2019 LAW JOURNAL.

Business North Carolina has asked legal experts to weigh in on some of the most pressing issues affecting business owners today. Topics such as employee-generated data and business succession plans are imperative for most small-business owners in the state, but laws are confusing and require a deep knowledge. Meanwhile, demand for CBD and hemp products is soaring, and more entrepreneurs are entering the related industries, but there are legal implications many aren't aware of. These issues are explored by some of the state's top legal minds in the following pages.

WHAT IS HEMP? IS IT EVEN LEGAL?

CLINT PINYAN

BROOKS, PIERCE, MCLENDON, HUMPHREY & LEONARD, LLP

Hemp and cannabidiol (CBD) products are dominating the airwaves and the marketplace, and North Carolina has been at the forefront, ranking sixth in the nation in acres of hemp produced in 2018. Many predict that the market will grow exponentially over the next decade.

With this boom, the hemp industry will increasingly impact other industries. Your business may have to decide whether to become involved with the hemp industry and, if so, address potential legal risks.

But first we need to understand: What is hemp? Is it even legal?

While difficult to distinguish from marijuana visually, hemp is a strain of cannabis bred to have insufficient THC levels to cause a user to become high. Hemp can be used to make many products, with consumer products using CBD, a compound extracted from hemp, among the most popular and profitable.

Until now, the hemp industry has operated under statutory "pilot projects." However, Congressional authorization for these projects was vague. Conflict resulted because some states-including North Carolina-promoted a broad commercial hemp industry, while the Drug Enforcement Administration read the authorization narrowly and threatened to curtail interstate hemp commerce.

In December 2018, the Agricultural Improvement Act of 2018, better known as the "Farm Bill," was signed into law. The bill has been widely praised as "legalizing" hemp products, including CBD oil, but that is an overgeneralization. The Farm Bill removed certain legal restrictions on growing and selling hemp products, most notably the principal grounds for DEA objections, by clearly permitting commercial hemp production and removing the threat of criminal prosecution of goodfaith hemp farming. However, hemp and CBD products remain heavily regulated and, in some cases, illegal. Therefore, while hemp's promise is great, so is the need for care.

How do we know what we legally can and can't do with hemp products?

Producers are safe from criminal prosecution unless they intentionally violate the law. However, for others, the answers are less clear. The Farm Bill defines anything that has a THC concentration above the legal limit as illegal marijuana. While there is a safe harbor from criminal prosecution for producers who accidentally grow hemp above the legal limit, those protections apply only to producers, and not those who might otherwise possess non-conforming hemp, including companies that transport, warehouse or process it.

In order for producers to qualify for the Farm Bill protections, the production must take place under a regulatory plan adopted by the state and approved by the federal government. As of August 1, the federal regulations had not been proposed, and the state regulations await the federal ones. So, aside from the basic outline in the Farm Bill, there is no certainty what either hemp regulatory structure will look like for producers. It also remains unclear if there will be any protections for non-farmers participating in hemp distribution.

The Farm Bill also does not legalize all hemp and CBD products. The Food and Drug Administration and the state Department of Agriculture still can regulate the use of hemp and CBD in foods, nutritional supplements, drugs and cosmetics. And they do regulate it heavily.

The FDA has long held that CBD products may not be marketed as nutritional supplements or added to food. In essence, the FDA's position is that the entire CBD oil and extract industry for food and nutritional supplements is illegal. Both the FDA and the state Department of Agriculture have reaffirmed this position following the Farm Bill and continue to send warning letters to companies marketing CBD products. The FDA realizes, however, that this is not a viable long-term position, given Congress's promotion of hemp, and is currently considering changes to permit some CBD products to be marketed as food and nutritional supplements. But those regulations have not been proposed (much less adopted), so there has been no official change in the FDA's position, and nobody knows what sort of CBD products will ultimately be approved.

The FDA and the Federal Trade Commission also are keenly interested in health claims made about CBD products. A producer of any consumer product cannot make claims that the product can prevent, treat or cure diseases without a scientific basis for the claims. There are numerous other rules about marketing and labeling foods and nutritional supplements.

In addition to the federal regulations, states can adopt whatever restrictions on hemp production they like. As of August 1, the North...