This article has been published in PLI Chronicle.

The market for consumer products derived from cannabis and its components, including cannabidiol (CBD), is exploding. U.S. sales of CBD products is expected to exceed $20 billion by 2024, up from just $1.9 billion in 2018. TheCBD market is expected to develop across diverse industries such as cosmetics and skin care, health products, food and beverage, pet products,  and pharmaceuticals. This explosion of sales can be attributed, in part, to the enforcement priorities established by the U.S. Food and Drug Administration (FDA) and Drug Enforcement Administration (DEA) to date.

While current government regulation and enforcement in this space is a patchwork of laws and regulations that have been challenging to enforce, product cultivators, processors and retailers need to proceed with caution. This article provides an update on the FDA and DEA’s current enforcement priorities and the market outlook for 2021 and beyond.

FDA Enforcement

The FDA, which is the federal agency responsible for ensuring the safety, efficacy and quality of drugs, foods, dietary supplements and other products in the U.S., has struggled to maintain pace with this rapid market development. In March 2019, former FDA Commissioner Scott Gottlieb testified before the U.S. Senate Committee on Appropriations, Subcommittee on Agriculture, Rural Development, Food and Drug Administration, and Related Agencies regarding CBD. In his testimony, Commissioner Gottlieb explained that the FDA was using “enforcement discretion” with regard to marketed CBD products that make “over-the-line claims.” Commissioner Gottlieb further acknowledged that the FDA “heard Congress loud and clear and know[s] Congress wants a pathway.”

Earlier this year, Dr. Douglas Throckmorton, Deputy Director of the Center for Drug Evaluation and Research (CDER) at the FDA, stated in testimony before the House Committee on Energy and Commerce, Subcommittee on Health that the proliferation of CBD products is of concern because it may put consumers at risk. This includes the use of unsubstantiated therapeutic claims that may deter consumers from seeking proven, safe medical therapies for serious illnesses. Dr. Throckmorton also acknowledged that the FDA is considering the possibility of new legal pathways for CBD products.

This FDA policy on enforcement discretion/prioritization as it relates to CBD products was further reinforced in July 2020, when the FDA submitted its CBD-related Report to the U.S. House Committee on Appropriations and the U.S. Senate Committee on Appropriations. The FDA stated in this report that it “continues to be concerned about the potential safety risks of using CBD and about problems related to a number of currently marketed CBD consumer products under FDA jurisdiction, like mislabeling or the potential for contamination with delta-9- tetrahydrocannabinol (THC), pesticides, and heavy metals.” The FDA further acknowledged that it is “currently evaluating issuance of a risk-based enforcement policy that would provide greater transparency and clarity regarding factors FDA intends to take into account in prioritizing enforcement decisions.”

While the FDA submitted draft guidance titled “Cannabidiol Enforcement Policy” to the Office of Management and Budget (OMB) in July 2020, and the White House held a series of meetings with several industry stakeholders in August and September 2020, the substance of this guidance is unknown at this time. It also is unclear when or if this draft guidance will be issued, which may be impacted by White House administration changes.

Nevertheless, it is clear the FDA is continuing to actively monitor marketed CBD products and taking enforcement when a significant issue arises, consistent with its enforcement discretion/priorities. For example, the FDA and the Federal Trade Commission (FTC) each issued warning letters, both individually and jointly, related to advertising and marketing claims for CBD products throughout 2019. These letters focused on companies making claims that CBD cantreat diseases and conditions, such as Alzheimer's disease, anxiety, chronic pain, and psoriasis. The FDA stated these claims rendered the products unapproved new drugs in violation of the Federal Food, Drug, and Cosmetic Act (FDCA), and the FTC alleged these claims were unsubstantiated and unsupported by reliable scientific evidence.

Similarly, so far in 2020, we have seen numerous warning letters from the FDA and FTC related to CBD product marketing claims, including claims specific to COVID-19. The focus on COVID-19 claims is consistent with the FDA’s enforcement priority to target areas of high‑risk and unproven claims that may disproportionately impact vulnerable populations like children and the elderly.

DEA Enforcement

The DEA also continues to grapple with regulatory enforcement as it relates to CBD products. On August 21, 2020, the DEA issued an interim final rule titled, “Implementation of the Agriculture Improvement Act of 2018” (Interim Final Rule), in which it defines “Marihuana Extract” as extract “containing greater than 0.3 percent delta-9-tetrahydrocannabinol on a dry weight basis.” This definition matches the 2018 Agricultural Marketing Act, 7 U.S.C. § 1621 et seq. (the “Farm Bill”). The Final Rule could be problematic for hemp businesses if it makes otherwise legal products illegal during a stage of processing in which the products are not intended for sale to the public.

When hemp is cultivated, it must be tested to determine whether it is hemp or marijuana. This test determines whether the product, as grown, contains any part of the plant that is above 0.3 percent delta-9-tetrahydrocannabinol (D9-THC) on a dry weight basis. A product is considered hemp when its test results show a concentration of 0.3 or below.

However, when the product is later processed into CBD, there may be a natural concentration of the contents of the product, resulting in “crude” from the extract above the 0.3% D9-THC level. Even though the “crude” extract is not sold in this form to the public and may be cut to reduce the level of THC before public sale, the DEA considers the “crude” extract a schedule I controlled substance. The DEA stated in the Interim Final Rule: “. . . a cannabis derivative, extract, or product that exceeds the 0.3% D9-THC limit is a schedule I controlled substance, even if the plant from which it was derived contained 0.3% or less D9-THC on a dry weight basis.” The DEA accepted comments to the Interim Final Rule.

Market Outlook

It will be critical to watch for signals from the new administration in 2021 regarding its views on CBD regulation. Regardless of the new administration’s regulatory agenda for the FDA and DEA, we fully expect the FDA to continue its enforcement efforts on inappropriate CBD marketing claims in order to protect the public. CBD manufacturers and retailers should continue to monitor their marketing and advertising statements, giving special consideration to any disease-state claims or those that may disproportionately impact vulnerable populations. Hemp processors should be aware of the new DEA rule and be deliberate in their processing plants with respect to THC concentration.