Navigating the Cannabis Industry Gray Zone

Legal advice surrounding the regulatory status of cannabis and hemp-based products is a moving target, but Howard Sklamberg keeps his clients apace.

CCBJ: Tell us a little bit about your background. What’s the primary focus of your practice?

Howard Sklamberg: I worked at the Food and Drug Administration from 2010 through 2017. I was deputy commissioner for global regulatory operations and policy from 2014 to early 2017. In that role, I was chair of the FDA’s marijuana working group, which oversaw the FDA’s policy development related to cannabis drug development, CBD [cannabidiol], recreational marijuana in the states, and coordination with other parts of the government.

The field of cannabis has gotten a lot more active since the farm bill was passed in 2018, which removed hemp and certain types of hemp-based cannabidiol from the list of controlled substances. I’ve been working with firms, principally in the policy area, to help them understand the changing legal landscape and to help them work with the FDA and others to develop regulations that protect consumers and provide them with a choice. The policy area is particularly fertile right now, and it’s very much a moving target.

Also, my firm has a lot of clients on the investment side. We advise them, principally on the legal status of companies or products that they’re thinking of investing in, so they know what the law is and can comply.

How is the FDA responding to the growing cannabis industry?

First of all, the FDA has been in the field of cannabis for many years in its role overseeing the development of botanical drugs, such as drugs derived from cannabis. The policy development really accelerated starting around 2014, when a lot of the recreational marijuana laws went into effect, then it accelerated again at the end of 2018.

The FDA has been engaged in a pretty detailed process of evaluating data on the safety of hemp and cannabis products, has been issuing warning letters for products that make fraudulent health claims, and also working with the industry to come up with a workable and clear framework for regulation.

One of the challenges is that the space has grown so quickly. There are so many companies and a huge variation in the quality of the products and the types of players. There’s some evidence of companies selling products that claim to be CBD that do not contain CBD or contain too much CBD. The FDA has actually posted lab analysis on its website.

There’s broad consensus that the best way to protect consumers and offer them choice is to have a clear, workable framework for regulating these products. That will address any safety concerns and hold companies to the standards for manufacturing and suppliers that we expect for products that the American public consumes.

What are the FDA’s regulatory priorities and what type of enforcement or investigative actions are you seeing?

The FDA’s enforcement priorities have been concentrated on products that make fraudulent claims. The FDA has issued a slew of warning letters over the past few years that address products that make outlandish claims to cure cancer or Alzheimer’s. It has a well-developed health fraud program that targets fraudulent products, both trying to take them off the market and educating consumers. That’s been its priority.

It has also provided information to the public about CBD. There is some disagreement between some in the industry and the FDA about safety issues, particularly what concentration levels trigger safety concerns. A lot of those details will be fleshed out with more data and the FDA’s continuing evaluation of existing data.

How are you advising clients to stay on the right side of enforcement activity?

The best advice is to follow the law. Some products are clearly illegal, some products are clearly legal, and then some are in a gray zone. Marijuana is still a federal controlled substance. The distribution of marijuana might be legal under state law in some states, but it still violates federal law. Some hemp products are legal. The FDA itself has not claimed that CBD-containing cosmetics are illegal.

We advise our clients on what the law is and to follow the law. For investor clients who are looking at making an investment, particularly more of a passive investment, they often have less information about the legal status of the products. We provide assistance in telling these companies what we think is legal, what we think is not.

How are you advising investors in this area?

For investors, there are many questions. The first question involves whether the product is legal. The second is if they are indirectly doing business with a company that is violating federal law. If they’re providing, for example, a general service to companies violating federal law, there could be implications. Somebody might own real estate, and in one of those buildings there’s an office in the marijuana business, for example.

Also, what types of regulatory requirements there are for banking and securities is a concern. Clients ask about investments in Canada, where cannabis is legal but regulated. They might ask what precautions, if any, are needed.

Do you have any predictions for the coming year and beyond?

Predictions about regulations are generally difficult. It’s even more difficult when you have presidential and congressional elections happening, but pretty much everybody – from the leaders in the industry to the FDA itself to Congress – all want that to happen. There is a strong interest in Congress to provide much more certainty on the regulatory status of hemp-based products that may contain CBD. Some bills before Congress are trying to prompt the FDA to be more timely in regulation and develop a more clear regulatory framework in the near future. I think we’re going to see Congress continue to have that interest. We’re also seeing the FDA talk about the need to have more certain regulation. It has indicated that legislation may be part of the solution as well.

I personally hope that there is activity in the next couple of years because having clear regulation in this area, regulation that sets standards that protect consumers, is imperative for consumer safety, for offering choice, and for the industry.

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