Hemp-CBD, Oregon and the Unlawful Trade Practices Act

This is the first in a three-part series addressing why companies making and sell hemp-derived CBD products ought to be concerned about state consumer protection laws and offering a few thoughts on how to mitigate the risk of running afoul of those laws. This week we will look at Oregon, followed by Washington, and California. Please note that these laws are complex, so this is just a broad overview.

Increasingly, makers of CBD products are finding themselves on the wrong side of federal regulators and named as defendants in multi-million-dollar lawsuits.  We’ve written extensively about warning letters issued by the Food and Drug Administration (FDA) to businesses selling hemp-derived CBD products as unapproved drugs:

And we’ve written about, and forecasted, significant litigation involving hemp-derived CBD:

Recently, Alison Malsbury wrote about a new a class action lawsuit against Charlotte’s Web and Infinite Product Co., alleging the former improperly marketing its CBD products as dietary supplements and the latter made unsubstantiated therapeutic claims about CBD. Alison points out that this and other lawsuits should come as no surprise, and she shares some startling statistics about the trustworthiness of CBD labeling. Notably the Charlotte’s Web lawsuit (and others) include claims brought under state consumer protection laws. So let’s take a look at Oregon:

What is the Unlawful Trade Practices Act (UTPA)?

The UTPA is designed to protect consumers from certain business practices. See O.R.S. §§ 646.605-646.656. The UTPA is a potent weapon against consumer fraud and in the hands of a skilled plaintiff’s attorney, one with potentially devastating consequences for your hemp-derived CBD business.

Generally the UTPA provides that a person engages in unlawful trade practices, if, in the course of business, the person: (1) employs any “unconscionable tactic” when selling, renting, or disposing of real estate, goods, or services; or (2) fails to deliver any or all of the portion of real estate, goods or services as promised, and at a customer’s request , refuses to refund money to the consumer for undelivered goods.

The UTPA enumerates 72 specific unlawful business practices. Here are a few that may lend themselves to a lawsuit against company selling CBD products:

  • knowingly taking advantage of a customer’s physical infirmity, ignorance, or illiteracy;
  • knowingly permitting a customer to enter into a transaction from which the customer will derive no material benefit;
  • causing confusion or misunderstanding on the source, approval, affiliations, or ties of a particular good, or service;
  • advertising real estate, goods, or services with the intent to not provide the items advertised;
  • misrepresenting the characteristics, ingredients, uses, benefits, quantities, or qualities of real estate, goods, or services;
  • making false or misleading representations of fact about the real estate, goods, or services of the customer or another;

The UTPA pleading and proof requirements are not as stringent as common-law fraud and, as a consumer protection statute, the UTPA is to be interpreted liberally in favor of consumers. For example, the Oregon Supreme Court has held with respect to whether the defendant acted “willfully” that “‘no more than proof of ordinary negligence by a defendant in not knowing, when it should have known, that a representation made by him was not true.” This is not a tough standard to meet: After all, shouldn’t a company selling hemp-derived CBD know how much CBD is in its product?

What are the significant risks for violating of the UTPA?

There are three significant litigation risks. The first is that the Oregon Attorney General (or District Attorney) commences a proceeding against your company as recently happened with the maker of 5-Hour Energy drinks. Such an action may commence with the Oregon DOJ Civil Enforcement Division issuing your company a letter seeking to resolve the letter. The prosecuting attorney may issue investigative demands, require the production of documents or require that you answer interrogatories. Before filing suit suit, the Oregon DOJ will advise you of the problem and give you an opportunity to enter into an Assurance of Voluntary Compliance (AVC). An AVC requires you to stop the unlawful practice and promise not to engage in the conduct in the future. An AVC is similar to a consent decree, and breach of an AVC is considered contempt of court. (Not something to take lightly.)

The second risk is a lawsuit by a consumer. Although these actions have some limitations as compared to actions by the Attorney General, the key risk is that the consumer may recover her attorneys’ fees along with actual damages or $200, whichever is greater. Although the law also permits punitive damages in limited circumstances, the attorneys’ fees provision is the most worrisome. That part of the UTPA may turn lawsuit where the actual damages are perhaps $100 (e.g. the price of the product) into one in which the consumer’s attorney seeks thousands or tens of thousands of dollars from your CBD business.

A third significant risk is UTPA lawsuits may be brought as class actions. Suppose a small Oregon-based CBD topical company sells its hemp-derived CBD product for $100 and sold 1,000 units in the last year and that the product labels violate the UTPA in some way. A plaintiff’s class action lawyer may commence a lawsuit seeking to recover $200,000 ($200 x 1,000) plus attorneys’ fees. Those fees may easily reach or exceed the actual or statutory damages and will become part of any settlement discussion. The potential liability can skyrocket if the CBD business sells 10,000 units ($2 million + attorneys’ fees) or 100,000 units ($20 million + attorneys’ fees).  By way of comparison, the class action lawsuit against Infinite Product Co. alleges damages exceeding $5 million and asks for attorneys’ fees.

What may I do to mitigate risks of running afoul of Oregon’s Unlawful Trade Practices Act?

The most obvious way is to ensure that your hemp-CBD product is what it says it is and that you do not over-promise. (See above links re FDA and other litigation). Notably, the UTPA does not apply to conduct in compliance with the orders or rules of, a statute administered by a federal, state, or local government agency. So pay close attention to any action by the FDA regarding CBD, which of course you can read about here. And when it comes to ensuring your product “is what it says it is,” consider making use of additional and regular testing of your product and constituent materials provided by suppliers. If your company is contracting with a third-party to provide manufacturing or packaging services or crude or distillate, consider how may contract to shift or alleviate risks through reps and warranties clauses and indemnity provisions.  Please reach out to one of our cannabis attorneys if you have further questions.

Cannabis Patent Litigation: the Presumption of Validity

I recently received an inquiry as to how difficult it would be to invalidate a competitor’s patent in litigation. In short, it’s pretty tough.

A patent is deemed invalid “if the differences between the subject matter sought to be patented and the prior art are such that the subject matter as a whole would have been obvious at the time the invention was made to a person having ordinary skill in the art to which said subject matter pertains.”

In light of the Supreme Court’s decisions over the years, it’s clear that an infringer asserting the defense of invalidity has high hurdles to overcome due to three considerations:

1. The USPTO examiner having reviewed the prior art, has already made a determination that the patent is not obvious in view of this prior art.

Patents issue only after a pretty extensive examination has been conducted, which includes analysis as to whether the form and content of each application conforms to the applicable laws. Actions taken by agencies of the government are generally granted the presumption of administrative correctness. In this context, that presumption is actually codified into my next point, the existence of 35 U.S.C.A. § 282.

2.  Patents are presumed to be valid under 35 U.S.C.A. § 282, so defendants must prove invalidity by clear and convincing evidence.

That section provides, in relevant part:

A patent shall be presumed valid. Each claim of a patent (whether in independent, dependent, or multiple dependent form) shall be presumed valid independently of the validity of other claims; dependent or multiple dependent claims shall be presumed valid even though dependent upon an invalid claim. The burden of establishing invalidity of a patent or any claim thereof shall rest on the party asserting such invalidity.”

Although a nebulous concept, “clear and convincing” evidence has been described as evidence which produces in the mind of the trier of fact an “abiding conviction” that the truth of the factual contentions is highly probable. Translation: it’s the highest burden you could bear. (Note, the statutory presumption of validity attaches to each claim independently of other claims).

3.  A federal court will only overturn the district court’s underlying factual determinations under the clearly erroneous standard of review.

The district court will determine the issue of obviousness as a matter of law based on several factual determinations:

  • “The scope and content of the prior art”;
  • “Differences between the prior art and the claims at issue”;
  • “The level of ordinary skill in the pertinent art”; and
  • “Such secondary considerations as commercial success, long felt but unsolved needs, failure of others, etc.”

These are usually fact-intensive inquiries, and the higher courts trust that the district court reviewed the evidence carefully.  Unless a factual determination is glaringly wrong (which almost never happens), it won’t be questioned.

For more on cannabis patent litigation, check out the following posts:

Charlotte’s Web Faces Class Action Lawsuit for Improperly Marketing CBD Products

We’ve written extensively about hemp-derived CBD and the myriad issues faced by manufacturers CBD edibles. You can read more about this topic here:

And now, adding to the regulatory woes faced by many CBD companies, Charlotte’s Web Holdings Inc. and Infinite Product Co. have both been served with consumer class suits in California alleging that the products made by both companies violate FDA regulations and therefore violate California state law.

According to allegations, the Charlotte’s Web CBD products are labeled as dietary supplements, which according to the U.S. Food and Drug Administration (FDA), is not allowed:

Based on available evidence, FDA has concluded that THC and CBD products are excluded from the dietary supplement definition under section 201(ff)(3)(B) of the FD&C Act [21 U.S.C. § 321(ff)(3)(B)]. Under that provision, if a substance (such as THC or CBD) is an active ingredient in a drug product that has been approved under section 505 of the FD&C Act [21 U.S.C. § 355], 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 excluded from the definition of a dietary supplement.”

The FDA, as we have covered before, has explicitly stated that it is not legal to sell a food (including any animal food or feed) in interstate commerce to which THC or CBD has been added.

The lawsuit against Infinite Product Co. is slightly different, in that it targets products sold by the company included marketing statements that “CBD can alleviate some symptoms of autism, that cannabinoids have been found to inhibit the growth of cancer cells, and that, because of opiods’ addictiveness and painful withdrawal symptoms, people have moved to using CBD.”

The FDA has issued multiple statements that “[s]elling unapproved products with unsubstantiated therapeutic claims – such as claims that CBD products can treat serious diseases and conditions – can put patients and consumers at risk by leading them to put off important medical care,” and observed that “[t]he FDA has previously sent warning letters to other companies illegally selling CBD products that claimed to prevent, diagnose, treat, or cure serious diseases, such as cancer. Some of these products were in further violation of the Federal Food, Drug and Cosmetic Act because they were marketed as dietary supplements or because they involved the addition of CBD to food.”

Both causes of action in this case include allegations of violations of California Unfair Competition Law, California False Advertising Laws, California Consumer Legal Remedies Act, Breach of express and implied warranties, and the state’s Declaratory Judgment Act.

What is truly unfortunate is that these lawsuits come as no surprise. It has been widely acknowledged that there is no uniform regulatory framework in place to ensure that consumers of CBD products are actually consuming what they think. Leafly recently published a report showing that while most of the 47 CBD products they purchased and tested contained some CBD, most products did not contain the amount of CBD promised on the label. Leafly’s data broke down as follows:

  •     51% of products (24 of 47) delivered the promised CBD within 20% of the labeled dosage;
  •     23% of products (11 of 47) delivered some CBD, but less than 80% of the dosage promised on the label;
  •     15% of products (7 of 47) delivered more than 120% of the promised CBD; and
  •     11% of products (5 of 47) delivered no CBD whatsoever.

These results should be extremely concerning both to consumers, who may lack confidence about the nature of the products they’re purchasing, and to suppliers, who are opening themselves up to product liability lawsuits like those filed against Charlotte’s Web Holdings and Infinite Product. We expect that this is only the beginning of the lawsuits to come against CBD companies, and recommend that operators in this space talk to their attorneys about labeling, marketing, and advertising practices before becoming the next target.

Hemp-CBD Across State Lines: Missouri

The Agriculture Improvement Act of 2018 (“2018 Farm Bill”) legalized hemp by removing the crop and its derivatives from the definition of marijuana under the Controlled Substances Act (“CSA”) and by providing a detailed framework for the cultivation of hemp. The 2018 Farm Bill gives the US Department of Agriculture (“USDA”) regulatory authority over hemp cultivation at the federal level. In turn, states have the option to maintain primary regulatory authority over the crop cultivated within their borders by submitting a plan to the USDA.

This federal and state interplay has resulted in many legislative and regulatory changes at the state level. Indeed, most states have introduced (and adopted) bills that would authorize the commercial production of hemp within their borders. A smaller but growing number of states also regulate the sale of products derived from hemp.

In light of these legislative changes, we are presenting a 50-state series analyzing how each jurisdiction treats hemp-derived cannabidiol (“Hemp CBD”). Each Sunday, we summarize a new state in alphabetical order. Today we turn to Missouri.

On June 1, 2018, Missouri passed House Bill 2034 (“HB 2034”), which has been codified, in part, at MO. St. 195.010, and legalized the cultivation of industrial hemp. Industrial hemp include “industrial hemp commodities and products and topical or ingestible animal and consumer products derived from industrial hemp with a delta-9 tetrahydrocannabinol concentration of not more than three-tenths of one percent on a dry weight basis[.]”

The program became effective on August 28, 2018 and is overseen by the Missouri Department of Agriculture (“MDA”). The MDA published proposed rules, which it recently amended, to align with the USDA hemp interim rules published on October 31, 2019. Accordingly, the MDA has yet to issue licenses under the program.

Although the MDA regulates the cultivation of hemp, the agency does not oversee the production of Hemp-CBD products, including Hemp-CBD foods and beverages. This task seems to fall under the Department of Health’s authority. Missouri law provides that “[a] food shall not be considered adulterated solely for containing industrial hemp, or an industrial hemp commodity or product.” Nevertheless, the state seems to defer to FDA regulations when providing additional resources on hemp and hemp products. The manufacture, distribution and sale of other Hemp-CBD products, including smokable products and cosmetics, is not apparently authorized nor restricted under Missouri law, meaning these products are probably lawful but remain unregulated at the moment.

Despite the enactment of HB 2034, some confusion remains regarding whether it is lawful to sell and possess hemp extracts, including Hemp-CBD oil, in the state. As part of a limited medical cannabis program, Missouri regulates the use of hemp extracts, which are defined as extracts from cannabis plant material that have less than 0.3% THC and at least 5% CBD by weight and contain no other psychoactive substances. Since 2014, access to hemp extracts has been limited to patients suffering from intractable epilepsy that are registered with the Missouri Department of Health. HB 2034 expanded who may legally possess Hemp-CBD,  as the bill does not include possession limits. Yet, the Department of Revenues recently reached out to the state’s Attorney General’s office to clarify this issue, asking whether the department could issue sales tax licenses to businesses selling Hemp-CBD. Unfortunately, both the Attorney General’s Office and the Department of Revenue decided not to make the opinion public. This, local reporting explained, led to “a type of don’t-ask-don’t-tell policy, creating an environment in which businesses selling CBD oil can get a sales tax license as long as they don’t say they are selling it.”

Therefore, for the time being, the sale of Hemp-CBD products is unregulated, creating potential liability risks for sellers in the states.

For previous coverage in this series, check out the links below:

Your Hemp Questions Answered (Part 2)

Last month, Daniel Shortt and I put on a webinar on the US Department of Agriculture’s (“USDA”) new interim hemp rules. We got some great questions from our viewers but were unable to answer all of them in real-time. In this two-part series, Daniel and I will respond to a number of those questions. In the first part [ONCE FIRST POST IS PUBLISHED, ADD LINK], Daniel focused on licensing and transportation questions. Today, I will focus on questions related to THC testing.

TESTING

Has the USDA provided any list of seeds that have satisfied total THC testing?

No. Although certain states have identified hemp seed that would work well in their specific geographical areas, the USDA has decided not to include a seed certification program in the rules. The agency explained its decision as follows: (1) the same seeds grown in different geographical locations and growing conditions can react differently; (2) the technology necessary to determine seed planting results in different locations is not currently advanced enough to make a seed certification scheme feasible; and (3) the agency does not have accurate data on the origin of most hemp seed planted in the U.S.

Are you going to address the 15 days to finish harvest rule? It means that if the lab is backed up with tests, it’s possible harvest would have to commence and possibly finish before results are received?

Requiring that growers test hemp plants within 15 days of the anticipated harvest may be an impossible obstacle for growers to overcome because it would not provide enough time for growers to sample, test, submit testing and receive a response before harvest, especially if there will be a limited numbers of testing labs. This is one of the issues that Senators Wyden and Merkley commented on in a letter to the USDA. We strongly suggest you share your thoughts as well on this matter.

How do the testing rules relate to hemp biomass?

The USDA testing rules do not address the testing of hemp biomass. Instead, the rules only provide for the pre-harvest testing of hemp. The testing of hemp biomass may be addressed under state rules. Note, however, that states like Oregon only impose THC testing requirements on pre-harvest and finished products intended to be sold to end-use consumers and are not providing guidance on the testing of hemp biomass.

Must labs be 17025 certified? Is there a grace period to get certified?

The USDA rules provide that it is considering establishing a fee-for-service hemp laboratory approval process for labs that wish to offer THC testing services. These USDA-approved labs would need to comply with the USDA’s ‘‘Laboratory Approval Program” requirements, which mandate that labs be ISO 17025 accredited. Alternatively, the agency is contemplating requiring all labs testing hemp to have ISO 17025 accreditation. Accordingly, because the USDA is only considering an ISO accreditation, it is unclear whether a grace period would apply. This is likely an issue that the agency would clarify if it were to adopt an accreditation process.

Is there any language on R&D allowances? For example, having R&D fields separate from production fields.

No, the rules do not address this issue.

Please explain in more detail the concept of delta 9 and total THC testing.

We have written on this issue and would suggest reading this post.

Regarding the switch to total THC by the ODA – has their plan been approved by the USDA yet? If not, then how important is it to follow their rules to a t?

As the 2018 Farm Bill states, and as the USDA rules reiterate, the 2014 Farm Bill will remain in effect until October 31, 2020. Moreover, until the USDA approves a state’s plan, in this case Oregon’s, the current Oregon Department of Agriculture (“ODA”) rules are the only requirements with which registered growers and processors must comply. Therefore, it is crucial for ODA registrants to follow these rules particularly until the USDA approves the ODA’s plan under the 2018 Farm Bill. Moreover, it is important to remember that the USDA rules only set a floor for state plans, which means that states are free to set more stringent standards for the production of hemp.

Can you get a recreational marijuana license and hemp license and just cover yourself that way if your crop test “HOT”?

The short answer is no. Although states like Oregon allow the same entity to hold an ODA registration and an Oregon Liquor Control Commission (“OLCC”) recreational marijuana license, both agencies require that the hemp and marijuana handled by the registrant/licensee be kept separate. Therefore, an ODA registrant could not simply transfer its “hot hemp” to its marijuana business to avoid liabilities under the ODA testing rules.

Will hemp processing facilities (extraction) be required to have a DEA registration?

The USDA rules do not address the processing of hemp. The oversight of hemp processing will fall on the state’s shoulders (departments of agriculture or departments of health, most likely). Therefore, it is unclear at this time whether states will mandate that processing facilities be DEA registered.

Friday, December 6, 2019 Headlines | Marijuana Today Daily News

Marijuana Today Daily Headlines
Friday, December 6, 2019 | Curated by host Shea Gunther

// After long wait, Maine to issue applications for 1st marijuana stores (Portland Press Herald)

// Police shouldn’t ticket pot smokers in backyards or on balconies, Lightfoot says (Chicago Sun Times)

// Cory Booker’s Marijuana Agenda Highlighted In Three Super PAC Ads (Marijuana Moment)


These headlines are brought to you by MJToday Media, publishers of this podcast as well as our weekly show Marijuana Today and the most-excellent Green Rush Podcast. And check out our new show Weed Wonks!


// Cheap weed sells: Ontarians flock to OCS for $5 grams (Leafly)

// Canadian provinces erect barriers for regulated cannabis vape market (Marijuana Business Daily)

// New Colorado law boon for cannabis capital, but concerns remain for minority businesses (Marijuana Business Daily)

// L.A.’s Cannabis Cafe Is Rebranding and Parting Ways with Lowell Herb Co. (LA Magazine)

// PA Judge Rules That Healthcare Worker Can Sue Employers for Being Fired Over Pot (Merry Jane)

// Amazon Allegedly Fired and Blacklisted a Worker for Using Medical Cannabis (Vice)

// Willie Nelson Will ‘Never Stop Enjoying’ Marijuana Despite Quitting Smoking, Son Says (Marijuana Moment)


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Marijuana Today— Our flagship title, a weekly podcast examining the world of marijuana business and activism with some of the smartest people in the industry and movement.
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Your Hemp Webinar Questions Answered (Part 1)

Last month, Nathalie Bougenies and I put on a webinar on the US Department of Agriculture’s (“USDA”) new interim hemp rules. We got some great questions from our viewers but were unable to answer all of them in real-time. In this two-part series, Nathalie and I will respond to a number of those questions. This first part will focus on licensing and transportation questions. In tomorrow’s post, Nathalie will respond to questions relating to THC testing.

LICENSING

If a state, like Tennessee, operates under the 2014 Farm Bill, but the state applies for a USDA state plan and that is approved, does that then void the 2014 pilot rules and regulations for existing farms in Tennessee operating under 2014 Farm Bill?

Each state is handling the transition from the 2014 Farm Bill to the 2018 Farm Bill a little differently so if you are a hemp producer operating under a 2014 Farm Bill program, you’ll need to check with your state’s department of agriculture. Also, the 2018 Farm Bill extended the 2014 Farm Bill for one year after the USDA  published its interim rules on hemp (October 31, 2020) meaning that states who submit 2018 Farm Bill plans can continue to regulate under the 2014 Farm Bill. It’s also likely that most states will implement procedures to allow current licensed producers to transition to the 2018 Farm Bill.

Because this question addresses Tennessee specifically, the following passage from the Tennessee Department of Agriculture is helpful:

The U.S. Department of Agriculture (USDA) has released a draft of the rule outlining federal provisions for the domestic production of hemp. A preview of the rule is posted on USDA’s website, along with answers to frequently asked questions.

Leaders at the Tennessee Department of Agriculture (TDA) are reviewing this draft to determine potential impact on Tennessee’s hemp program.

No immediate changes are expected. Licensed hemp growers in Tennessee will continue to operate under current state regulations at this time.

As of Nov. 1, we have 3,800 producers licensed to grow as much as 51,000 acres of hemp statewide.

TDA looks forward to continue working with farmers and industry partners to support the production of hemp in Tennessee.

Since USDA has not regulated processing, is an entity that grows not allowed to process? Must a separate entity be formed?

Nothing in the 2018 Farm Bill or the USDA’s interim hemp rules explicitly allow or prohibit a hemp producer from processing hemp. The USDA doesn’t really touch on processing at all. Some states issue licenses to process hemp and may continue to do so under the 2018 Farm Bill. State law must be analyzed to determine what is required for processing.

TRANSPORTATION

Can you legally transport extracted Hemp CBD across state lines lab tested which shows less than 0.3% THC?

The 2018 Farm Bill prevents a state from interfering with the transport of hemp that was legally cultivated. Hemp is defined under federal law to encompass hemp derivatives, which includes Hemp-CBD. Strictly speaking, you can legally transport Hemp-CBD across state lines. However, states are free to prohibit the sale or distribution of Hemp-CBD within their borders.

Thursday, December 5, 2019 Headlines | Marijuana Today Daily News

Marijuana Today Daily Headlines
Thursday, December 5, 2019 | Curated by host Shea Gunther

// Toxic metal, leached from e-cigarette coil, permanently scars woman’s lung (NBC News)

// Massachusetts Is On Target For Sizeable Share Of Pot Revenue, Says State Commissioner (New England Public Radio)

// Maine sends comments, express concern to USDA on Interim Final Hemp Rule (Penobscot Bay Pilot)


These headlines are brought to you by Curaleaf, one of the leading vertically-integrated cannabis operators in the U.S. With legal medical marijuana dispensaries, cultivation sites, and processing facilities all over the United States, Curaleaf has served more than 165,000 medical cannabis patients and looks forward to helping many more long into the future. Swing over to Curaleaf.com to learn more about this very cool company!


// Chronic Pain Patients in Minnesota Can Now Qualify for Medical Marijuana (Merry Jane)

// Brazil’s new medical cannabis rules reject domestic cultivation, potentially setting up large import market (Marijuana Business Daily)

// Buying recreational marijuana to be different for Illinoisans, Iowans (KWQC 6 NBC)

// Marijuana Legalization Loses Steam At N.H. State House (New Hampshire Public Radio)

// Mass. banned vape sales more than two months ago. And now business in N.H. and Maine is booming (Boston Globe)

// Canadian cannabis publisher Civilized sheds jobs amid New Frontier purchase (Marijuana Business Daily)

// Is cannabis technology company MassRoots out of business? CEO insists no (Marijuana Business Daily)


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Marijuana Today— Our flagship title, a weekly podcast examining the world of marijuana business and activism with some of the smartest people in the industry and movement.
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Federal Agencies Provide New Guidance for Hemp Banking

The tides have been rapidly changing for hemp companies to gain access to banking, which has not traditionally been available to hemp companies due to the fact that hemp was (sort of) federally illegal until about a year ago. As we previously explained:

Commercial marijuana activity remains a federal crime,  and the Bank Secrecy Act (“BSA”) generally prohibits financial institutions from accepting marijuana-generated dollars. Financial institutions that work with marijuana businesses must conduct due diligence to ensure that marijuana businesses are complying with state law. That includes regularly submitting Suspicious Activity Reports (“SARs”) to the Financial Crimes Enforcement Network (“FinCEN”). Regulated commercial hemp activity is not a federal crime, but hemp’s close proximity to marijuana makes it a generally high-risk endeavor for financial institutions who generally don’t have a high risk tolerance to begin with. That has made it very difficult for many hemp and hemp-derived CBD (“Hemp-CBD”) businesses to access bank accounts.

Since the 2018 Farm Bill was signed and hemp was removed from the Controlled Substances Act, our hemp attorneys have seen more and more banks and credit unions take on various kinds of hemp clients (including hemp cultivators, processors, and even Hemp-CBD sellers). But still, many financial institutions have been hestitant when it comes to servicing hemp clients. As of the last few months, that has been changing.

As we reported over the summer, in August, the National Credit Union Administration (“NCUA”) released Interim Guidance on Serving Hemp Businesses. This guidance, though short, is fairly robust and provides ways for credit unions to verify that hemp clients are engaged in lawful business.

This week, on December 3, 2019, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Financial Crimes Enforcement Network (“FinCEN”), and the Office of the Comptroller of the Currency in consultation with the Conference of State Bank Supervisors released joint guidance entitled, “Providing Financial Services to Customers Engaged in Hemp-Related Businesses”. The guidance was intended to “provide clarity regarding the legal status of commercial growth and production of hemp and relevant requirements for banks under the Bank Secrecy Act (BSA) and its implementing regulations.”

There are a few key points from the joint guidance:

  1. The quoted language (and other language in the joint guidance) refers just to commercial growth and production of hemp and even notes that the FDA retains jurisdiction over foods, drugs, and cosmetics. The 2018 Farm Bill only regulates hemp production, and does not really discuss hemp processing or the sale of Hemp-CBD goods. It’s not totally clear from the text of the joint guidance whether it was intended to cover only cultivation, and it certainly can be read that way. Therefore, it’s not yet clear whether banks will service clients engaged in those activities.
  2. The joint guidance makes clear that banks won’t need to file SARs for clients based solely on the fact that they are engaged in cultivation of hemp. Banks will still need to follow standard SAR procedures and file SARs if there are indicia of suspicious activities.
  3. The joint guidance makes clear that banks have discretion about what services to offer, but that bank clients must comply with applicable law. This puts the onus on banks to vet their customers to ensure compliance with hemp laws and regulations. Some things that the joint guidance expressly requires banks to do are to have BSA and anti-money laundering (“AML”) compliance programs commensurate with the level of complexity and
    risks involved, comply with applicable regulatory requirements for customer identification, SARs, currency transaction reporting, and risk-based customer due diligence (including collecting beneficial ownership information for legal entity customers).
  4. Though the joint guidance does cover marijuana businesses, it makes clear that banks servicing those businesses should follow the FinCEN guidance FIN-2014-G001 – BSA Expectations Regarding Marijuana-Related Businesses.

The joint guidance also states that additional FinCen guidance will be released in the future. Hopefully by then, banks will have more comprehensive guidance for servicing hemp clients. But for now, this joint guidance is certainly a step in the right direction.

Tuesday, December 3, 2019 Headlines | Marijuana Today Daily News

Marijuana Today Daily Headlines
Tuesday, December 3, 2019 | Curated by host Shea Gunther

// Hundreds wait in line for first day of legalized recreational marijuana sales (Detroit Free Press)

// Federal Agency Adopts Policy Letting People With Drug Convictions Work At Credit Unions (Marijuana Moment)

// Charges stand in case of shipment from Vermont hemp farm seized by NYPD (Burlington Free Press)


These headlines are brought to you by Green Worx Consults, a company specializing in project management, workflow mapping and design, and Lean & 6 Sigma process. If you could use help making your business better at business, get in touch with Green Worx Consults.


// Top Drug Treatment Providers Push UK Government To Consider Decriminalization (Marijuana Moment)

// Arkansas may revoke retailers’ inactive medical pot licenses (CT Post (AP))

// Shoppers Drug Mart medical cannabis portal goes national (Winnipeg Free Press)

// SOL Global Reports $51 Million Loss (Green Market Report)

// Could Life Insurance Go Up in Smoke for Some Vapers? (New York Times (Reuters))

// Is the vape scare affecting the cannabis market? (Leafly)

// Canadian islanders angry over US mail searches (BBC News)


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Marijuana Today— Our flagship title, a weekly podcast examining the world of marijuana business and activism with some of the smartest people in the industry and movement.
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