Hemp producers who sell CBD products will often use the 2014 Farm Bill to claim that it is legal. This bill includes a provision that allows for the legal cultivation of hemp provided it is used for academic agricultural research or under a state pilot program. But there is still confusion about whether the legal allowance for cultivation also includes selling it.
Which States Do Not Allow CBD Oil?
The push for legal cannabis has made enough progress that now there are only three states where marijuana of any sort in any form continues to be completely illegal. Those states are:
If you don’t live in these states, you may be able to acquire legal CBD oil. But each States Where Only CBD Oil Is Legal, sate has its own specifics you need to be aware of.
States Where Only CBD Oil Is Legal
The laws in the14 states can vary widely, but to differing degrees, medical cannabidiol can be allowed for legal use there. Many of these states have very strict rules for who can and cannot get approved for CBD based on what medical condition they have the severity of it.
Here are the 14 states with some form of legal medical CBD and what the requirements are
What Would the 2018 Farm Bill Do for CBD Legality?
In 2018, the Senate introduced a new Farm Bill to update laws around the previous one. One important part of that bill, should it pass, is that it would legalize hemp on a federal level.
Hemp being federally legal would be huge for the CBD industry, as CBD oil made from hemp extract (a plant that has very low amounts of THC) would be legal. A new, more available form of CBD would also allow for more research on the subject of cannabidiol, and perhaps the entire marijuana plant. More research brings the potential of coming closer to full legalization.
CBD edibles come under fire in New York and other select states
Everything would seem to be going very well for the cannabis industry, and especially for manufacturers of CBD products. Following passage of the Farm Bill, it would presumably become easier for hemp-based CBD products to find their way to retailers’ shelves. That’s one of the many reasons the Brightfield Group is calling for global CBD sales to soar by a compounded annual rate of 147% between 2018 and 2022, eventually hitting $22 billion in 2022.
But these CBD sales estimates may have hit a bit of a snag this past week. As reported by The Atlantic, the states of New York, Ohio, and Maine have begun waging war on edibles containing CBD. Even in states where recreational marijuana is legal, such as Maine, a grey area exists with regard to adding CBD to food products.
In New York City, the Department of Health announced that it had begun a crackdown on establishments (e.g., restaurants and coffee shops) that have been using CBD as a food additive. This crackdown has included seizure of CBD products, and the warning of fines to come, which could total up to $650 beginning in July for violations, according to the New York Post. According to New York City’s spokesperson: “Restaurants in New York City are not permitted to add anything to food or drink that is not approved as safe to eat. Until cannabidiol… is deemed safe as a food additive, the department is ordering restaurants not to offer products containing CBD.”
On Feb. 19, CBD chocolate maker Not Pot sent an email to customers that ironically may have caused them to want more of the company’s hemp-infused heart-shaped treats.
CBD operations whose apparent business or profession is not cannabis-related have often opted not to disclose the CBD part of their business and may be able to avoid detection by the bank or merchant processor for a while depending upon the extent of their public profile in the industry. However even in these instances, banks under pressure from regulators are taking advantage of ever more rigorous software and detection tools now available to more effectively detect and identify this unwanted activity.
Of course, those ancillary providers of goods and services who advertise or disclose their CBD related activities are at much greater risk, especially now, of having their accounts closed. Depending upon one’s public profile, its likely CBD operators masking the nature of their business risk the continuing harassment of having their accounts closed several times a year.
The CSA is of course the federal law which makes cannabis illegal by listing it as a Schedule I drug. The CSA defines “marihuana” (and yes, the CSA does continue to spell it that way) as, with a few small exceptions, “all parts of the plant Cannabis sativa L.” The exceptions to this definition are extremely limited but include the mature stalks of the plant and oil and cake made from the seeds of the plant. The CSA also specifically includes “marihuana extract” as a subset of “marihuana.” The inclusion of “marihuana extract” in the CSA was added to clarify the DEA’s position that CBD is found in the parts of the Cannabis sativa L. plant that fall within the definition of marihuana under the CSA. So, any CBD product derived from parts of the Cannabis sativa L. plant covered by the CSA’s very expansive definition of “marihuana” would remain a Schedule I drug, illegal on a federal level, and make its seller an MRB requiring greater due diligence and reporting by that seller’s bank. However, any CBD product derived from a part of the Cannabis sativa L. plant not covered by the CSA’s definition of marihuana would not be a Schedule I drug, would be otherwise legal on a federal level, and would not make its seller an MRB requiring greater due diligence and reporting by its bank. Confusingly then, a CBD product containing marijuana flower oil would be illegal under federal law while a CBD product containing marijuana seed oil would be legal under federal law.
Additionally, the fact that the CBD product may be made from “hemp” makes no difference in the federal scheme or in what makes a business an MRB in the eyes of the federal government. The reason again goes back to the very definition of “marihuana” under the CSA. Hemp is a variety of the Cannabis sativa L. plant and thus by definition under the CSA at least, “marihuana.” Consequently, the federal legality of a CBD product made from hemp faces the exact same definitional questions that a CBD product made from any other variety of the Cannabis sativa L. plant would – namely, from exactly what part of the plant was the CBD product made. And contrary to many opinions, a careful reading and analysis of the Farm Bill (which has expired) does not alter this result. Further, while there is a provision to a new Farm Bill making its way through Congress which would specifically exclude all hemp and CBD products derived therefrom from the definition of “marihuana” under the CSA, as of this writing, that bill has not been passed and is not the law.
In reality, the chances of federal banking regulators investigating and punishing your financial institution for working with a business selling CBD products from unknown parts of the cannabis plant (especially CBD products otherwise legal under state law) is probably small. It seems difficult or even impossible to prove from which part of the plant a particular CBD product was made (labelling notwithstanding). However, those chances are not zero. And given the potential consequences to your financial institution of failing to conduct adequate due diligence on an MRB or to file required SARs and CTRs when dealing with that MRB, especially in this uncertain political climate, it seems the better practice to treat those customers as MRB’s, conduct the heightened due diligence, file the additional
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