Hemp in California: Proposed CBD legislation put on hold until 2020

California’s long-awaited legislation to legalize hemp-derived CBD in foods, beverages and cosmetics has been put on hold, rendering it dead for this legislative session.

Hemp in California: Proposed CBD legislation put on hold until 2020 is a post from: Marijuana Business Daily: Financial, Legal & Cannabusiness news for cannabis entrepreneurs

source https://hempgenixs.com/2019/09/04/hemp-in-california-proposed-cbd-legislation-put-on-hold-until-2020/?utm_source=rss&utm_medium=rss&utm_campaign=hemp-in-california-proposed-cbd-legislation-put-on-hold-until-2020

Washington Bans Hemp-CBD in Food

If you’ve been following the hemp scene in Washington state, you know it’s been a bit of a roller coaster. The latest “drop” comes in the form of an August 1 memo from the Washington State Department of Agriculture (“WSDA”) titled Restrictions on the use of hemp CBD as a food ingredient. According to the memo, Washington is following the lead of many other states, most notably California,  in prohibiting the use of hemp-derived CBD (“Hemp-CBD”) in foods and beverages.

Washington is essentially implementing the Food and Drug Administration’s (“FDA”) policy on Hemp-CBD as a food ingredient. Last year, the FDA approved the drug Epidiolex. Epidiolex contains CBD. The Food, Drug and Cosmetics Act (“FDCA”) and FDA regulations generally prohibit an article that is approved or investigated as a drug from being an ingredient in food or dietary supplements, unless that article was marketed as a food or dietary supplement prior to being investigated as a drug. The FDA has concluded that Hemp-CBD was not marketed as a food or dietary supplement before the investigation of Epidiolex and therefore the FDA’s position is that Hemp-CBD cannot be added to food or dietary supplements.

According to the WSDA, Hemp-CBD is not approved as a food ingredient. Note that the WSDA’s memo does not apply to Washington’s regulated marijuana market. Licensed retailers are still free to sell CBD-infused edibles derived from marijuana, so long as those products were manufactured by a licensed processor. Washington processors are allowed to add Hemp-CBD to marijuana products so consumers, over the age of twenty-one, can still access Hemp-CBD by going to marijuana retailers. Additionally, the WSDA has stated that some parts of the hemp plant, specifically hulled hemp seeds, hemp seed protein powder and hemp seed oil are allowed for use in food. Why? Because the FDA has determined that these components are Generally Recognized as Safe (“GRAS”) for use in food. Notwithstanding these marijuana-food products containing CBD and food items containing these GRAS components, the WSDA is prohibiting all hemp in food:

Other parts of the hemp plant, including CBD, cannot be used as a food ingredient under a Washington State Food Processor License. Foods containing unapproved parts of the hemp plant may not be distributed in Washington State under a Washington State Food Storage Warehouse License.

This development from the WSDA was somewhat unexpected in light of Senate Bill 5276, which went into effect in April and overhauled Washington’s hemp program in light of the 2018 Farm Bill.  Section 4 of SB 5276 provides:

“[t]he whole hemp plant may be used as food. The [WSDA] shall regulate the processing of hemp for food products, that are allowable under federal law, [and] may adopt rules as necessary to properly regulate the processing of hemp for food products including, but not limited to, establishing standards for creating hemp extracts used for food.”

In addition, SB 5276 Section 14 struck RCW 15.120.020’s language which previously prohibited processing hemp, except for hemp seeds, into any consumable good.  This is not to say that the WSDA doesn’t have authority to follow the FDA’s position on hemp, it just seemed as if the legislature had set the WSDA up to allow for Hemp-CBD in a whole host of products, including food.

In terms of enforcement, it does appear that the WSDA is going to ramp out any aggressive efforts against Hemp-CBD right away:

Recognizing that these recent changes in law may have caused some confusion in the manufactured-food industry, WSDA has been reaching out to the industry so they can take appropriate actions, such as removing CBD ingredients from their products or discontinuing distribution of CBD-containing food products in the state. WSDA is committed to working with our food industry partners during this transition.

Steve Fuller, director of the WSDA’s Food Safety and Consumer Services division told Ben Adlin of Leafly that he prefers to focus enforcement efforts on “outreach and education,” optimistically stating that “[a]s processors and distributors learn that this is not legal either federally or within the state, most of them will do the right thing and figure out a way to come into compliance around that.”

If the outreach and education method doesn’t work, we expect to see WSDA partnering with cities and counties to seize Hemp-CBD food products and potentially even shut down non-compliant businesses. It’s worth noting that King County’s Food Protection Program weighed in on Hemp-CBD in food on August 30:

Recently there has been interest from food establishment operators in selling food and beverage products with industrial hemp and its derivatives such as cannabidiol, more commonly known as CBD. Federal and State laws do not permit the manufacture and retail sales of CBD as a food ingredient in foods and beverages for sale in retail food establishments.

Therefore, in King County, the addition of CBD to food and beverages is prohibited until further guidance and approval by the U.S. Food and Drug Administration, Washington State Department of Agriculture, and Washington Department of Health.

This means that operators may not add CBD to food or beverages, nor may they obtain products containing CBD for resale in any retail food establishment in King County, including restaurants, coffee shops, cafeterias, grocery stores, or at temporary food events and farmers markets.

So what is the big takeaway here? If you are operating in Washington State, steer clear of Hemp-CBD in foods for now. If the FDA changes its tune, the WSDA will likely follow suit but until then, selling Hemp-CBD food in the Evergreen State is risky.

Finally, if you want some additional information on Hemp-CBD in Washington, check out the September 3 episode of KUOW’s The Record where I spoke to host Bill Radke about whether CBD bars are legal in Washington State.

source https://hempgenixs.com/2019/09/04/washington-bans-hemp-cbd-in-food/?utm_source=rss&utm_medium=rss&utm_campaign=washington-bans-hemp-cbd-in-food

Oregon hemp company warns of layoffs due to permit violation

A rural Oregon hemp-extraction company is warning of 90 layoffs because of a permit delay. Evergreen State Holdings sent notice about the potential layoffs to Oregon authorities last week, the Portland Business Journal reported. Located about two hours east of Portland, the company said it received a stop-work order from the Oregon Building Codes Division […]

Oregon hemp company warns of layoffs due to permit violation is a post from: Marijuana Business Daily: Financial, Legal & Cannabusiness news for cannabis entrepreneurs

source https://hempgenixs.com/2019/09/03/oregon-hemp-company-warns-of-layoffs-due-to-permit-violation/?utm_source=rss&utm_medium=rss&utm_campaign=oregon-hemp-company-warns-of-layoffs-due-to-permit-violation

Beyond the Dispensary: Three key strategies for getting hemp products on shelves

Mainstream retailers from grocery stores to pharmacies and even clothing merchandisers are clamoring to stock hemp and CBD products.

Beyond the Dispensary: Three key strategies for getting hemp products on shelves is a post from: Marijuana Business Daily: Financial, Legal & Cannabusiness news for cannabis entrepreneurs

source https://hempgenixs.com/2019/09/03/beyond-the-dispensary-three-key-strategies-for-getting-hemp-products-on-shelves/?utm_source=rss&utm_medium=rss&utm_campaign=beyond-the-dispensary-three-key-strategies-for-getting-hemp-products-on-shelves

Cannabis Litigation/Bankruptcy Options: Assignment for the Benefit of Creditors

We recently hosted a webinar on alternative dispute resolution options for cannabis companies. In addition to the handful of questions we received on receivership, one topic of particular interest was the potential for cannabis companies to utilize different restructuring or bankruptcy options.

As you might know, a hefty percentage of the disputes we see in this industry has to do with business “divorces” between partners – which unfortunately, often lead to the business becoming insolvent or nearly so. While receiverships may be the best option for you (be sure appointing a receiver doesn’t conflict with your company’s agreements!), another option is an assignment for the benefit of creditors (nicknamed, “ABC”).

ABCs are state law creatures and ultimately result in liquidation of a debtor’s assets for its creditors’ benefit. This is potentially a really effective solution for cannabis companies that lack access to bankruptcy protection but wish to continue operating and avoid debt restructuring. The debtor will select an “assignee” to take legal and equitable title to the debtor’s assets, sell those assets, and then distribute those sale proceeds to any creditors in the order of priority established by state law. This process is often non-judicial and therefore has the advantage of speed and flexibility in the liquidation process absent litigation complications.

A high-level overview of the mechanics: the assignee is generally an individual selected by the troubled or insolvent company. The decision to initiate an ABC must be approved by the equity owners. Then, the debtor must turn over and assign all right, title, and interest in its assets to the assignee, as well a complete listing of all creditors, their addresses, and the amount of indebtedness. Thereafter, the assignee is not only charged with the responsibility of gathering all of the debtor’s assets and selling the debtor’s right, title, and interest in those assets – it also has a fiduciary duty to all creditors. The assignee must give notice of the ABC to all creditors and invite each creditor to file a claim.

The assignee will generally obtain at least one liquidation appraisal, and if the assignee can find a buyer for all the assets which exceeds the appraised value by a reasonable amount, the assignee may immediately sell to that buyer without initiating any advertising or auction. More commonly seen though, there is some type of auction sale. The assignee will assemble the debtor’s assets and have them liquidated in bulk or piecemeal, whichever will gain the debtor the highest price.

A word of caution though: you should always have a knowledgeable attorney ensure that this is the right option for you, depending on the applicable state’s law and practice. As we all know, each state has its own version of laws and regulations that govern state-legal marijuana businesses. There may be real limits to how inventory can be sold to pay off debts. Or, if your company is insolvent and your license needs to come into play, most states have stringent licensing requirements that hamper the ability to transfer those licenses without review and approval by the state (which could really undermine the coveted benefits of speed and flexibility).

As a final and semi-related note, all players in the cannabis industry should be aware of not only their potential options, but also the limitations of those options. In order to put yourself in the best position at the outset, talk with our transactional team about how to put protections in place – whether it’s making sure you’re selecting the appropriate entity form or planning a proper preemptive exit strategy. If you’re a creditor, maybe consider the need for additional collateral in your transactions. If you later find that your business is struggling to stay afloat or is no longer above water, having these types of protections in place will undoubtedly aid the restructuring or liquidation process.

source https://hempgenixs.com/2019/09/03/cannabis-litigation-bankruptcy-options-assignment-for-the-benefit-of-creditors/?utm_source=rss&utm_medium=rss&utm_campaign=cannabis-litigation-bankruptcy-options-assignment-for-the-benefit-of-creditors

California Cannabis: Napa County Headed for a Cultivation Compromise?

 

Cannabis cultivation and the means for regulating it have been contentious topics in Napa County for some time now. Back in July, proponents of allowing commercial cannabis cultivation in unincorporated Napa County, led by the Napa Valley Cannabis Association, collected enough signatures to qualify for a ballot measure during the March 3, 2020 election.

Following collection of those signatures, the County Board of Supervisors took up the issue on July 23^rd. Typically, the Board would have three possible paths forward in such a situation. The Board could: 1) place the measure on the ballot next March, 2) adopt the measure outright, or 3) order a 9111 report to analyze the potential impact of the measure before taking action at a later date.

The County Board of Supervisors issued a 9111 report regarding the cannabis regulation initiative on August 20^th in which it analyzed the land use, environmental, fiscal, and other impacts of the proposed initiative. The report detailed some of the negative implications that could result from the initiative, including a purported negative impact on Napa County’s tourism industry “through adverse odor and visual impacts on wineries, restaurants, resorts, and lodging facilities in both incorporated and unincorporated areas of the county.” The report drew analogies to the struggles of Santa Barbara County in regulating cannabis as well.

Aside from the details contained in the 9111 report, opponents of the initiative emphasized that the initiative process was not the proper means for developing cannabis regulations for the county, because the county’s ability to amend the regulations established pursuant to that initiative would be extremely limited. Such amendments could only occur via a ballot vote.

But on August 28^th, proponents of commercial cannabis cultivation in the county “announced plans to withdraw their ballot initiative, saying they now prefer regulations they are seeking to be included in an ordinance by the county board of supervisors.”

“Following discussions with industry trade associations, various members of the Napa Board of Supervisors and community, the NVCA and The Committee prefer an ordinance that is a living document, over an initiative process,” Napa Valley Cannabis Association board member Eric Sklar wrote. “An ordinance can be evolved and changed by the Board of Supervisors at any time, whereas approved initiatives can only be changed with a ballot vote.”

Additionally, Sklar described the withdrawal as a “gesture of good faith,” stating, “We support and prefer the ordinance process to collaboratively develop written regulations that will evolve in line with the current and future needs of the community, in a responsible and representative manner.”

Hopefully the withdrawal of the initiative will open the door to productive collaboration on an ordinance that adequately addresses the interests and concerns of all impacted parties. This serves as yet another example of the myriad ways local jurisdictions in California have struggled to regulate cannabis in the wake of legalization, and we’ll be paying close attention to see how one of California’s most recognized agricultural regions decides to move forward.

source https://hempgenixs.com/2019/09/02/california-cannabis-napa-county-headed-for-a-cultivation-compromise/?utm_source=rss&utm_medium=rss&utm_campaign=california-cannabis-napa-county-headed-for-a-cultivation-compromise

Hemp-CBD Across State Lines: Idaho

The Agriculture Improvement Act of 2018 (“2018 Farm Bill”) legalized hemp by removing the crop and its derivatives from the definition of marijuana under the Controlled Substances Act (“CSA”) and by providing a detailed framework for the cultivation of hemp. The 2018 Farm Bill gives the US Department of Agriculture (“USDA”) regulatory authority over hemp cultivation at the federal level. In turn, states have the option to maintain primary regulatory authority over the crop cultivated within their borders by submitting a plan to the USDA. This federal and state interplay has resulted in many legislative and regulatory changes at the state level. Indeed, most states have introduced (and adopted) bills that would authorize the commercial production of hemp within their borders. A smaller but growing number of states also regulate the sale of products derived from hemp.

In light of these legislative changes, we are presenting a 50-state series analyzing how each jurisdiction treats hemp-derived cannabidiol (“Hemp CBD”). Each Sunday we will summarize a new state in alphabetical order. So far, we’ve covered Alabama,  Alaska,  Arizona,  Arkansas, California, Colorado, Connecticut, Delaware, Florida, Georgia and Hawaii. Today we turn to Idaho.

To put it bluntly, Idaho is probably the worst state in the country to get caught with hemp. Hemp cultivation is not legal, even after the passage of the 2018 Farm Bill. The state legislature considered House Bill 122 earlier this year. It would have allowed for the regulated cultivation of hemp. It stalled out in April.

Long before that bill failed, the Idaho Attorney General issued an informal opinion (see pages 132-134) on the legality of Hemp-CBD in 2015. He concluded that in almost all cases, the possession of any form of CBD, whether derived from marijuana or hemp, is illegal.  According to the opinion, in Idaho, products containing CBD are only legal if the two following criteria are met:

• the substance cannot contain any THC; and
• the substance must be excluded from the definition of “marijuana” under Idaho Code § 37-2701(t)

Under Idaho Code § 37-2701(t), the only legal part of the cannabis plant, whether hemp or marijuana, are (a) mature stalks of the plant; (b) fiber produced from the stalks; (c) oil or cake made from the seeds or the achene of such plant; (d) any other compound, manufacture, salt, derivative, mixture, or preparation of the mature stalks; or (e) the sterilized seed of such plant which is incapable of germination.

For a CBD product to be legal in Idaho and it must be totally THC free and must come from one of the five categories mentioned above. It doesn’t matter whether the CBD was derived from hemp or marijuana. If derived from anything other than the seeds or stems of the cannabis plant, it is illegal.

Stems and seeds aren’t going to have high levels of CBD or any other cannabinoids so really this just means that CBD is pretty much outlawed in Idaho with one notable exception: Idaho allows for FDA-approved CBD, such as that found in Epidiolex. The Idaho Office of Drug Policy’s webpage on CBD Drug Policy indicates that Idaho’s position on CBD has not changed as of June 2019 and that the informal opinion from 2015 is still followed.

Idaho’s opposition to hemp goes beyond the informal opinion as Idaho has recently seized hemp shipments traveling through the state. On August 28, 2019, the Ninth Circuit Court of Appeals heard oral arguments in Big Sky Scientific, LLC v. Jan Bennetts, on appeal from the District of Idaho. We wrote about that case in great detail here.

The case involved the Idaho State Police’s seizure of 6,700 pounds of industrial hemp biomass cultivated lawfully in Oregon that was on its way to Colorado for state-lawful processing. The appeal involved the denial of Big Sky’s preliminary injunction by the state court. Big Sky moved for a declaratory judgment stating that Idaho Police improperly seized Big Sky’s hemp in light of the 2018 Farm Bill’s and a preliminary injunction requiring police to return the hemp. The District Court issued an Order denying relief to Big Sky stating that it’s not clear that the 2018 Farm Bill, which prohibits states from interfering with shipments of legal hemp, provides protection for hemp grown under the 2014 Farm Bill. Because the USDA has not approved any state-level hemp cultivation plans under the 2018 Farm Bill, all hemp in the US is grown under the 2014 Farm Bill. In other words, all hemp shipments are at risk of seizure if they pass through Idaho.

The Ninth Circuit indicated that it believes federal jurisdiction may have been improper, meaning the case may ultimately be dismissed on procedural grounds. Even if Big Sky is unsuccessful here on procedural grounds, it’s worth noting that the USDA’s opinion is that Idaho should not have seized this hemp under the 2018 Farm Bill.

One day Idaho will come around and stop fighting hemp farmers who are merely shipping products through the state. For now, Idaho is one of the worst states on hemp. If you are a stakeholder in this industry, avoid Idaho at all costs.

source https://hempgenixs.com/2019/09/01/hemp-cbd-across-state-lines-idaho/?utm_source=rss&utm_medium=rss&utm_campaign=hemp-cbd-across-state-lines-idaho