WSGR ALERT

Two Major Retailers Sell CBD-Containing Products Amid a Changing Legal Environment

April 8, 2019

Introduction

Late last month, two major retailers announced that they will begin selling cannabidiol (CBD)-containing topical products in stores across multiple states. These announcements represent another important development following the Food and Drug Administration's (FDA's) approval of a CBD-containing drug, and the recent passage of the Farm Bill. And as we will discuss, limiting the marketed CBD-containing products to the topical category is a way for the retailers to minimize risk.

CBD from Hemp and the Farm Bill

Congress and the President recently enacted the Agriculture Improvement Act of 2018, or the Farm Bill.1 The Farm Bill defines hemp to mean "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." And, the Farm Bill amends the Controlled Substances Act to state that "marihuana" [sic] does not include "hemp" and excludes from schedule I controlled substances "tetrahydrocannabinols in hemp."2

Because hemp and its extracts—which would include CBD—are not included in "marihuana" under the Controlled Substances Act, the Farm Bill provides for: the broad cultivation of hemp, the transfer of hemp-derived products in interstate commerce, and the sale of these; so long as all of the above are done in a manner consistent with all federal and state laws.

Consumer Demand for, and Curiosity About, CBD Is Driving Market Growth

As a result of the Farm Bill, the market for CBD—much of which may be derived from hemp—is predicted to reach upwards of $22 billion by 2022.3 From this perspective, the announcements by these retailers should come as little surprise. They are simply responding to customer demand and curiosity. According to a recent article, potential customers for CBD products run the spectrum from athletes looking to enhance athletic potential and improve recovery to individuals who have chronic diseases that are believed, at least in part, to be associated with excess inflammation.4 The article contains many cautions that are worth considering.

As Increasing Numbers of CBD-Containing Products Hit Retailer's Shelves, the Legal Landscape Is Complex and Changing

The two major retailers' announcements were made at a time when the federal government, state governments, federal and state agencies, and various organizations, are not uniformly aligned on the legality of marketing and using CBD-containing products.

The law regarding CBD, hemp, and cannabis is in flux. The source of the CBD, and THC5 content of CBD, can affect the legality of CBD. The nature of the product in which the CBD is formulated can also affect legality. Claims made for a particular CBD-containing product can affect the product's legality. And federal and state laws can be in opposition.

Two examples illustrate this point: the U.S. Anti-Doping Agency recently removed CBD from its Prohibited List of Substances and Methods,6 while the analysis at the FDA is more complex.

The FDA recently approved a CBD-containing drug as a treatment for two forms of childhood-onset epilepsy.7 However, the FDA currently takes the position that CBD-containing dietary supplements and foods, regardless of the CBD source, are unlawful. The FDA also takes the position that products making unsubstantiated CBD-related health claims are adulterated and misbranded. For instance, FDA Commissioner Scott Gottlieb recently issued a statement outlining the FDA's position on CBD-containing dietary supplements and foods:

Additionally, it's unlawful under the FD&C Act to introduce food containing added CBD or THC into interstate commerce, or to market CBD or THC products as, or in, dietary supplements, regardless of whether the substances are hemp-derived. This is because both CBD and THC are active ingredients in FDA-approved drugs and were the subject of substantial clinical investigations before they were marketed as foods or dietary supplements. Under the FD&C Act, it's illegal to introduce drug ingredients like these into the food supply, or to market them as dietary supplements. This is a requirement that we apply across the board to food products that contain substances that are active ingredients in any drug.8

Because the FDA has specifically indicated that foods and dietary supplements containing CBD, regardless of the source, are unlawful, the two retailers—by selling topical CBD-containing products—have engaged in a form of risk mitigation.

FDA to Hold Hearing

FDA recently announced that it will hold a public hearing9 on May 31, 2019, for stakeholders—consumers, industry, and other interested parties—to share their experiences with cannabis or cannabis derivatives (e.g., CBD) that are or could be marketed in conventional foods, beverages, and dietary supplements. The FDA also announced the formation of a high-level, internal agency working group to explore potential pathways for CBD-containing dietary supplements and conventional foods to be lawfully marketed. The FDA intends for its internal agency working group to consider statutory and regulatory changes that might be needed in order to lawfully bring such products to market.

CBD-Directed Patent Filings Are Increasing

The number of patent filings with claims directed to CBD-containing products are increasing.10 Companies need to be proactive in protecting their CBD-related intellectual property, monitoring the marketplace for potential infringers, and understanding the patent landscape when considering going to market with a new CBD product.

The Financial Landscape for Hemp, CBD, and Cannabis Companies Is Improving

After passage of the Farm Bill, an increasing number of banks are displaying a willingness to work with companies making certain products containing CBD derived from hemp. And in a departure from past behavior, a growing number of banks are now also working with cannabis companies—so that these companies can move away from all cash transactions and the risks associated with keeping significant cash on hand.11 Finally, cannabis and hemp companies are being traded on public exchanges, both individually and as index funds.12

Conclusion

CBD-containing products—and companies that market them—may come under the jurisdiction of at least: the FDA, the Federal Trade Commission; the Department of Justice; the Drug Enforcement Administration; the Securities and Exchange Commission; state agencies; and federal and state courts. The law regarding CBD is in flux, layered, and complex. The CBD intellectual property landscape is diversifying and growing. Investors are entering the CBD space in increasing numbers. Financial service options are increasing for CBD companies. And CBD-containing therapeutics companies should understand how to best approach the FDA, including the upcoming May 31, 2019, hearing.

For questions in these and related areas, please contact Vern Norviel, David Hoffmeister, Jeff Guise, Georgia Ravitz, James Ravitz, or any member of the FDA or patents and innovation strategies practices at Wilson Sonsini Goodrich & Rosati.

Charles Andres and David Mata contributed to the preparation of this WSGR alert.


2 Id.
5 THC, or tetrahydrocannabinol, is the principal psychoactive component in cannabis.
86 USADA 2018 Prohibited List: Summary of Major Changes: https://www.usada.org/2018-prohibited-list-summary-of-major-changes/.
7 "FDA approves first drug comprised of an active ingredient derived from marijuana to treat rare, severe forms of epilepsy," FDA Press Release; available at: https://www.fda.gov/newsevents/newsroom/pressannouncements/ucm611046.htm.
8 "Statement from FDA Commissioner Scott Gottlieb, M.D., on signing of the Agriculture Improvement Act and the agency's regulation of products containing cannabis and cannabis-derived compounds," FDA (Dec. 2018); available at https://www.fda.gov/NewsEvents/Newsroom/PressAnnouncements/ucm628988.htm.
9 84 Fed. Reg. 12969 (April 3, 2019).