USDA Rulemaking a Game Changer for the California Hemp Market

Nov 01, 2019

The California hemp industry received welcome news this week when the U.S. Department of Agriculture released its much-anticipated interim final rule for hemp production, a critical step toward implementing the 2018 Federal Farm Bill and a key for states wanting to regulate their own hemp markets.

The USDA Hemp interim final rule (interim rule) is 160 pages and, in contrast to its singular name, includes scores of hemp rules, including  clarifying states’ required practices for record keeping, methods for testing hemp to ensure that it is below the legal THC limit, and plans for the proper disposal of non-compliant hemp. In addition, the interim rule makes it clear that states and Native American tribes may not prohibit the interstate transport of hemp that has been legally grown under federal and state law. The interim rule was expected to become effective this week upon publication in the Federal Register.

The Farm Bill removed industrial hemp (cannabis with trace amounts of THC) from the Controlled Substances Act more than a year ago, but the crop, its producers, states, and local governments have operated in a murky legal territory absent a federal framework. Based on the Farm Bill, states desiring to legalize hemp production and control their own regulatory schemes must submit a conformance plan to the U.S. Department of Agriculture (USDA).

Until the release of the interim rule, this created a Catch-22, because states struggled to draft federally-compliant plans not knowing exactly what the USDA wanted to see. In California, the absence of a state plan has meant that approximately half of the state’s counties have imposed temporary bans or restrictions on hemp cultivation while awaiting further direction from the state and federal government.

With the interim rule’s publication, states can now complete their hemp plans with confidence that the plans are federally compliant. While the final interim rule is not “final” (it actually will sunset in two years) and is subject to public comment in the coming months, it provides states with a degree of certainty. California is said to now be working on its hemp compliance plan and a bill recently signed by Governor Gavin Newsom (see our prior blog regarding SB 153) aids that effort by detailing state testing, enforcement, and other administrative provisions. Once submitted, the USDA will have 60 days to review and approve a state’s plan.

Some highlights of the interim rule are as follows:

  • Hemp crops must be tested within 15 days prior to harvest by a Drug Enforcement Administration-registered laboratory.
  • Hemp sampling and testing guidelines were drafted in separate documents attached to the interim rule, allowing the USDA to update the guidelines as new technologies emerge, rather than subjecting the guidelines to the constraints of formal rulemaking.
  • Cultivators will not commit a negligent violation of the law if they produce crops exceeding THC limits if they can show they used reasonable efforts to keep THC amounts within federal law (0.3% THC) and the crops do not test above 0.5% (dry).
  • Disposal of “hot crops” (those that exceed the 0.3% THC limit) must be collected and destroyed by an operation authorized to handle a controlled substance, such as a federal, state or local law enforcement officer or DEA-registered operation.
  • There are no restrictions on the transport of hemp that complies with federal and state law (as stated above), confirming that hemp producers have access to national markets.

Hemp farmers in a state like California – which has been awaiting the issuance of the interim rule – are now anticipating the submission and approval of their state’s hemp plan, which will then unlock all of the benefits bestowed by the 2018 Farm Bill. Those benefits include the availability of crop insurance, access to commercial banking and federal intellectual property protection, and a shield against crop seizure by states or Native American Tribes that have not legalized hemp within their borders.

In short, the issuance of the interim rule is a game-changer for California and other states that have decided to develop a legalized commercial hemp market.


Everybody Else Is Doing CBD, So Why Can’t We?

Sep 27, 2019

How many times has any parent heard the familiar lament, “Everybody else is doing it!”  Usually, that feeble protest is met with a definitive response along the lines of “That doesn’t make it right.”  And, usually, that’s the best answer – especially when it comes to CBD.

Anyone who attended this year’s Natural Products Expo West in Anaheim, California or Expo East in Baltimore, Maryland knows that CBD products seemed to be just about everywhere.  Some exhibitors even claimed that their products were “fully compliant.”  That is an interesting assertion given that the FDA has expressly stated that CBD cannot be used as an ingredient in foods or dietary supplements.  With regard to food, any substance that is intended to be a component of a food is a food additive, making it subject to premarket approval by the FDA unless it is already generally recognized as safe (GRAS) among experts qualified by scientific training and experience to evaluate its safety under the conditions of its intended use.  CBD does not enjoy GRAS status.  Similarly, the FDA has concluded that CBD products are excluded from the dietary supplement definition under the Food, Drug & Cosmetic Act (Act) because CBD is an active ingredient in an existing drug, Epidiolex, a prescription medication intended to treat seizures.

While certain states may have looser views as to whether CBD can be used in those products, they do not trump the Act or the FDA.  In other words, nothing is actually prohibiting the FDA from taking enforcement actions against manufacturers or distributors of CBD-containing food and dietary supplement products.

But, wait!  What about major retailers’ recent announcements that they would be carrying “topical” products in various states across the country?  This product category includes creams, sprays, roll-ons, lotions, salves and soap.  That doesn’t sound like a drug, food or dietary supplement.  “Topicals” sounds like … uh … cosmetics!  That must be okay, right?  Well, let’s take a look at the overarching Act to see if that conclusion holds up.

The Act defines “cosmetics” as “articles intended to be rubbed, poured, sprinkled, or sprayed on, introduced into, or otherwise applied to the human body … for cleansing, beautifying, promoting attractiveness, or altering the appearance….”  Act, sec. 201(i).  Products generally deemed to be cosmetics include skin moisturizers, perfumes, lipsticks, shampoos, deodorants, and so on.  On the surface, this seems to be the general category that “topicals” fall into.  However, whether a product is a cosmetic or a drug under the law is determined by a product’s intended use.

The Act defines drugs, in part, by their intended use, as “articles intended for use in the diagnosis, cure, mitigation, treatment, or prevention of disease,” and “articles (other than food) intended to affect the structure or any function of the body of man or other animals….” Act, sec. 201(g)(1).  Products such as prescription medicines or flu vaccines, for example, are clear examples of drugs.

Wait, what?  Some products meet the definitions of both cosmetics and drugs?  Yes.  This happens when a product has more than one intended use.

So, how is a product’s intended use determined?  As with most straightforward questions, the legal answer is “it depends.”  The intended use can be indicated by the claims stated on the product labeling, in advertising, on the Internet, or in other marketing materials.  The intended use can also be establishing by consumer perception of what it is used for and/or the product’s marketplace reputation.  Additionally, if a product has a well-known therapeutic use, that can establish it as a drug (e.g., fluoride toothpaste).

An example provided by the FDA on its website to illustrate this point would be that of a shampoo.  It is a cosmetic because it is intended to clean hair, but if it is also formulated to treat dandruff, it would also be considered a drug.

“Okay, but so what?” you are probably asking.  Manufacturers just need to be careful about identifying their CBD products’ intended uses.  Not so fast.

If a manufacturer is not careful about the claims made on its product’s label and associated labeling (such as a website), what the manufacturer intends its products to be used for might not hold up.  Under the Act, drugs must generally either receive premarket approval by the FDA through a New Drug Application (NDA) process or conform to a monograph for a particular drug category.  These monographs specify  the conditions under which over-the-counter drug ingredients are generally recognized as safe and effective.  CBD does not currently enjoy this classification.

“Well, what about the Farm Bill?” you ask.  An overly broad reading of that legislation has not been endorsed by the FDA when it comes to CBD.  In a December 2018 statement following the passage of the Farm Bill, the FDA expressly noted:

In particular, we continue to be concerned at the number of drug claims being made about products not approved by the FDA that claim to contain CBD or other cannabis-derived compounds. Among other things, the FDA requires a cannabis product (hemp-derived or otherwise) that is marketed with a claim of therapeutic benefit, or with any other disease claim, to be approved by the FDA for its intended use before it may be introduced into interstate commerce. This is the same standard to which we hold any product marketed as a drug for human or animal use. Cannabis and cannabis-derived products claiming in their marketing and promotional materials that they’re intended for use in the diagnosis, cure, mitigation, treatment, or prevention of diseases (such as cancer, Alzheimer’s disease, psychiatric disorders and diabetes) are considered new drugs or new animal drugs and must go through the FDA drug approval process for human or animal use before they are marketed in the U.S. Selling unapproved products with unsubstantiated therapeutic claims is not only a violation of the law, but also can put patients at risk, as these products have not been proven to be safe or effective. This deceptive marketing of unproven treatments raises significant public health concerns, as it may keep some patients from accessing appropriate, recognized therapies to treat serious and even fatal diseases.


And, we should talk about soap.  The regulatory definition of “soap” is different from the way in which people commonly use the word.  The regulated term “soap” only applies when:

  • the bulk of the non-volatile matter in the product consists of an alkali salt of fatty acids and the product’s detergent properties are due to the alkali-fatty acid compounds, and
  • the product is labeled, sold, and represented solely as soap.  (21 CFR 701.20).


“Soap” products that meet this definition are regulated by the Consumer Product Safety Commission (CPSC).  If a product intended to cleanse the human body does not meet all the criteria for soap, it is considered to be a cosmetic (and, if you are not careful, it might also be a drug).  Which puts us back in line with the regulatory chutes and ladders process that I outline above.

The takeaway?  While a major retailer may be willing to push the issue in an effort to meet consumer demand, it is important to remember that retailers have no law or rule making authority.  Whether the FDA takes more concerted action to stop or otherwise question the sale of CBD products at retail stores remains to be seen.  However, what cannot be reasonably disputed is that many of those products are not likely in compliance with the Act or FDA guidance at this time.  Therefore, just because everyone else seems to be diving in head first, doesn’t mean that you should be.

Man watching another man diving into water

Cannabis Cultivators Get Help with State Regulations

Mar 13, 2019

[Thanks to Wendel Rosen environmental attorney Wendy Manley for this post.]


State Water Quality Permit

In 2017, the State Water Resources Control Board (State Board) issued a general permit for all cannabis cultivation to protect water quality (State Permit). Cannabis cultivation is broadly defined as “any activity involving or necessary for the planting, growing, pruning, harvesting, drying, curing, or trimming of cannabis,” including water diversions, preparing a cultivation site, or activities otherwise to support cannabis cultivation, and which discharge or could discharge waste to waters of the state. “Waste” includes any kind of pollutant that might reach surface waters or groundwater, such as nutrients in irrigation tail water and hydroponic wastewater. The State Permit is potentially far reaching, to include even indoor operations unless they meet certain conditions and file for a Waiver. See the State Permit here

Conditional Exemption

To be “Conditionally Exempt,” an indoor cannabis operation must occur in a structure with a permanent roof and a permanent, relatively impermeable floor (e.g., concrete or asphalt); discharge all wastewaters to the sanitary sewer in accordance with sanitary sewer system requirements; and implement “best practical treatment or control” measures or “BPTC,” which consist of numerous restrictions and express requirements for cultivation site development, fertilizer and pesticide use, activities in and around riparian areas and wetlands, water storage and conservation, among other things. Conditionally Exempt dischargers are also required to obtain the “Waiver.” In other words, “Conditionally Exempt” doesn’t mean you don’t have to do anything.

Outdoor cultivators who do not qualify for a Waiver as Conditionally Exempt are designated as either “Tier 1” (operations disturbing 2,000 square feet to one acre (43,560 square feet), or “Tier 2” (cultivating outdoors on more than one acre. In addition to BPTC, permittees must implement a monitoring and reporting program. 

Upcoming Workshops

Everyone in Cannabis cultivation, including indoor operators, should determine how the State Permit may affect their operations. Those planning to establish a new growing operation should examine the State Permit as early as possible, since site development and road building are subject to the State Permit, and there are numerous opportunities to organize the operation to minimize the costs and complications of implementing the BPTC measures. Those subject to the regional permits issued by the North Coast and Central Valley Regional Water Boards are expected to be transitioned to the State Permit this year.

Staff from the State Water Board will be available to describe the program and assist cultivators with permit applications and questions in two upcoming workshops co-hosted with other entities with oversight of the cannabis industry, including Cal Fish and Wildlife, Cal Department of Food and Agriculture CalCannabis, local planning departments, and CalFire. The workshops are in Laytonville March 26 (Mendocino County) and in Clearlake March 13 (Lake County). 

The State Permit is only one piece of the complex regulatory puzzle. For example, conditionally exempt cultivators may still need to apply for a water right to divert and use water.    


“C” is for “Confusion” When It Comes to CBD

Feb 15, 2019

Krümel Monster Muffins” by Xitu is licensed under CC BY-SA 4.0

The regulatory status of a food ingredient is governed by certain bright line rules.  Any substance that is reasonably expected to become a component of food is a food additive.  A food additive is subject to premarket approval by the Food & Drug Administration (FDA) unless the substance is generally recognized as safe (GRAS) among experts qualified by scientific training and experience to evaluate its safety under the conditions of its intended use, or it otherwise satisfies some other exclusion from the food additive definition in section 201(s) of the Federal Food, Drug, and Cosmetic Act (Act). Any food additive that is intended to have a technical effect in the food is deemed unsafe unless it either conforms to the terms of a regulation prescribing its use or to an exemption for investigational use.  Any food that contains an unsafe food additive is adulterated under section 402(a)(2)(C) of the Act.

However, when it comes to CBD, this regulatory framework gets lost in the minds of many businesses looking to gain a toehold in the marketplace.  In December, I wrote a word of caution regarding the passage of the Farm Bill and its meaning (or lack thereof) for CBD in food and dietary supplements.  The intervening months since the Farm Bill’s passage have proven to be interesting.  Confusion, whether caused by ignorance of the applicable laws and regulations or denial about the limitations of those controlling rules, seems to be the norm when it comes to CBD in food and dietary supplements. 

Whenever I tell an interested manufacturer or distributor that CBD is not an authorized ingredient in either category, I routinely hear familiar protests: “Well, how come I see other products proudly marketing CBD as an ingredient?  What about the Farm Bill – what if the CBD is from hemp?”  The short answer, of course, is that while the FDA has been facing calls to update its regulations in light of the Farm Bill, CBD is still not authorized by any federal law or regulation to be used in food or dietary supplements, which then informs state law and regulations, which are largely modeled on the Act.  The longer answer, though, is because cannabis study has been greatly controlled and stymied by the federal government, because regulators may not understand CBD and how it can be derived, and because the FDA has not begun to meaningfully crack down on CBD products apart from a few Warning Letters pertaining to unsubstantiated CBD claims, policing the market place has fallen upon individual states.  The absence of consistent policing efforts to date, in turn, may give the impression that CBD use in food and dietary supplements is acceptable.   That should not be the takeaway.  As policing efforts are picking up steam, a quick rundown of what is happening in a few nationally influential states might be helpful in clearing up what seems to be so commonly misunderstood:  CBD is not an authorized additive or ingredient in food and dietary supplements.


While a liberal state in many regards, California is following the FDA’s lead.  California Health & Safety Code Section 109935 defines “food.”  Excluded from that definition are products containing cannabis.  Thus, as a threshold step, California is not classifying edibles as food; rather, such products can only be sold at licensed cannabis dispensaries.

Additionally, the California Department of Public Health has squarely addressed whether industrial hemp-derived CBD can be used in food or dietary supplements:


California incorporates federal law regarding food additives, dietary use products, food labeling, and good manufacturing practices for food . . . . Currently, the United States Food and Drug Administration (FDA) has concluded that it is a prohibited act to introduce or deliver for introduction into interstate commerce any food (including any animal food or feed) to which tetrahydrocannabinol (THC) or CBD has been added. This is regardless of the source of the CBD – derived from industrial hemp or cannabis.  Therefore, although California currently allows the manufacturing and sales of cannabis products (including edibles), the use of industrial hemp as the source of CBD to be added to food products is prohibited. Until the FDA rules that industrial hemp-derived CBD oil and CBD products can be used as a food or California makes a determination that they are safe to use for human and animal consumption, CBD products are not an approved food, food ingredient, food additive, or dietary supplement.


New York

New York City regulators just took a bite out of the Big Apple’s CBD restaurateurs.  The New York Times recently reported that the Department of Health and Mental Hygiene confiscated one bakery’s CBD-infused goods, raw ingredients and CBD powder, and it has ordered all restaurants under its jurisdiction not to sell any food products containing CBD.  Although the bakery claimed that there was “a general lack of clarity” around the use of CBD in food, ignorance of the law is what really seems to have resulted in that uncertainty on the part of the bakery.  The regulators, on the other hand, seem clear eyed.


No, no, no.  Well, maybe.  That’s pretty much sums up Texas, which is considering legislation that would establish regulations regarding hemp cultivation.  Even so, Texas (like California) is following the FDA’s lead and it does not allow CBD in any food, dietary supplement or cosmetic.


But – wait!  What about Colorado?!  Well, it is true that the Colorado Department of Public Health & Environment does allow use “of all parts of the industrial hemp plant” as a food ingredient “in Colorado.”  However, Colorado is not saying that CBD, in general, can be used as a food additive, nor is it suggesting that its policy is consistent with federal or other state law, and its permissive attitude regarding industrial hemp comes with strict conditions

In order for food to contain industrial hemp, a manufacturer must be able to demonstrate the following:

  • All parts of the hemp plant utilized in food must come from a state that has an established and approved industrial hemp program or a country that inspects or regulates hemp under a food safety program or equivalent criteria to ensure safety for human consumption.
  • The producer/grower must be in good standing and compliance with the governing laws within the state or country of origin.
  • The industrial hemp must conform to the standard of identity established in C.R.S., §35-61-101(7) of no more than three-tenths of one percent delta-9 tetrahydrocannabinol (THC).
  • The use of other parts of the hemp plant other than seed and its derivatives (seed meal, flour, and oil), must be lab tested to establish that THC levels are not above the allowable limit of THC.
  • The product must be labeled in conformance with state and federal labeling laws, including:
    • clearly identify hemp as an ingredient;
    • clearly identify CBD and the amount of CBD if added as an isolate;
    • include the statement “FDA has not evaluated this product for safety or efficacy” and;
    • not contain any health or benefit claims.
  • The producer must be able to document that the finished product does not contain more than three-tenths of one percent THC.

Colorado’s conditions are thoughtful, particularly as they relate to testing and identification, but they do nothing to insulate a manufacturer or distributor from the policies of other states.  What goes in Colorado does not mean that it will be accepted in other jurisdictions. Indeed, police in Idaho and Oklahoma have started seizing products being transported across state lines that they deem to be cannabis over the protests of the transporters who claim that the products are actually hemp and, thus, protected from such seizure.  But, that is a story for another post…

Given this brief overview of what some states are doing, I hope that everyone will please keep in mind that the Wild West-approach is better suited for movies.  No manufacturer, distributor or retailer should act with impunity or out of ignorance to the legal restrictions surrounding CBD and its use in food or dietary supplements.  While there are many people and organizations working to enact sensible policies, we just are not there yet. Until we are, we need to work within the law in an effort to cultivate the legitimacy necessary for the cannabis industry to thrive and grow.


“C” is for “Confusion” When It Comes to CBD

Feb 15, 2019

Krümel Monster Muffins” by Xitu is licensed under CC BY-SA 4.0

Wendel Rosen attorney Bill Acevedo, who co-chairs the firm’s Food & Beverage Practice Group, posted a new blog at addressing the “confusion” in the marketplace regarding the use of CBD as an additive or ingredient in food and dietary supplements. 

Bill provides an overview of the way four nationally influential states are handling the issue due to the lack of direct enforcement by the FDA of its unequivocal regulatory prohibition of CBD use in food or dietary supplements.

You can read the full post here:

“C” is for “Confusion” When It Comes to CBD


Who are You Calling a Liar? The Case for Early Substantiation of Labeling Claims

Feb 07, 2019

“I’m not a liar!” by Tristan Schmurr is licensed under CC BY 2.0

Food manufacturers know that they must substantiate their label claims.  However, when they develop this substantiation may vary.  The prudent food manufacturer will develop a claims substantiation file before its puts any claims out into the marketplace to ensure that they are supported by credible evidence, whether it be product testing, market research, scientific studies or literature, or supplier data and/or specification sheets.  This practice is critical, even more so when one is making a “natural” claim about a product as such claims typically garner greater scrutiny from both regulators and class action attorneys. 

Last year, I was asked to comment on a lawsuit brought against the National Beverage Corp regarding its LaCroix sparkling water products.  That lawsuit alleged that LaCroix was falsely marketed as 100% natural even though the products allegedly contained artificial or synthetic additives.  While the National Beverage Corp denied these allegations, it has been hit with a second suit in New York.  Notably, the company is decrying the plaintiffs as “professional liars,” but just as notable is that National Beverage Corp appears to have worked with an accredited lab to develop necessary substantiation after the first lawsuit.  Based upon these results, as well as “confirming supplier certifications,” National Beverage Corp has vigorously decried the more recent New York lawsuit.

Frustrating as it can be to refute claims that one might deem baseless, a good offense is the best defense.  While I do not represent National Beverage Corp, my advice to any food manufacturer is to develop solid substantiation before you are ever asked to prove your claim(s).  Litigation is not a cost-effective claim substantiation strategy.  For more on my thoughts in this regard, check out the most recent article from FoodNavigator-USA about the LaCroix lawsuits. 


Legalized Cannabis 2019 – What Lies Ahead?

Jan 29, 2019

2018 was a big year for the commercial cannabis legalization and provided some clues for what’s to come. The year started with California’s recreational market kicking off just as now-former U.S. Attorney General Jeff Sessions rescinded the Cole Memo. By year’s end, the number of states allowing medical and recreational cannabis rose to forty-four and ten, respectively.

Some major milestones for 2018 included:

  • The introduction of the STATES Act, which would give states the power to regulate commercial cannabis within their own borders.
  • California’s first full year of legalization.
  • Canada’s national legalization of commercial cannabis.
  • High taxes on cannabis businesses and less than expected tax revenue for many states and localities.

These topics are discussed in greater detail in an article by Rob Selna and myself published in mg Magazine, which you can read here.

Court Ruling on 280E

Another major legal development came in late 2018: after a long battle, a US Tax Court ruled that the IRS can continue prohibiting cannabis companies from taking standard business deductions based on Internal Revenue Code Section 280E. 

As discussed in a previous post, Section 280E prevents any trade or business that consists of trafficking in controlled substances from taking deductions or credits for business expenses other than the cost of goods sold. 280E has been a thorn in the side of attorneys, CPAs, accountants and business owners working in the cannabis industry for as long as cannabis companies have been filing their taxes. It has greatly increased the cost of doing business and has prompted even small cannabis companies to adopt complex corporate structures, including management and holding companies. Another tact has been to undertake extremely careful, and sometimes creative, bookkeeping in order to minimize the overly heavy tax burden.

Fed up with what it perceived to be unfair treatment, Harborside Health Center, a major cannabis retailer headquartered in Oakland, decided to take a stand against Section 280E. Unfortunately, a Tax Court didn’t buy their argument. On December 20, 2018, the court ruled that Harborside would have to repay business deductions, estimated to be tens of millions of dollars, that it took on its taxes between 2007 and 2012.

Harborside argued that 280E did not apply to their dispensary earnings because about two percent of revenue came from the sale of non-cannabis related products like clothing and lighters. Harborside relied on the language in 280E, which states that its restrictions shall apply to any trade or business that “consists of trafficking in controlled substances” to mean consists “only of controlled substances.” The U.S. Tax Court disagreed with this interpretation and held that the sale of non-cannabis products was “neither economically separate nor substantially different” from Harborside’s primary business in selling cannabis products. Harborside has said it will appeal the ruling, but for now, 280E’s ban on standard business for cannabis operators stands.


Farm Bill Does Not Authorize CBD in Food or Dietary Supplements

Dec 21, 2018

Followers of Wendel Rosen’s California Cannabis Law Blog may be aware that our firm hosts another blog focusing on food and beverage law at Today, Wendel Rosen attorney Bill Acevedo, who co-chairs the firm’s Food & Beverage Practice Group, posted a new blog explaining the truth behind the new so-called Farm Bill.

Many in the cannabis industry were hoping to hang their hats on the Agriculture Improvement Act of 2018 (aka, the Farm Bill) and its anticipated relaxation of the controls on the production and marketing of hemp as an implicit sign that it is acceptable to use cannabidiol (CBD) in food and/or dietary supplements. Bill explains how the Food and Drug Administration’s guidance dashes those hopes.

You can read the full post here:

Proceed at Your Own Risk: The Farm Bill Does Not Authorize CBD in Food or Dietary Supplements


Proposition 65: High Risk for Cannabis Industry!

Dec 06, 2018

[Special thanks for this guest blog from Wendel Rosen attorney Wendy Manley.]


Those on the forefront of the burgeoning cannabis industry are a bold lot, striking out into the frontier of new, shifting and unanticipated regulations. While these pioneers may have know-how in cultivating, developing and marketing new cannabis products, they likely never imagined the tangle of regulations they would need to manage. Perhaps chief amongst those is the Safe Drinking Water and Toxic Enforcement Act, more commonly known as Proposition 65, or “Prop 65.” Prop 65 is the law behind that sign you’ve seen for more than 30 years in California warning that some thing or place may contain chemicals known to the state to cause cancer or reproductive harm. Many cannabis products, as it turns out, are subject to Prop 65.

Prop 65 requires businesses to provide a warning to Californians of potential exposure to a chemical on the State’s Prop 65 list. Failing to do so leaves a business vulnerable to expensive enforcement action, most of which occurs at the hands of an aggressive citizen contingent (plaintiff’s attorneys) rather than by the state or an agency. While the responsibility for providing the warning rests primarily with the manufacturer, every party in the chain of commerce is potentially liable, including unsuspecting retailers.

Any cannabis business needs to consider whether any listed chemicals in their products could cause an exposure and trigger the warning requirement. Chemicals listed by the state number well over 900, and “marijuana smoke,” not surprisingly, is one of them. As with other consumable products (most notably food), there is a potential for exposure to listed pesticides and metals. A number of cannabis edibles have been stung for cadmium and lead, which appear to have originated in chocolate ingredients. In addition to cannabis products themselves, paraphernalia used for smoking cannabis should also be labeled for exposure to cannabis smoke and possibly other chemicals. More generally, various pthalates and metals such as lead and cadmium seem to be showing up in a vast array of products.

Prop 65 warnings must be “clear and reasonable,” a subjective standard if ever there was one. Fortunately, the regulations provide some specifics for both warning content and the method for transmitting the warning. A warning in conformance with the regulations is deemed “clear and reasonable.”

But – the warning regulations have recently changed, leaving some who previously complied now exposed to litigation. The warning must now state a product “can expose you to chemicals” rather than simply that it “contains chemicals.” It also must name at least one listed chemical for each endpoint (cancer or reproductive toxicity), which requires closer examination of the potential chemicals. The regulations now require a reference to the new Prop 65 webpage and sharply restrict additional information in the warning.

In addition to the specific wording, the regulations include parameters for the appearance of the warning, which vary depending on the product or circumstances. Food warnings, for example, need to be placed in a box, while non-food warnings require a yellow triangle symbol enclosing an exclamation point. Signs posted in designated smoking areas must be 8.5 x 11 inches and contain the warning in 22-point type within a box. And Internet warnings must be provided before purchase. As these examples illustrate, there are a lot of details, and the devil is definitely in those details.

While applying the regulations can be a tedious and nuanced process, those who have weathered the cost and turmoil of an enforcement action understand the risk of taking the matter lightly. The cost of resolving a citizen suit is significant under the best of circumstances. Even if a matter is settled without litigation, defendants must pay the attorneys’ fees of their accusers in addition to penalties, and so typically face paying tens of thousands of dollars without ever mounting a serious defense.

The new warning regulations took effect August 31, 2018. It is high time for everyone in and out of the cannabis industry to carefully review their compliance with Prop 65, and consider getting help with interpreting the regulations for their particular circumstances.



Provisional License Offers Lifeline to California Cannabis Operators

Oct 03, 2018

Governor Jerry Brown recently signed a bill that allows thousands of cannabis operators surviving on expiring temporary licenses to stay open for an additional year without new approval from local authorities.

Brown signed Senate Bill 1459 amid a flurry of legislation on September 27. The bill addresses a problem faced by much of the California commercial cannabis industry: the state cannot issue licenses to operators who have completed state applications until the relevant city or county provides approval, but that local approval has been very slow to come.

In response to the slow local process, the state provided applicants with the option of operating on a 120-day temporary license (and three 90-day extensions) until they were issued a standard state license. The state required some form local authorization to issue the temporary license, but not a finalized local permit. However, the temporary license program was only meant to be a short-term fix and is scheduled to expire on December 31, 2018. After that, a cannabis business could only operate if it obtained a standard license. Yet, many local governments are still moving at a snail’s pace.

Making matters worse, some local jurisdictions announced that they would not provide applicants with local approval for their standard state license unless the applicant had obtained a finalized local permit. In one example, The City of Oakland sent applicants a letter in April refusing to provide local approval for a standard (non-temporary) state license until the applicant had obtained a city permit. Meanwhile, permit-seekers who had filed complete applications more than six months prior were still awaiting inspections from Oakland’s Building and Fire departments, placing applicants in a Catch-22.
Recognizing the protracted delays at the local level, AB 1459 wrests some control from the hands of city and county agencies and gives the state “sole discretion” to decide whether to issue the new a 12-month “provisional” license. The state does not plan to hand out provisional licenses casually however, and has included its own criteria that applicants must meet. In order to be eligible for the provisional license, applicants must have met the following list of conditions:

  • Submitted a completed a standard (non-temp) state license application
  • Filed and signed a provisional license application under penalty of perjury
  • Held or currently holding a temporary license
  • Provided evidence that compliance with the California Environmental Quality Act is underway

The bill represents a lifeline for the vast majority of cannabis permit applicants in counties and cities facing long permitting backlogs that have occurred by no fault of their own.

In Oakland, hundreds of applicants are awaiting sign-off from the City’s Building and Fire Departments before their final permits can be issued. The departments’ staffs have been overwhelmed by the volume of applications and the new complexities that cannabis infrastructure presents.

John Oram, CEO of Oakland-based Bloom Innovations, which owns the popular NUG brand said, “99.9 percent of Oakland cannabis businesses would have had to shut down” while waiting for their local permit to be issued had the Governor not signed SB 1459.

“If the bill had not passed The City of Oakland could have chosen to deny local authorization, which would have forced us to close,” Oram said.