Summer 2023 saw dynamic executive, legislative, and enforcement activity in the cannabis and cannabidiol space. While the U.S. Department of Health and Human Resources (HHS) took steps to reschedule cannabis as a Schedule III drug, the U.S. Food and Drug Administration (FDA) continued to issue enforcement letters, particularly for copycat food items, in conjunction with the Federal Trade Commission (FTC).
HHS Recommendation to Move Cannabis to Schedule III
On August 30, 2023, the Drug Enforcement Administration (DEA) and HHS confirmed that HHS has recommended to DEA that cannabis be moved to Schedule III. The HHS letter is the culmination of its nearly yearlong review of scientific and medical evaluation as part of President Biden’s October 2022 call for cannabis reform. The DEA, which has the final authority to schedule or reschedule a drug under the Controlled Substances Act (CSA), will now initiate its review. The DEA is not required to follow HHS’s recommendation.
Currently, cannabis is a Schedule I drug and has been since the passage of the CSA in 1980. Schedule I drugs, which also include heroin and LSD, are reserved for substances that are deemed to have high misuse potential and no medical value. Proponents of cannabis reform have noted that the scheduling of cannabis as a Schedule I drug has made it virtually impossible for the industry to conduct the studies required for cannabis to be recognized as a generally recognized as safe (GRAS) ingredient by the FDA, or for any other steps towards federal legalization.
Schedule III drugs are defined as “moderate to low potential for physical and psychological dependence,” and are met with fewer hurdles for research, allowing for more federally regulated studies on the effects of cannabis and cannabidiols. Other Schedule III drugs include ketamine and testosterone. While placement as a Schedule III drug would not legalize cannabis, it would mark the first acknowledgement of cannabis’s therapeutic potential by the DEA.
Additionally, rescheduling could provide better access for research, reduce risk, and remove restrictive financial regulations. Currently, Section 280E of the Internal Revenue Code does not allow tax deductions for ordinary and necessary business expenses, other than those properly treated as cost of goods sold, incurred in connection with a business trafficking in Schedule I or Schedule II controlled substances. Accordingly, cannabis operators are subject to effective income tax rates as high as 80-90 percent and pay more cash income taxes than businesses in other industries.
If cannabis businesses were no longer subject to Section 280E, it would allow for greater access to financial services for licensed state operators. Presently, cannabis operators pay higher interest rates for loans and insurance policies, where available, provide less coverage while demanding higher premiums than comparable policies for non-cannabis businesses. A rescheduling of cannabis could reduce these expenses for cannabis businesses by removing the risks perceived by financial services providers to the industry.
Congressional Interest in New Regulatory Pathway
As we previously reported, in January 2023, that it would not be crafting rules to guide the CBD industry, as many expected. Instead, the FDA called for a “new regulatory pathway” and emphasized that the agency is “prepared to work with Congress on this matter.” On July 27, 2023, a bipartisan and bicameral Request for Information (RFI) was issued by members of Congress, asking for a wide range of data from “subject matter experts and stakeholders regarding FDA regulation of cannabidiol.” The request comes from a bipartisan and bicameral group—Rep. Cathy McMorris Rodger, chair of the U.S. House Committee on Energy and Commerce, and Rep. Frank Pallone, Jr., ranking member of the same committee, as well as Sen. Bill Cassidy, ranking member of the U.S. Senate Committee on Health, Education, Labor, and Pensions, and Sen. Bernie Sanders, ranking member of the same committee.
The RFI is broken down into the following categories: Current Market Dynamics; Pathway; Scope; Federal-State Interaction; Safety; Quality; and Form, Packaging, Accessibility, and Labeling. The questions range from open-ended to specific. For example, one “Pathways” question asks for the FDA to comment any “concerns FDA has raised with regard to regulating most CBD products through existing pathways (i.e., conventional foods, dietary supplements, and cosmetics), and FDA’s view that there is a need for a new regulatory pathway for CBD products. If existing regulatory pathways are sufficient for regulating CBD products, please explain how these existing pathways can be used to address the concerns raised by FDA, as appropriate.”
One “Safety” question addresses CBD-based seizure drug Epidiolex, which—as reported in our prior alert—the FDA points to as a de facto “no” for the dietary supplement approval route for hemp-based cannabidiol (CBD), pointing to existing law that “prohibits articles from being marketed as a food or dietary supplement if they are studied or approved as a drug.” The question states: “FDA approved Epidiolex, a drug containing CBD, based in part on a data package that included preclinical data from rodent safety models, as well as clinical trials. FDA has received safety data on CBD products from several manufacturers also based on rodent models. How should FDA consider data submitted for a CBD-containing drug as evidence to support that CBD is safe for human consumption in non-drug products, recognizing the inherent differences in the intended uses of such products?”
The RFI’s signing members asked that FDA submit their written comments and data by August 18, 2023, though no response has been reported as of the date of this Alert.
FDA Enforcement Activity
The FDA is sticking to its promise earlier this year to continue taking enforcement actions against cannabis-derived products “to protect the public.” However, the FDA seems to be honing in on a particular type of enforcement—“copycat” food products that could easily be mistaken for traditional snack food items, putting consumers—but especially children—at risk. On July 5, 2023, the FDA and the FTC issued six warning letters to six companies for illegally selling copycat food products containing delta-8 tetrahydrocannabinol (delta-8 THC).
What Is Delta-8 THC?
Delta-8 THC is a psychoactive substance found in the cannabis sativa plant, of which marijuana and hemp are two varieties. The most common form of THC in cannabis plants is delta-9 THC, which is almost identical to delta-8 THC in its chemical structure. Delta-8 THC is less potent and more commonly found in hemp-derived cannabidiol (CBD), and as a result, concentrated amounts of delta-8 THC are typically manufactured from CBD. Delta-8 THC’s rise in popularity started with the passing of the 2018 Farm Bill, which legalized some types of hemp. For more information on federal regulation of CBD products, see our prior alert.
Federal One-Two Punch
The FDA sent a first batch of warning letters regarding delta-8 THC products last year. For this round, the FTC also weighed in, focusing on alleged violations related to copycat marketing.
The FDA and the FTC have a history of collaborating on issues of food product marketing and are continuing their collaboration to address marketing concerns on various food products, including cannabis-derived food products. The FDA has regulatory responsibility over any products containing an unsafe food additive, putting cannabis-derived food products squarely within its jurisdiction. Simultaneously, section 5 of the FTC Act (15 U.S.C. 45) prohibits ‘‘unfair or deceptive acts or practices in or affecting commerce.’’ Because the prohibition applies to “all persons engaged in commerce,” the manufacturers of the delta-8 THC-infused food products fall under the FTC’s jurisdiction. Together, the FDA and the FTC have monitored the marketing of cannabis-derived food products, resulting in many warning letters to manufacturers and sellers over the past several years.
Most recently, on July 5, 2023, the FDA and the FTC announced that they had jointly issued six warning letters to manufacturers and/or sellers of products that purport to contain delta-8 THC. Each letter lists the specific products with which the FDA and the FTC take issue and describes why the companies are in violation of the Federal Food, Drug, and Cosmetic Act (the FD&C Act) and the FTC Act.
FDA Warning
In each letter, the FDA warns the respective companies that their products are adulterated under section 402(a)(2)(C)(i) of the FD&C Act because they bear or contain an unsafe food additive. Furthermore, the letters say, it is a prohibited act to introduce adulterated food into interstate commerce under section 301(a) of the FD&C Act, 21 U.S.C. 331(a).
The FDA walks each company through the above analysis of how delta-8 THC is a food additive that, when added to food, causes the food product to be adulterated. In each warning letter, the companies are seeking to sell at least one adulterated food product—specifically, products that closely mimic real snack foods, both in the food itself but also its marketing, as described further below. The FDA makes clear that, because delta-8 THC has not been GRAS and because it does not meet a listed exception in the FD&C Act, it cannot be added to foods, and further, cannot be introduced into interstate commerce, which all six companies were doing at the time of their warning letters (according to the FDA).
Each of the companies who received a warning letter have 15 business days to notify the FDA of the specific steps they have taken to address any violations and must include an explanation of each step being taken to prevent the recurrence of violations, as well as copies of related documentation.
FTC Warning
Additionally, the FTC says that the online marketing of the delta-8 THC products are a violation of section 5 of the FTC Act. The FTC notes that this prohibition against unfair or deceptive acts includes practices that present unwarranted health or safety risks, and that preventing practices that present unwarranted health and safety risks, particularly to children, is one of the FTC’s highest priorities.
The FTC emphasizes that imitating non-THC-containing food products often consumed by children through the use of advertising or labeling is misleading. The FTC says that children are at particular risk for mistakenly ingesting edible THC products imitating traditional foods because they are more likely to focus on similarities of product appearance and packaging, and less likely to notice or be able to comprehend labeling text.
For example, in one warning letter, the FTC describes that a company’s “Medicated Jolly Rancher Gummies Sour” are marketed in packaging that closely resembles the packaging of Jolly Rancher Gummies candies and Jolly Rancher Gummies Sour candies, including the use of a blue background, the use of the Jolly Rancher Gummies name and logo, and the cartoon depiction of anthropomorphic fruits. In another letter, the FTC highlights a product labeled with a Nutrition Facts panel which is more likely to be confused for a genuine food product.
The FTC demanded each company ceasing marketing all edible delta-8 THC products that imitate conventional foods using advertising or packaging that is likely to be appealing to children and to notify the FTC within 15 business days of the specific actions that have taken to address the FTC’s concerns. Failure to promptly address the violations may result in legal action, including product seizure and/or injunction.
Next Steps
Including these six warning letters, the FDA has issued 10 warning letters this year related to CBD, delta-8 THC, and other cannabis-related products. Looking towards the remainder of 2023, we can expect the FDA and the FTC continue its enforcement actions, particularly with an eye to products that they feel put children at risk. However, this seems to be an overall decrease in enforcement of cannabis-related products—by this time last year, the FDA had issued over 20 warning letters on cannabis-related products. Nevertheless, manufacturers of cannabis-related products, including CBD products, will need to closely monitor progress of federal enforcement (and scheduling), and be careful not to violate the FD&C Act in the interim.
The DEA, which has the final authority to schedule or reschedule a drug under the Controlled Substances Act (CSA), will now initiate its review of the HHS’s recommendations, which we expect will complete by the end of the calendar year. If the DEA recommends proceeding with rescheduling marijuana, the agency would begin the federal rulemaking process.
