Direct Sales and MLM

CBD: Where are the boundaries?

Kevin Thompson

DISLCAIMER: There are attorneys out there that dedicate their professional careers to primarily servicing the Hemp and medical marijuana sectors both at the state and national levels. I'm not one of them. If anything in the article is off, I want to hear about it so we can provide updates.


CBD cannot be marketed as a dietary supplement;CBD cannot be added to food or beverages;There's a massive regulatory cloud currently hovering over CBD consumables;Arguments exist that might ultimately pave the way for CBD's mainstream future.

Introduction: 2018 Farm Bill

In a surprising display of bipartisanship, Republicans and Democrats came together in 2018 to pass the Agriculture Improvement Act, commonly referred to as the "Farm Bill." It passed by a landslide, passing 369 to 47 in the House and 87 to 13 in the Senate. Prior to the 2018 Farm Bill, hemp fell under the definition of “marijuana” under the Controlled Substance Act ("CSA") as a Schedule I controlled substance. There was a narrow exception in the CSA that allowed for the growth and sale of hemp if derived from certain parts of the cannabis plant i.e. “mature stalk, fiber, seed oil, seed cake, sterilized seed.” Cannabidiol ("CBD") is an extract that's found in abundance in hemp; thus, the importance for suppliers and companies to be familiar with the CSA requirements.This is all old news now. Under the new Farm Bill, the CSA, and by extension the Drug Enforcement Administration, is no longer a concern. Now, both hemp and marijuana are only legally distinctive based on the level of THC. Specifically, if there's more than 0.3% THC in the extract, it's weed. If there's less than 0.3%, it's hemp. In summary, hemp-CBD oil with a THC level less than 0.3% is no longer an illegal substance under CSA, regardless if it came from the seed or stalk of the plant.

CBD is Legal, Right?

"I see all of these emails going around saying that once the Farm Bill passes, CBD will be legal in all 50 states - and that's just not true at all." Justin Prochnow, shareholder at mega-firm Greenberg Traurig, statement here.As noted above, it's going to vary state to state. Assuming the FDA changes it current posture with CBD, businesses selling the oil and the farmers growing the crop will likely be facing challenges at the state level as each state tries to craft its own position. As just one example, in South Dakota, it's currently illegal.In the good old days, pre-2018 Farm Bill, the FDA's interest with CBD seemed confined to simply sending letters to sellers that were making disease claims in their advertisements and testimonials. This is the sort of risk that felt familiar to the industry; thus, it had no chilling affect on CBD sellers. Control the claims, sell the product. Simple.But...

The FDA Makes Its Position Clear(er)

The FDA has recently taken a more authoritative stance as it pertains to CBD. In fact, through the Farm Bill, Congress “explicitly preserved the agency’s current authority to regulate products containing cannabis or cannabis-derived compounds [CBD] under the Federal Food, Drug, and Cosmetic Act (FD&C Act).”On the day the Farm Bill was signed into law, the FDA, presumably anticipating a melee of questions regarding CBD, issued a press release. The release was clear, concise and written in plain English. For people interested in this space, it's a must-read.The FDA in its statement from FDA Commissioner Scott Gottlieb, M.D., made it clear that these changes have not at this time opened the market to the interstate sale and distribution of CBD oil. The Commissioner states,

We’re aware of the growing public interest in cannabis and cannabis-derived products, including cannabidiol (CBD). This increasing public interest in these products makes it even more important with the passage of this law for the FDA to clarify its regulatory authority over these products. . . .Additionally, it’s unlawful under the FD&C Act to introduce food containing added CBD or THC into interstate commerce, or to market CBD or THC products as, or in, dietary supplements, regardless of whether the substances are hemp-derived. This is because both CBD and THC are active ingredients in FDA-approved drugs and were the subject of substantial clinical investigations before they were marketed as foods or dietary supplements. Under the FD&C Act, it’s illegal to introduce drug ingredients like these into the food supply, or to market them as dietary supplements. This is a requirement that we apply across the board to food products that contain substances that are active ingredients in any drug.

The Commissioner goes on to imply that there is a path for CBD sellers to comply with the law: Get approved as a drug. He states, "The FDA will continue to take steps to make the pathways for the lawful marketing of these products more efficient. . . For example, in June 2018, the FDA approved a drug, Epidiolex, that contains cannabis-derived CBD for the treatment of seizures associated with two rare and severe forms of epilepsy." If this is ultimately the FDA's preferred path for CBD sellers, it's an insurmountable barrier for network marketing companies.To further emphasize their points, the FDA has a FAQ page. The key FAQs:

12. Can products that contain THC or cannabidiol (CBD) be sold as dietary supplements?Answer: No.13. Is it legal, in interstate commerce, to sell a food to which THC or CBD has been added?Answer. No.

It's pretty clear, right?

But Everybody Else Is Doing It...

Back in law school, there was a joke that if a false legal concept found itself in an outline (notes used to study for exams), and if the outline was copied enough times, it became known as "outline law" and therefore acceptable. In other words, if enough people copy each other, the error dissolves. It's the situation the industry finds itself in right now. CBD is undoubtedly hot. Candidly, the products are fantastic and get people talking, which make it perfectly suited for network marketing. But the current regulatory situation make it a risky proposition. The fact that companies are regularly touting the exciting size of the market does not minimize the risk that's out there.

Defenses / Outlook

The FDA provides a tad bit of wiggle room in its press release. The Commissioner stated, "In addition, pathways remain available for the FDA to consider whether there are circumstances in which certain cannabis-derived compounds might be permitted in a food or dietary supplement. Although such products are generally prohibited from introduction into interstate commerce, the FDA has authority to issue a regulation allowing the use of a pharmaceutical ingredient in a food or dietary supplement. We are taking new steps to evaluate whether we should pursue such a process."Also, there are sharp minds on the side of the hemp industry prepared to push back on the FDA's position. They have laudable arguments (see pages 7 and 8), none of which have been litigated.I do anticipate the industry to open up more fully in the future, possibly by 2020. I'm optimistic that the sheer size of the existing CBD market will outweigh the FDA's interest to micro-manage it. But the facts are the facts. Currently, we're not there yet.


Business owners should not be casual in this space. Ignorance is not bliss, it's painful. Companies need to be proactive, investing resources on the both the political (lobbying) and legal fronts. On the FDA and MLM fronts, I can think of nobody better to help navigate the waters than Thompson Burton partner, Kevin Grimes. KG has extensive experience in both MLM and FDA law. Those two categories combined make him a great resource to help clients navigate the risks associated with the space.What do you think? If I missed a detail, please let me know and I'll consider updating the article.

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