By Justin Walsh
It’s an exciting time to be in hemp and CBD! I have attended and spoken at several conferences over the last year. I have been in places as diverse as Seattle, Denver, Dallas, and Orlando. The products I have seen have made me excited for the future of the industry. I have seen products ranging from hand-crafted artisanal balms and tinctures to pizzas to Victorian hand-pressed hard candies. The people I have met range from husband and wife teams looking to start growing a CBD-rich crop to large multi-national companies (and everything in between). The tertiary businesses (such as extractors, farm equipment, insurance, and all manner of suppliers) are booming.
Hemp extract and CBD products are being sold everywhere – in Seattle’s famous Pike Place Market; online; in dispensaries; and even in retailers such as CVS and Walgreen’s. Hotel chains are even getting in on the fun, offering infused products to their customers.
But did you ever stop to think, “How did we get here?” The history of hemp stretches back millennia. Despite the rich history, the future of hemp and CBD products in the United States is far from certain. But by looking to the past, we may be able to get a grasp on what the future holds.
I. History of Hemp
Hemp has been around for ages – the Upper Paleolithic Age, the Holocene Age, the Iron Age, the Dark Ages, and even the Age of Aquarius. Hemp cloth has been discovered as far back as ancient Mesopotamia, in approximately 8,000 BC. China has a history of cultivating hemp going back at least six millennia, but the cold pressing of hemp documented as far back as 12,000 years ago.It has been used for cloth, paper, robe, sailcloth, and even housewares.It was used as a spiritual tool – blessing homes, providing nourishment to the souls of dead relatives, and bringing good luck.In the United States, it was grown by two of our most revered presidents, George Washington and Thomas Jefferson.Henry Ford even utilized hemp as a component of his plant and resin composite car body in a prototype vehicle in 1941.
So what happened? Did this abundant, fast-growing, soil cleansing commodity simply disappear off the face of the earth? Did the knowledge of its usefulness and production go the way of the all-purpose antidote Mithridate? Did the secrets of hemp’s many uses fade like the secrets of making Roman concrete? I’m afraid the actual history of hemp’s fall and meteoric rise is less an exciting mystery, and more of a deep delve into a patchwork quilt of laws and regulations.
The fall of hemp starts in the fall of 1937, with the passage of the Marihuana Tax Act. The leading theories on the implementation of the law are based on either (1) the post-prohibition mentality combined with a focus on “reefer madness”; or (2) attempts to preserve the wealth of newspaper magnates, who stood to lose profits if paper production shifted from their timber holdings to hemp-based fiber.The law required the growing of hemp include a nominally-priced permit and registration with the IRS. However, the possession was limited to those that could possess a tax stamp, which was limited to authorized medical and industrial users.While the tax provisions were not particularly onerous, the penalties for a violation were. Violators could be fined up to $2,000 and sentenced to prison for up to five years.This is the equivalent of over $35,000 today. Given the small amount of hemp acreage at the time, and given the hefty penalty against industry or doctors that wished to explore the uses, its no wonder the hemp industry was effectively stymied.
World War II created a brief reprieve for hemp, with the United States Government even releasing a short film entitled Hemp for Victory, which encouraged farmers to grow hemp to support the war effort.However, after the war, it appeared to be business as usual under the Marihuana Tax Act.
The Act remained in place until 1969, when the United States Supreme Court invalidated the statute.However, the joy was short-lived, as the Controlled Substances Act was passed just the next year.The CSA created a definition of marihuana that lumped a fair amount of the Cannabis sativa L plant into its definition.
The term “marihuana” means all parts of the plant Cannabis sativa L., whether growing or not; the seeds thereof; the resin extracted from any part of such plant; and every compound, manufacture, salt, derivative, mixture, or preparation of such plant, its seeds or resin.
The CSA, however, did not ban mature stalks, fiber, oils or cakes made from seed, or derivatives made from mature stalks or seeds.Oddly, when the initial rules were made following the Controlled Substances Act, the DEA banned marihuana and synthetic THC, but not organic THC. Though the DEA tried to put tiny amounts of THC derived from mature stalks under its Schedule I purview, the courts were clear that the CSA didn’t touch anything derived from mature stalks under the CSA.
This led to an interesting problem though. Mature stalks were fine, but immature stalks were still marihuana under the CSA. This became the equivalent of saying “You can’t have kittens here, only cats.” Any growing of hemp would be seen as growing marihuana until such time as the stalks were matured. Essentially, mature stalks and seeds could be imported, but growing of the hemp was still effectively banned pursuant to DEA rules and the CSA.
It would take an Act of Congress to change the DEA’s interpretation to allow hemp to be grown in the United States. Fortunately, that’s exactly what happened.
That Act of Congress came by way of a provision within the Agricultural Act of 2014, known as the 2014 Farm Bill. The 2014 Farm Bill allowed for a federally hands-off approach to hemp. Under the 2014 Farm Bill, states were allowed to create Industrial Hemp Pilot Programs (“IHPPs”), allowing coordination of research licenses.During this period of time, the federal government was prohibited from using federal funds to enforce a State’s IHPP under the 2014 bill and allowing states with IHPP to engage in largely unfettered interstate commerce.The rules implemented in the 2014 Farm Bill were renewed through appropriations bills through 2017.
Most notably, the 2014 Farm Bill created a definition for hemp:
The term “industrial hemp” means the plant Cannabis sativa L. and any part of such plant, whether growing or not, with a delta-9 tetrahydrocannabinol concentration of not more than 0.3 percent on a dry weight basis.
The DEA was of course nervous that this potential new definition of hemp could rain on their law enforcement parade. In 2016, the DEA published Marijuana Extract Rule 7350, which sought to include any extract from the genus Cannabis as a “marihuana extract.”This was in spite of the fact the DEA had no authority over anything but Cannabis sativa L. and was actually prohibited from spending any money to enforce anything hemp-related under the 2014 Farm Bill. Later, the DEA backed off slightly, acknowledging that cannabinoids within the mature stalks and seeds do not fall into its definition of “marihuana extract.”
Prior to the 2018 Farm Bill, there were two legal sources of hemp in the United States: Hemp grown pursuant to an IHPP and hemp that was imported and consisted of the mature stalks and seed of the Cannabis sativa L. plant.
In 2018, that all changed – for better and for worse. On December 20, 2018, the Agricultural Improvement Act of 2018 (otherwise known as the 2018 Farm Bill) was signed into law. At its very core, the major change implemented by the 2018 Farm Bill was the codification of hemp as a separate product from marijuana as far as the CSA was concerned. Now, the definition of “marihuana” no longer included its non-psychoactive counterpart:
The term marihuana does not include – (i) hemp, as defined in section 297A of the Agricultural Improvement Act of 1946.
The 2018 Farm Bill also removed the cat/kitten problem by providing that hemp was defined as hemp, “whether growing or not.”
Under the 2018 Farm Bill, Industrial Hemp has been specifically legalized for interstate commerce. Under the Bill, those states with Industrial Hemp Pilot Programs were allowed to continue under their previous IHPP. Under the bill, a state has a period of time to create its own program. The rules of a particular state’s program may be more restrictive than the federal regulations. In addition, if a State does not implement its own hemp program by a certain date, then the federal regulations apply. Obviously, when a state implemented their own hemp program, if earlier than the deadline, that state’s IHPP program sunsets.
More importantly, with the sunsetting of the continuing appropriations bill and the federal legalization of hemp, hemp, and its derivatives, no longer had the protection afforded to it under the 2014 Farm Bill and the continuing resolutions. Where before the federal government was precluded from allocating federal resources to interfere in the hemp market, hemp was now subject to federal regulation. The two major agencies regulating hemp? The USDA (which already had regulatory authority over hemp) and the FDA (which governs the use of hemp and hemp-derived products in foods, supplements, cosmetics, drugs, and pet products).
The USDA issued its Interim Final Rule on October 31, 2019. The final rules is expected in the near future, triggering the sunset provisions of the 2018 Farm Bill.
The FDA, on the other hand, has been slow to act. At time of writing, the FDA has not issued any draft regulations related to hemp extract or CBD, leaving the industry in a state of limbo, without clear guidance on how to continue to market the very products brought to bear by the 2014 Farm Bill.
II. Reading the Tea Leaves on Hemp Extracts and CBD
One thing is clear, the state of hemp extracts and CBD is murky, at best. The 2014 Farm Bill provided some modicum of clarity, as it was clear the federal government could not intervene in the expanding hemp and CBD market. Throughout the period from 2014 to 2018, the hemp and CBD market was booming. In 2014, the market for hemp-derived CBD products was estimated to be $49M dollars. In 2015, this nearly doubled to $80M, and 2018 the market had grown over five times the 2014 numbers to $264M.
After the passage of the 2018 Farm Bill, the only thing that is clear is that the future of CBD is murky. Despite this murkiness, after the passage of the 2018 Farm Bill, the market has continued to grow, and projections put the 2024 market value for CBD at over up to 20 Billion Dollars (that’s Billion, with a B).Even with this murkiness, one thing is for certain, there is plenty of market space available in the CBD market.
That’s what has made the FDA’s stance on hemp and CBD products all the more troubling.
Back in 2014, almost immediately after the passage of the 2014 Farm Bill, GW Pharmaceuticals was awarded orphan drug status for its anti-seizure medication, Epidiolex.This may not have raised many eyebrows outside of the industry, but the Orphan Drug designation carries with it certain privileges. First, granting orphan drug status carries with it the FDA designation of drug. Second, orphan drug status grants that application the exclusive 7-year right to use the drug to treat the condition that was applied for.
Since that time, the FDA has taken a hardline stance that CBD is a drug.Any drug requires pre-market approval from the Food & Drug Administration, effectively cutting off the ability to have a legal product for CBD isolate outside of the pharmaceutical industry.
Interestingly, though the CBD market has been via hemp-derived CBD, the orphan drug status (for GW Pharmaceuticals and others) has largely evolved around marihuana-derived CBD. The side-effect of this has been the reclassification of cannabis-derived CBD from Schedule V drug under the Controlled Substance Act. This also resulted in a compromise with the FDA, whereby the FDA agreed to the DEA’s reclassification, when its initial thought was to deschedule the drug entirely.
The Orphan Drug status of CBD has created a problem for the industry as a whole. For starters, it led to a quite ludicrous proposition. In warning letters touting the Orphan Drug status of CBD, the FDA notes the limited exception for a dietary supplement or food product having been marketed prior to the granting of Orphan Drug status. Prior to Epidiolex’s Orphan Drug status, the CBD market was well-established:
Since 2012, the Cannabinoid market has experienced a gradual commercial rise with products becoming available in dispensaries and mainstream markets.
Despite this, the FDA continued to insist no such market existed prior to Epidiolex:
To the extent that you intend to market these products as foods, you should be aware that it is a prohibited act under section 301(ll) of the Act (21 U.S.C. 331(ll)) to introduce or deliver for introduction into interstate commerce any food to which has been added a drug approved under section 505 of the Act or for which substantial clinical investigations have been instituted and for which the existence of such investigations has been made public, unless the drug was marketed in food before any substantial clinical investigations involving the drug were instituted. CBD is the active ingredient in the approved drug product Epidiolex. Furthermore, the existence of substantial clinical investigations regarding CBD has been made public. Based on available evidence, FDA has concluded that section 301(ll) prohibits the introduction into interstate commerce of any food to which CBD has been added.
The Orphan Drug hurdle is not the only hurdle faced by CBD products. The regulation by the FDA means that products must meet certain criteria under the Food, Drug & Cosmetics Act. Under the act, a new substance may not be added to a food unless it has been approved as Generally Recognized as Safe. Likewise, a substance may not be added or classified as a dietary supplement unless the substance has been approved as a New Dietary Ingredient.
The FDA has also been clear that neither CBD, nor hemp extract, have been approved as either Generally Recognized as Safe as a food additive, or approved as a New Dietary Ingredient.In fact, in the same warning letter, the FDA will tell you that a food label is not appropriate because hemp and CBD have not been approved as Generally Recognized as Safe as a food additive, and in the same breath tell you they cannot have a supplement label because they have not received approval as a New Dietary Ingredient.
Even with the negative outlook created in warning letters, CBD is not without its benefactors in high places. In April 2019, then-FDA Commissioner Scott Gottlieb outlined what appeared to be enforcement priorities for CBD products, laying in its sights those companies making egregious claims.This of course was seen as a good sign by those in the industry who were operating above the board and not making egregious claims about their products. Then, in September 2019, Senate Majority Leader Mitch McConnell wanted to insert language into a congressional spending report calling on the FDA to create a path to lawful marketing of CBD products.Things were looking up, and it looked like CBD and hemp extract may be permitted.
Despite this, the FDA’s current stance has continued to be anti-CBD, their warning letters have taken on a darker tone. Even after Mitch McConnell’s plea to the FDA, in November 2019, the FDA issues a batch of 15 warning letters, which were accompanied by a rather dire press release:
Many unanswered questions and data gaps about CBD toxicity exist, and some of the available data raise serious concerns about potential harm from CBD. The revised Consumer Update outlines specific safety concerns related to CBD products, including potential liver injury, interactions with other drugs, drowsiness, diarrhea, and changes in mood. In addition, studies in animals have shown that CBD can interfere with the development and function of testes and sperm, decrease testosterone levels and impair sexual behavior in males. Questions also remain about cumulative use of CBD and about CBD’s impacts on vulnerable populations such as children and pregnant or breastfeeding women.
Despite the letters, in late-2019, the CBD rumor-mill was abuzz with news that the former drafter of the FDA’s supplement regulations under DSHEA was tapped to draft the regulations for hemp and CBD. This created hope that the FDA had regained its senses and was going to regulate CBD and hemp extract as a supplement, as opposed to the more onerous categories of Over-the-Counter Monograph or Drug, which would effectively be industry-killers (this would effectively place the market in the hands of conglomerates and drug companies). The hope vanished when it was later revealed that draft language creating supplement status was removed during one onerous late-night editing session. According to my contact in Washington D.C. , the language was in place when he went to bed, and had vanished by the morning. This has fueled speculation the drug company lobbyists had indeed ruled the day.
Hope arose again in January 2020, with the introduction of H.R. 5587. The resolution would force the FDA to classify CBD as a supplement and was introduced in the House of Representatives, with broad bi-partisan co-sponsorship. As of this writing, the bill has not made it far, having only been referred to a subcommittee of the Committee on Agriculture.
Most recently, in late February, the FDA’s current Commissioner, Dr. Stephen Hahn, acknowledging the need for a pathway for CBD:
“We’re not going to be able to say you can’t use these products. It’s a fool’s errand to even approach that,” Hahn said told NASDA attendees.
“We have to be open to the fact that there might be some value to these products, and certainly Americans think that’s the case. But we want to get them information to make the right decisions.”
Like I said…murky at best. However, I take solace that the two most recent bits of news both have lent themselves towards creating a viable market for CBD and hemp extract.
One thing is for certain, the industry needs to speak up. The stakes are far too high to stay silent while those with little industry experience make the decisions for the industry and for consumers. If the industry ends up in the hands of the pharmaceutical industry, consumers will be subject to higher prices, less choice, and less innovation. Those who worked to create the hemp and CBD market who have worked tirelessly to innovate will be out of work.
It is a tense time in the industry while we try to read the tea leaves, and while those in power are giving us conflicting messages. In the meantime, we will continue to innovate, and continue to make our voices heard.
Justin P. Walsh is a Partner at Gleam Law, PLLC. Justin spearheads Gleam’s hemp and CBD work, as well as heading the litigation department. Justin graduated cum laude from Seattle University School of Law, where he was published in the Seattle Journal for Social Justice. He also served as a judicial extern to the Honorable Chief Justice Mary Fairhurst (ret.) on the Washington State Supreme Court. He has been rated AV-Preeminent by Martindale.com, the highest rating available. In addition, he has been named a Rising Star by Superlawyers.com for 2012 through 2018, and as a SuperLawyer for 2019 and 2020. In addition, he spends his spare time sitting as a Judge Pro Tem for the King County District Court.
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See, Iris Dorbian, CBD Market Could Reach $20 Billion by 2024, Says New Study, Forbes(May 20, 2019), but see, Iris Dorbian, CBD Market Could Pull In $16 Billion by 2025, Says Study, Forbes (Mar. 12, 2019).
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See generally, supra, at n. 33.
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