Cannabis-derived cannabidiol (CBD) products are quickly becoming ubiquitous—gummy bears for sale at local mom-and-pop retailers, lotions at high-end department stores and lattes at your neighborhood coffee shop.

In March, CVS announced it would begin selling CBD products in 800 stores in eight states. A week later, Walgreens said it would sell CBD products in 1,500 stores in nine states. Nationwide sales revenue is projected at $16 billion per year by 2025. Yet perhaps never has there been such a disconnect between what is happening in the marketplace and what is legally allowed.

Before passage of the 2018 Farm Bill, all species of the cannabis plant—including both marijuana and hemp—and their derivatives (such as CBD) were classified as Schedule I controlled substances under the federal Controlled Substances Act. This rendered it unlawful to possess, distribute or dispense them or to aid or assist such efforts in any way.

The Farm Bill legalized hemp—defined as the cannabis plant with a tetrahydrocannabinol (THC) concentration of 0.3% or less—and its derivatives by removing them from the purview of the Controlled Substances Act. Such legalization has provided businesses with lawful access to key banking and financial services, including insurance. But the Farm Bill was far from a cure-all, and significant legal impediments remain.

Federal Obstacles

On the day the Farm Bill was signed into law, the Food and Drug Administration issued a statement that it “treat[s] products containing cannabis or cannabis-derived compounds as [it] does any other FDA-regulated products.” That means hemp-derived CBD products that are no longer illegal under the Controlled Substances Act still are subject to the Federal Food, Drug, and Cosmetic Act and its associated regulatory and approval processes prior to being sold or marketed.

The FDA argues the food, drug and cosmetic law presents two legal hurdles to most products that contain CBD. First, the agency contends that any CBD products that claim to treat diseases or provide therapeutic benefit qualify as unapproved new drugs because they are intended for use in the “diagnosis, cure, mitigation, treatment, or prevention of a disease.” In short, according to the FDA, if a product containing CBD promises to cure anxiety, reduce swelling or take care of more severe illnesses, then (absent FDA approval) its sale violates the Federal Food, Drug, and Cosmetic Act.

An additional complicating hurdle is present for all foods, beverages and dietary supplements containing CBD. Specifically, the law prohibits the marketing of foods or dietary supplements that either contain an active ingredient in an FDA-approved drug or were subject to substantial clinical investigations prior to being marketed as foods or dietary supplements. In the view of the FDA, this prohibition applies to foods and dietary supplements that contain CBD because of the agency’s approval of drugs like Epidiolex—a seizure treatment for two rare forms of epilepsy that contains CBD—and its public investigations into products like Sativex, which contains both CBD and THC, to treat pain in patients with advanced cancer. (An interesting underlying legal issue: CBD was widely available prior to the CBD drug testing/approval, but its sale violated the Controlled Substances Act. To eliminate this issue, the FDA must issue regulations allowing the use of the pharmaceutical ingredient CBD in foods or dietary supplements, a process that could take years.)

That said, some CBD and other hemp-derived products do not require FDA approval or regulatory action. CVS and Walgreens, for example, are preparing to sell body care products such as lotions, sprays and roll-ons, provided they do not make “unsubstantiated therapeutic claims.” Similarly, the FDA has determined that certain food ingredients derived from hemp seeds (including hulled hemp seed, hemp seed protein powder and hemp seed oil) are “generally recognized as safe” for their intended purpose and can thus be marketed and added to foods without further FDA approval. 

The FDA has issued several warning letters to online CBD retailers and manufacturers, but the agency recognizes the impossible task ahead. One FDA official at an annual event hosted by the Natural Products Association described this as a game of whack-a-mole, explaining that, even if the agency were to devote all of its resources to removing CBD-containing dietary supplements from the market over a period of a few months, “we turn our backs and two months later…commerce would be just as saturated as it was when we started.”

State Hurdles

Many states also restrict or bar the sale of CBD products through their own controlled substances acts and CBD-specific legalization regimes that clarify that CBD remains illegal in those states outside of the specific uses that have been legalized. 

For example, Alabama and Georgia—and many other states—have established their own drug schedules under their own controlled substances acts. In these states, hemp remains classified as a Schedule I drug for most purposes (limited exceptions allow the possession of CBD products for a limited set of medical conditions), regardless of the changes made to the federal Controlled Substances Act. This means that, in those states, it remains unlawful to manufacture, possess or dispense CBD products—regardless of whether they are derived from hemp or marijuana.

Other states, like California—which has legalized marijuana for recreational use—has taken the specific position, based on the FDA’s stated policy and in an effort to comply with federal law, that hemp-derived CBD cannot be added to foods. Finally, states such as Colorado have modified their food and drug laws to facilitate the sale of foods containing hemp-derived CBD, counter to the FDA’s position at the federal level.

What’s Next?

Applications already are being filed for approval of various CBD food, dietary supplement and health-claim-making topical products, but the approval process is long and arduous and generally is done on a product-by-product basis. The FDA also could theoretically initiate a rulemaking process to allow hemp-derived CBD to be sold in food and dietary supplements. But as former FDA commissioner Scott Gottlieb noted, the agency has “never done this before.” At a minimum, that means any such process would assuredly take years given the FDA’s normal testing and review requirements.

As intermediate steps, Gottlieb put together a “high-level interagency working group,” and the agency plans to hold a public meeting on May 31 designed to explore potential pathways to facilitate the market entry of these products. In announcing these plans, Gottlieb acknowledged that the issue may require a legislative fix from Congress that would define CBD under a certain threshold as a food additive and CBD concentrate as a pharmaceutical drug.

From an insurance perspective, the legal ambiguity in the CBD space poses interesting challenges. To what degree, for example, will a CBD food or dietary supplement be faced with product-liability exclusions based on the failure to have obtained (at least technically) the requisite FDA approvals? Insurance agents and brokers will need to be vigilant in understanding the exact products being manufactured, distributed and/or sold and the extent to which coverage being placed for such businesses will cover the presented exposures.

Sinder is The Council’s chief legal officer and Steptoe & Johnson partner. ssinder@steptoe.com

Gold is an associate in Steptoe & Johnson’s GAPP Group. cgold@steptoe.com