farm Bill became law, the FDA issued guidance clarifying its stance on foods, beverages and nutritional supplements containing hemp-derived products. The FDA opined that it is unlawful to “introduce food containing added CBD or THC into interstate commerce” without first obtaining FDA approval. The agency also indicated that it is evaluating whether there are safe ways to introduce hemp-derived food, beverages and supplements into the marketplace.

To that end, the FDA announced that hulled hemp seeds, hemp seed protein and hemp seed oil are “generally recognized as safe” and may be legally marketed in human foods and beverages. The FDA specifically stated, however, that these ingredients do not raise the same issues as the addition of ingredients such as CBD — which come from the flower or bud, not the seed — because CBD is now an active ingredient in an FDA-approved epilepsy drug.

What if someone just sells CBD products in a brick-and-mortar store? Or sells the products in only one state? Although the FDA’s jurisdiction applies to interstate commerce, the FDA and courts across the country have interpreted “interstate commerce” extremely broadly. Under these interpretations, any product that contains ingredients or materials from out of state is classified as being in interstate commerce, as do products that could potentially leave the state after being sold.

Impact on Breweries

While the FDA’s position affects all food and beverage manufacturers, it has a unique impact on breweries wishing to innovate by using CBD. At the federal level, alcoholic beverages — defined as beverages containing more than 0.5 percent alcohol by volume — fall under the jurisdiction of the Alcohol and Tobacco Tax and Trade Bureau. Every alcoholic beverage must first obtain licensing from the TTB, and the TTB relies on the FDA for matters related to health and safety.

The TTB’s latest statement provides that the TTB must approve formulas containing hemp ingredients, and in doing so, it may consult with the FDA and require the formula to obtain FDA approval. The TTB is, therefore, unlikely to allow alcoholic beverages containing CBD oil unless the FDA’s stance changes or it otherwise approves certain CBD drinks. In fact, the TTB did approve a CBD-infused IPA beer from Colorado in 2016, but it has since revoked the license and required the brewery to surrender its formula.

CBD Products and North Carolina State Laws

CBD products are also subject to state laws, and the North Carolina Department of Agriculture and Consumer Services, which houses the state’s Food and Drug Protection Division, announced on Feb. 8, 2019, that it is taking the same approach as the FDA. The department also added that it would begin sending letters to manufacturers and retailers who sell products containing CBD oil.

The letters, which have been received by various CBD vendors throughout the state, detail which CBD products are legal to sell. Essentially, CBD oil is permitted, and because of the North Carolina Industrial Hemp Pilot Program, a license may be obtained to grow hemp and produce CBD oil. CBD may not, however, be placed in food, beverages and supplements or contain unregulated health claims.

The North Carolina ABC Commission has followed suit, indicating that it will not permit CBD to be added to alcoholic beverages under the state’s prohibition of “adulterating” malt beverages and wine. While the state’s Alcohol Law Enforcement agency has yet to make an announcement regarding enforcement, it will be interesting to see what enforcement policy the state implements, if any, now that the line on CBD has been drawn. Considering that there seem to be new statements issued every month, we may know something soon.

The Future of CBD

To recap, Congress legalizes hemp and then the FDA announces you cannot use hemp in food and beverages. When it comes to hemp-derived CBD in foods, beverages and supplements, the federal government giveth and taketh away.

Despite the recent statements from state and federal regulators, there is a vastly growing interest in this area. It appears that a booming CBD market is just over the horizon, waiting for these regulations to ease. The FDA’s ultimate guidance on this issue will be of monumental importance for the CBD industry. For now, stay tuned.

The original article, "CBD Market Must Wait For Regulations To Ease In NC," first appeared in Law360 on March 4, 2019.