CBD Consumer Goods in the US: What Israeli Companies Should Know?

Notwithstanding the economic challenges brought by coronavirus and their devastating effects, reports in the US indicate the CBD market continues its growth in 2020. In Israel, the Manufacturers Association of Israel is leading the industry’s support for a reform that removes CBD from the prohibited substances list. According to Deloitte Israel, should CBD be removed from the list, Israeli companies could reach a 1.5% share of the global CBD market, which is projected to be valued at $30 billion by 2025. The CBD industry in the U.S. is also leading various efforts to overcome regulatory and other challenges. Israeli CBD companies may want to keep updated and follow such efforts as they unfold in the US.

Although numerous CBD consumer goods are sold these days in the U.S., it is still a relatively young and evolving industry, operating in a highly complex and fluid regulatory environment. How federal rules will interact with existing state laws remains largely TBD. Competing mandates among federal agencies could mean lingering uncertainty in some areas, however federal legislative “fixes” to these problems may be forthcoming.

The biggest breakthrough for the CBD industry in the U.S. came about in December 2018 with the enactment of the 2018 Farm Bill. The Bill, among others, changed federal law so that hemp — defined as cannabis and cannabis derivatives with very low, up to 0.3% levels of the psychoactive intoxicating component of cannabis, delta-9 tetrahydrocannabinol (THC) — was removed from Schedule I of the Controlled Substance Act. However, the U.S. Food and Drug Administration (FDA) position to date has been that CBD in food and food additives, for both human and animals, is prohibited. FDA officials noted on various occasions that there is a “knowledge gap,” unanswered questions about the science, safety, and quality of products containing CBD.

The FDA has taken enforcement discretion against companies making misleading claims regarding CBD for the diagnosis, cure, mitigation, treatment, or prevention of any disease. This year, the FDA issued a number of warning letters to companies that sold “Unapproved and Misbranded” CBD products for sale in the U.S. that claimed to be useful in mitigating, preventing, treating, diagnosing, or curing COVID-19.

On July 8, 2020, the FDA issued a report to the U.S. Congress entitled, “Sampling Study of the Current Cannabidiol Marketplace to Determine the Extent That Products are Mislabeled or Adulterated.” Of nearly 150 CBD products tested for cannabinoid content, the FDA found less than half contain the amount of CBD on the label. The report clearly underscores a trend of mislabeled products and a growing need for the FDA to regulate CBD as a dietary supplement and food additive. The FDA indicated that it developed a long-term sampling plan to continue taking “a representative, random sample of the current CBD product marketplace” in 2020.

On July 22, 2020, the FDA sent the long-awaited draft guidance, “Cannabidiol Enforcement Policy,” to the White House Office of Management and Budget for review. The draft guidance has not yet been released to the public. The expectation is that the draft policy will clarify what the FDA considers legal use in supplements or consumer products and may be the launching point for regulations that the CBD industry has been asking for.

U.S. Congress, in the interim, is leading efforts as well to carve CBD out as a dietary supplement legislatively, expressly permitting CBD that meets the definition of hemp to be used as a food additive or dietary supplement. While considering the potential for adverse health effects and other unintended consequences, U.S. Congress could also take further legislative action in the future.

CBD companies should also be well aware of local state laws pertaining to CBD in the states where they operate, as some states ban CBD all together, while others have specific regulations that govern the manufacture and sale of CBD products.

Considering all the restrictions and unclear regulatory landscape in the U.S., it’s a wonder that any CBD products are sold at all. For the pioneer companies selling products in this space, it is all about risk management. CBD companies that are taking calculated risks in the U.S. are typically adhere the following practices:

1. They are only using CBD derived from industrial hemp in their products;

2. They manufacture and sell products only in a state that doesn’t prohibit CBD and in accordance to local state laws relating to CBD and labeling; and

3. They avoid making any health claims in labeling and marketing materials

In the U.S., just like in Israel, companies interested in the opportunities the CBD market holds, should closely monitor the regulatory developments and be ready to adopt and follow such regulations as they evolve.