Navigating Cannabis Industry Legislation
The cannabis edibles and beverages industry has begun to establish regulatory underpinnings, but much work lies ahead
Legal cannabis edibles and beverages manufacturing is one of the fastest-growing industries in the US. However, many members of the traditional food and beverage industry—in both manufacturing and from the supply chain—have been reluctant to enter the market due to incongruences related to federal vs. state legal status, the unfamiliarity of the territory, restrictive banking options for legal cannabis businesses, limits imposed on advertising and social media, and other hurdles.
Nevertheless, growth of the industry continues as more states legalize cannabis for medical and/or recreational use.
To date, 30 US states have legalized cannabis for medical purposes:
- New Hampshire
- New Jersey
- New Mexico
- New York
- North Dakota
- Rhode Island
- Washington, D.C.
- West Virginia
Also, nine states—Alaska, California, Colorado, Maine, Massachusetts, Nevada, Oregon, Vermont and Washington—plus Washington, D.C. have legalized use of recreational cannabis products.
Collectively, the legal cannabis market in the US is projected to hit a value of $13 billion by 2019, according to GreenWave Advisors.
And legislation is ongoing. Utah and Missouri will include a measure to legalize medical cannabis on their November ballots. Meanwhile, Michigan and North Dakota, which already permit medical use, now have recreational on the ballot. Legislation is also expected soon in New Jersey and New York, and in other states.
Regulatory first steps
Morgan Fox, media relations director, National Cannabis Industry Association, Washington D.C., notes that regulatory standards related to legal cannabis edibles and beverages vary from state to state.
“Generally, the basic regulatory structure is included in the ballot initiative or legislation that results in the law, and the specifics are determined by a regulatory body either created or assigned by the state,” says Fox. In Washington, the medical program was folded into the adult-use program, she notes, which is controlled by the Washington State Liquor and Cannabis Board.
“In Colorado, infused foods and drinks are regulated at the state level by the Marijuana Enforcement Division of the Department of Revenue,” says Rachael Z. Ardanuy, Esq., RZA Legal, Denver. “This is the department that issues licenses, regulates licensees and places dosing, packaging, labeling, testing and other requirements on those products. Some local governments place further regulations on those companies operating within their boundaries, such as Denver’s Department of Environmental Health.” She notes that the Marijuana Enforcement Division solicits comments and participation from industry members when crafting rules.
Complete state-by-state regulatory governance is available at https://thecannabisindustry.org/ncia-news-resources/state-by-state-policies.
“It is critical, when developing edibles and beverages, to understand the regulatory frameworks for each state fully and tailor the product and packaging to be compliant in each market,” says Shehzad Hoosein, vice president of research & development, Cannabistry Labs, Chicago.
“The good news is that states are starting to borrow ‘best practices’ from each other, and we’ve seen some harmonization of standards across states,” says Hoosein. “Further, organizations such as American Society for Testing and Material International and AOAC International have recognized the opportunity for setting common standards. Recently, California mandated that all third-party testing labs must be ISO 17025 accredited (general requirements for the competence of testing and calibration laboratories), which is a step in the right direction.”
With the rise of required testing of products, such as the new measures now in place in California, the need for increased quality assurance and control has significantly risen. After required checks on products started in California on July 1 of this year, nearly 20 percent of cannabis products failed tests for standardized potency and purity, with edibles like cookies and candies the worst offenders, as reported by the state’s Bureau of Cannabis Control. While some products were ordered destroyed, others simply required adjustments to the label. Current rules in the state require THC concentration to be within +/- 10 percent of the label declaration. Labs are also testing for impurities like bacteria, mold and pesticides. Dealing with rejected product impacts the bottom line, straining budgets.
In order to streamline business models and profitability, legal cannabis edibles companies clearly need to step up their level of operational sophistication, and insights and expertise from the food and beverage industry will do much to help them get up to speed.
“In my opinion, edible and beverage manufacturers would do well to set their internal standards to mirror existing FDA regulations and GMP requirements for food and beverage products as per 21 CFR Sections 170–189,” says Hoosein. “Doing so will not only yield a higher level of consumer safety, but also provide confidence to regulators that the industry is ready for federal legalization.”
A changing climate
According to federal law, cannabis is still a Schedule I drug. But the federal government has tolerated individual state laws that have legalized medical and recreational use. FDA has even approved its first cannabis-derived drug, Epidiolex, which features cannabidiol (CBD), to help prevent seizures associated with epilepsy. This directly challenged the federal Schedule I classification of cannabis (by definition, Schedule I drugs have no medical benefit).
In late September, the DEA announced that FDA-approved CBD drugs “that contain CBD derived from cannabis and no more than 0.1 percent tetrahydrocannabinol” would no longer fall under Schedule I classification. This action was specifically prompted by FDA’s approval of Epidiolex. This will allow for distribution of the drug through standard channels like pharmacies instead of legal cannabis dispensaries.
Pressure for federal action will also undoubtedly increase now that Canada has standardized its policy. As of October 17, Canada has completely legalized use of recreational and medical cannabis.
“The growing number of states that allow cannabis in some form, the increasing calls for more research, and the steady rise of public opinion supporting removing cannabis from the schedule of controlled substances are all contributing to an environment where such a change could be on the horizon,” says Fox. “Several pieces of legislation have been introduced in Congress to de- or re-schedule cannabis, and they are gaining traction.”
The Congressional Cannabis Caucus, consisting of Dana Rohrabacher (R-CA), Earl Blumenauer (D-OR), Jared Polis (D-CO) and Don Young (R-AK), has formed with the goal of harmonizing federal laws that prohibit medical and recreational cannabis use with state laws that permit it. The caucus also intends to increase medical research into cannabis and change regulations on banking and taxation for cannabis businesses.
“In my opinion, there are three areas where the US could learn from Canada,” says Hoosein. “First, at a policy level, Canada is approaching legalization as a health and safety issue instead of a drug issue. Second, Canada has shown there is a strategic role that the government can play by integrating itself into the supply-chain and route to market. By doing so, they will be able to maintain control of various aspects of the industry as it unfolds, including distribution, pricing, taxation, etc. Finally, Canada has shown the willingness to bring in experts from across the spectrum to help craft a workable framework for operating.”
Some sources note that, apart from FDA-approved CBD-based drugs, the federal government still generally classifies CBD as a Schedule I drug (even though enforcement is sporadic at best).
“There is some confusion at the federal level,” says David Abernathy, vice president, data & government affairs, Arcview Group, Oakland, CA. “The DEA maintains that CBD is a Schedule I drug (at least until they complete the rescheduling process), but many people dispute the idea that CBD is included with cannabis in the Schedule I classification. Products containing hemp-derived CBD are widely available in the mainstream US market despite the DEA’s claim that it is illegal.”
Ardanuy notes that most companies producing CBD products have not complied with the requirements to get approval, which include registration with the DEA, obtaining the Schedule I material from a legally authorized provider, etc.
A drive to permit hemp farming in the US could help affect change for hemp-derived CBD, driving increased medical research and edibles and beverages product development. Mitch McConnell (R-KY), the Republican senate majority leader, has introduced the Hemp Farming Act of 2018, which would remove hemp from the DEA’s Controlled Substances Act and open a new commercial cash crop for US farmers. A vote is expected this fall in connection with the renewal of the 2014 Farm Bill, which currently permits growing hemp for research, but not commercial, purposes; 40 US states have approved this level of hemp cultivation.
“Cannabis in general, and THC in particular, remain Schedule I drugs in the US,” says Abernathy. “We have seen movement in Congress that suggests that CBD might eventually be exempted from the Controlled Substances Act in states that have legalized cannabis, but it will likely take some time to get that through Congress and signed by the president. That could happen as soon as next year, but it may take significantly longer.”
Broadly loosening restrictions on CBD would open the door to significantly more medical research, significantly catalyzing further growth of the industry.