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TSA (Sort of) Allows (Some) Hemp-CBD Products on Flights

tsa cbd cannabis flight

In the past few months, our team has been quoted in several magazines and online publications on the risks of traveling with CBD products. These media inquiries resulted from repeated arrests of travelers in possession of CBD oil at the Dallas/Fort Worth International Airport (“DFW”).

At the time of these arrests, the Transportation Security Administration (“TSA”), an agency of the U.S. Department of Homeland Security that has authority over the security of the traveling public in the United States, maintained the position that:

Possession of marijuana and cannabis infused products, such as Cannabidoil (CBD) oil, is illegal under federal law. TSA officers are required to report any suspected violation of law, including possession of marijuana and cannabis infused products. TSA’s screening[s] are focused on security and are designed to direct potential threats to aviation and passengers. Accordingly, TSA security officers do not search for marijuana or other illegal drugs, but in the event a substance that appears to be marijuana or a cannabis infused product is observed during security screening, TSA will refer the matter to a law enforcement officer.”

As a federal agency, TSA adheres to the rules and regulations of the federal government. However, even after the passage of the 2018 Farm Bill and the legalization of hemp, TSA continued not to differentiate marijuana from hemp and to treat all CBD products as illegal under federal law.

However, following more arrests at DFW last week, TSA decided to provide some clarification and revised its Medical Marijuana page, which provides that:

Products/medications that contain hemp-derived CBD or are approved by the FDA are legal as long as it is produced within the regulations defined by the law under the Agriculture Improvement Act 2018.” (Emphasis added).

However, these new guidelines are vague and confusing.

First, to which “regulations defined by the law” under the 2018 Farm Bill is TSA referring? Is TSA going to allow hemp-derived CBD products processed pursuant to a plan approved by the U.S. Department of Agriculture (“USDA”)? No such product currently exists since the USDA has yet to approve state plans. Alternatively, is the agency authorizing passengers to carry products processed under a 2014 state pilot program? This might make more sense, as the 2018 Farm Bill provides that the 2014 Farm Bill shall remain in place for one year following the adoption of rules by the U.S. Department of Agriculture.

Still, if TSA intended for the latter to apply, then it would mean that passengers could carry hemp-derived CBD “products/medications,” such as CBD-infused food and dietary supplements, whose introduction in interstate commerce has been deemed unlawful by the FDA. Indeed, the language of the TSA guidelines provides that both hemp-derived CBD “products/medications” that meet the “regulations defined by the law” under the 2018 Farm Bill “or” FDA approved “products/medications” may be brought on planes. Currently, the FDA has only approved the following “products/medications”: (1) three generally recognized as safe (“GRAS”) hemp seed ingredients; and (2) Epidiolex, a CBD-infused drug used in the treatment of epilepsy.

TSA is now one of several federal agencies to have revisited its policies regarding the legality of hemp-derived CBD products, including the U.S. Alcohol and Tobacco and Trade Bureau, the U.S. Patent and Trademark Office, the U.S. Postal Services and the USDA.

It remains to be seen how TSA will enforce its new policy and whether it will defer to other federal agencies, including the FDA which is exploring potential pathways for dietary supplements and/or conventional foods containing CBD to be lawfully marketed, in developing its enforcement strategy.

But one thing is certain, unless TSA clarifies these guidelines, more airport arrests could ensue.

We will continue to monitor this issue and will keep you informed of any development. For now, the “anything goes” approach to CBD and air travel is a risky one, despite some reporting out there to the contrary.

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Oregon Hemp: The Permanent Rules Are Now In Effect

oregon hemp

While Oregon legalized hemp production in 2015, the Beaver State has seen a huge influx of hemp grower and handler registrations since the enactment of the 2018 Farm Bill, which legalized hemp under federal law.

To keep up with the growing interest in the crop and its derivatives, the Oregon Department of Agriculture (“ODA”) has been actively revising its rules and finally adopted their permanent version on May 15th.

Specifically, the rules make permanent the temporary rules that were filed around March 1 and the proposed rules that were filed at the end of March. They should be in place for a while, or at least until the state legislature adopts HB 2740 or yet another hemp statute.

Many of our hemp clients have been asking how these rules would impact their businesses. Because it’s been a while since we ran through program basics, we thought it might be helpful to summarize them here on the blog.

Overall, the permanent rules do the following:

  • Update the testing rules to conform to the changes made by the Oregon Health Authority in December 2018. The rules impose specific testing requirements based on the type of products involved, which include:
    (1) industrial hemp for human consumption and hemp items;
    (2) industrial hemp for human consumption and usable hemp;
    (3) hemp concentrate or extract intended for use by a person to make a hemp cannabinoid product;
    (4) finished hemp concentrate or extract; and
    (5) finished hemp cannabinoid products.
  • Clarify and update recordkeeping and reporting requirements imposed on registrants. The proposed rules put a few additional reporting and recordkeeping requirements on the registrants’ shoulders, but nothing too demanding.
  • Clarify the option registered growers have to resample in the event a harvest lot fails pre-harvest testing. Under the new rules, both samples and filed duplicate samples must be reanalyzed if they fail testing.
  • Establish a fee for the submission of a change form. Under the new rules, registrants who wish to update their registration, such as adding a grow site to an existing registration, will be charged a $125 fee.
  • Adopt a fee schedule for pre-harvest THC testing provided by the ODA. The new hemp sampling fees would be increased by approximately 33 percent to cover the ODA’s cost associated with collecting regulatory samples. The proposed rules include additional fees, including travel time and overtime charges for services performed by the Department of Administrative Services.
  • Clarify requirements for individuals making retail sale of industrial hemp in the state. Those who sell industrial hemp items to consumers will no longer be required to test the item for potency before sale so long as the hemp ingredient used in the product has a compliance test at or below 0.3 percent total THC (THCA converted to delta9 and delta9 THC).
  • Change testing requirements for THC and CBD potency in final products. A finished hemp cannabinoid product must be tested for THC and CBD concentration in the same manner as cannabinoid products under OAR 333-007-0340 before it can be sold or transferred to a consumer.

In addition, the permanent rules address issues that shall go into effect on January 1, 2020. These issues include:

  • Revision of sampling procedures for pre-harvest THC testing. Specifically, the rules require that the total THC be tested, as required by the 2018 Farm Bill, and thus, USDA requirements.
  • Restructure of handler registration application process and fees, which adds the option for registration by reciprocity for OLCC-licensed processors who hold a hemp endorsement to process hemp with the OLCC Recreational Market.
  • Restructure the grower registration application and fees. In lieu of a $1,300 hemp grower application fee, the permanent rules provide for two separate fees and applications: (1) a fee of $250 for a grower registration application, and (2) a fee of $500 for each grow site registration application. Under this new structure, the average grower would pay lower registration fees ($750-1,250) because a majority of registered growers currently farm two or fewer fields.

For more information on the new permanent rules, don’t hesitate to contact our team of cannabis and CBD attorneys.

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Five Fallacies About Hemp

Hemp products concept. Cannabis seeds, coils of rope and green plant on homespun cloth

It’s been six months since Congress passed the Farm Bill legalizing hemp for cultivation. It’s high time that we rectify some common myths about this plant.

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USPTO Issues Clarification on Hemp-Related Trademarks

CBD trademark cannabis

Earlier this month, the United States Patent and Trademark Office (USPTO) issued Examination Guide 1-19: Examination of Marks for Cannabis and Cannabis-Related Goods and Services After Enactment of the 2018 Farm Bill. While the guide didn’t provide any earth-shattering news regarding cannabis-related trademarks, it did clarify the USPTO’s position with respect to trademarks for domestic industrial hemp products.

The USPTO began by reiterating what we have written about extensively: “Use of a mark in commerce must be lawful under federal law to be the basis for federal registration under the U.S. Trademark Act.” Even where the goods or services for which protection is sought are legal under state law, if the goods or services violate federal law, including the Controlled Substances Act (CSA), they will not be eligible for trademark protection. The USPTO cites the following laws as applying in the analysis for whether or not a cannabis or hemp-related mark will be eligible for trademark registration:

  • The Controlled Substances Act, 21 U.S.C. §§801 et seq
  • The Federal Food Drug and Cosmetic Act, 21 U.S.C. §§301 et seq (FDCA)
  • The Agricultural Improvement Act of 2018, Pub. L. 115-334 (the 2018 Farm Bill), which amends the Agricultural Marketing Act of 1946 (AMA).

The 2018 Farm Bill, as we have written, and which was signed into law in December 2018, removed “hemp” from the CSA’s definition of “marijuana,” meaning that cannabis plants and derivatives such as CBD that contain no more than 0.3% THC on a dry-weight basis are no longer controlled substances under the CSA.

Because of this, the USPTO states that, “[f]or applications filed on or after December 20, 2018 that identify goods encompassing cannabis or CBD, the 2018 Farm Bill potentially removes the CSA as a ground for refusal of registration, but only if the goods are derived from ‘hemp.’ Cannabis and CBD derived from marijuana (i.e., Cannabis sativa L. with more than 0.3% THC on a dry-weight basis) still violate federal law, and applications encompassing such goods will be refused registration regardless of the filing date.”

But don’t get too excited yet. The USPTO also makes note of the elephant in the room when it comes to CBD: the FDA. The guide notes that, “even if the identified goods are legal under the CSA, not all goods for CBD or hemp-derived products are lawful following the 2018 Farm Bill. Such goods may also raise “lawful use” issues under the Federal Food Drug and Cosmetic Act.”

Because the 2018 Farm Bill explicitly preserved the FDA’s authority to regulate products containing cannabis or cannabis compounds under the FDCA and because CBD is an active ingredient in FDA-approved drugs and is a substance undergoing clinical investigations, “registration of marks for foods, beverages, dietary supplements, or pet treats containing CBD will still be refused as unlawful under the FDCA, even if derived from hemp, as such goods may not be introduced lawfully into interstate commerce.”

This is a point we’ve been making for quite some time now – the federal lawful use requirements implicate not only the CSA, but also the FDCA, meaning that until we see some movement from the FDA on the issue, trademark registrations for CBD products disallowed by the FDA will not be available.

The guide also notes that for all applicants that reference “hemp” in their specification of goods and services, the examining attorney will issue inquiries concerning the applicant’s authorization to produce hemp and applicants will need to provide additional statements to confirm that their products and activities comport with the 2018 Farm Bill.

So, while the USPTO’s release of this guide certainly isn’t earth-shattering, it does affirm the strategies we have been utilizing to secure trademark protection for our clients. This is a nuanced area of law, and if you are seeking to develop a brand protection strategy for your CBD or hemp products, it would be wise to consult with an attorney well-versed on the subject.

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Cannabis and International Trade: Don’t Ignore the U.S.-China Trade War

cannabis international trade war china hemp

Marijuana and hemp companies should not ignore the US-China trade war. Numerous products and components in these industries might be subject to increased tariffs of 25 percent. If cannabis companies can’t find new suppliers, those are costs that they will have to bear, or will have to pass on to their consumers.

The Office of the U.S. Trade Representative (“USTR”) recently published a notice in the Federal Register confirming President Trump’s increase on tariffs from 10 percent to 25 percent on U.S. imports of Chinese products valued at $200 billion. Here is the list of products now subject to a 25% tariff. They include products such as:

  • Cigarette paper
  • Hemp seeds
  • True hemp products
  • Other manufactured tobacco, tobacco substitutes, tobacco extracts or essences, other, to be used in products other than cigarettes
  • Folding cartons, boxes and cases of non-corrugated paper or paperboard

The list goes on and on. Many of the products that will now be subject to 25 percent tariffs are used for consumption of cannabis (e.g., cigarette papers), or as components in vape accessories or packaging for products. Even hemp itself is included. These tariffs will lead to increases in the prices of marijuana, hemp products, and accessories if they are manufactured in China—and this comes at a time when China is ramping up production of hemp-derived cannabidiol (“CBD”) products, which U.S. companies may already be selling. (As an aside, if you’d like to read about the legality of importing CBD products, check out our recent posts here and here).

President Trump has also threatened to impose 25% tariffs on the remaining $325 billion of Chinese goods if negotiations do not result in a “good” deal to the satisfaction of the United States. Even if your imported Chinese products are not currently being hit with tariffs, there is a very real possibility that they soon will be.

Not surprisingly, our law firm’s international trade lawyers have been getting a steady stream of questions from American companies that import products from China and from companies from all over the world (China, Europe, Australia and Japan, mostly) that export Chinese products to the United States. These companies first want to know whether their product(s) are subject to the new 25 percent tariff and when that tariff will take effect. The answer to their first question depends on each company’s exact product(s) and is not always clear for cannabis companies. The answer to the second question is that the 25 percent tariff applies “to goods (i) entered for consumption, or withdrawn from warehouse for consumption, on or after 12:01 a.m. eastern daylight time on May 10, 2019, and (ii) exported to the United States on or after May 10, 2019.” In layperson terms, this 25 percent tariff applies to goods that left China on or after May 10.

The most important thing you can do if you believe you have been hit by the 25% tariffs is to not panic. We say this for two reasons. One, many who believe their products are subject to tariffs have been wrong and many who believe their products are not subject to tariffs have been wrong as well. Understanding whether or not a particular product is covered is not as easy as one might believe and for that reason, all of the international lawyers in my firm are turning the question of inclusion or exclusion over to our international trade lawyers because this is what they do. When various tariffs take effect can also be quite complicated. Two, we have seen panic drive too many companies to make major mistakes that end up costing them way more than the tariffs would have.

So, before we discuss what companies should do about their tariff problems, we will first discuss what you should NOT do. You should not have your China products shipped to Vietnam or Taiwan or Malaysia or Thailand or anywhere else and then have those products shipped to the United States claiming they are not from China—even if your partners in China are telling you that this is okay. This sort of “transshipping” can and does lead to massive fines and to JAIL TIME. I am not kidding. Just by way of one example, here is a very recent case (on which my firm’s international trade lawyers assisted the US Government) where a company paid US $62.5 million “to resolve allegations that it evaded $36 million in antidumping duties.”

U.S. Customs has become expert at discovering such evasions and the penalties when caught have become very harsh. Importers that knowingly falsely label the country of origin on their imports are subject to significant fines and penalties under 19 U.S.C. § 1592 and to criminal prosecution under 18 U.S.C. § 542 (import by using false statement) and 18 U.S.C. § 545 (smuggling). Lying about your products country of origin can subject you to 20 years in Federal prison.

In the regulated marijuana industry, civil and/or criminal penalties could have the two-fold effect of terminating your cannabis license. So that production facility you just spent two years and a few hundred thousand dollars building and getting licensed could be taken away instantly if one of your partners attempts to circumvent import laws and gets busted. Even for CBD products which are typically not subject to regulatory licenses (yet at least), the FDA still has authority over certain imports (see response to Q15), so transhippers are may wind up getting doubly tagged by the FDA.

If you do not realize the U.S. government would like nothing more right now than to catch and punish those who transship China products to avoid the new China tariffs, you have not been reading the news. The U.S. government (and even the U.S. populace as a whole) are eager to act harshly against anyone who engages in transshipping Chinese products. And when it comes to cannabis companies and international relations, the U.S. government has taken an even more aggressive approach (see here, here, and here).

One of the biggest hammers against transshipping is the False Claims Act (“FCA”). The FCA (31 U.S.C. § 3729) allows people or companies to bring “qui tam lawsuits against individuals or companies that defraud the federal government. Damages under these claims can be tripled and anyone who knows of the fraud (including a competitor company) may file a qui tam lawsuit.

Qui tam actions are brought to attack competitors and to get 15 to 30 percent of the triple damages the U.S. Government can recover from the lawsuit. Your competitors, your importers, your own employees, or even your Chinese manufacturers who told you that transshipping was legal are the most likely to initiate a qui tam lawsuit against you, but sometimes it is just someone who learned of what you are doing. Because the person or company that brings such an action can be awarded millions of dollars, the incentive to file such lawsuits is huge. And because in states like California, companies are still racing to secure cannabis licenses and market share, we wouldn’t be surprised if qui tam lawsuits for transshipping or even just reporting to the feds to gain a leg up on the competition becomes commonplace.

What is your duty as the US buyer/importer to make sure the products you are importing are truly from the country listed on the import documents?

The examples below are illustrative.

  • A US importer is told by its Chinese producer/exporter whose products will be covered by the China tariffs not to worry about the tariffs because the Chinese company will ship the product through Taiwan and list them as Taiwan products. The importer should decline this offer because if it imports this product knowing it is from China and not Taiwan, it will be criminally liable under U.S. customs law and subject to potentially massive damages under the U.S. False Claims Act.
  • A US importer suspects its Vietnamese “producer” is not actually making anything, but rather simply transshipping product that comes from the Chinese company that owns the Vietnamese “producer” company. The company visits the Vietnam “producer” facility and it does not appear anything is actually being produced there. The US importer raises this concern with the Chinese company which tells the US company that it can avoid any problems by being listed as the consignee of the products and not the importer of record since it is the importer who is at risk. This too is simply wrong information.

Transshipment is a crime and Chinese companies and their U.S. importers can have very different interests when it comes to importing product into the United States. The Chinese company wants to ship product to the U.S. above all else and the U.S. importer should above all else want to avoid trouble with U.S. Customs, to avoid civil/criminal liability, and to not risk their hard-earned cannabis licenses. If you are doing business with a person or company using transshipments to minimize U.S. customs duties, you and your licenses could be in very big trouble and you should contact a lawyer immediately.

Now let’s turn to what you can do to fight back against the U.S. tariffs being imposed on goods coming in from China.

There is often a lot you can do to legally change your products’ country of origin (though this may be tougher for hemp than for electronics). The rules for figuring out a product’s appropriate country of origin are incredibly complicated and best left to experienced and qualified international trade lawyers, especially with all that is going on between China and the United States these days. Even our China lawyers do not claim to be qualified on this score; our attorneys tell our clients who ask for country of origin help something like the following:

Putting together your electronics product in China and then shipping it to Vietnam for a plastic case to be put on will not qualify that product as having been made in Vietnam. That much we do know. Beyond this though, you are going to need to consult with our trade and customs lawyers because this is not something you can afford to get wrong.

So yes, it may be possible for you to make minor (or major) changes in how you are having your products made so they can legally avoid the China tariffs, but you truly must tread carefully here and whatever you do, do not just go along with what your China factory is telling you to do. It is your company and your money and your freedom that is at stake and this is not something on which you should be taking advice from anyone but an expert who is looking out for your interests.

One of the questions we ask our clients is what will happen to your product sales if your products from China are subject to a 25 percent tariff and your competitors’ products are not? Answering this question requires knowing whether your products or your competitors’ products will come in duty free from Thailand or be subject to a 7% duty (or whatever) from Vietnam. I mention this because generally (though certainly not always) duties from Thailand and the Philippines are lower than duties from Vietnam, so even in choosing which non-China country you are going to use for your manufacturing, you need to know your way around the duty charts.

If you are going to take your Made in China products and have them partially made in some third country so as to have that product qualify as having been made in that third country (and not China) that product will need to be “substantially transformed” in that third country. One of my law firm’s international trade lawyers describes the substantial transformation requirement as follows:

Substantial transformation dictates that a product consisting of components/materials from more than one country is a product of the country where the components/materials become a new and different article of commerce with a name, character, and use distinct from that of the components/materials from which it was transformed. The CBP makes its substantial transformation decisions on a case-by-case basis, though U.S. importers may seek advance rulings on origin covering specific products for import.

The rules on substantial transformation are anything but clear-cut and the country of origin for your products should be determined on a case-by-case basis by a qualified international trade lawyer.

You also may be able to secure an exemption from tariffs for your product(s), just as was true regarding the previous rounds of tariffs—though with the federal stance on many hemp and CBD products, it may be less likely. The exact process for how to do this and the corresponding deadlines have not yet been announced but we expect both will be very similar to the previous tariff rounds and our international trade lawyers are already gathering information from clients so as to be prepared.

You also will be able to make what is called an exclusion request. These too will have their deadline dates and these exclusion requests typically include the following:

  • Identify the product you want excluded. The U.S. list of targeted products is identified by the Harmonized Tariff Schedule (“HTS”) number that is used to declare the product when imported into the United States. A company needs to identify the commercial name of the product, the HTS number for the product, and any other industry designation of the product under a recognized standard or certification (for example: ASTM, DIN).
  • A description of the product based on physical characteristics (for example: chemical composition, metallurgical properties, dimensions) so your product can be distinguished from other products that would still be covered by the tariffs. A significant concern in considering exclusion requests is whether granting a specific exclusion request will create a loophole many other products can also use.
  • The basis for requesting an exclusion. Is the product unavailable from a domestic U.S. supplier and thus imports are needed to fill a demand no U.S. supplier can fill? Are there certain qualification requirements only the import supplier can satisfy? Have you been put on allocation by domestic suppliers? Are there alternative suppliers in any country other than China?
  • The names and locations of any producers of the product in the United States and in foreign countries.
  • Total U.S. consumption of the product by quantity and value for each year for the past three to five years (2013–2017) and projected annual consumption for the next few years (2018–2020), with an explanation of the basis for the projection.
  • Total U.S. production of the product (or possible substitutes) for each of the past three to five years.
  • Discussion of why the U.S. products (or substitute products) cannot be used in place of the imported products.
  • A good story why your company deserves the exclusion it is requesting. This typically includes the history of your company (e.g., fifth generation family-owned), the products produced by your company, the strategic significance of your company’s products, the number of workers in your company, and your company’s annual sales.

The difference between the exemption process and the exclusion process is that a successful exemption will lead to the removal of tariff line items from the tariff list whereas a successful exclusion will remove specific products from the tariff item. In other words, the requirements for the exclusion process are much more product specific; if you have five different types of widgets, you will have to make six different product exclusion requests.

A new round of 25 percent tariffs is here and more may be coming. Now is the time to figure out what to do to ameliorate their impact on your cannabis business.

Editor’s Note: A version of this post was previously published on our firm’s China Law Blog.

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Hemp Testing

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