United States: Cannabis And Hemp Update

The legal status of cannabis (often called "marijuana" in federal and state laws) has evolved at an astonishing pace. The first states began legalizing cannabis for medical use in the late 1990s and early 2000s. Today, nearly all states have legalized cannabis, or its derivative cannabidiol (CBD), for medicinal use. An additional 10 states have legalized recreational or adult-use cannabis. Cannabis legalization receives widespread popular support. According to opinion polls, more than two-thirds of Americans support full legalization—a steep rise in support considering that as recently as 2005, almost two-thirds of Americans opposed legalization. The country appears on the path to full cannabis legalization, but until that time, citizens and companies should be aware of the legal risks involved in entering the cannabis space.


In contrast to the repeal of Prohibition in the 1930s—where the legalization of alcohol was carried out at the federal level and states followed by setting up complementary regulatory regimes— movement toward cannabis legalization began at the state level. Fulfilling their roles as "laboratories of democracy," states are experimenting with different laws and regulations regarding cannabis production, marketing, and consumption. At the same time, the federal government continues to criminalize most actions involving cannabis. While the Constitution's Supremacy Clause makes federal law superior to state law, many businesses and consumers are engaging in cannabis-related activities, relying solely upon state law regimes.

But the federal criminal liability risk is real, and the potential consequences are extreme. The Controlled Substances Act (CSA), which criminalizes the manufacture, possession, use, and distribution of certain drugs, lists marijuana, tetrahydrocannabinol (THC), and marijuana extracts as Schedule I drugs with a high potential for abuse and with no known medicinal benefits. Under federal law then, cannabis and its derivatives are treated the same way as heroin, LSD, and ecstasy. Possible federal penalties for cannabis trafficking include lifetime incarceration and forfeiture of assets. Even people or entities not directly involved in the possession or sale of the plant itself face potential criminal liability under "aiding and abetting" and "criminal enterprise" legal theories. Since the severity of criminal penalties is tied to the quantity of cannabis possessed, businesses involved in the production or distribution of cannabis—even in states in which it is legalized—face potential severe criminal penalties.

Fortunately for the emerging cannabis industry, federal prosecutors have taken a relatively light approach when it comes to enforcing the CSA against businesses operating in accordance with state-legal cannabis laws. Issued under the Obama administration, a series of memos, including the so-called Cole Memorandum, directed Department of Justice (DOJ) prosecutors to refrain from prosecuting marijuana activity in compliance with state law, unless there were certain aggravating factors involved, such as connection to organized crime or harm to minors. Former attorney general Jeff Sessions rescinded the Cole Memorandum, but newly confirmed attorney general William Barr indicated in his confirmation hearings that he would not target cannabis businesses operating within the bounds of state law. While such exercises of "prosecutorial discretion" can be ignored at any time, for now at least, the risk of federal prosecution of businesses operating within the bounds of state cannabis laws appears quite low.

Moreover, although "marijuana" (the label of cannabis under the CSA) remains a Schedule I substance, the definition of what constitutes "marijuana" recently changed. The Agriculture Improvement Act of 2018 (Farm Bill) explicitly excluded hemp from the definition of marijuana in the Controlled Substance Act. The bill defined hemp as:

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 a delta-9 tetrahydrocannabinol concentration of not more than 0.3 percent on a dry weight basis.

While the 2014 Farm Bill authorized the growing of industrial hemp for research purposes only, the 2018 Farm Bill contains no such restrictions on the growing of hemp.

But until the U.S. Department of Agriculture (USDA) issues new regulations (expected fall of 2019), all hemp production is still governed by the 2014 law. The law provides for shared federal and state regulation of legalized hemp production. States that desire to have primary authority over the production of hemp must submit regulatory plans for federal approval. In states without an approved plan, production of hemp is subject to plans established by the Secretary of Agriculture, including a procedure to issue licenses. In a state without a federally approved plan, it is unlawful to produce hemp without a federal license.

The 2018 Farm Bill's de-scheduling of hemp had no effect on federal food and drug laws, notably the Federal Food, Drug and Cosmetic Act (FD&C Act). On the same day the Farm Bill became effective, the Food and Drug Administration (FDA) released a statement reminding the public that it possesses regulatory authority over products containing cannabis or cannabis-derived compounds under the FD&C Act. The FDA has recognized hemp and several hemp-derived products as "generally recognized as safe" (GRAS) under the FDA's food ingredient standards. But the same cannot be said for THC or CBD, including CBD derived from hemp produced in compliance with the 2018 Farm Bill.

And although CBD might seem to fall squarely within the FDA's alternative category between "foods" and "drugs"—a category known as "dietary supplements"—recognition of CBD as a dietary supplement faces a somewhat ironic roadblock. Over the past decade, the FDA has approved CBD and THC as active ingredients in several drugs—actions cheered by most cannabis advocates at the time. But these approvals create a major roadblock to the recognition of CBD as a dietary supplement, since active drug ingredients are generally not recognized as dietary supplements unless they were clearly used as such before they underwent clinical drug trials. As cannabis has been illegal for decades, demonstrating use of CBD as a dietary supplement will prove difficult.

Nevertheless, despite the ambiguities under federal law, many CBD-infused edible products are available across the country. Given the exploding popularity of such products, a major crackdown would likely provoke an angry backlash from consumers and their elected representatives. Moreover, government enforcers lack the resources to go after thousands of alleged violators. Seeking to maximize the impact of limited enforcement resources, the FDA's main efforts to date have focused on CBD products making exaggerated claims about their purported health benefits.

The addition of cannabis-derived products to beer (or any other alcohol beverage) poses unique regulatory challenges. Formula approval from the Alcohol and Tobacco Tax and Trade Bureau (TTB) is required for any beer containing a non-standard ingredient like cannabis, hemp, or CBD. The TTB's authority to require formula approval arises from the Internal Revenue Code and does not require a showing of "interstate commerce." Thus, even beers sold entirely within one state, such as products sold exclusively at a brewery, need formula approval if they contain cannabis or a cannabis-derived ingredient like CBD. The TTB has indicated that it will not approve a formula containing a Schedule I drug, or ingredients not recognized as GRAS by the FDA. For this reason, most brewers seeking to enter the cannabis beverage space have focused on non-alcohol products.


Thus far, the most effective congressional activity in the area of cannabis has focused on appropriations. Rather than undertaking the arduous process of passing a standalone bill, Congress has attached riders on appropriations bills prohibiting government agencies from using federal funds to enforce federal law against medical cannabis activities compliant with state law. Efforts are underway to pass similar riders regarding state-regulated recreational marijuana activities. While it has been effective to date, drawbacks to this appropriations strategy include the temporary nature of the law's effect, as appropriations amendments must be passed annually to remain law. 

Other pending legislation related to cannabis legalization includes the SAFE Banking Act, which would provide protection from federal prosecution to banks doing business with state-legal cannabis enterprises. The Veterans Medical Marijuana Safe Harbor Act would allow doctors at the Veterans Administration to prescribe medical cannabis to veterans and do away with rules that put veterans' benefits at risks for using medical cannabis. Additionally, presidential candidate Cory Booker has sponsored a bill that would de-schedule cannabis ("marijuana") altogether from the CSA and create incentives for states to legalize. Incremental changes to federal policy, including those that rely on the appropriations process, are much more likely to succeed in Congress than full legalization.


State laws on cannabis cover many different topics, and—like the laws governing the production, distribution, and sale of alcohol—the cannabis laws in one state may be very different from those in a neighboring state. As brewers would expect, states generally impose a licensing scheme covering producers, distributors, retailers, and testing laboratories. It should also come as no surprise that states have created excise tax regimes to ensure that the state gets its share of this newly legalized activity.

States to date have not embraced a three-tier model for cannabis distribution, but cross-ownership restrictions do exist. Notably, most states have ownership restrictions that prevent someone from holding a financial interest in a testing facility and any other cannabis business. For example, in California, an individual cannot be a board member of a licensed cannabis facility if the person holds even a small financial interest in a testing facility.

Brewers looking to get involved in the cannabis space must pay careful attention to state laws. Just because a state's laws allow adult-use cannabis sales does not mean those laws also allow cannabis-infused alcohol beverages. Indeed, most states (as well as the new Canadian national cannabis laws) prohibit the production of cannabis-infused alcohol beverages. Going one step further, many jurisdictions require a separation between marijuana/cannabis products and alcohol, prohibiting the storage of alcoholic beverages on premises licensed to produce, store, and sell cannabis. These rules often make it prohibitive for a licensed alcohol business to produce any cannabis-infused products, even those not falling under the TTB's regulatory authority.

Rapid legal shifts in the cannabis space present opportunities for businesses to be at the forefront of the cannabis market. But despite significant legal developments, cannabis activity remains risky under federal law. Businesses seeking to get involved in cannabis must be aware of the federal risks and the diversity of state laws.

Cannabis And Hemp Update

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions