February 5, 2019Client Alert

Three Legal Tips To Successfully Launch a CBD Product

Companies are putting it in water, energy bars, beer, even in your dog’s treats.  If you haven’t seen it added to a product yet, it is only a matter of time.  Cannabidiol, commonly known as CBD or hemp-oil, seems to be making its way into every facet of consumable products lately, especially in the food and beverage sector.  For those who are unfamiliar: CBD is a chemical compound contained in the seeds of the cannabis sativa plant.

Hemp, one of the two main strains of cannabis sativa (the other being marijuana), was legalized federally as an agricultural commodity by the passage of the farm bill at the end of 2018.  Among other changes, Section 12619 of the farm bill removed hemp from the controlled substances list (21 U.S.C. § 13) and placed the production of the plant under the regulatory jurisdiction of the USDA; however, the farm bill did not alter FDA’s authority under the Food, Drug & Cosmetics Act (21 U.S.C. § 19) to regulate goods that are altered with CBD derived from hemp. This has created some legal uncertainty in a rapidly growing industry.  The three legal tips below provide strategic insight to businesses or investors to navigate the common hurdles of starting a CBD product.

1)   Know Your Regulatory Risk Tolerance

The CBD product space is attractive to both established businesses and new brands alike, but before rushing in, businesses and their investors should have a good understanding of the specific legal risks involved in selling products that contain CBD.  While the passage of the 2018 farm bill largely legalized hemp, the FDA has taken a vague stance on whether the sale of products containing CBD is legal.  Under Sections 201 and 409 of the Food, Drug & Cosmetics Act, any substance that is added to food is viewed as an additive requiring approval by the agency, unless the product is “generally recognized as safe” (GRAS).  FDA has not identified CBD to meet the GRAS standard yet, so its addition to any consumable product carries some inherent regulatory risk.

In a move that confirmed this risk, FDA, only hours after the passage of the farm bill, released a statement asserting its authority over CBD-containing products, stating that it will seek enforcement action against companies that the agency believes could pose risks to consumers.  What poses a risk to consumers, however, is up to interpretation, but FDA’s letter, as well as the agency’s past actions, shed some light on the topic for the industry. 

FDA has, in the past, issued warning letters against companies that make health claims about CBD products, though the total number of warning letters available is miniscule compared to the number of companies being started each day.  However, FDA’s post-farm bill statement concludes that the agency views CBD to be an FDA-approved drug—whether it is derived from hemp or not—and therefore the introduction of any product into interstate commerce that contains CBD requires FDA-approval.  Because the agency has been largely closed since it issued this statement, it remains to be seen if FDA will prioritize enforcement action in 2019 given the growth of the industry.  Also, two U.S. Senators have requested FDA update its regulations on hemp given the changes made in the 2018 farm bill, so the industry is closely watching the agency’s actions as new regulations impacting CBD products could be published in 2019.

Regardless of the rapidly changing regulatory landscape, businesses continue to launch CBD containing products.  The following sections outline best practices taken by many companies in the industry to minimize the risk a CBD product draws the unwanted attention of the FDA.

2)   Let the Product Market Itself

The FDA warning letters received by CBD companies are generally linked to the product being marketed to cure, mitigate, prevent, or treat a disease.  FDA considers any product that makes such claims in its marketing, including social media posts, to be a “new drug” that requires FDA approval.  Despite ample anecdotal evidence, there have been few FDA approved human trials to support the broad health claims associated with CBD products, especially related to dosage amounts.

In response to the FDA “new drug” requirement, companies can generally take two paths.  First, the most conservative route is to avoid making any unsubstantiated health claims on a product or in the marketing for that product, but this option is not without drawbacks as many consumers are not familiar with CBD and may be hesitant to try a product with an unknown ingredient.  A second option is to allow the use of language that makes beneficial health claims, but is strictly limited by a disclaimer.  This option is inherently riskier, but such risk can be mitigated by having an expert review the disclaimer.  

3)   Carefully Consider Your Label

In addition to health claim disclaimers, businesses should seek expert advice on the intricacies of labelling a CBD product.   As of 2018, CBD is an FDA approved drug because it is an ingredient in Epidiolex, a drug used to treat seizure disorders.  As mentioned above, the addition of any drug to a product, without FDA-approval, is a violation of the Food, Drug, and Cosmetics Act; so labelling a product as containing CBD may generate unwanted attention of federal regulators.

To decrease this risk, many companies have decided to avoid using the term CBD on their label, instead using other terms such as “full spectrum hemp” or “help oil.”  CBD is only one of many chemical compounds contained in hemp oil, and Epidiolex uses an isolate of CBD, so many companies that are adding the full-spectrum of chemical compounds found in hemp oil are choosing to market their product using these broader terms to differentiate their ingredients from the FDA-approved drug Epidiolex.  Of course, not clearly labeling a product as containing “CBD” may hinder the effectiveness of the product’s marketing, and some companies may ultimately weigh the marketing benefits of using the term “CBD” against the risk of FDA enforcement. 

Michael Best attorneys have several years of experience guiding clients through strategic labelling decisions for CBD products, and our regulatory attorneys are available to review labelling and marketing initiatives for compliance with state and federal laws.

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