CBD and Personal Care Products:Separating Fact from Fiction

Ronie M. Schmelz

Disclaimers!• This presentation and the material included are provided for educational purposes only

and should not be construed as legal advice.

• Nothing in this presentation is intended to assist in any way with the violation of applicable law.

• No health claims are made, expressed, or implied regarding the efficacy, safety, or health impact of cannabinoids.

• The views expressed herein are solely my own and do not reflect those of Tucker Ellis LLP.

• What: Cannabis Nomenclature

• Why: Canna-business

• How: Canna-law• Federal• State• Local

• Bonus: Non-regulatory considerations and best practices

What We’ll Cover

Cannabis Nomenclature…

Cannabis sativa L Plant Species(All hemp is cannabis, but not all cannabis is hemp)

Hemp Marijuana

Some More Vocabulary …• Marijuana | Recognized for its psychoactive properties; bred selectively for medical and

religious purposes

• Hemp | Tall, sturdy plants that were grown by early civilizations to make a variety of foods, oils, and textiles such as rope and fabrics

• CBD (Cannabidiol) | One of many cannabinoids found in both marijuana and hemp. Not felt to have any intoxicating or psychoactive side effects. Hemp contains high levels of CBD.

• THC (Tetrahydrocannabinol) | Another cannabinoid found in both marijuana and hemp. Known for its psychoactive effect of euphoria or “high.” Hemp contains barely any THC (< 1%); high content in marijuana.

Some More Vocabulary …

• “Industrial” Hemp | plant Cannabis sativa L. and any part of plant, including the seeds and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with a delta-9 THC concentration of <0.3% on dry weight basis.

• CBD Products | Can be hemp-derived, marijuana-derived, or CBD-only products

• Full Spectrum | All the cannabinoids found in the cannabis plant are present, including CBD

• Broad Spectrum | One or more constituents removed

• CBD Isolate | All n0n-CBD cannabinoids removed

• CBD Distillate | Distillation is process that creates concentrates that are pure at a molecular level.

Canna-business

•© 2019 Informa LLC. All Rights Reserved •4 4

•Anxiety

•Pain

•Sleeplessness

•Depression

•General well-being

•Arthritis

•Inflammation

•Illness prevention

•Other

What Cannabis Products Do Consumers Want to See?

0 10 20 30 40 50 60 70 80 90

Health Supplements

Relaxation Products

Skincare Products

Cooking Ingredients

Pre-mixed baking supplies

Snack foods

Sodas

Alcoholic Beverages

Source: Trendsource

Hemp & CBD Uses• Hemp

• Fibers• Textiles

• Hemp Seed Oil• Food and vitamin supplements• Personal care products (shampoos, lotions, soaps, cosmetics)• Plastics, plants

• CBD Oil• Nutritional additives• Cosmetics• Pet foods

CBD in Food

CBD Supplements

CBD in Cosmetics

CBD Retailers• Rite Aid

• Since April, sells CBD creams, lotions, and other topicals in 200+ stores in WA and OR

• Walgreens• Plans to sell CBD creams, sprays, and transdermal patches in 1,500 stores

in 9 states

• CVS Pharmacy• Deal Curaleaf Holdings, Inc. to sell CBD creams, sprays, and lotions, but

some being pulled after FDA Warning Letter

CBD Advertising• Facebook & Instagram

• Allowing ads for topical hemp products• Ads that direct to landing pages that feature ingestible hemp/topical CBD• Instagram: use influencers and focus on education and entertainment

• Google & YouTube• Pilot program• Avoid CBD; full spectrum hemp ok

• Amazon• Hemp products• Educational books on CBD

The Law of Cannabis

• 2018 Farm Bill• Hemp: “the plant Cannabis sativa L. and any part of that plant, including

the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with THC concentration of not more than 0.3 percent on a dry weight basis.”

• Removes hemp and any hemp derivative from definition of marijuana; hemp no longer controlled substance

• Legalizes interstate transportation of hemp/hemp products• Allows States/Tribes to implement more restrictive plans, subject to

approval of Secretary of USDA

USDA Interim Final Rule

USDA Agricultural Marketing ServiceInterim Final Rule

• Effective October 31, 2019 | 60-day comment period | 2-year sunset

• Establishes U.S. Domestic Hemp Production Program

• Federal plan for producers in States or territories of Indian Tribes that do not have their own USDA-approved plans

• Provisions for USDA to approve plans submitted by States and Indian Tribes for domestic production of hemp

USDA Agricultural Marketing ServiceInterim Final Rule

• Requirements for all hemp producers

• Licensing requirements• Maintaining information on land on which hemp is produced• Procedures for testing the THC concentration levels for hemp• Procedures for disposing of non-compliant plants• Compliance provisions• Procedures for handling violations

USDA Agricultural Marketing ServiceInterim Final Rule

• Sampling/Testing requirements

• To ensure THC does not exceed 0.3% on a dry weight basis

• Within 15 days of harvest, federal, state, local, or tribal designated person collects samples and delivers to DEA-registered lab for testing

• Testing must be performed by DEA-registered lab using post-decarboxylation or other “similarly reliable testing methodology”:

• Gas or liquid chromatography with detection

USDA Agricultural Marketing ServiceInterim Final Rule

Measurement of Uncertainty (MU)• “the parameter, associated with the result of a measurement, that

characterizes the dispersion of the values that could reasonably be attributed to the particular quantity subject to measurement”

• Used to account for the uncertainty in test results

Acceptable hemp THC level• Application of the MU to the reported THC level produces a

distribution/range

• The application of the MU to the reported THC content concentration level on a dry weight basis producing a distribution or range that includes 0.3% or less

USDA Agricultural Marketing ServiceInterim Final Rule

• Negligent violations1. Failure to provide a legal description of the land on which the hemp is

produced;2. Not obtaining a license before engaging in production; or 3. Producing plants exceeding the acceptable hemp THC level.

• Not negligent if producer produces plants exceeding the acceptable hemp THC level if they use reasonable efforts to grow hemp and the plant does not have a THC concentration of more than 0.5% on a dry weight basis.

• Reasonable efforts: Using certified seed, using other seed that has reliably grown compliant plants in other parts of the country, or engaged in other best practices.

• Epidiolex (6/25/18)• First purified drug

substance from marijuana to get approval

• Oral CBD for treatment of seizures associated with Lennox-Gastaut and Dravetsyndromes

Hemp Seed OilHulled Hemp SeedHemp Seed Protein

FDA Position on 2018 Farm Bill

• Bill expressly preserved FDA’s current authority to regulate productscontaining cannabis or cannabis-derived compounds under FDCA and Public Health Service Act

• It is unlawful to introduce food containing CBD or THC into interstate commerce or to market such products as dietary supplementsregardless of whether the substances are hemp-derived

on CBD“FDA is Committed to Sound, Science-based Policy on CBD”

Will apply rigorous, science-based approach to products containing cannabis or cannabis-derived compounds, including cannabidiol (CBD).

• Open issues:• How much CBD is safe to consume in a day? How does it vary depending on

the form in which it’s taken?• Are there drug interactions that need to be monitored?• What are the impacts to special populations like children, the elderly, and

pregnant or lactating women?• What are the risks of long-term exposure?

on CBD in Cosmetics

• FDA’s Current Position on CBD in Cosmetics:• No premarket approval for cosmetic products and ingredients, with exception

of color additives• Must not be adulterated:

• Must be safe for consumers when used according to directions in labeling and under customary/usual conditions of use

• Must not be misbranded (false/misleading claims)• Topical product, including those containing CBD:

• If intended to affect the structure/function of the body, or• To be used to diagnose, cure, mitigate, treat, or prevent a disease,

then the product is a drug, even if also a cosmetic.

FOCUSo Unapproved new drugs:

o Safety o Efficacyo Qualityo Vulnerable populations

FTC Act prohibits:

“unfair or deceptive acts or practices affecting commerce”

“disseminating or causing the dissemination of a false advertisement in commerce of the purpose of inducing, or that is likely to induce, the purchase of any … cosmetic”

FOCUS on Substantiation

FDA/FTC Joint Warning Letters

Nutra Pure LLC (March 28, 2019)• Hemp Oil and CBD Softgels

• “For Alzheimer’s patients, CBD is onetreatment option that is slowing the progression of that disease.”

• “Cannabidiol (CBD) Treats Neuropsychiatric Disorders”• “… CBD has demonstrated the ability to block spinal, peripheral and

gastrointestinal mechanisms responsible for the pain associated with migraines, fibromyalgia, IBS and other related disorders. … CBD provides a safe, long term option for those suffering from skin disorders.”

PotNetwork Holdings, Inc. (March 28, 2019)

Liquid Gold Gummies | blue CBD Crystals Isolate 1500 mg

• “Natural cannabinoids, such as CVBD (Cannabidiol), have been shown in research to have therapeutic possibilities in helping diabetes.”

• “Experiments carried out on both human cells and on animals have shown that phytocannabinoids … can lead to inhibition of the growth of many tumor types including brain cancer, breast cancer, colon cancer, lung cancer, skin cancer, and even leukemia. Many of these studies show CBD’s ability to disrupt cancer cell migration, preventing its spread.”

Rooted Apothecary LLC (October 10, 2019)Teeth/TMJ – Essential Oil + CBD Infusion | Ears – Essential Oil + CBD Infusion | Hemp Capsules | Hemp Infused Body Butter | Hemp Oil | CBD Capsules | CBD Body Butter | CBD Oil

• “… help calm the inflammation and pain of teething …”• “… analgesic, antibacterial, sedative …”• “… pain … anxiety … and autism …”• “CBD oil may have neuroprotective properties and may

protect against neurological conditions, such as Parkinson’s and Alzheimer’s disease.”

• “CBD may reduce the risk of cancer or help cancer treatment …”

Advanced Spine and Pain LLC (d/b/a Relievus)(March 28, 2019)

CBD Salve, Oil, and Dog Products

• Treatment products … Anxiety … Chronic Inflammation … Cancer Pain … Depression … Chronic Pain …”

• “Other indications … Alzheimer’s disease … Amyotrophic Lateral Sclerosis (ALS) … Autoimmune Disorders … Crohn’s Disease … Diabetes … Inflammatory Bowel Disease … Obsessive compulsive disorder (OCD) … Panic disorder … Parkinson’s disease … Post-traumatic stress disorder (PTSD) … Rheumatoid arthritis … Schizophrenia…Substance Use Disorders.”

• “… decreased human glioma cell growth and invasion … possible … antitumor agent … promising substance for people who abuse opioids.”

FTC Enforcement…

“We’ve now got six warning letters out there on CBD. The warning letter phase is over. Going forward we will not be issuing warning letters. We will be opening investigations and we will target companies making disease claims for CBD products.”

--Rich ClelandAssistant Director

FTC Bureau of Consumer ProtectionAdvertising Practices Division

(Natural Products Association Regulatory Conference)

• 6/6/19 USPS Published New Guidelines on Mailing Hemp, including CBD Products

• Hemp/hemp-derived products, including CBD with THC not exceeding 0.3% limit, are permitted to be mailed only when:

• Mailer complies with all applicable federal, state, and local laws pertaining to hemp production, processing, distribution, and sales;

• Mailer retains records establishing compliance with such laws, including laboratory test results, licenses, or compliance reports, for no less than 2 years after date of mailing.

• Best practices: obtain letter from producer, COA, and per batch

Don’t forget about the states!

Seed-to-Serum

Tracking CBD

Soil previously used to grow fruits and vegetables – contain pesticides allowed to grow those products (e.g., myclobutanil to prevent mildew but, when smoked, turns into cyanide gas)

Test for purity and potency: Microbial contaminants Mycotoxins Pesticides and herbicides Residual solvents Heavy metals Terpenes (aromatic oils produced by plant)

• Ingredient supplier:• Hemp produced by licensed grower• Sampling/testing• Contractual guarantee

• Hemp used in the product complies with 2018 Farm Bill• Tested in accordance with USDA regulations and contains <0.3% THC

• Contract manufacturer and brands:• All of the above from ingredient supplier• Certificates of Analysis• Standard Operating Procedures, Quality Assurance, and Recall plans

Non-Regulatory Considerations

• Insurance• Property Insurance: fire/water damage; business interruption• Commercial Liability: bodily injury; product liability; tenants’

legal liability; personal and advertising injury• Management Liability: Directors & Officers; competitor disputes• Errors & Omissions: Product recall; disclosure of confidential

information• Crime: Employee dishonesty; theft• Employee Benefits: Workers’ Comp

• Real Estate Leases

• Work with reputable vendors• Demand appropriate documentation• Contract for indemnification

• Get it in writing• Seed-to-serum supply chain documentation

• Test your finished products for CBD/THC

• Don’t make structure/function claims – be prepared to substantiate efficacy claims

Thank You!

Questions?

Ronie M. Schmelzronie.schmelz@tuckerellis.com

213.430.3375

CBD ProductsNavigating Contractual Issues and Risks

Presented by:Paul J. Malie, Esq.

DisclaimerThe laws related to the content covered in this presentation

and the material provided varies among states. Such content is provided for educational and informational

purposes only and is not intended to provide personalized legal counseling or advice. The receipt of such content does not establish an attorney-client relationship and

should not be used as a substitute for professional legal advice. We recommend you consult a qualified and

licensed attorney in your state of residence.

Launching a CBD Product

Two Golden Rules

1. Study the 2018 Farm Bill and State Laws2. Create a Contract Management System

Guiding ThemeThe difference between price and cost

Contract Management SystemThe FoundationThe investment that pays huge dividends

4 Steps to Creating a Strong System1. Appoint an internal head of contracts2. Identify each B2B interaction3. Evaluate contracts with advisors4. Create an ongoing process

Price vs. Cost Inefficiency, risk, and lost opportunities (cost can be 10x to 100x the price)

Growers and Raw MaterialsAgricultural Production ContractInteraction between grower and purchaser

Quality Credentials, licenses, and permits Good manufacturing procedures and laws Audit and inspection rights Confidential information and IP

Legal CBD No more than 0.3% THC Testing and certification at each stage (your best line of defense) What happens if: license revocation, seizure, nonconforming CBD

Real World “cost” – Oregon case (vague terms cost over $10 million)

Manufacturing and SellingManufacturing AgreementInteraction between manufacturer and purchaser

Quality Credentials, laws, controls, and protections Exclusivity and non-competition Control expenses

Legal CBD Test prior to production Test during production (cross-contamination) Systematic testing by retailers (batch variation) FDA statement rules (don’t turn a product into a drug)

Real World “cost” – New York case (exposure to fraud and RICO claims)

Indemnification

1st Direct ProtectionUnderstand, evaluate, and customize

DemystifyingThe “devil is in the detail”

Private vs. Government ActionProtections and obligations vary

Look carefully . . . are you protected?

Damages2nd Direct Protection

Limit the type of damagesDirect, indirect, and punitive

Limit the amount of damagesDollar amount or formula

BlockchainCBD Brand KillersLow-quality, unverifiable, and inaccurate

Blockchain Solution Immutable digital ledger used to collect, validate, and

record information Transparency for everyone in the supply chain Assurance you get what you expect

Real World “cost” – U.S. Olympian Devin Logan (inaccurateinfo leads to suspension and claims)

Joint Ventures

SynergiesCapital, knowledge, growth, and opportunity

Pitfalls and Protections Non-Disclosure Agreements Joint Venture Agreements Commercialization Agreements

Inform, Protect and Prosper

Two Golden Rules

Protection from the “Costs”

Sustained Success

Questions??

Paul J. Malie, Esq.Tucker Ellis LLP

paul.malie@tuckerellis.com216.696.3466