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RE: WINTER LLP Update – Newly signed Cannabis Laws; and Bureau of Cannabis Control Publishes New Distributor Fact Sheets

Dear WINTER LLP Clients and Friends,

Please see the following summaries on new laws going into effect in 2020.  This was a very favorable legislative sessions for the cannabis and hemp industries.

Additionally, further below these new laws you can find two new fact sheets published by the BCC related to Distribution.

As always, please let us know if you have any questions, or need any assistance with anything and everything!

 

SB-34 allows cannabis licensees to donate cannabis and cannabis products to medicinal cannabis patients who have difficulty accessing such products.  The purpose of this is to enable ill, low-income individuals to have better access to medical cannabis.  Prior law prohibited licensees from donating any amount of cannabis as a business promotion or other commercial activity.  SB-34 was passed on October 12, 2019 and allows licensees to give medicinal cannabis products away to compassionate care patients.  SB-34 provides for such donations to be excluded from taxes but specifies that if a donation-intended cannabis product is not donated, then the taxes will have to be paid on it subsequently.  It will become operative when necessary changes are made to the state’s track-and-trace system or on March 1, 2020, whichever comes first.

 

SB-153 aims to bring California’s hemp regulations in line with the 2018 Farm Bill.  Prior law established the California Industrial Hemp Farming Act and the Industrial Hemp Advisory Board, but this framework existed before the passage of the 2018 Farm Bill and thus is somewhat non-compliant.  SB-153 was passed on October 12, 2019 and revises the Farming Act to better conform to the Farm Bill through the following: enhancing county agricultural commission reporting requirements, standardizing THC-level testing procedures, establishing violation consequences, placing temporary bans on individuals who have been convicted of a controlled substance-related felony and permanent bans on those who lied on their applications from participating in the industrial hemp program, and California to develop and submit a state plan for industrial hemp regulations to the federal government by May 1, 2020.  SB-153 will go into effect on January 1, 2020.

 

SB-185 closes a loophole within the current cannabis appellation marketing laws.  Prior law aimed to prevent companies from stating or eluding that their product is derived from one place when, in fact, it’s not by requiring that only produced which are 100% produced within the county can bear its name.  An example of this would be a cannabis product named “Humboldt’s Finest” when it is not from Humboldt County.  Prior law also requires the California Department of Food and Agriculture to establish appellation standards by January 1, 2021.  SB-185 was passed on October 12, 2019 and builds on these foundations through various changes aimed to ensure that only products that are grown or produced within a defined boundary can be labeled with a name that includes the territory or any wording that is likely to mislead a customer for this purpose.  SB-185 will go into effect on January 1, 2020.

 

SB-595 requires a cannabis licensing authority to develop and implement a fee deferral or waiver plan by July 1, 2020, to create a path for low-income individuals to apply for and receive cannabis licenses.  Prior law authorized licensing authorities to collect fees for cannabis license applications.   SB-595 passed on October 12, 2019 and requires them to create a fee waiver program for local equity applicants by January 1, 2021, and to allocate at least 60% of the dollar amount of waiver or deferral fees to equity those applicants. SB-595 will go into effect on January 1, 2020.

 

AB-1529 changes the requirements of labels on cannabis cartridges and vaporizers so that the labeling requirements would be easier to meet for the industry.  Prior law required that a cannabis cartridge or integrated cannabis vaporizer have a black symbol on it that is, at minimum, one-half inch by one-half inch in size that denotes it as a cannabis item.  This marking requirement has proved difficult to accomplish for technical reasons.  AB-1529 passed on October 12, 2019 and changes this requirement by allowing the symbol to be either in black or white, a minimum of a one-quarter inch by one-quarter inch in size, and affixed by way of either engravement, adhesive, or printing.  AB-1529 is classified as an urgency matter and thus goes into effect immediately.

 

AB-420 authorizes the California Cannabis Research Program (CCRP) to cultivate its own cannabis for the research project that is conducted on the grounds of UC San Diego, and expand what studies may examine, including mold, bacteria, and mycotoxins.  Prior law required the CCRP to acquire cannabis from other sources, and to limit the breadth of its studies.  AB-420 passed on October 12, 2019 and allows the program to cultivate its own cannabis, subject to federal regulations, to decrease research and supply chain issues that have previously presented themselves.  AB-420 will go into effect on January 1, 2020.

 

AB-404 authorizes a cannabis testing laboratory to amend a certificate of analysis to correct minor errors and retest samples, as specified.  Prior law requires a testing laboratory to issue a certificate of analysis for selected lots of each batch tested.  AB-404 passed on October 12, 2019 and allows the lab to amend the certificate of analysis once it is issued to correct minor errors and to retest a sample whose test results fall outside of the normal parameters if the lab notifies the bureau that the previous test was compromised and the bureau approves the re-testing.  AB-404 will go into effect on January 1, 2020.

 

AB-37 makes licensees who are engaged in commercial cannabis activities to be eligible to take business deductions for those activities.  Prior law disallowed those who engage in commercial cannabis activity from deducting any ordinary and necessary business expenses related commercial cannabis activity on their tax returns due to the federally illegal status of cannabis.  AB-37 passed on October 12, 2019 and equalizes the treatment of such taxpayers by allowing them to do so if applicable.  AB-37 will go into effect on January 1, 2020.

 

AB-858 adds to the CDFA’s type 1C cultivation a limit of 2,500 square feet for outdoor grow space.  Prior law did not place a canopy size limit on this type of license, also known as a “specialty cottage.”  AB 858 corrects this oversight by limiting the growing space to 2,500 square feet. AB-858 will go into effect on January 1, 2020.

 

AB-1291 requires an applicant for a cannabis license who has 20 or fewer employees to provide a statement that the applicant will enter into a labor peace agreement within 60 days of employing 20 or more employees, and requires applicants who currently have 20 or more employees to provide a statement that they will or already have entered into such an agreement.  Prior law required applicants with greater than 20 employees to submit similar statements but placed no timeline restrictions on the submittal, and did not require anything of the like from applicants with fewer than 20 employees.  AB-1291 passed on October 12, 2019 and includes a time-line specification and a statement requirement for applicants with less than 20 employees for the purpose of preventing and limiting the possibility of arbitrary employment law enforcement.  AB-1291 will go into effect on January 1, 2020.

 

To All Interested Parties,

The Bureau of Cannabis Control (Bureau) recently published two new fact sheets as a resource for those seeking information about the cannabis distributor and distributor transport only license types. These documents include lists of required procedures and guidelines for various distribution activities such as transportation, storage, transfer of cannabis goods, packaging, labeling, and more.

Both distributor fact sheets have been uploaded to the California Cannabis Portal and are located on the “General Resources” page under the “Resources” section. The fact sheets may also be accessed by clicking the links listed below.

Cannabis Distributor (Type 11) Fact Sheet:

https://cannabis.ca.gov/wp-content/uploads/sites/13/2019/08/BCC_Distributor_Fact_Sheet.pdf

Cannabis Distributor Transport Only (Type 13) Fact Sheet:

https://cannabis.ca.gov/wp-content/uploads/sites/13/2019/08/BCC_Distributor_Transport_Only_Fact_Sheet.pdf

Those looking to get in touch with the Bureau of Cannabis Control may contact us directly through email at bcc@dca.ca.gov.

WINTER LLP Update: Committee Blog: Protecting Stash-Assets

Committee Blog: Protecting Stash-Assets


By NCIA’s Infused Products Committee
Contributors include Radojka Barycki, Noval Compliance; Karin Clarke, KC Business Solutions; Lee Hilpert, Organnx; Danielle Maybach, Eva Gardens; Trevor Morones, Control Point; and Todd Winter, Winter LLP

You have spent months fighting sleep deprivation to build a strong pitch deck as the next most desired infused cannabis company. Educating staff, family, and friends, through role-plays and recent published journal entries. Blog after blog, inspirational book after book, and you start to believe that the deck is complete. Dress to impress then review the multi-colored sticky notes that list the risks of your operation. Some are likely, others are less, but what about the ones that are high? Is ALL of your due-diligence completed to pitch to the venture capital groups in the cannabis world?

The Issue

While legalization has quickly brought cannabis and cannabis-related products into international markets, relevant food safety regulations need to be implemented and adopted to protect patients and consumers. The infused product manufacturing sector, in particular, requires more uniform safety requirements to guide operating professionals, many of whom lack knowledge, resources, and incentive to standardize safety.

As target consumers range from large groups of adult consumers to medical users, safety is a paramount concern for all. This is especially true for medical users, as they are predominately high-risk consumers regardless of their specific medical condition.

The cannabis industry, especially the infused edible products sector, has a prime opportunity to incorporate and implement existing food safety regulations into their manufacturing processes. This will demonstrate alliance with the general food manufacturing industry and help to ensure that cannabis-infused product manufacturers are regulated no more stringently than any other food manufacturer.

The Risk

In addition to the already controversial nature of our industry, safety issues will undoubtedly garner public and press attention when as few one people become ill as a result of an unsafe product. Contamination inevitably comes from a variety sources, such as chemical, physical, or biological hazards in the growing and extraction process (and lack of testing), employee contamination (failure to use gloves, wash hands, dirty garments and tools, etc.), failure to adhere to basic food safety processing standards and practices (clean food contact surfaces, improper chemical concentrations, introducing biological contaminants).

Without clear and industry applicable guidelines and processes, product safety issues will emerge and take over headlines. Issues of product safety damage consumer and industry trust, resulting in lost revenue, loss of market share, decreased share value and loss of talent. One most recent example of the exorbitant cost related to product safety was made ominously clear in the multi-state Chipotle case. This incident caused a tragic decline in customer confidence and many days of double-digit stock value plunges.

The Solution

Site-specific training for all team members is the preventative action to reduce risks and generate positive audit results. Rigorous training programs expand food/product safety knowledge, generate a stronger culture, reduce risk, and prevent contamination. By focusing on how each employee can positively impact safety through their daily actions and contribute to the market value and customer satisfaction, employees take on a stronger safety and excellence culture, resulting in higher Net Promoter Scores (NPS).

Measurement is critical to quality control and ongoing excellence. Food Safety Management Systems (FSMS) provide operating structure and validate the process to prove the system is operating as intended. These proven systems operate on a foundation of integrity that mitigates risk throughout the process of a product. No doubt the learnings there transfer to the cannabis products, especially infused products.

What’s Next?

The IPC’s goals are to raise awareness, effectuate positive change, and help establish protocols and standards for food safety, dosing, and testing within the cannabis industry. This will establish baselines from which cannabis business operators can rely upon, prevent inapplicable regulatory requirements that are not relevant to our industry, and most of all provide for the safety of consumers.

Now, when did food safety leave a bitter taste in your mouth? Precisely! Never would we need an Upton Sinclair to transform the industry from a negative outlook on the truths. Collectively we will unite and hold our operations to a standard of excellence that will be called upon during the end of cannabis probation on a national level.

URL: https://thecannabisindustry.org/committee-blog-protecting-stash-assets/

The Truth About the DEA and CBD

Fundamentally, CBD derived from hemp is not specifically defined under the Federal Controlled Substances Act (the “CSA”) which can be found under 21 U.S.C. 812. Therefore it is not a Schedule I Substance under the United States Code. (U.S.C.)

When Congress passes a law, it is recorded in a set of books known as The United States Code, or U.S.C. That is where the CSA can be found.

However, the CFR, or Code of Federal Regulations (CFR) is written by government agencies responsible for the subject matter of the laws. The regulations found in the CFR do not stand on their own; they must be based on statutes passed by Congress and are only valid if they put into effect an actual statute enacted by Congress.

Yesterday, the DEA amended the CFR to define all extracts from cannabis as a Schedule 1 drug. However, the United States Code (U.S.C.) and CSA remain unchanged. The DEA has no authority to change the law (U.S.C.) and as such, unless or until Congress amends the definition of marijuana in the U.S.C. (CSA), the DEA has no authority to enforce its “regulations.” As indicated above, the CFR is simply a book of regulations written by governmental agencies, and do not stand on their own as laws unless based upon actual acts of Congress. Congress has made no acts with respect to CBD derived from hemp.

When the DEA in 2003 attempted to initiate rules and interpretations concerning cannabinoid constituents of marijuana that were not expressly set forth under the CSA or the DEA’s own regulations, the Ninth Circuit Federal Court of Appeals struck down its efforts, stating that “an agency is not allowed to change a legislative rule retroactively through the process of disingenuous interpretation of the rule to mean something other than its original meaning.”

Then, in another case in 2004, the court stated “In keeping with the definitions of drugs controlled under Schedule I of the CSA, the DEA Final Rules can regulate foodstuffs containing natural THC if it is contained within marijuana, and can regulate synthetic THC of any kind. But they cannot regulate naturally-occurring THC not contained within or derived from marijuana — i.e., non-psychoactive hemp products — because non-psychoactive hemp is not included in Schedule I. The DEA has no authority to regulate drugs that are not scheduled, and it has not followed procedures required to schedule a substance.”

In other words:

  1. The CSA, as found in the United States Code, remains unchanged. CBD derived from hemp is not a Schedule I substance as found in the CSA. This is the law.
  2. The DEA has no authority to change Congress’ interpretations or make laws, and Congress has not scheduled CBD derived from hemp as a Schedule 1 drug. The regulations found in the CFR are not enforceable unless based upon actual statutes found in the U.S.C.
  3. The DEA has not properly followed procedures required to schedule CBD derived from hemp as a Schedule 1 drug, and therefore it has no authority to regulate drugs that are not scheduled.
  4. Unless or until Congress amends the United States Code to reschedule CBD from hemp as a Schedule 1 drug, the DEA’s power to enforce its “Final Rules” is limited. And even if it does somehow attempt to enforce the “rule”, the DEA can be successfully challenged in court.

The two primary factors to keep your eyes on as our industry moves forward, in my opinion, are (i) the continuing approval of (CA – R) Dana Rohrabacher’s Spending Bill provisions limiting federal funds for enforcement efforts in legal cannabis states; and (ii) if Congress is somehow convinced to change the CSA by the DEA’s shenanigans, which I think is highly doubtful.

WINTER LLP is a corporate, transactional, regulatory and intellectual property law firm focused on traditional and emerging markets, with offices in Orange County, San Francisco, and Arizona, servicing clients around the world.

FDA Deeming Regulations – How it Impacts the Cannabis Industry

BACKGROUND

On May 10, 2016, the FDA published the final “deeming rule,”[1] which extends the FDA’s tobacco product authority under the federal Food, Drug, and Cosmetic Act (FDCA) to all products meeting the statutory definition of “tobacco product.” Up until now, the existing FDA statutes and rules have only addressed cigarettes, cigarette tobacco, roll-your-own tobacco, and smokeless tobacco. The new rules expand the term “tobacco products,” to include, among others, vaporizers, vape pens, hookah pens, electronic cigarettes, e-pipes, and all other ENDS (Electronic Nicotine Delivery Systems). Notably, manufacturers of components and parts of ENDS which are sold or distributed separately for consumer use – i.e. e-liquids, cartridges, atomizers, certain batteries, cartomizers and clearomizers, tank systems, drip tips, flavorings for ENDS, and programmable software – are subject FDA’s product authorities.

Newly deemed “tobacco products” are now subject to the same premarket review provisions of Section 905(j) and 910 of the FDCA that govern currently regulated tobacco products, meaning that manufacturers of newly deemed products will be required to obtain premarket authorization through one of three premarket pathways: SE Exemption Requests; SE Reports; or Premarket Tobacco Product Applications (PMTAs). Because the “grandfather date” of February 15, 2007 still stands, and most e-cigarette and vapor products were commercially marketed after the grandfather date, the deeming rule effectively mandates that these products will be subject to the PTMA review process.

Manufacturers will have a 24-month initial compliance period from August 8, 2016, to prepare PTMAs for authorization, as well as a 12-month continued compliance period after those dates in which to obtain FDA authorization. Importantly, the aforementioned compliance policy applies only to products that are commercially marketed as of the effective date of the deeming rule (August 8, 2016): any new product not on the market as of August 8, 2016, is not covered by the compliance policy and is subject to enforcement if marketed without premarket authorization. [2]

Submission of a PMTA will cost between $117,000 to $466,000, as indicated by the FDA.[3] However, industry experts suggest the FDA is underestimating costs and have placed the figure at well over $1 million.

QUESTIONS AND ANSWERS FOR THE CANNABIS INDUSTRY

1. How will the new FDA regulations affect the cannabis industry?

Although the FDA has thus far limited its contact with the cannabis industry, the new rules may indirectly apply to cannabis products because of the dual-use nature of many “tobacco products” – such as vape pens that can be used for either tobacco/nicotine-derivatives or cannabis-derivatives.

A key phrase the FDA uses in defining a “tobacco product” in its Deeming Rule is whether the product is “intended or reasonably expected to be” used for human consumption of a tobacco product or alter or affect a tobacco product. This “intended or reasonably expected to” language will likely have further reaching effects to the cannabis industry for a couple of reasons: (1) cannabis is still currently federally classified as a Schedule I drug; and as such, (2) most cannabis-related products have been marketed as for use with tobacco/nicotine.

Therefore, the FDA will be able to regulate cannabis products that are marketed as “intended or reasonably expected to be used for human consumption of a tobacco product or alter or affect a tobacco product” – which includes most cannabis vaporizer components (empty vape cartridges, batteries, cartomizers, tank systems, etc.)

Please note that these new regulations are targeted at tobacco/nicotine products; therefore, they do not specifically address the FDA’s role in regulation of cannabis oil. For more information specifically about cannabis oil, please see Question 7.

2. Will the FDA regulations affect the importation (from other countries) of vaporizer components, parts, and accessories, i.e. vape cartridges, batteries, cartomizers, etc.?

In the “Draft Guidelines for Industry – Premarket Tobacco Product Applications for Electronic Nicotine Delivery Systems (ENDS)”, the FDA states that:

“At this time, FDA intends to limit enforcement of the requirements of ENDS products sold or distributed separately for consumer use. FDA does not, at this time, intend to enforce these requirements for components and parts of newly deemed products that are sold or distributed solely for further manufacturing into finished tobacco products and not sold separately to the consumer. For example, an e-liquid that is sold or distributed for further manufacturing into a finished ENDS products is not itself a finished tobacco product, and at this time, FDA does not intend to enforce such e-liquids that are sold or distributed without a marketing order. In contrast, an e-liquid sealed in final packaging that is to be sold or distributed to a consumer for use is a finished tobacco product. FDA intends to enforce against such finished e-liquids that are sold or distributed without a marketing order.”[4]

Therefore, with respect to our clients that import vape cartridges, batteries, cartomizers, etc. for use with cannabis, the FDA should not have the authority to regulate the importation of such components so long as the components are not sold separately to the customer and will be “sold or distributed solely for further manufacturing.” In other words, the FDA will only be regulating the importation of vape pens, cartridges, batteries, etc. that are sealed in final packaging and are ready for sale to a consumer.

As explained in further detail below in (4), although FDA intends to work with the U.S. Customs and Border Protection (CBP) to ensure tobacco products that enter U.S. borders comply with applicable regulations, the FDA is ultimately responsible for determining whether an FDA-regulated article offered for importation into the United States is in compliance with the laws enforced by FDA.

3. There are new products (cartridges, batteries, vape pens) available on the market. Can I upgrade my current models to reflect those changes?

In short, we advise against introducing any “new products” (particularly products that can also be used with tobacco/nicotine products) that were not on the market as of August 8, 2016. This includes refraining from incorporating new technology, methods, packaging, labeling, etc. relating to vape pens and its components. Although the new Deeming Rule is targeted at manufacturers and retailers of tobacco/nicotine products, it is foreseeable that by introducing new vape technology, packaging, or products, manufacturers of cannabis-related products will “awaken” the FDA regulatory authorities to their products. Also, as discussed above, the FDA will be able to regulate cannabis products that are marketed as “intended or reasonably expected to be used for human consumption of a tobacco product or alter or affect a tobacco product” – which includes most cannabis vaporizer components (empty vape cartridges, batteries, cartomizers, tank systems, etc.)

Moving forward, the packaging, labeling and advertising of cannabis-related products with a conceivable dual purpose could be an important factor in determining whether the FDA will deem the product a “tobacco product” subject to the new rules. However, the industry faces a tricky dilemma as labeling a product “for use with cannabis only” is federally illegal, while labeling a product as “for use with tobacco” will cause it to be regulated as a tobacco product. It is also conceivable that sometime in the near future, particularly if the federal government legalizes cannabis, the FDA will embark on similar rulemaking related to cannabis products.

4. How will the FDA enforce these regulations?

To date, the most recent “Enforcement Action Plan” was published in 2010 by the FDA Office of Compliance & Enforcement, Center for Tobacco Products. Until the FDA publishes a new “Enforcement Action Plan,” we can assume that the 2010 regulations are still valid. In its plan, the FDA outlined the following procedures for enforcement of its tobacco regulations:[5]

  • Tobacco Marketing Surveillance: This surveillance would include monitoring and evaluating various sources of information, including: regulatory submissions made to the FDA, point-of-sale advertising and other promotional materials for tobacco products, internet promotional materials, and complaints.
  • State Tobacco Retailer Compliance Check Inspection Program: The FDA will award contracts to State agencies to assist the FDA in inspecting retail establishments that sell cigarettes and/or smokeless tobacco products. These retail inspections will cover the age and identification (youth access) requirements, as well as requirements relating to tobacco product promotion and advertising. FDA may direct an inspection of a particular retailer if a complaint or report is received, including unlicensed establishments and non-traditional vendors.
  • FDA Inspections of manufacturers and distributors: FDA plans to conduct inspections of manufacturers and distributors. If appropriate, inspections of manufacturers and distributors may be conducted by FDA in response to a complaint.
  • Imports Program: FDA intends to work with the U.S. Customs and Border Protection (CBP) to ensure tobacco products that enter U.S. borders comply with the requirements established by the Tobacco Control Act and applicable regulations. CBP, an agency within the Department of Homeland Security, is responsible for administering the nation’s laws relating to imports, exports and the collection of duties. However, FDA is responsible for determining whether an FDA-regulated article offered for importation into the United States is in compliance with the laws enforced by FDA. As previously mentioned, the FDA will not have the authority to regulate the importation of components so long as the products will be sold or distributed for “further manufacturing.” Therefore, please ensure that the FDA product code[6] on your Customs documentation indicates that your vape component is “for further manufacturing.”
  • Enforcement Tools: FDA has the authority to take enforcement action against violative tobacco products and against persons who violate the requirements established by the Tobacco Control Act and applicable regulations. FDA may utilize several enforcement tools, including but not limited to, the following: warning Letters, civil money penalties, no-tobacco-sale orders, seizures, injunctions, and/or criminal prosecutions.

5. Do I need to apply for a PMTA to continue manufacturing vape components, such as oil, cartridges, batteries, cartomizers, etc.?

As discussed above, manufacturers of “tobacco products” will have a 2-3 year compliance period to apply for and receive a “tobacco marketing order,” and any new product not on the market as of August 8, 2016, is not covered by the compliance policy and is subject to enforcement if marketed without premarket authorization. Moreover, the FDA will likely view cannabis vaporizers and its components as a “tobacco products” because they can “reasonably expected to be” used for human consumption of a tobacco product.

However, the FDA will only enforce against “finished tobacco components, including components and parts of ENDS products sold or distributed separately for consumer use.” [7] “In the case of ENDS hardware/apparatus components, FDA expects that it may be difficult for manufacturers to make the showing necessary to meet the statutory standard, given the great extent of possible variations in combinations of hardware components, if all are 70 considered and sold separately. Thus, with respect to apparatus, FDA expects that manufacturers will be most successful where authorization is sought for entire delivery systems, rather than individual components.” [8]

In other words, with respect to cannabis oil, our clients will not be able to apply for a PMTA because the FDA is only regulating e-liquids with nicotine content. Cannabis oil is not therefore a “tobacco product.”

With respect to cannabis vape components (batteries, empty cartridges, cartomizers, etc.), our clients will likely not be able to apply for a PMTA for the individual components because the FDA has suggested that they will only be approving “entire delivery systems, rather than individual components.”

However, with respect to the entire cannabis vape delivery system (without the oil), our clients may be interested in applying for an “Open Aerosolizing Apparatus” PMTA (without e-liquid and including components and parts). If the PTMA is approved by the FDA, our clients would be able to continue producing their cannabis vaporizers (without cannabis oil) and sell/distribute them to licensees, retailers, and customers even after the 2-3 year compliance period.

6. I am interested in applying for an “Open Aerosolizing Apparatus” PMTA for my entire cannabis delivery system (without the cannabis oil). What are my next steps?

Manufacturers must comply with the following requirements:

  1. Register your establishment and submit a list of all tobacco products that are being manufactured for commercial distribution by December 31, 2016.
  2. Submit tobacco health documents[9]
  3. Submit ingredient listing[10]
  4. Include Required Warning Statements on Packages and Advertisements[11]
  5. Submit quantities of Harmful and Potentially Harmful Constituents[12]
  6. Submit Premarket Tobacco Application (PMTA)

For Steps 1-5, although mailing the Center for Tobacco Products (CTP) is permitted, the FDA recommends electronic submission via the FDA’s eSubmitter software[13] to package documents and the CTP Portal[14] to upload eSubmitter package.

In its “Draft Guidelines for Industry – Premarket Tobacco Product Applications for Electronic Nicotine Delivery Systems (ENDS)”, the FDA recommends that your PMTA application for “Open Aerosolizing Apparatus” include detailed descriptions of the following:

  • Aerosolizing apparatus features;
  • Material and/or ingredient functions;
  • Capabilities to monitor product performance (e.g. temperature sensing, voltage sensing, battery life detection);
  • Instructions, and method of operation;
  • Materials of all aerosolizing apparatus components;
  • Operating ranges (e.g. lower and upper wattage, voltage limits that users can adjust);
  • Power supply, such as batteries (including whether it is rechargeable or replaceable);
  • Charging source and the safety of using different charging sources; and
  • Heating source (e.g. heating coil, chemical reaction).

FDA also recommends that your PMTA contain detailed aerosolizing apparatus schematics (e.g. CAD drawings) with dimensions, pictures, and labeling, accompanied by engineering design parameters.

Finally, electrical safety should be discussed, and applicable standards to which conformance have been demonstrated should be identified. This discussion should include appropriate data (e.g. test protocol, data, results). Additionally, you should provide a description of all built-in electrical safety features. If the product contains a controller, you should list and discuss power management techniques used, such as pulse width modulation or direct current.

It is important to note that since many of the regulations in the Deeming Rule are brand new and the FDA has never seen or approved a PMTA for an “Open Aerosolizing Apparatus,” it could be a few months before clearer guidelines and instructions are available. Again, although the FDA has estimated costs to be in the range of $117,000 to $466,000, there are no precedents available to be able to gauge the actual amount of work and costs involved. We will continuously monitor the FDA website for any news and updates regarding PMTAs for “Open Aerosolizing Apparatus.”

Finally, with respect to applying for an “Open Aerosolizing Apparatus,” PMTA, our clients may wish to consider setting up a separate corporate entity that only manufactures the finished vaporizer (without the cannabis oil). The separate, parallel entity could then license the vaporizer back to the parent cannabis entity, as well to other companies/retailers/distributors.

7. I am unsure about applying for a PMTA. Can the FDA regulate the manufacturing of cannabis oil?

It does not appear that the deeming rule has any direct effect on the current status quo of the regulatory environment surrounding the manufacturing of cannabis oils. According to the FDCA, an e-liquid is considered a “covered tobacco product” if it contains nicotine, tobacco, or any derivative of nicotine or tobacco.[15] The FDA has intimated that in many instances it is reasonably expected that e-liquids, such as flavored liquids, will be combined with liquid nicotine, or other similar substances, prior to consumption and will therefore be regulated as components of tobacco products.[16] However, it would be difficult to craft a credible argument that cannabis oil is reasonably expected to be consumed with a tobacco product. Accordingly, the deeming rule does not give the FDA any new or modified ability to regulate the manufacturing of cannabis oil.

However, in recent years, the FDA has demonstrated that it maintains at least some ability to regulate cannabis oils, and most specifically cannabidiol (CBD). The FDA has concluded that selling products containing CBD as dietary supplements as well as the introduction of food containing CBD into interstate commerce constitute violations of the FDCA.[17] In both 2015 and 2016 the FDA has sent “warning letters” to manufacturers for their improper marketing of products containing CBD.[18] In short, the FDA has limited its “regulation” to companies that make inaccurate claims in labels or presenting human health risks.

It is important to note, though, that to date the FDA has not shown a particularly large appetite for enforcement actions against cannabis oil manufacturers. When determining whether to initiate an enforcement action for a perceived violation of the FDCA, the FDA considers factors such as agency resources and the threat posed to public safety.[19] In 2015, only 6 warning letters were sent by the FDA to CBD manufacturers, and 8 in 2016, and it is not apparent whether any further action was taken against any of the recipients. Further, the letters themselves only required that the recipient notify the FDA of the steps it intended to take to correct the alleged violations.[20]

CONCLUSION

The FDA’s use of the phrase “tobacco product” and its rationale for regulation based on the public health risk due to “highly addictive nicotine” establish that the rules do not directly affect cannabis-related products. However, the “intended or reasonably expected to” language could be the proverbial back door for the FDA to regulate cannabis-related products if there is a possibility of dual use with tobacco – such as with vape pens that can be used for either tobacco/nicotine-derivatives or cannabis-derivatives.

In summation, we recommend that cannabis companies that manufacture vape pens, components, and parts to consumers refrain from introducing any new parts/models at this time. Furthermore, companies may wish to consider applying for an Open Aerosolizing Apparatus PTMA to continue the manufacture and sale of its vape pens (sans oil/cartridges) to consumers.

With respect to cannabis oil only, the Deeming Rule does not give the FDA any new or modified ability to regulate its manufacturing. Nevertheless, it is also conceivable that sometime in the near future, particularly if the federal government legalizes cannabis, the FDA will embark on similar rulemaking related to cannabis products.

WINTER LLP® is a corporate, transactional, regulatory and intellectual property law firm focused on traditional and emerging markets, with offices in Orange County, San Francisco, and Arizona, servicing clients around the world.



[1]“Deeming Tobacco Products to be Subject to the Food, Drug, and Cosmetic Act, as Amended by the Family Smoking Prevention and Tobacco Control Act; Regulations Restricting the Sale and Distribution of Tobacco Products and Required Warning Statements for Tobacco Product Packages and Advertisements,” available at https://s3.amazonaws.com/public-inspection.federalregister.gov/2016-10685.pdf

[2] FDA, Small Entity Compliance Guide: FDA Deems Certain Tobacco Products Subject to FDA Authority, Sales and Distribution Restrictions, and Health Warning Requirement’s for Packages and Advertisements (May 2016), at 17, available at https://www.fda.gov/TobaccoProducts/Labeling/RulesRegulationsGuidance/ucm499355.htm.

[3] https://www.fda.gov/TobaccoProducts/AboutCTP/ucm378205.htm#13

[6] https://www.accessdata.fda.gov/scripts/ora/pcb/index.cfm

[8] Deeming Rule at pg 69-70, https://s3.amazonaws.com/public-inspection.federalregister.gov/2016-10685.pdf

[9] https://www.fda.gov/downloads/TobaccoProducts/Labeling/RulesRegulationsGuidance/UCM208916.pdf

[10] https://www.fda.gov/downloads/TobaccoProducts/Labeling/RulesRegulationsGuidance/UCM192053.pdf

[11] https://www.fda.gov/downloads/TobaccoProducts/Labeling/RulesRegulationsGuidance/UCM499354.pdf

[12] https://www.fda.gov/downloads/TobaccoProducts/Labeling/RulesRegulationsGuidance/ucm297828.pdf

[13] https://www.fda.gov/ForIndustry/FDAeSubmitter/ucm189469.htm

[14]https://www.fda.gov/TobaccoProducts/GuidanceComplianceRegulatoryInformation/Manufacturing/ucm515047.htm

Interview with Cannabis Radio.com

After my presentation on the same topics at the National Cannabis Industry Association conference in Oakland, I was interviewed by Radical Russ on Cannabis Radio.com and asked to discuss intellectual property and corporate transactions in the Cannabis Industry. Listen and enjoy!

https://www.cannabisradio.com/podcasts/grassroots-marketing/cannabis-as-intellectual-property/