On December 20, 2018, President Donald Trump signed the Agriculture Improvement Act of 2018(“Farm Bill”), which decriminalizes hemp and products derived from hemp under federal law.

The Farm Bill defines “hemp” as follows:

HEMP.—The term ‘hemp’ means 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.

The 2018 Farm Bill modifies the Controlled Substances Act to remove “hemp,” as defined above, from schedule I. Section 10114 explicitly allows for interstate hemp commerce:

(a) Rule Of Construction.—Nothing in this title or an amendment made by this title prohibits the interstate commerce of hemp (as defined in section 297A of the Agricultural Marketing Act of 1946 (as added by section 10113)) or hemp products.

(b) Transportation Of Hemp And Hemp Products.—No State or Indian Tribe shall prohibit the transportation or shipment of hemp or hemp products produced in accordance with subtitle G of the Agricultural Marketing Act of 1946 (as added by section 10113) through the State or the territory of the Indian Tribe, as applicable.

The Department of Agriculture’s Role

The Farm Bill gives primary authority over hemp production to the U.S. Department of Agriculture (USDA). A state or Native American tribe interested in hemp production must submit a plan in conformance with the listed requirements to the Secretary of the USDA, and the Secretary is given 60 days to decide on whether to approve or deny the proposed plan. The USDA has the ability to audit state and Native American tribal hemp production plans for compliance. Additionally, the USDA is given authority to create a hemp production plan and to issue licenses for states or tribes that do not have a USDA-approved plan.

The FDA’s Role

The Farm Bill does not modify the United States Food and Drug Administration’s (FDA) authority to issue regulations related to hemp production. Specifically, Section 10113 of the Act says:

Nothing in this subtitle [relating to hemp production] shall affect or modify the authority of the Commissioner of Food and Drugs and the Secretary of Health and Human Services under the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 301 et seq.); or section 351 of the Public Health Service Act (42 U.S.C. 262); to promulgate Federal regulations and guidelines that relate to the production of hemp under the Act described in subparagraph (A)(i) or the section described in subparagraph (A)(ii).

In response to passage and signage of the 2018 Farm Bill, the FDA issued a statement regarding the agency’s regulation of products containing cannabis and cannabis-derived compounds which discusses this. In the statement, the FDA said that they are “committed to pursuing an efficient regulatory framework for allowing product developers that meet the requirements under our authorities to lawfully market these types of products.”

As was the case before, the FDA is primarily concerned with adulterated and misbranded products, as well as unsubstantiated health-related statements and deceptive marketing. Neither THC nor CBD are currently approved by the FDA as an additive or a dietary supplement, though the FDA acknowledges in its new statement that this may be reevaluated in light of the descheduling of hemp. A number of cannabis companies marketing products allegedly containing CBD have received warning letters from the FDA over the past few years. The FDA also has a webpage containing FAQs relating to the agency’s regulation of cannabis and products containing cannabis-derived compounds.

Also on December 20, the FDA announced that it has completed its review of three hemp-derived food products and determined that they are Generally Recognized as Safe (GRAS): hulled hemp seeds, hemp seed protein, and hemp seed oil. Thus, those products can be legally marketed as human food without receiving food additive approval.

What does this mean for CBD?

The Farm Bill did not “legalize” CBD (or THC, for that matter). Rather, it legalized items encompassed by the new definition of “hemp” as well as any compounds derived from hemp. This could include CBD, THC, or other cannabinoids or terpenes, as long as the overall THC concentration of the compound is less than 0.3%, and the compound was extracted in an approved manner by a licensed hemp grower.

As noted above, the FDA issued a statement in response to the signage of the Farm Bill that discussed how neither THC nor CBD are approved by the FDA as food additives or dietary supplements, so it is unlawful to market them as such in interstate commerce.

The California Department of Public Health has not yet issued a statement in response to the 2018 Farm Bill, though it is expected that they will since they previously issued a statement regarding industrial hemp and CBD in which they mentioned the 2014 version of the bill.

Other Implications

By removing “hemp” from the Controlled Substances Act, individuals and businesses engaging in hemp-related commerce would longer be subject to Section 280E of the Internal Revenue Code (“IRC §280E”). IRC §280E says, in a nutshell, that businesses engaged in trafficking of illegal drugs cannot take standard business deductions on their annual income taxes. This has resulted in cannabis companies having, on average, a greater tax burden than other businesses. With the passage of the farm bill, companies who engage in legal hemp activities will be able to take standard business deductions like other businesses, as long as they are not also engaging in cannabis commerce, which is still subject to IRC §280E.

Banking access should theoretically be easier to access for hemp producers than for cannabis producers once hemp is no longer illegal. While banks are not prohibited from working with cannabis clients, it entails extra cost and due diligence on their end, so the majority of banking institutions (at least FDIC-insured ones) have chosen not to accept cannabis accounts.

Additionally, federal grant opportunities and crop insurance (via the Federal Crop Insurance Act) should be available for hemp farmers as a result of the 2018 Farm Bill.

Intellectual Property Implications

Finally, with lawful interstate commerce, we anticipate that the United States Patent and Trademark Office (USPTO) will issue registrations for federal trademarks for hemp and products derived from hemp.  Accordingly, expect to see an avalanche of federal Intent-to-Use applications as hemp companies seek to reserve potential brand names with the USPTO.

The federal judiciary will soon have occasion to recognize intellectual property rights for hemp and hemp products.  For example, now that hemp is federally legal, hemp cultivators, manufacturers, and producers who register their federal trademarks can go to federal court to prevent others from using confusingly similar marks anywhere in the United States.

Similarly, hemp businesses that are farsighted enough to implement a trade secrets protection plan will be able to avail themselves of The Defend Trade Secrets Act of 2016,  a federal law that allows an owner of a trade secret to sue in federal court when its trade secrets have been misappropriated.  Because of the incredibly broad reach of The Defend Trade Secrets Act, it has been called “the single most important intellectual property development” in years, and should not be overlooked by hemp businesses.  (See, Eric Goldman, Forbes, April 28, 2016, “The New ‘Defend Trade Secrets Act” is the Biggest IP Development in Years.”)

Stay tuned for more updates regarding the Farm Bill and the hemp industry.

The above information is provided as a public service. It is not intended as legal advice. Written by Lauren Mendelsohn of Law Offices of Omar Figueroa.

For answers to your legal questions or legal assistance, including with establishing and implementing a trade secrets protection plan, please contact the Law Offices of Omar Figueroa at (707) 829-0215 to schedule a confidential legal consultation.

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