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Helpful Information on the Legal Status of CBD

I’ve competed with small cap public companies for almost 4 decades. I love it, as they give you lots of competitive intelligence you can put to good use, every quarter.

Elixinol is about to go public and released its Prospectus for investors. TLDR, but found a few gems. The following is the legal opinion of the legality of CBD by one of the most respected FDA law firms in the country. No big surprises in it for me, but many popular canards about CBD legality are shot down. Download the Prospectus, buy $100 in stock so you can get annual reports and even more intel. Read over their quarterly filings, look at sales and margins and compare them to your business.

Excerpts (emphases are mine):

Frost Brown Todd

OPINION ON THE LEGAL STATUS OF INDUSTRIAL HEMP PRODUCTS UNDER FEDERAL AND STATE LAWS

Prepared for Elixinol LLC, August 10, 2017

SHORT ANSWER

As outlined below, it is our informed opinion that Elixinol operates within the bounds of United States federal laws regulating industrial hemp and that the Products, as you have described them to us, are legal as a matter of federal law. It is also our informed opinion that Elixinol operates within the bounds of the state law of Colorado where the Products are grown, manufactured, and distributed.

Specifically, the Imported Products are legally imported because they derive from nonpsychoactive parts of the cannabis plant, which are exempt under federal law. The Domestic Products derive from industrial hemp grown and cultivated pursuant to an agricultural pilot program authorized under the Farm Bill. Finally, the Bulk Products would attain legal status under federal law, so long as they derive from non-psychoactive, Farm Bill-compliant industrial hemp.

Colorado neither limits nor precludes distribution of the Imported Products or Bulk Products. Furthermore, the Domestic Products would derive from industrial hemp grown or cultivated in compliance with Colorado state law and may be legally processed, sold, transported, possessed, or otherwise distributed.

Unlike in Australia and many European countries, most U.S. states have not enacted specific laws that regulate CBD products such as those sold by Elixinol. There are a handful of states that explicitly prohibit CBD products, and/or where law enforcement authorities have issued warnings against their retail sales. It is our understanding that Elixinol does not sell the Products in such states. In those states where legal regimes have not been defined, CBD products manufactured by Elixinol and other prominent manufacturers, such as Charlotte’s Web and CV Sciences (OTC Ticker: CVSI), continue to be sold quite widely. Further, some manufacturers, despite the risks of local law enforcement actions, continue to make their industrial hemp products available in all fifty states.

B. FEDERAL POLICY DEVELOPMENTS

A quickly developing industry, critical policy developments have occurred in the hemp industry. Some of these developments have further entrenched the federal regime for industrial hemp and derivative products, such as CBD. Other developments, however, have elicited concern. Ultimately, as discussed below, the federal scheme for industrial hemp and derivative products remains intact and, indeed, is poised for legislative improvement.

On December 14, 2016, DEA published a final rule for the establishment of a new drug code for “marihuana extracts” (“Rule”). The Rule raised deep concerns in the hemp industry, particularly concerning the potential impact on CBD. Industry activists and congressional leaders quickly sought clarification. DEA confirmed that the Rule preserved, and did not alter, the legal landscape for hemp. Furthermore, congressional representatives and their staffs were privately assured by DEA officials that introducing a scheduling code for marijuana extracts was merely intended to better catalogue and track substances in accordance with United Nations standards.

The confusing nature and verbiage in the Rule, however, continued to place a chill on the emerging hemp industry, exacerbating concern among farmers, processors, producers, and the businesses through which sellers move hemp products to market. Accordingly, and unsurprisingly, the Rule has become the subject of federal litigation. Earlier this year, Hemp Industries Association (HIA), the plaintiff in the aforementioned Ninth Circuit decision, again petitioned the appeals court – this time for review of the Rule. At the heart of the case is a fundamental principle of American jurisprudence: a federal agency, such as DEA, cannot, without Congress, rewrite or override federal law.

On June 2, 2017, DEA filed a responsive brief (“Response”). The Response raises several procedural and substantive arguments, which can be summarized as permitting and supporting the publication and scope of the Rule. However, having thoughtfully reviewed the Response, we find that it also favorably acknowledges certain, significant legal tenets, including that (1) the Rule does not place any new substance in Schedule I; (2) cannabinoids are not controlled substances per se.; and (3) the Rule is limited in scope. Counsel for HIA believes that, despite the merits of its procedural and/or substantive arguments on other issues regarding the Rule, the Response represents a significant – even if partial – victory.

We have conducted comprehensive, product-specific research for other clients. We have identified a handful of states with explicit statutes controlling CBD, including:

  • Alabama (controlling CBD as prepared free from plant material);
  • Delaware (establishing 15% CBD threshold);
  • Georgia (controlling oil than includes CBD);
  • Iowa (controlling CBD as prepared free from plant material);
  • Missouri (establishing 5% CBD threshold);
  • Nebraska (establishing 10% CBD threshold);
  • Oklahoma (controlling CBD delivered as a liquid);
  • Oregon (controlling products containing more than sixteen ounces of CBD in solid form, seventy-two ounces in liquid form, or one ounce of CBD extract);
  • Texas (establishing 10% CBD threshold);
  • Utah (establishing 5% “hemp extract” threshold);
  • Virginia (establishing 15% CBD threshold); and
  • Wyoming (establishing 5% CBD threshold)

Imported Products

Elixinol may legally import and distribute the Imported Products. As outlined above, federal law permits the importation of CSA-exempt industrial hemp and derivative products. It is our understanding that the Imported Products contain oil extracted from the stalks and stems of the industrial hemp crop. Accordingly, the Imported Products derive solely from CSA-exempt parts of the cannabis plant. Furthermore, it is our understanding that the Imported Products contain no more than three-tenths percent (0.3%) THC content, or not more than the psychoactive amount of THC.

Our analysis finds support in Hemp Industries Association v. Drug Enforcement Administration and online guidance issued by CBP. The former enjoins DEA enforcement against hemp products that derive solely from CSA-exempt parts of the cannabis plant, as such products do not contain a federally-controlled substance. Moreover, according to the latter:

Hemp products such as paper, rope, and clothing (which contain fiber made from the cannabis plant) and animal feed mixtures, soaps, and shampoos (which contain sterilized cannabis seeds or oils extracted from the seeds), etc. may be imported into the United States (emphasis underlined).

We must mention that despite federal law permissions and established, decades-old practices, CBP or DEA may attempt to assert jurisdiction over hemp products. We understand that CBP has seized hemp oil imports on the suggestion of DEA. In fact, you indicated that Elixinol has had Imported Products seized, tested, and released. Nonetheless, we reiterate that federal law expressly permits importation of the Imported Products, and any insinuation that the Imported Products violate the CSA, or other federal laws regulating industrial hemp, is mistaken. 

Domestic Products

It is our opinion that Elixinol may legally manufacture and distribute the Domestic Products. As outlined above, the Farm Bill authorizes growth and cultivation of industrial hemp pursuant to a duly-registered agricultural pilot program. The Farm Bill defines industrial hemp as any part of the cannabis plant with a THC concentration of not more than three-tenths percent (0.3%) on a dry weight basis. The Domestic Products would derive from industrial hemp sourced by participants of the Colorado agricultural pilot program established pursuant to the Farm Bill. Furthermore, the Domestic Products would derive from industrial hemp containing not more than three-tenths percent (0.3%) THC content on a dry weight basis. Manufacture of the Domestic Products would occur entirely and exclusively under the Colorado agricultural pilot program, in accordance with the Farm Bill.

Therefore, the Domestic Products would attain legal status as a matter of federal law, including exemption from the CSA. Under the Omnibus Law, no agency could expend federally appropriated monies to interfere with or otherwise frustrate intrastate or interstate distribution of the Domestic Products.

Exportation requirements

We are not aware of explicit export restrictions pertaining to industrial hemp and derivative products. However, as federal law requirements apply to importation, requirements may also apply to exportation of industrial hemp products.

Elixinol currently distributes or would distribute the Products outside the United States – to Brazil. Federal agencies, including DEA, FDA, USDA, or the United States Department of Commerce, may claim jurisdiction over exportation of the Products. Even under claims of jurisdiction, however, no federal agency, including DEA, FDA, and USDA, may legally expend federally-appropriated monies to interfere with exportation of the Products. As outlined herein, the Products constitute industrial hemp, as defined in the Farm Bill. Accordingly, the Omnibus Law protects the Products from interference by agencies receiving federal appropriations.

CONCLUSION

It is our informed opinion that Elixinol’s activities as you describe them operate within the bounds of federal law and Colorado state law. The Imported Products derive solely from CSA exempt parts of the cannabis plant and may be imported and distributed legally under federal law. The Domestic Products would derive from industrial hemp grown and cultivated in compliance with federal law. If an agency, including DEA, were to expend federally appropriated monies to interfere with or otherwise frustrate intrastate or interstate distribution of the Domestic Products, it would violate federal law. Finally, the Bulk Products would attain legal status under federal law, so long as they derive from non-psychoactive, Farm Bill-compliant industrial hemp.

Colorado neither limits nor precludes distribution of the Imported Products or Bulk Products. Furthermore, the Domestic Products would derive from industrial hemp grown or cultivated in compliance with Colorado state law and may be legally processed, sold, transported, possessed, or otherwise distributed.

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