By: Fletcher Lyon

On January 23rd, 2020, Kentucky Commissioner of Agriculture, Dr. Ryan Quarles penned a letter to Kentucky’s federal delegation urging them to focus on finding common ground with the U.S. Food and Drug Administration (FDA) in order to remedy the “bureaucratic paralysis” plaguing the hemp industry.[i] Just four days later, GenCanna, one of the most visible faces of Kentucky’s hemp industry, was taken to court by creditors requesting involuntary bankruptcy against the company.[ii] The bankruptcy petition against GenCanna came just weeks after Sunstrand, another major player in the state’s hemp market, filed for Chapter 7 Bankruptcy in the Western District of Kentucky.[iii] There is a lot of mystery surrounding the sudden publicity of these companies’ struggles. Afterall, GenCanna appeared to be moving in the right direction after sponsoring the 2019 Kentucky State Fair and constructing two new processing plants in Mayfield and Paducah.[iv] Many skeptics, including Dr. Quarles, are pointing their fingers at the FDA as the antagonist for failing to create clear guidelines for hemp manufacturers to successfully market cannabidiol (CBD) products to consumers.[v]

In 2018 Congress passed the 2018 Farm Bill, which removed hemp from the controlled substances list, defining hemp as “the plant Cannabis sativa L. and any part of that plant, including the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with a delta-9 tetrahydrocannabinol concentration of not more than 0.3 percent on a dry weight basis.”[vi] The bill left the FDA with discretion to regulate the way hemp-derived products are marketed to consumers as either food, beverage, and medicine.[vii] Fast-forward to 2020, and the FDA has yet to create clear guidelines for producers to follow when placing CBD and CBD-derived products on the market.[viii]

One of the most vital decisions that the FDA must make is whether to regulate CBD as a food or as a drug. While there are over 80 known cannabinoids found in cannabis plants, tetrahydrocannabinol (THC) and CBD are the two most understood and marketable.[ix] THC is the federally illegal psychoactive chemical that gives users a euphoric high when consumed, while CBD is incapable of producing a high, and is credited by many researchers as having a large spectrum of health benefits.[x] While the FDA recognizes the potential health benefits of CBD, it is not yet satisfied with current research regarding how CBD may adversely affect health.[xi] According to the FDA, research has shown correlations between consumption of CBD and liver injury, side effects from mixing CBD with medications, reduced reproductive ability, and risk of sedation and drowsiness when consumed with other Central Nervous System depressants.[xii] This might explain why the FDA has only approved one prescription drug product containing CBD.[xiii] It’s worth noting that this drug, Epidolex, comes with an annual cost of $32,500 per patient.[xiv]

The global CBD market has a projected potential to be worth $22 billion by 2022, but that is unlikely to happen unless the FDA provides reasonable and clear guidelines for manufacturers to follow to put their products on shelves without fear of harsh legal ramifications.[xv] While demand is high, the outlets are slim as retailers and manufacturers fear the uncertain future of FDA regulations. Several large corporations, who once hinted at possibilities to incorporate CBD into their products, have since ditched their plans to enter the market after the FDA announced in late 2019 that there is not enough research to ensure CBD is safe.[xvi] The agency has shown that it is willing to take legal action after sending warning letters to 15 small companies producing and marketing CBD-infused products in November.[xvii] Companies such as PepsiCo, Starbucks, Kellogg Co., Monster Beverage Corp., and Red Bull had their intentions to dip their feet in the CBD market come to a quick halt after the FDA’s announcement.[xviii] Ice Cream manufacturer Ben and Jerry’s still plans to produce a CBD-infused ice cream, but only if CBD is approved by the FDA as an ingredient in food and beverage.[xix]

Companies like GenCanna and Sunstrand, who have already begun producing CBD products, began under the assumption that the FDA would be quick to provide a clear regulatory framework. Now the farmers they contracted with to produce the raw hemp are feeling the chilling effects of “bureaucratic paralysis.” GenCanna alone is in arbitration with a group of Central Kentucky farmers who filed suit against the company in October for not following through with the company’s contractual obligation to purchase raw hemp.[xx] The value of raw hemp has also taken a hit. According to some estimates, the market price for hemp grown for CBD has fallen by as much as 75%.[xxi]

For the hemp and CBD markets to realize their full potentials, it is imperative the FDA issue a regulatory decision regarding CBD compounds for food, drink, healthcare supplements, and other potential uses before hemp becomes a thing of history again. If the federal agency continues to drag its feet, American farmers and manufacturers could lose out as countries like China are sure to be the first to establish themselves as the leaders of the global hemp market.[xxii]

[i] Letter from Dr. Ryan Quarles, Ky. Agric. Comm’r, to Sen. Rand Paul (Jan. 24, 2020) (on file with author).

[ii] Eric Walker, Involuntary Bankruptcy Filed Against Hemp Company GenCanna, Paducah Sun (Jan. 29, 2020), https://www.paducahsun.com/news/local/involuntary-bankruptcy-filed-against-hemp-company-gencanna/article_659b27b1-b0cb-5096-9042-5bc9b97a9f85.html.

[iii] Voluntary Petition for Individuals Filing for Bankr., (No. 20-30026-thf), https://hempindustrydaily.com/wp-content/uploads/2020/01/Sunstrand-filing.pdf

[iv] Lynda Kiernan, As Farm Bill Legalizes Hemp Production, GenCanna Invests $40M Into Expansion, Global AgInvesting (Dec. 20, 2018), http://www.globalaginvesting.com/farm-bill-legalizes-hemp-production-gencanna-invests-40m-expansion/.

[v] Janet Patton, Kentucky hemp company, with more than $100 million in debts, files for bankruptcy, Lexington Herald Leader (Feb. 6, 2020), https://www.kentucky.com/news/business/article240041563.html.

[vi] 115 P.L. 334, 132 Stat. 4490, 2018 Enacted H.R. 2, 115 Enacted H.R .2 (herein after Agriculture Improvement Act of 2018).

[vii] Id.

[viii] Quarles, supra note 1.

[ix] Philippe Cyrenne & Marian Shanahan, Toward a Regulatory Framework for the Legalization of Cannabis: How Do we Get to There from Here?, 44 Can. Pub. Pol’y./Analyse de Politiques 54, 55 (2018).

[x] Harrison J. VanDolah, et. al., Clinicians’ Guide to Cannabidiol and Hemp Oils, Mayo Clinic (Sept. 2019), https://www.mayoclinicproceedings.org/article/S0025-6196(19)30007-2/fulltext.

[xi] What You Need to Know (And What We’re Working to Find Out) About Products Containing Cannabis or Cannabis-derived Compounds, Including CBD, FDA (July 17, 2019), https://www.fda.gov/consumers/consumer-updates/what-you-need-know-and-what-were-working-find-out-about-products-containing-cannabis-or-cannabis.

[xii] Id.

[xiii] Id.

[xiv] Epiodolex Fact Sheet (Nov. 7, 2018), available at https://odp.idaho.gov/wpcontent/uploads/sites/114/2018/11/Epidiolex-Legislative-Fact-sheet_11-7-18.pdf.

[xv] Andre Bourque, How Hemp Is Giving Renewed Life To America’s Tobacco Farmers, Forbes (Mar. 25, 2019), https://www.forbes.com/sites/andrebourque/2019/03/25/how-hemp-is-giving-renewed-life-to-americas-tobacco-farmers/#6ff47be24726.

[xvi] Annie Gasparro, Adding CBD to Food, Drink Was a Hot Trend, Until FDA Chimed In, Wall St. J. (Jan. 9, 2020), available at https://www.wsj.com/articles/cloudy-regulation-slows-cbds-seep-into-food-and-drinks-11578574807.

[xvii] Id.

[xviii] Id.

[xix] Id.

[xx] Patton, supra note 5.

[xxi] Quarles, supra note 1.

[xxii] Clément Bürge, Illegal at Home but Lucrative Abroad: China Bets Big on CBD, Wall St. J. (Nov. 12, 2019, 8:37 AM), https://www.wsj.com/video/illegal-at-homebutlucrative-abroadchina-bets-big-on-cbd/9EA4690C-03A6-4ADE-8F2E-8EFCB77477F9.html.