December 01, 2020 Practice Points

Could Uncertain Regulatory and Legal Environment Prune Growth of Cannabis Products?

As we transition into 2021 and a new presidential administration, what is on the horizon for the legal status of cannabis?

By Greg Wu and Edd Gaus

With the Biden administration poised to assume the reins of the federal government in January 2021, Americans can expect policy shifts on a number of issues, from immigration to foreign policy. Among those issues is the federal legalization of cannabis, particularly marijuana and hemp derived cannabidiol (CBD) products. Recent voting trends show the nation continues to warm to the idea of legalizing adult-use cannabis, but as America continues to focus on fighting the COVID-19 pandemic, the issue may not be a priority for many state legislators. So, as we move into a new administration, what is on the horizon for the legal status of cannabis?

Do Not Expect Federal Policy To Change Overnight

When President Trump signed the Agriculture Improvement Act of 2018, removing hemp from the statutory definition of marijuana and the Drug Enforcement Administration (DEA) schedule of controlled substances, many expected new federal regulations to foster growth for the domestic cannabis industry and a legal pathway for all manner of hemp-derived products would follow. For a variety of reasons, those regulations never materialized. And, with the COVID pandemic still looming, cannabis policy and regulation are unlikely to be top priorities as we move into 2021. Even so, a few potential policy changes may help stabilize the legal environment surrounding cannabis products, nationwide, in the coming years:

  • Reinstatement of the Cole Memorandum: The Cole Memorandum—a Department of Justice (DOJ) memo issued in 2013 by Deputy Attorney General James M. Cole—stated that given its limited resources, the DOJ would not enforce federal marijuana prohibition in states that legalized marijuana, in some form, and implemented regulatory and enforcement systems to control the cultivation, distribution, sale, and possession of marijuana. The memo was rescinded by then-Attorney General Jeff Sessions in 2018, and was never formally readopted by Attorney General William Barr, but could be reinstated under the new administration.
  • A Legal Pathway for CBD Products: The Food and Drug Administration (FDA), which regulates hemp-derived cannabis products, continues to prohibit manufacturers from adding CBD to food or labeling it as a dietary supplement. However, the FDA continues to evaluate the regulatory frameworks that apply to cannabis-derived products that are intended for non-drug uses. The agency also allegedly submitted proposed guidelines in July to the White House for final review, but those have never been published. Given the growth and popularity of CBD products, that may change in 2021.
  • Granting Cannabis Industry Access to Banking System: The Secure and Fair Enforcement (SAFE) Banking Act, HR 1595, designed to allow the cannabis industry to work with banks and financial institutions, passed the House in September 2019 as part of COVID relief and was referred to the Senate for further action, although the Senate has yet to take action on the act. The most recent version of the bill also incorporated portions of the Clarifying Law Around Insurance of Marijuana (CLAIM) Act, which creates a “safe harbor for insurers engaging in the business of insurance in connection with cannabis-related business.” Expect the bill to be reintroduced next in the next Congress.
  • Fostering Domestic Hemp Production: Proposed rules from the United States Department of Agriculture and DEA on hemp cultivation and processing were set to go into effect in 2020 but were delayed because of the COVID pandemic. Recently, industry advocates began to urge Congress to re-engage these agencies and work on legislation providing clarity for hemp cultivators nationwide.

States Will Continue to Blaze Their Own Path

During the 2020 election cycle, four states passed ballot initiatives legalizing recreational marijuana for adult use, bringing the total number of states to 15 (plus Washington D.C.). The new states are:

  • Arizona
  • Montana
  • New Jersey
  • South Dakota (although the ballot measure has been challenged by two police officers as unconstitutional, with apparent support from the state government)

In the absence of federal regulation on CBD in food and beverage products, several states have enacted their own regulatory regimes to permit the sale of such products under state law. For example, while California’s Department of Public Health has long adopted the FDA’s position that CBD is not permitted in food and beverages, other states such as New York have recently issued its own regulatory regime to permit the sale of hemp-derived products under state law. In each state, the regulations continue to evolve at a rapid pace as industry advocates and state legislators struggle to find a happy medium between their competing interests. Businesses and investors should expect local cannabis regulations to continue to evolve as the industry grows and must be able to adapt to this unpredictable regulatory landscape. 

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Greg Wu is a partner at Shook, Hardy & Bacon LLP in their Kansas City, Missouri, office. Edd Gaus is an associate at Shook, Hardy & Bacon LLP in their San Francisco, California, office


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