Wendel Rosen LLP’s Food & Beverage Practice Group attorneys have been regular attendees at Expo West from the earliest days of this beloved annual gathering of emerging and established brands, industry insiders, buyers, investors, and service providers.  The meaningful gathering of our community, the joy of reconnecting with our friends, and the fun of making new connections to celebrate in the years to come, is what makes this event truly special.  This year, though, it is the very act of gathering that also presents a risk that many in the industry have deemed too great to bear.

The Centers for Disease Control and Prevention (CDC) advises that COVID-19 is generally thought to spread mainly from person-to-person who are in close contact with one another (approximately 6 feet) or through respiratory droplets produced when an infected person coughs or sneezes.  The virus, according to the CDC spreads easily and sustainably in a community.  Not surprisingly, these factors make attending Expo West a difficult choice for our attorneys.  We are in regular contact with our clients, friends and acquaintances throughout this multi-day show, often shaking hands (or giving high-fives), enjoying product samples, and exchanging cards.  While we are not suggesting that participating in Expo West must be avoided, we are taking the position that the health of our attorneys and the community that they serve is of paramount concern.

In an open letter to the community, New Hope Network has acknowledged the challenge in hosting an event attended by tens of thousands of people from all over the world given the ongoing spread of COVID-19:  “Many of our partners due to attend Expo West have urged us to continue with the show. Many have suggested we postpone it. The polarity of responses leaves us in a difficult position, as we do not want to upset or let down anyone in our community.”

To our clients and industry contacts who have made the difficult decision not to attend Expo West this year, we share your disappointment in missing the show.  To those who have decided to attend Expo West, we wish you a healthy, happy and productive show.   We hope to catch up with all of our clients and industry contacts soon.

Wendel Rosen food and beverage attorneys William Acevedo, Karen Balderama and Dick Lyons will be attending the Natural Products Expo West tradeshow in Anaheim, California from March 7-9, 2019.  They’ll be there to check in with our clients, see the newest products and trends, catch up with industry partners, and support OSC2. 

Wendel Rosen is proud to sponsor OSC2’s sold out Community Breakfast, which will educate sustainability focused CEOs and business leaders on innovative and collaborative ways that brands can work toward building regenerative business models and agricultural systems.  Even though they’ll be on the run to soak in all that Expo West has on offer, please make it a point to stop Bill, Karen and Dick in the Exhibit Hall and say hello!

As I typically do, I attended this year’s Natural Products Expo West tradeshow in Anaheim, California. It was a great opportunity to see my clients and taste their many wonderful product offerings. This year, however, it was also an opportunity for me to hear from industry business leaders and consultants about the state of cannabinoids, and CBD in particular, regarding food and dietary supplements. It is no understatement to say that this topic was high on everyone’s minds this year.

As I previously wrote, the Federal Food and Drug Administration (FDA) has taken a dim view of cannabis, THC and CBD products. To date, the FDA has not approved a marketing application for marijuana for any indication. The FDA also has concluded that THC and CBD products are excluded from the dietary supplement definition set forth in sections 201(ff)(3)(B)(i) and (ii) of the Federal Food, Drug & Cosmetic Act (Act). Summarized briefly, if a substance is an active ingredient in a drug product that has been approved under 21 U.S.C. § 355 (section 505 of the Act), or has been  authorized for investigation as a new drug for which substantial clinical investigations have been instituted and for which the existence of such investigations has been made public, then products containing that substance are outside the definition of a dietary supplement. THC, for instance, is the active ingredient in two approved drug products, and there are clinical investigation regarding CBD that have been made public. Thus, products containing THC or CBD  cannot be marketed as dietary supplements.

So, for now, many companies are sitting on the fence, cognizant of the market demand for cannabis, THC and CBD products, but wary of the regulatory pitfalls that remain, despite the enactment of medical marijuana and, to a more limited extent, recreational cannabis laws in many states. That is not to say, however, that businesses are burying their heads in the sand.

Sean Murphy, the editor of the Hemp Business Journal, noted a few disruptions to watch, but there were two that really stood out as harbingers of what may come:

1. Canada’s legislation will legitimize its cannabis industry.  The proposed Canadian Cannabis Act will create rules for producing, possessing and selling cannabis across Canada.  Additionally, Neptune Wellness Solutions CEO Jim Hamilton noted that the Canadian government is encouraging banks to work with the cannabis industry.  Apparently, the Canadian government believes that it is in Canada’s best interest to have banking standards for the industry and to weed out criminal elements from legitimate business.  (This “novel” concept is something that I previously wrote about in my money laundering blog post.) More importantly, Mr. Hamilton noted that Canada is a great “test market.”  Major brands are doing their research for when the U.S. market matures.  As reported by Time Magazine, Canada’s entry into legalized cannabis allows for the creation of a functional market, which allows the United States to study an efficient market and how to effectively nurture an industry where rules may vary among provinces.  Such factors are of particular interest to any thoughtful business interested in participating in what is sometimes termed the “Green Rush.”
2. Big Tobacco, Big Alcohol, and Big Pharma are all investing in cannabis-based business.  It was widely reported earlier this year, for example, that Constellation Brands (Corona and Modelo Beer, Svedka Vodka, Black Velvet whiskey, etc.) acquired a minority-stake in Canada’s Canopy Growth Corporation.  The goal is to develop a non-alcoholic cannabis beverage in Canada.  According to its website, Constellation Brands made this investment to “[stay] ahead of consumer trends and to exchange knowledge and expertise.”

For the time being, though, the United States’ patchwork approach to cannabis legalization has allowed small companies to grow without competition from corporate giants. However, if/when federal policy changes, larger players will enter the space. There is too much money to be potentially made to ignore.

While these disruptors are exciting to hear about, remember that all industries have a similar life cycle: introduction, growth, maturity, and decline. For many sectors of the cannabis industry, the industry is still in the introduction phase, albeit a few have entered the growth stage. These two “early” phases will require a significant amount of capital. Thus, it is also important to heed certain caveats.

First, while the Justice Department is sending mixed signals, one must still remember that the FDA has the power to shut the CBD-infused product market down. To date, the FDA has only shown interest in shutting down CBD companies that are making aggressive claims regarding the health benefits of their products. The FDA has been issuing warning letters indicating that CBD is not an approved dietary supplement, and there is no recognition of CBD as a generally regarded as safe (GRAS) ingredient. Thus, companies must carefully evaluate the FDA’s currently published guidance on CBD, THC and cannabis as they formulate and develop their products to better understand the regulatory challenges that they may face in successfully bringing those products to market.

Is it odd for a lawyer to write a blogpost about how to avoid lawyers?  Not at all. We hate to see claims of misrepresentation made against our clients by plaintiff’s class action attorneys. Typically, their claims have little merit and mean only wasted time, money and energy.

The goal of the class action attorneys is to extract the largest ransom with the least work. Anyone with a computer can generate rafts of “cut and paste” demand letters and complaints. They usually try to exploit vagueness in the law, often using professional plaintiffs who show up in scores of copycat lawsuits.

Enough diatribe! Your New Year’s resolution should be to stay away from class action attorneys in 2018. Here are some guidelines that will help you do that. We’ll have more posts on the subject as the year progresses.

Prop. 65: California Prop. 65 requires that you make disclosures on your labels if your product contains more than specified limits of identified chemicals. If you are selling in California, look at the list of chemicals on the Prop. 65 list. Now find a qualified lab that can test samples of your product runs for Prop. 65 chemicals and get the testing done. I can assure you that if your product category (chocolate – for example) is known for having trace elements of Prop. 65 chemicals, there are plaintiff’s lawyers who are testing your product. You should know the results of those tests before they do. If your product does have amounts of these chemicals that require Prop. 65 notices, it may be cheaper to put notices on your packages than it is to reformulate. It will certainly be cheaper than settling a class action claim for failure to include a Prop. 65 notice.

“Natural”: “Natural” is an accepted term to describe the marketplace. The largest industry event is “Natural Products Expo West.” The main retail publication is the “Natural Foods Merchandiser.” Food stores, whether independent or parts of a chain,  are referred to as “Natural Food Stores.” However, just because “natural” is used by the industry and the public to describe minimally processed foods does not mean it should have a home on your label. There’s no legal definition of “natural.” In 2015, in response to industry requests, the FDA asked for comment about whether “natural” should be defined and, if so, how. After receiving many comments, the FDA did nothing then. Last year, FDA Commissioner Dr. Scott Gottlieb said that the FDA is now looking at how to define “healthy” and “natural” more uniformly. “Natural” claims are one of the largest source of class action suits. Until “natural” has a clear legal definition and you are sure that your product meets it, don’t put the word on your label. It’s as simple as that.

“Healthy”: Is your product healthy? Of course it is. Would you be selling a food product that is unhealthy?  Of course not. Would you be advertising “Now, Even More Unhealthy In Convenient Family Pak?” Of course not. Unlike “natural,” the FDA does have a definition for “healthy.” However, the definition must be used carefully. It is out of date, contrary to current nutritional science and is under review. The FDA is reconsidering the definition and, last year, agreed that KIND bar could continue using “healthy” on its labels even though KIND bars exceeded the amount of fat allowed in the FDA definition. Our best advice is not to use the word “healthy” until there is a new definition. However, it you feel compelled to use it, find out if your product satisfies the requirements.

That’s it for now. I hope this New Year’s resolution comes true for you. See you at the Specialty Food Show or EXPO West.