Cannabis News

Direct and Ancillary CBD Liability Under the FD&C Act

Published

2 years ago

February 14, 2023

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Not much thought is given to ancillary CBD liability. Why is that? Probably because the Food and Drug Administration (“FDA”) hasn’t taken any serious enforcement action against any company or individual that aids and abets violations of the Food, Drug & Cosmetic Act (the “Act”) when it comes to CBD. Still, secondary CBD liability under the Act isn’t pretty. And if you’re a company or individual that’s helping other companies or individuals make, sell, or distribute CBD products that violate the Act, you’re actually as guilty as they are under federal law.

FDA and CBD

For a while, CBD stakeholders truly believed that the FDA was prepared to regulate the robust CBD market in the U.S. That, however, will not come to pass where as of January 26, 2023, the FDA concluded that it will NOT regulate CBD foods or dietary supplements. The FDA is punting that task to Congress, which essentially means CBD laws and regulations will either never happen or they’re a far, far way off.

What all of that means is that the status quo remains intact: hemp-derived CBD is not an illegal controlled substance under U.S. law, but it also isn’t a supplement and it cannot be an ingredient in food and beverages for humans or pets without violating the Act. And marketing any bodily or curative effects of CBD was (and still is) off limits.

CBD liability for CBD retailers to date has taken the shape of enforcement letters from the FDA. See here for the most recent examples. Those letters get a massive shoulder shrug from the CBD industry on the whole. Especially since a multitude of states actually allow CBD to be added to food and beverages in conflict with the Act.

FDA and the enforcement spectrum

Many in the CBD industry may not be aware of the risk spectrum when it comes to CBD liability with the FDA. Per the FDA’s own guidance, this is how it tees up enforcement, generally:

Warning Letters. These are sent to the individuals or firms, advising them of specific noted violations. These letters request a written response as to the steps which will be taken to correct the violation. These letters constitute one form of warning that can be issued under current Agency policy.
Seizure of CBD products. An action brought against an FDA-regulated product because it is adulterated and/or misbranded within the meaning of the Act. The purpose of such an action is to remove specific violative goods from commerce.
Injunction from CBD product sales. An order by a court that requires an individual or corporation to do or refrain from doing a specific act. FDA may seek injunctions against individuals and/or corporations to prevent them from violating or causing violations of the Act.
Criminal prosecution of CBD seller. Criminal prosecution may be recommended in appropriate cases for violation of Section 301 of the Act (this specifically goes to selling or delivering into interstate commerce any food, drug, device, tobacco product, or cosmetic that is adulterated or misbranded, among other things). Misdemeanor convictions, which do not require proof of intent to violate the Act, can result in fines and/or imprisonment up to one year. Felony convictions, which apply in the case of a second violation or intent to defraud or mislead, can result in fines and/or imprisonment up to three years.

Then there are the criminal fines under the Act. Misdemeanor fines under the Act may reach $500,000 under some circumstances. The Criminal Fine Enforcement Act of 1984 (Public Law 98-596) provides for fines for violations of federal law. Although it is not part of the Act, the Criminal Fine Enforcement Act of 1994 applies to all fines levied under the Act, as well as other statutes that contain provisions enforced by FDA.

The following fines are applicable for each offense:

Up to $100,000 for a misdemeanor by an individual that does not result in death.
Up to $200,000 for a misdemeanor by a corporation that does not result in death.
Up to $250,000 for a misdemeanor by an individual that results in death, or a felony.
Up to $500,000 for a misdemeanor by a corporation that results in death, or a felony.

The maximum imprisonment for a misdemeanor under the Act remains a year for each offense.

FDA, CBD enforcement, and criminal CBD liability

In its warning letters to a variety of CBD companies, you’ll find the following directive from the FDA:

“Based on our review, these products are unapproved new drugs sold in violation of section 505(a) of the Federal Food, Drug, and Cosmetic Act (FD&C Act), 21 U.S.C. § 355(a). Furthermore, these products are misbranded drugs under section 502 of the FD&C Act, 21 U.S.C. § 352. The introduction or delivery for introduction of these products into interstate commerce is prohibited under sections 301(a) and (d) of the FD&C Act, 21 U.S.C. § 331(a) and (d).”

The typical translation is that because the CBD company is either marketing and/or selling its CBD products as supplements or “drugs” (due to medical, curative, bodily, disease or health claims about the products), it’s violating the Act and must cease the illegal conduct stat. In its letters, the FDA concludes that “failure to adequately correct any violations may result in legal action, including, without limitation, seizure and injunction.” The agency doesn’t mention any criminal liability and it is indeed rare, but it’s possible in certain cases; and criminal conduct under the Act carries a strict liability standard.

There’s a good reason why criminal prosecution under the Act is a bit of a novelty– affirmative defenses. Namely, if corporate officers of an offending company can show that they “exercised extraordinary care”, but weren’t otherwise able to prevent violations of the Act, the burden shifts to the Feds to prove beyond a reasonable doubt that the officer wasn’t in fact helpless to stop or remediate violations of the Act. And persons who in “good faith” merely receive and later deliver an illegal product cannot be subjected to criminal penalties under the Act. Finally, anyone who receives an illegal product in “good faith” and obtained a “written guaranty” that the product doesn’t violate the Act likewise cannot be prosecuted.

Ancillary CBD liability

There are many ancillary service providers propping up the CBD industry– distributors, financial institutions, payment processors, landlords, advertisers, etc. Under the Act, and per the FDA’s own interpretation:

“nearly everyone involved . . . in interstate commerce, such as manufacturers, packers, distributors, and retailers, is responsible for assuring that he or she is not dealing in products that are adulterated or misbranded, even if someone else caused the adulteration or misbranding in the first place. If you introduce it into interstate commerce or receive it in interstate commerce, you are responsible. The law applies to components and packaging as well as to finished products.”

In the case of United States v. Dotterweich, the U.S. Supreme Court found that:

a corporation may commit an offense and all persons who aid and abet its commission are equally guilty. Whether an accused shares responsibility in the business process resulting in unlawful distribution depends on the evidence produced at the trial and its submission–assuming the evidence warrants it–to the jury under appropriate guidance. The offense is committed, unless the enterprise which they are serving enjoys the immunity of a guaranty, by all who do have such a responsible share in the furtherance of the transaction which the statute outlaws, namely, to put into the stream of interstate commerce adulterated or misbranded drugs [emphasis added]. . . Balancing relative hardships, Congress has preferred to place it upon those who have at least the opportunity of informing themselves of the existence of conditions imposed for the protection of consumers before sharing in illicit commerce, rather than to throw the hazard on the innocent public who are wholly helpless.

Dotterweich addressed the criminal prosecution of Joseph H. Dotterweich, the president and general manager of The Buffalo Pharmacal Company, Inc., for the company’s violations of the Act by distributing and selling misbranded drugs. And what the case means, in part, is that any person (including a company as is included in the definition of “person” under the Act) can be criminally prosecuted for aiding and abetting violations of the Act namely depending on their “responsible share in furtherance of the transaction” that breaks the law, which will be revealed by evidence produced at trial for a jury to weigh.

Obviously, corporate officers of companies directly violating the Act have personal liability under the Act (including criminal) and the government can pierce the veil accordingly. This is well-established by case law. Does that liability and responsibility realistically extend to CBD ancillary companies that aid and abet violations of the Act? I think it could. In my opinion, it depends on how instrumental they are in getting these illegal CBD products into the hands of consumers (and maybe that’s why Google, for example, is now utilizing an extremely tight CBD advertising policy).

Considering ancillary CBD liability

No matter where you’re at in the chain of CBD manufacture, distribution, or sale, to mitigate your CBD liability, you need to make sure you’re only working with lawful actors (which, in reality, is a super small pool given the FDA’s position on CBD). And it won’t be a defense that state law otherwise allows all kinds of CBD products either, so you need to understand and know what a legal actor even is at this point, given the terrible state of the law. While CBD is obviously a massive growth area no matter what the FDA does or says, the FDA still has teeth to enforce Given the current political climate, everyone needs to be on their toes.

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The Grinch Stole SAFE Banking from the Cannabis Industry This Christmas, Yet Again!

Published

18 hours ago

December 22, 2024

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no safe banking in 2024

The landscape of cannabis legislation in the United States has been a complex and evolving issue, particularly concerning banking regulations. As of December 2024, it has become official: the current Congress will not provide any protections for banks that serve state-legal marijuana businesses. This decision has significant implications for the cannabis industry, which continues to grow rapidly despite the lack of federal support. In this article, we will explore the reasons behind this decision, the implications for cannabis businesses, and the broader context of cannabis legalization in America.

The State of Cannabis Legalization

A Growing Industry

The cannabis industry has seen remarkable growth over the past decade. As of late 2024, 23 states and Washington D.C. have legalized recreational marijuana use, while 38 states allow medical marijuana. According to recent estimates, the legal cannabis market in the U.S. is projected to reach over $40 billion by 2025. This growth has been fueled by changing public perceptions of marijuana, increased advocacy for legalization, and significant tax revenues generated by state-legal cannabis sales.

The Banking Dilemma

Despite this rapid expansion, cannabis businesses face unique challenges, primarily due to their inability to access traditional banking services. Federal law classifies marijuana as a Schedule I controlled substance under the Controlled Substances Act. This classification creates a significant barrier for banks and financial institutions that wish to work with cannabis businesses, as they risk federal penalties for facilitating transactions related to an illegal substance.

As a result, many cannabis companies operate on a cash-only basis. This situation not only poses safety risks—such as increased theft and violence—but also limits these businesses’ ability to manage finances effectively, pay taxes electronically, and build credit histories.

Legislative Attempts at Reform

One of the most prominent legislative efforts aimed at addressing these banking issues is the Secure and Fair Enforcement (SAFE) Banking Act. First introduced in 2019, the SAFE Banking Act sought to provide protections for banks that serve legal cannabis businesses by preventing federal regulators from penalizing them for doing so.

The act garnered significant bipartisan support in both the House and Senate. In previous sessions of Congress, it passed multiple times in the House but faced hurdles in the Senate due to opposition from certain lawmakers who were concerned about broader implications of marijuana legalization.

In light of ongoing discussions about federal spending and budgetary priorities, advocates had hoped that some version of the SAFE Banking Act would be included in recent spending bills. However, during negotiations leading up to December 2024, a House committee led by Republicans removed any provisions related to marijuana banking protections from key spending legislation.

This decision reflects a broader trend within Congress where discussions around cannabis reform have become increasingly contentious. While there is still bipartisan support for certain aspects of cannabis legislation—particularly when it comes to medical use—more comprehensive reforms like banking protections have struggled to gain traction.

Implications for Cannabis Businesses

Continued Cash-Only Operations

The removal of banking protections means that many cannabis businesses will continue to operate primarily on a cash basis. This situation presents several challenges:

Safety Risks: Cash-only operations make cannabis dispensaries and cultivation facilities prime targets for theft and robber Employees often have to handle large amounts of cash daily, increasing their risk of violence.

Operational Inefficiencies: Without access to banking services, businesses cannot easily manage payroll or pay bills electronically. This inefficiency can lead to operational delays and increased costs.

Impact on Public Safety

Advocates argue that providing banking access would enhance public safety by reducing the amount of cash circulating within the community. By allowing cannabis businesses to deposit their earnings into banks, it would minimize the risks associated with cash transactions, making both employees and customers safer.

Moreover, having a transparent financial system would help law enforcement track illicit activities more effectively. Currently, without proper banking oversight, there are concerns that some cash-only operations may be involved in money laundering or other illegal activities.

Politics and Public Opinion

Changing Attitudes Toward Cannabis

Public opinion on marijuana legalization has shifted dramatically over recent years. According to various polls, a significant majority of Americans now support legalizing marijuana for both medical and recreational use. This shift has put pressure on lawmakers to address outdated federal policies regarding cannabis.

Despite this growing acceptance among the public, political divisions remain strong within Congress regarding how best to approach cannabis reform. Some lawmakers advocate for full legalization at the federal level, while others prefer a more cautious approach that prioritizes regulation over outright legalization.

The Role of Advocacy Groups

Advocacy groups play a crucial role in pushing for legislative change regarding cannabis banking protections. Organizations such as the National Cannabis Industry Association (NCIA) and Americans for Safe Access (ASA) have been vocal proponents of reforming banking laws to support state-legal cannabis businesses.

These groups have mobilized public support through campaigns highlighting the safety risks associated with cash-only operations and advocating for policies that promote financial inclusion for cannabis entrepreneurs.

Future Prospects for Cannabis Banking Reform

While current congressional efforts have stalled regarding marijuana banking protections, there are still potential avenues for reform:

Incremental Reforms: Rather than pursuing comprehensive federal legislation like the SAFE Banking Act all at once, lawmakers may consider incremental reforms that address specific issues related to banking access without fully legalizing marijuana at the federal level.

The Role of Public Awareness

As public awareness about the challenges faced by cannabis businesses grows, there may be increased pressure on lawmakers to act decisively on this issue. Continued advocacy efforts can help ensure that banking reform remains a priority on Congress’s agenda.

Conclusion

The decision by Congress not to include marijuana banking protections in its current spending bill underscores ongoing tensions surrounding cannabis legislation in America. While public opinion increasingly favors legalization and reform, political divisions continue to hinder progress on critical issues such as banking access for state-legal marijuana businesses.

As the industry continues to grow despite these challenges, stakeholders must remain vigilant in advocating for change while exploring alternative solutions at both state and federal levels. The future of cannabis banking reform remains uncertain; however, with continued advocacy and public support, there is hope that meaningful progress can be made in addressing these pressing issues facing one of America’s fastest-growing industries.

SAFE BANKING SINCE 2018, WHAT A FAILURE, READ ON…

SAFER BANKING ACT FAILS AGAINS, SAME OF BANANA IN THE TAILPIPE!

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HHC vs. Delta 9: Differences & Similarities

Published

2 days ago

December 20, 2024

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Cannabis has so many compounds, and two that have been making the rounds lately are HHC and Delta 9 THC. They’re not the same thing, even though they’re both cannabinoids that interact with the body’s endocannabinoid system. Some people want a mild, steady experience, while others might be looking for something more intense. Understanding these two can help you figure out what’s right for you.

What Is HHC?

HHC, short for hexahydrocannabinol, is a hydrogenated version of THC. It’s not something you’d find naturally in large amounts in cannabis plants. Instead, it’s made through a process that adds hydrogen molecules to THC. The result? A more stable compound that’s less prone to breaking down when exposed to heat or UV light.

How HHC Is Made

Think of it like a science experiment. HHC is usually created in a lab by taking Delta 9 or Delta 8 THC and using hydrogenation—basically, combining it with hydrogen under pressure and in the presence of a catalyst. This process changes its structure while keeping its effects somewhat similar to THC.

Common Uses and Effects of HHC

People who use HHC say it’s somewhere between Delta 8 and Delta 9 in terms of effects. It’s often described as relaxing but without being overly sedative. You might feel a light buzz, reduced stress, or mild euphoria. Some even claim it helps with discomfort or improving sleep, but solid research is still catching up. Since it’s less potent than Delta 9, it’s often favored by those who want a manageable experience without the strong psychoactive punch.

If you’re interested in trying HHC and Delta 9 for yourself, check out their wide range of products at trycandycloud.com. They’ve got everything from gummies to disposable vapes, all crafted for a smooth experience.

What Is Delta 9 THC?

Delta 9 THC is the main psychoactive compound in cannabis. It’s the reason you feel “high” when you use weed. Chemically speaking, Delta 9 has a double bond in its ninth carbon chain, which plays a big role in how it interacts with your brain.

Natural Occurrence in Cannabis

This one is straightforward: Delta 9 is found in high concentrations in marijuana plants. It’s what most people think of when they hear “THC.” Unlike HHC, there’s no need for a lab process—it’s already there. Hemp plants, however, contain much lower levels of Delta 9 THC, which is why it’s primarily extracted from marijuana.

Common Uses and Effects of Delta 9 THC

The effects of Delta 9 are well-documented. Depending on the dose, you might feel euphoria, increased appetite, or deep relaxation. For medical users, it’s often used to manage chronic pain, nausea, and other conditions. It’s also been studied for its potential benefits in anxiety relief, though higher doses might have the opposite effect, causing paranoia. Delta 9 THC is versatile, but it’s not without its risks, particularly for new users or those sensitive to its psychoactive effects.

Key Differences Between HHC and Delta 9 THC

Chemical Structure and Composition

The main difference is in their structure. Delta 9 THC has that iconic double bond, while HHC’s hydrogenation makes it more stable. This difference might not mean much to the average person, but it’s why HHC is less likely to degrade over time.

Potency Levels

Delta 9 THC is generally more potent. HHC might require a higher dose to get a comparable effect, but some people prefer its lighter touch. Potency differences can also depend on the method of consumption, with edibles typically providing a stronger, longer-lasting effect compared to vaping or smoking.

Duration of Effects

Both last a few hours, but some users report that HHC’s effects fade more gradually. Delta 9, on the other hand, can have a sharper comedown. HHC’s gradual fade makes it appealing for those who want a smooth end to their experience.

Benefits and Drawbacks of HHC and Delta 9 THC

HHC: Pros and Cons

Pros:

More stable, so it lasts longer on the shelf.
Effects are milder, making it less overwhelming for beginners.
Can be a functional option for daytime use.

Cons:

Limited research, so we don’t know its full impact yet.
Availability can be hit or miss depending on where you live.
Legal gray area in many regions.

Delta 9 THC: Pros and Cons

Pros:

Well-studied with established medical uses.
Widely available in areas where cannabis is legal.
Stronger effects make it ideal for experienced users or those with high tolerance.

Cons:

Higher chance of side effects like anxiety.
More likely to show up on drug tests.
Shorter shelf life compared to HHC.

Frequently Asked Questions (FAQ)

Q. Is HHC safer than Delta 9 THC?

Not enough research exists to say definitively, but HHC’s milder effects might make it feel safer to some users.

Q. Will HHC or Delta 9 THC show up on a drug test?

Yes, both can potentially show up on a drug test, so use with caution if that’s a concern.

Q. Which one is better for recreational use?

That depends on your preferences. HHC is great for a mellow time, while Delta 9 is better if you’re looking for something more intense.

HHC vs. Delta 9: Choosing the Right One for You

The choice comes down to what you’re after. If you want a milder, more laid-back experience, HHC might be a good option. On the other hand, if you’re looking for something stronger or need it for medical reasons, Delta 9 is the way to go. It also depends on what’s legal and available where you are. And always consider your tolerance levels and experience before diving in. If you’re unsure, consult with a knowledgeable dispensary staff.

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What Federally Illegal Drug Has Created Almost $10 Billion in Sales Tax Revenue for States in the Last 40 Months?

Published

3 days ago

December 20, 2024

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sales tax revenue with marijuana

In a significant development for the burgeoning cannabis industry, the U.S. Census Bureau has reported that states across the nation have collectively amassed over **$9.7 billion** in tax revenue from marijuana sales since mid-2021. This figure underscores the economic impact of legalized cannabis and highlights the growing acceptance of marijuana as both a recreational and medicinal substance in various states. As more states move toward legalization, the financial implications both positive and negative are becoming increasingly evident.

The Landscape of Cannabis Legalization

The journey toward cannabis legalization in the United States has been long and complex. Initially criminalized in the early 20th century, cannabis began to regain acceptance in the late 20th century, particularly for medical use. The first state to legalize medical marijuana was California in 1996, setting a precedent that many states would follow.

By 2012, Colorado and Washington became the first states to legalize recreational cannabis, paving the way for a wave of legalization efforts across the country. As of now, more than 20 states have legalized recreational marijuana, while over 30 states allow medical use. This shift reflects changing public attitudes toward cannabis and recognition of its potential benefits.

Economic Implications of Legalization

The legalization of cannabis has not only transformed social norms but has also created a substantial economic impact. States that have embraced legalization have seen significant increases in tax revenue, job creation, and investment opportunities.

According to the latest Census Bureau report, states like California, Colorado, Illinois, and Michigan have emerged as leaders in cannabis tax revenue generation. These states have implemented various tax structures on marijuana sales, including excise taxes, sales taxes, and local taxes. The revenue generated is often earmarked for essential public services such as education, healthcare, infrastructure improvements, and drug rehabilitation programs.

Breakdown of Tax Revenue by State

As the largest legal cannabis market in the United States, California has been at the forefront of marijuana tax revenue generation. Since mid-2021, California has contributed approximately $2.5 billion to state coffers from cannabis taxes. This revenue is derived from both recreational and medical marijuana sales.

California’s tax structure includes a 15% excise tax on retail sales, along with local taxes that can vary significantly by city and county. The state has allocated a portion of these funds to various programs aimed at addressing issues related to drug abuse and public health.

Colorado was one of the pioneers in cannabis legalization and continues to serve as a model for other states. Since mid-2021, Colorado has generated around $1.8 billion in tax revenue from marijuana sales. The state imposes a 15% excise tax on wholesale marijuana transactions and a 2.9% sales tax on retail sales.

The revenue generated from cannabis taxes has been instrumental in funding education initiatives through the Public School Fund, as well as supporting mental health programs and substance abuse treatment services.

Illinois has seen remarkable growth in its cannabis market since legalizing recreational use in January 2020. In just two years, Illinois has collected approximately $1 billion in tax revenue from marijuana sales. The state imposes a tiered excise tax based on the potency of the product, ranging from 10% to 25%.

The funds collected are allocated to various initiatives, including community reinvestment programs aimed at addressing social equity issues related to past drug enforcement practices.

Michigan’s cannabis market has also flourished since legalization. Since mid-2021, Michigan has generated about $700 million in tax revenue from marijuana sales. The state’s tax structure includes a 10% excise tax on recreational marijuana and a 6% sales tax.

The revenue is utilized for various purposes, including education funding and support for local governments impacted by legalization.

Broader Economic Impact

The legalization of cannabis has led to significant job creation across various sectors. According to industry reports, the legal cannabis market supports hundreds of thousands of jobs nationwide—from cultivation and processing to retail and distribution. As more states legalize marijuana, this trend is expected to continue.

With the growth of the legal cannabis industry comes increased investment opportunities. Entrepreneurs are entering the market at an unprecedented rate, leading to innovations in product development, marketing strategies, and distribution channels. This influx of investment not only benefits individual businesses but also stimulates local economies.

Social Equity Considerations

While the financial benefits of cannabis legalization are clear, it is essential to address social equity issues that arise alongside this new industry. Many states have recognized that communities disproportionately affected by past drug enforcement policies should benefit from legalization efforts.

States like Illinois have implemented community reinvestment programs that allocate a portion of cannabis tax revenues to support communities impacted by previous drug laws. These funds can be used for education initiatives, job training programs, and mental health services—aiming to rectify historical injustices associated with cannabis prohibition.

In addition to financial support for communities affected by past policies, some states are also working to create equitable licensing opportunities for individuals from those communities. By prioritizing applications from minority-owned businesses or those directly impacted by previous drug laws, states can foster a more inclusive cannabis industry.

Challenges Ahead

Despite the significant progress made through legalization efforts, challenges remain on both state and federal levels.

Federal Legalization Uncertainty

One major hurdle is the ongoing conflict between state and federal laws regarding cannabis. While many states have legalized marijuana for recreational or medical use, it remains classified as a Schedule I substance under federal law. This discrepancy creates complications for businesses operating legally at the state level but facing potential federal prosecution.

Efforts toward federal legalization or decriminalization have gained traction recently; however, progress remains slow due to political divisions and differing opinions on drug policy reform.

Regulatory Hurdles

As more states enter the legal cannabis market, regulatory frameworks must evolve to ensure consumer safety while promoting fair competition among businesses. States face challenges related to product testing standards, labeling requirements, advertising restrictions, and taxation policies that can impact market dynamics.

Conclusion

The U.S. Census Bureau reports that states have collected over $9.7 billion in marijuana tax revenue since mid-2021, highlighting the significant economic impact of cannabis legalization. As public acceptance grows, more states are likely to pursue legalization. Despite ongoing challenges, including federal regulations and social equity issues, legalized cannabis is poised to remain a vital part of state economies. Collaboration among government officials, business leaders, and community advocates will be essential for fostering an equitable and sustainable cannabis industry. This evolving landscape not only presents economic growth opportunities but also addresses historical injustices tied to drug policy enforcement, shaping the future of cannabis legislation in the U.S.