Understanding the Shifting Trends of State and Federal CBD Laws and Regulations

15.6 min readPublished On: August 31st, 2021By

LOS ANGELES–A recent projection by Graphical Research found the North American cannabidiol market is expected to surpass $61.2 billion in size by 2027. With a growing market and hands-off approach by the Federal Food and Drug Administration, states have stepped in to protect consumer safety through laws and regulations governing the manufacture and sale of CBD products. These generally include manufacturing, retail, and marketing regulations to ensure these products are safely produced and sold, while many states adopt the FDA’s prohibitive positions.

The state-led regulatory environment for CBD has resulted in a complicated — and constantly changing — state patchwork of laws that is challenging for businesses and consumers to navigate. Businesses selling CBD products must not only comply with this patchwork of state laws, but also with applicable FDCA provisions, which in some cases may conflict with state laws. Businesses should work with counsel to ensure their product formulations, marketing, and supply and distribution chains are compliant with state and federal law and must consider that these laws are always changing and that some state laws may be preempted by the FDCA.

In this article, we’ll look at the history of CBD regulation in the United States, the trends that are dominating CBD regulation in 2021, and some of the state-specific regulations in the largest states that you should keep an eye out for.

Selling CBD Legally

Almost 3 years after the legalization of hemp in the United States, hemp-derived CBD has become a staple ingredient in consumer products, and we continue to learn more about its benefits and efficacy. But, the Federal Food and Drug Administration (FDA), who maintains regulatory oversight of consumable products containing hemp, still has not established a regulatory framework for CBD in consumable products — instead taking the prohibitive position that CBD cannot be a legal ingredient in food and dietary supplements because it has been included as an ingredient in publicly investigated and approved drugs, Sativex and Epidiolex. This prohibition arises from a provision of the Federal Food, Drug, and Cosmetic Act (FDCA) intended to preserve incentives for drug development. The FDA can make an exception to this rule, but has never done so and is currently assessing whether such an exception should apply to CBD. Certain hemp-derived ingredients, however, that are not the same ingredients as that in approved drugs, may be legally sold if compliant with the FDCA.

The FDA is engaged in a multi-year process of “evaluating the regulatory frameworks that apply to certain cannabis-derived products that are intended for non-drug uses, including whether and/or how the FDA might consider updating its regulations, as well as whether potential legislation might be appropriate.” The Brightfield Group projects CBD products will reach $5.3 billion in retail sales in 2021.

Congress recognizes the consumer safety gap left by the FDA and the need to regulate this fast-growing market. There are two bills in Congress, HR841 and S1698 that would allow CBD as an ingredient in dietary supplements and foods (HR841 is limited to dietary supplements only, while S1698 includes both dietary supplements and foods). If passed, it is likely the FDA would still impose specific labeling and other requirements for CBD products, and S1698 expressly grants their authority to do so. Federal regulation of CBD products is welcome and long overdue, with hemp businesses eager for regulatory stability and treatment as legal enterprises.

As the FDA proceeds with its multi-year process in evaluating potential regulatory pathways, it has generally operated under an unwritten risk-based enforcement policy for CBD — which has been the status quo since the legalization of hemp. As former FDA Commissioner Gottlieb stated in 2019, the FDA has taken “a risk-based approach where we’re going after places where CBD is being marketed in situations where we think the claims are either misleading to the point of encouraging a patient to forgo otherwise effective therapy for a medical condition or being marketed in a formulation and in a dose that’s at a level that creates significant safety concerns.”

So, in practice, the FDA has exercised enforcement and identified a significant public safety concern where companies make unlawful and false and misleading drug claims (i.e, CBD cures cancer), especially with respect to life-threatening illnesses. Recently, FDA took action against companies marketing CBD topicals marketed as OTC drugs where CBD was an inactive ingredient.

 

 (Consumers are using CBD more often)

It is expected that FDA enforcement may increase generally, and with respect to CBD products, in the Biden administration. A potential increase in federal enforcement was also signaled by FTC in December 2020 nicknamed “Operation CBDeceit.” This enforcement sweep was targeted at companies making unsubstantiated drug claims on CBD products without competent and reliable scientific evidence, with penalties including civil fines and settlement negotiations requiring customer notification and reporting requirements.

Past CBD Laws, Changes and Variations by State

Prior to the passage of the 2018 Farm Bill, hemp-derived CBD was regulated as illegal marijuana under federal law and treated as a schedule 1 drug. Now, federal law regulates hemp — the non-intoxicating variety of the cannabis plant — as an agricultural crop. The majority of states regulate the production of hemp and CBD under federally legal hemp programs, while marijuana remains illegal under state and federal controlled substances laws (although many states allow marijuana to be sold under regulated state cannabis regimes).

In the past few years, we have seen states evolve from prohibiting CBD and classifying it as marijuana, to openly regulating it as a functional food, dietary supplement and cosmetic ingredient. As states become more knowledgeable about hemp and experienced with regulating these products, certain regulations have become more common across states — such as QR codes, labeling requirements relating to THC and cannabinoid content, the inclusion of warning statements, and manufacturing and testing standards.

In the FDA’s absence, in this popular consumer market, states have continued to evolve and mature in regulatory approaches. States like Colorado evolved from prohibiting commercial CBD activity to amending its food and drug laws to affirmatively allow CBD as an ingredient, improving its regulations regularly to include robust packaging, labeling, and testing requirements — serving as a national model. Consumers look to certain states like Colorado for quality CBD products.

Texas, a leading agricultural state, was one of the last to adopt a hemp program in 2019, but quickly became a leader in a business-friendly regulatory approach. Texas adopted regulations for manufacturing, processing, testing, and retail, including retail registrations and transport and manufacturing requirements — although banning smokable hemp products. Even Idaho, the last state to maintain outdated criminal laws classifying hemp as illegal marijuana, finally modernized its laws in 2021 to remove hemp from the state definition of marijuana.

In addition to compliance with state laws, businesses selling hemp-based products must ensure their products are lawfully marketed per the FDCA (do not make unlawful drug claims or unsubstantiated claims) and that the safety and efficacy of the products are substantiated per FDCA’s Generally Recognized as Safe (for food) and New Dietary Ingredient (for dietary supplement) requirements. GRAS ingredients in foods are held to a “reasonable certainty” of safety while NDIs in dietary supplements are subject to a “reasonable expectation of safety” standard. Although FDA may not accept NDIs for CBD ingredients due to its current position, many companies are preparing them and/or conducting applicable safety studies in anticipation of a change in law by FDA or Congress and to ensure compliance. In addition, investors, service providers, major retailers, and large food and beverage companies will likely require FDA compliance from ingredient suppliers.

New 2021 CBD Trends and Regulations

As you can see, how CBD is treated by federal and state regulations has varied over the years. As we move forward into a new decade, here are some of the trends we’re seeing in CBD regulation moving forward.

1. State Retailer and Transportation Registrations.

A growing number of states including Alaska, Iowa, Louisiana, Michigan, New Hampshire, Texas and others, require retailers (and often manufacturers and distributors) of hemp products to register or obtain a handler’s license with the state to lawfully sell consumable hemp products within the state. Most of these registration requirements apply to both brick-and-mortar and online retailers, although they are rarely enforced against online retailers. For example, Louisiana explicitly includes “remote retailers” (defined to include sales through the internet) in its CBD product retailer registration requirements. Generally, these registrations are simple and low-cost. Failure to follow state laws requiring retailer licenses or registration could result in administrative penalties and product seizures, among other consequences.

In the absence of a uniform federal transportation manifest, states are commonly requiring a bill of lading, transport manifest or permit to transport hemp products into the states. These documents often require the contact information for the owner of the hemp products, points of origin and delivery, proof of lawful origin, total quantities of product, testing results and applicable dates. Alaska, Iowa, Georgia, Florida and Texas are among the states requiring transportation documentation. Some states also include inspection requirements. For example, anyone transporting hemp into Florida must stop at an agricultural inspection station for inspection in addition to maintaining shipment documentation.

It is important to also note that many shipping companies also impose restrictions on shipping hemp using their services. FedEx, for example, prohibits shipping any raw or unrefined hemp plants, or their subparts. USPS permits shipping hemp; however, the mailer must retain records establishing compliance with all applicable federal, state and local laws, including laboratory test results, licenses or compliance reports, for no less than two years after the date of mailing.

2. Advertising, Labeling and Product Claim Restrictions.

Advertising restrictions, including product claim limitations, are commonplace in the CBD industry in 2021. Many major state markets, including New York (in its proposed regulations), impose product labeling requirements that go above and beyond the FDA’s, and a number of states prohibit marketing that is appealing to minors. Like the FDCA, most states prohibit false or misleading claims, or unsubstantiated disease or health claims (i.e, that a product is intended to treat a specific medical condition). A number of states prohibit drug or health claims of any kind, whether or not substantiated.

Common trends in labeling requirements — in addition to the applicable FDA labeling requirements for the product type —include scannable QR codes that link to detailed product information (batch numbers, dates, certificates of analysis), quantities of cannabinoids per serving, specific labeling with respect to THC and other cannabinoid content. California’s Proposition 65 requires certain warning statements for products containing any amount of THC or that expose Californians to cannabis smoke. Many states require labels indicating that the “FDA has not evaluated the product for safety.”

3. Prohibitions or Restrictions on Smokable Hemp and Other Product Types.

While more states are trending towards the regulation of CBD products in 2021, certain product types like smokable hemp (which often includes vaporizers) are often prohibited or restricted.

(CBD is popular for pets too).

Kansas, Kentucky, Hawaii, Louisiana, Texas, and Indiana are among the states maintaining prohibitions on smokable hemp products. Other states like Tennessee and New York (in proposed regulations) limit smokable hemp (including vaping) products to consumers 21 and older. New York’s proposed regulations would also require such products to bear a warning stating that “smoking or vaporizing is hazardous to your health.”

A number of major markets including Louisiana, California, Michigan and Washington maintain prohibitions on consumable hemp products consistent with the FDA’s position.

4. Robust Testing and Product Safety Requirements.

States are implementing more sophisticated testing and product safety requirements. Many states expressly include requirements in hemp regulations that mirror the FDCA, including cGMP and other basic safety standards and requirements that manufacturers of consumable and cosmetic products be permitted as food/cosmetic manufacturing facilities. Alaska, for example, requires the submission of certain testing data in order for products to be endorsed by regulators, as well as comprehensive testing for each batch of cannabinoid products prior to sale.

Alaska, Kentucky, Colorado, New York and many others lead the way in testing and product safety regulations.

5. Serving Size Limits.

While there is speculation that ultimate FDA regulation of CBD products will include a serving size limit for foods and dietary supplements, the FDA is still in the process of evaluating safety data to inform any such regulation. Other countries, such as the United Kingdom and Australia have adopted such limits. In the meantime, a number of states have elected to impose serving size limits and have looked to Australia and the UK for data. New York’s proposed regulations, for example, would impose a limit of mg of 25 total cannabinoids per individually packaged product if the product is a food or beverage, and 3,000 mg of total cannabinoid per product, with no more than 75 mg per individual serving, if the product is a supplement.

Alaska limits any consumable hemp product to no more than 50 mg of delta 9-THC per individual product. California’s pending SB235 would allow the state health department through regulation,  to determine maximum serving sizes for hemp-derived cannabinoids, hemp extract and products derived therefrom, active cannabinoid concentration per serving size, the number of servings per container and any other requirements for foods and beverages.

State-imposed serving size restrictions are a more recent trend expected to proliferate, especially if leading markets such as California and New York impose such requirements

6. Prohibitions on Synthetics and Analogs.

An increasing number of state hemp laws expressly prohibit synthetic cannabinoids or intoxicating cannabinoids, controlled substance analogues or cannabinoids created through isomerization (including [delta] 8-tetrahydrocannabinol and [delta] 10-tetrahydrocannabinol). In many states, synthetic substances are also prohibited under state controlled substances laws.

A recent trend has found some states modifying their definitions of “THC” to include all THC isomers and are requiring that consumable hemp products have a total THC concentration of less than .3% of all THCs and THC isomers, rather than just delta 9 THC.

CBD State Laws and Regulations

As you can see from the previous section, CBD regulations vary substantially from state to state. It’s important to learn all the applicable laws for any date where you plan to manufacture or sell. Below we’re taking a high-level look at some of the current and pending regulations in the four most populous U.S. States: New York, California, Texas and Florida.

1. New York.

New York is emerging as a major market and unique model for hemp regulation. New York’s proposed hemp regulations would allow the sale of many different types of cannabinoid hemp products subject to robust regulation, including product types such as suppositories, transdermal patches, suppositories and flower products not “clearly labeled or advertised for the purpose of smoking.” The proposed law would still prohibit, however, any cannabinoid hemp product in the form of an injectable, inhaler, cigarette, cigar and pre-roll. The proposed regulations include product serving size limits, age limits for flower products, retailer registrations and comprehensive packaging, labeling and testing requirements (including testing standards for residual solvents, heavy metals, microbials and creating separate thresholds for inhalable products). Strict labeling requirements include labels stating detectable levels of Delta 8, Delta 9 or Delta 10 THC or any marketed cannabinoid. The proposed law also contains model definitions distinguishing “full spectrum” and “broad spectrum” hemp and expressly prohibits synthetic cannabinoids.

2. California.

California’s approach to CBD products has been frustrating for many, but is poised to change significantly this year with the potential passage of a comprehensive hemp regulatory bill. For years, the California Department of Public Health (CDPH) has maintained the FDA’s prohibition on CBD as a food ingredient, additive or dietary supplement, although the prohibition is very sporadically enforced, and the California CBD market continues to grow. In 2021, the CDPH added cosmetics to its list of prohibited CBD products, a position more restrictive than the FDA and most states. State law also bans bars, liquor stores and dispensaries from selling alcoholic drinks infused with any cannabinoids, including cannabinoids derived from industrial hemp. Change is on the horizon, however, as two bills in the California legislature would allow and regulate CBD products, including food, beverages, cosmetics and dietary supplements.

3. Texas.

Texas adopted a robust consumable hemp program, amending its law so that hemp-derived cannabinoids are not considered controlled substances and adulterants. Texas’s Department of State Health Services is charged with regulating consumable hemp products, and requires licenses for manufacturers, retailers and distributors. Texas expressly allows for and regulates consumable hemp products subject to comprehensive testing and safety standards. Although the law prohibits the sale of smokable hemp products, a lawsuit resulted in a judge temporarily blocking officials from enforcing the retail ban. A bill pending in the Texas legislature would impose additional requirements including prohibitions on synthetic cannabinoids and provisions allowing hemp as animal feed.

4. Florida.

Florida boasts one of the most business-friendly and well-regulated hemp programs in the country, with the state’s Department of Agriculture implementing comprehensive regulations and permitting requirements in addition to supporting research. In Florida, anyone engaged in hemp food manufacturing, handling or sales must obtain a food establishment permit. Food safety inspectors are tasked with conducting food safety establishment inspections and taking samples to ensure compliance. Consumable hemp products are subject to state packaging, testing and licensure requirements, with smokeable products limited to individuals 21 and older.

Wrapping Up

With states adopting more sophisticated regulations, and future FDA enforcement and regulation on the horizon, businesses should ensure they are able to meet these existing standards for foods and dietary supplements so they can stay in the market. This means businesses must dedicate the time and significant capital to safety studies (including genetic toxicology studies, pharmacokinetic studies, animal toxicology studies and human clinical studies). and other requirements to meet FDA standards. In addition to safety studies, businesses should be prepared for changes in labeling requirements, limitations on THC content, serving size limitations and other requirements such as warning labels.

 

Highly Capitalized thanks Shawn Hauser for her article and for her insights. Follow Shawn Hauser on LinkedIn and Vicente Sederberg LLP. This article is also published on BigCommerce’s CBD blog. The content and links provided on this page are for informational purposes only and not for the purpose of providing legal or tax advice. Viewing this page does not establish an attorney-client relationship. You should consult with a qualified legal professional for advice regarding any particular issue or problem. The contents of this page may be considered attorney advertising under certain rules of professional conduct. 2021 © Copyright Vicente Sederberg, Shawn Hauser and Highly Capitalized. All images rights free with Unsplash.

About the Author: News Team

Newsteam at Highly Capitalized are some of the most experienced writers in cannabis and psychedelics business & finance. We cover capital markets, finance, branding, marketing and everything important in between. Most of all, we follow the money.

Share This Story, Choose Your Platform!

Latest News

Australis Retains Delmorgan in $15M Capital Raise

September 27th, 2021|

LAS VEGAS - Terry Booth, CEO,  announced - Australis Capital Inc., operating as AUDACIOUS (CSE: AUSA) (OTC: AUSAF), announced today that it has retained DelMorgan & Co., an internationally recognized investment banking firm, to assist ...

Go to Top