In “Negative Option Remains Prime Enforcement Target at Trump FTC”, I closed with this question after observing that overly bold continuity marketers were still in the Federal Trade Commission’s (FTC) crosshairs and playing a dangerous game: “Who will be next? Don’t be surprised if it’s an internet seller of controversial, cannabis-derived CBD, offers of which are exploding online and were the ‘talk of the show’ at Affiliate Summit” last August. Similarly, the most heavily attended session at last month’s ADSUM summit was a presentation on CBD marketing and the risks, as well as opportunities, it presents.
For the uninitiated, CBD (shorthand for cannabidiol) comes from the cannabis (marijuana) plant and, unlike its derivative cousin THC (tetrahydrocannabinols), is non-intoxicating and believed to have significant medicinal value for pain, stress, anxiety, depression, other disorders and maladies – and maybe even cancer. With the legalization of medical marijuana in at least 29 states plus the District of Columbia, and of recreational marijuana in at least seven states plus D.C. (including California, whose new recreational use law took effect on Jan. 1), marketers see cannabis, and CBD specifically, as a new gold rush.
As with any consumer health craze, federal regulators have been watching the CBD phenomenon with interest. The three agencies with the keenest interest are the Drug Enforcement Administration (DEA), Food & Drug Administration (FDA), and the FTC. The interest of the DEA rises from the fact that cannabis is still illegal under federal law because it continues to be on the list of banned substances under the Controlled Substances Act. As the agency responsible for interpreting and enforcing the Act, the DEA, in attempting to be accommodative to the growing demand for CBD based on its perceived medicinal value, has issued guidance delineating the boundaries of possibly permissible CBD commerce under its “Marijuana Extract Rule,” which applies the Act to extracts of cannabis, as well as to cannabis itself.
In its latest formal guidance, DEA indicated that CBD products derived solely from “mature stalks” of the cannabis plant or from industrial hemp, and containing little-to-no THC, are not prohibited under the rule. More informally, DEA spokespersons have said that CBD enforcement actions are “not a priority … [unlike the opioid crisis] [p]eople are not dying from CBD. Some would argue lives are being saved by CBD. Are we going to get in the middle of that? Probably not …”
While, these caveats should be taken with a grain of salt, as they are not an official ruling by the DEA and can change as the agency desires, CBD marketers who comply with this guidance and state medicinal marijuana laws can have some degree of assurance (although no guarantee) that they will not be prosecuted for the act of selling CBD. Taking no chances, though, the hemp industry has sued the DEA in the Ninth Circuit, seeking a judicial ruling that hemp- or stalk-derived CBD is exempt from the Marijuana Extract Rule and thus from federal regulation as a controlled substance. Oral argument is scheduled for Feb. 15.
The primary interest of the FDA is in ensuring that CBD (or any part of cannabis) is not marketed as a drug without preapproval by the agency – that is, not offered and intended to be used in the diagnosis, cure, mitigation, treatment, or prevention of disease. The FDA’s initial weapon is usually a warning letter. During the past couple of years, it has sent numerous warning letters to cannabis sellers demanding that they stop making disease claims or face legal action, including seizure and injunction. The warnings have demanded the cessation of claims that CBD helps with Alzheimer’s, Parkinson’s, stroke, heart disease, leukemia, other cancers, diabetes, arthritis, epilepsy, autism, schizophrenia, depression, and bipolar disorder. While some targets have complied, others have not, thereby placing themselves in serious legal jeopardy.
The peril they face comes not only from the FDA, but also from the FTC, whose interest is in ensuring that any health or other claims for CBD, including but not limited to disease claims, are truthful and supported by “competent and reliable scientific evidence” (usually interpreted to mean randomized human clinical trials, or RCTs). With the public’s interest in CBD at a fever pitch and expected only to grow as more and more states legalize cannabis, it is only a matter of time before the FTC gets in the game to make examples of CBD marketers who egregiously cross the line in the claims they are willing to make to capture market share. And those claims will be not only disease or other health claims, but patently false claims, such as “CBD is legal in all 50 states,” which can be seen on cannabis websites. Further, the FTC can not only enjoin and seize a violator’s business, as can the FDA, but also can freeze and force disgorgement of assets, up to the amount of sales.
Prediction: the game being played by CBD marketers with the FTC will come to an end for some in 2018 – and will end badly.