The liberalisation of the cannabis industry and the relaxation of legislation across Europe and North America has resulted in phenomenal growth in cannabis sales. Globally, sales increased from $21 billion in 2020 to $29 billion in 2021 and are expected to reach $35 billion this year, according to Jason Wilson, cannabis research and banking expert at ETF Managers Group. The result of this huge spike in growth has spawned a list of start ups, IPOs and M&As as businesses have taken advantage of the relaxation in national laws.
In this excerpt from IR Global's most recent publication, legal advisors across multiple territories explain the risks of CBD production and sales in their jurisdictions.
Brasil - Ricardo dos Santos de Almeida Vieira - Partner, Barcellos Tucunduva Advogados
Despite recent regulatory advances, the cultivation and commercialization of cannabis is prohibited in Brazil. It is possible to import and manufacture "Cannabis Products", defined as industrialized products for medicinal purposes with vegetable derivatives or phytopharmaceuticals from cannabis sativa and the predominant presence of cannabidiol (CBD) and no more than 0.2% tetrahydrocannabinol (THC). Exceptionally, the product may contain more than 0.2% THC if intended for palliative care for patients with no therapeutic alternatives and in irreversible or terminal clinical situations. Products outside these conditions can only be imported, manufactured or marketed if registered as a medicine/drug.
Non-medical cannabis products, such as cosmetics, smokables, wellness products or food products, cannot be imported, manufactured or commercialized in Brazil. It is not allowed to cultivate cannabis in Brazil, but only to import the pharmaceutical ingredient in the permitted form. It is also prohibited to import or commercialize the plant or parts of the plant, even if it is dried, crushed or pulverized, and even if it is available in pharmaceutical form. If certain rules are observed, a company may request authorization to import, distribute, and trade in Brazil, either through the Health Authorization for Cannabis Products, a faster process with a limited time frame for commercialization, or through its registration as a medicine, under the same terms applicable to medicines in general.
To this end, the Brazilian regulation created a special category for Cannabis Products, distinguishable from medicines, drugs, and other pharmaceutical inputs. This text addresses the so-called Cannabis Products. Registration as a medicine follows specific rules and a considerably more bureaucratic process.
France - Bruno Weil - WEIL & ASSOCIÉS
To date, the culture, manufacturing, transport, import/export, detention, offer, transfer, acquisition and use of cannabis or its varieties in France remains largely prohibited by the provisions of the Code of Public Health (CPH), even though rare exceptions exist.
The sale to consumers of raw flowers or leaves in any form, alone or mixed with other ingredients, as well as their possession by consumers or their consumption, is prohibited. However, products with tetrahydrocannabinol (THC) of less than 0.3% are now authorised for sale in France, which was not the case before.
CBD is considered a novel food and therefore CBD and foodstuffs containing it cannot be marketed without prior assessment and authorisation by the European Food Safety Authority (EFSA). The EFSA cannot currently outline its position on the safety of cannabidiol as a novel food due to data gaps and uncertainties about potential hazards related to CBD intake.
Since cannabis is still listed as a narcotic, the advertising is currently limited to the experimentation of medical cannabis only.
The unlawful transport, detention, offer, transfer, acquisition or use of narcotic substances is punishable by:
- 10 years' imprisonment and a fine of EUR7.500.000 if committed by natural persons; or
- 10 years' imprisonment and a fine of EUR37.500.000 (and various other sanctions that lead to the entity's dissolution) if committed by legal persons.
Germany - Margret Knitter - SKW Schwarz Rechtsanwälte
The main problem for producers and suppliers of CBD products is that the question whether the product can be placed on the market legally cannot be answered simply with yes or no. First, the correct legal classification of the product is essential. Depending on whether the products may be considered as narcotics, medicinal products, medical devices, foods or cosmetics, there are different regulatory requirements.
The first and biggest barrier to overcome is the German Narcotics Act ("Betäubungsmittelgesetz" – BtMG), which determines the national legal framework for the marketability of cannabis and CBD products. According to its sect. 3 para. 1 no. 1 the intercourse with narcotics requires permission. Thus, any unauthorized handling of narcotics is punishable by law. While cannabis is a narcotic according to the BtMG, this does not apply to CBD. However, foods containing CBD are currently non-marketable because CBD is considered a so-called "novel food" which requires approval. Since CBD has not yet been approved as a novel food, such products therefore cannot be legally placed on the market. Furthermore, the requirements of the Health Claim Regulation (EU 1924/2006) must be observed, when the CBD product is advertised with nutrition or health claims. As an example, claims such as "high in Omega-3", "may help to relax" or "helps with insomnia, migraine etc." might be considered as nutrition or health claims. Health claims are only permitted if they are approved in accordance with the Regulation and included in the list of authorised claims. However, this list does not include a specific health claim on CBD products. Therefore, claiming that the CBD product may be beneficial for someone's health, may be problematic.
Japan - Kenji Kuroda - Kuroda Law Offices
The status of current CBD regulation is as described below, and if CBD products (including raw materials, works-in-progress, and semi-finished products) handled in Japan are even partially derived from regulated parts of the cannabis plant (parts other than mature stems or seeds), or contain THC even in trace amounts, there is a risk that those involved in the production or sale thereof will be punished, or if not punished, will be forced to discontinue or recall the products. (It is expected that the above risks will be reduced by the planned revisions to the laws and regulations in the future.)
Furthermore, CBD products may be subject to strict regulations as pharmaceuticals, depending on the future response of the Ministry of Health, Labor and Welfare (MHLW).
In Japan, the manufacture and sale of pharmaceutical products is strictly regulated by law, but products containing substances listed in the List of Ingredients (Raw Materials) Used Exclusively as Pharmaceutical Products set forth by the MHLW fall under the category of pharmaceutical product and are subject to strict regulations as pharmaceuticals regardless of whether advertised or sold with the appearance of a pharmaceutical product (e.g., with an indication of medicinal efficacy or dosage, or a pharmaceutical-like shape or container, etc.).
Currently, CBD is not included in the list, but it cannot be said that there is no possibility that it will be added in the future, and if it is added there is a risk domestic production and sales of nonpharmaceutical CBD products will be severely restricted.
Malta - Kris Scicluna - AE Business Advisors
Malta has now de-criminalised the personal use of cannabis and permits growth for personal use of (a max of 4) cannabis sativa plants, to harvest weed, as well as the commercial production and importation of non THC cannabis ( known as hemp) for medicinal use.
The regime in Malta is one of the most progressive in the world and is likely to develop. This will give rise to new commercial opportunities. The risk is that some commercial operators will try to jump the gun and do more than the law allows at any given time.
Otherwise, the risk of penalty and sanction will be low for any individual or entity observing and adhering to the licensing requirements laid down in the Production of Cannabis for Medicinal and Research Purposes Act (Chapter 578 of the Laws of Malta), and of the law itself.
Thus, a licensed operator must adhere to detailed regulations on quality-assurance, security, monitoring of the production facility, import and export, storage and possession, reporting obligations, and advertisement.
The storage and possession of the harvest from local cultivation must satisfy the requirements set out in the relevant legislation.
Each finished unit product pack shall display the respective serial number, in a tamper-evident manner, as established by the regulatory authority, prior to any transactions related to the product. The advertisement of cannabis to the public as a treatment for any medical condition is, in terms of the Medicines Authority General Guidelines on the Production of cannabis for medicinal and research purposes expressly prohibited.
Advertising the product in Malta would, therefore, appear to be risky and unadvisable. There are, however, (EU) Single Market issues to take into account for the Court of Justice of the European Union, which interprets EU law, has ruled (C-663-18) that: No Member State can preclude the advertisement of a CBD product lawfully produced in another Member State in view of the fact that CBD is not a 'drug' within the meaning of the Single Convention of the United Nations, due to its lack of 'psychoactive ingredient'
Netherlands - John Wolfs - Wolfs Advocaten
A first risk that may arise concerns the (incorrect) way in which the effects of the CBD products are described. It happens regularly that, when marketing CBD products, the client mentions the alleged health benefits of using the product.
This is very understandable. After all, the reason that the sales of CBD products have increased in recent years is the health benefits that are associated with the intake of CBD products. However, the problem is that as soon as a client formulates the benefits of the use in such a way that it concerns a possible health claim or a medical claim, in some cases the client needs a license to be able to make such a claim. If the client does not have such a license, this may have serious legal implications.
A second risk that may arise involves the tetrahydrocannabinol (THC) content in the CBD products. The Dutch Inspectorate for Health Care and Youth (known as the IGJ in short) has stated that there is an upper threshold for the content of THC in CBD containing products of 0.05%. CBD products containing less than 0.05% THC can be marketed without any reference to THC. The IGJ then considers the THC to be a contaminant that entered the product during purification.
CBD products containing more than 0.05% THC are formally subject to the Dutch Opium Law and may not be marketed as a commodity!
Spain - Juan Blanc - Grupo Gispert
In Spain there is no specific law regulating the production, marketing, import, export and consumption of CBD products, thus the performance of such activities in Spain is subject to the provisions of current national laws and the interpretation of international conventions and applicable court decisions (jurisprudence).
The cultivation of the cannabis plant, regardless of its THC content, is subject to the regulations of the 1961 Single Convention. This was signed and ratified by Spain on 3 February 1966 in the Law 17/1967 of 8 April 1967, which updates the current regulations on narcotic drugs, adapting them to the provisions of the Single Convention, and the Order of 7 May 1963, which lays down the rules for the cultivation of medicinal plants related to narcotic drugs.
Cannabis is generally considered to be a narcotic drug and is included in Schedule I of the Single Convention. Consequently, use is controlled and the cultivation of the cannabis plant is exclusively for industrial (fibre and seeds) or horticultural purposes, as established in Article 28 of the Single Convention and Article 9 of Law 17/1967.
US - Massachusetts Thomas Curran - Curran Antonelli
The risk of non-compliance with state and local laws is one of the biggest hazards when it comes to starting a marijuana- related business. Marijuana products (including CBD) cannot be advertised as having medical or therapeutic benefits or contain claims that the product is safe. Though "[a] Marijuana Establishment may engage in reasonable Advertising practices that are not otherwise prohibited in 935 CMR 500.105(4) (b) that do not jeopardize the public health, welfare or safety of the general public or promote the diversion of Marijuana or Marijuana use in individuals younger than 21 years old," there are a host of restrictions on the content and manner of the advertising and labeling of cannabis products in the Commonwealth. For example, here is a non-exhaustive list of some of the advertisement restrictions marijuana businesses must be aware of and comply with: advertisements of marijuana products must contain a minimum of two printed warnings on their face, most advertisement channels are prohibited unless 85% or more of the advertising business's consumer base is 21+, and advertisement content is restricted to things that are not deemed to appeal to people under the age of 21.
The storage and transportation of marijuana is likewise tightly regulated. The Cannabis Control Commission (CCC) of Massachusetts, the body that administers and implements marijuana laws in the Commonwealth, adopted regulations that outline a detailed process for the transportation of marijuana by dispensaries. This process requires coordination and monitoring to ensure multiple dispensary agents be present during the inventory and transportation of the marijuana, secure communication channels are available between the agents and the dispensary, and the marijuana product is weighed and tracked throughout the process. Additionally, when marijuana is transported it must be stored in temperature controlled conditions and in a container that prevents the contamination or deterioration of the product.
US - Washington - Duncan Manville and Brandi Balanda - Savitt Bruce & Willey LLP
The production and sale of CBD and CBD products in Washington State is surprisingly fraught with potential risks. Those considering CBD production or sales in the state need to understand the legal landscape, how federal and state laws interact, and the gaps and areas of uncertainty that must be navigated. CBD producers and retailers must know, for example, which laws apply to which categories of CBD products, how pesticides are regulated and restricted, how to comply with applicable testing requirements, and how taxes differ for CBD products regulated under the state's recreational cannabis framework versus those which are not.
Entering the market without this information could expose a CBD business to enforcement actions and, potentially, the need to make costly infrastructure changes. Moreover, the presence of significant gaps in the regulation of CBD in Washington means there is substantial uncertainty from production to end-user experience. Indeed, it may not be clear what is actually in CBD products sold at retail, what packaging and marketing restrictions apply, and what product liability issues CBD businesses could face.
CBD producers and retailers should also be attuned to the structure and dynamics of the market. For example, because industrial CBD production is allowed, the competitive landscape involves unique production scale issues that impact smaller growers and producers in ways that are not present in the THC space.
To read additional questions from the publication 'Attracting Investor Interest: Will the cannabis industry be allowed to blossom?' click the following link: https://www.irglobal.com/publications/will-thecannabis-industry-be-allowed-to-blossom/
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.