With the 2020 Presidential election upon us, many members of the cannabidiol (CBD) and cannabis (marijuana) product industries, as well as consumers alike, are wondering if the election will result in policy changes that further liberalize the sale and distribution of CBD-containing consumer products, as well as medical and recreational cannabis, across America. A late 2019 Gallup poll found that 76 percent of Democratic voters favor cannabis legalization, while 68 percent of independent voters and 51 percent of Republican voters do as well. Public support for legalization of cannabis appears close to reaching a critical mass that may allow a future administration to institute regulatory reforms that provide a boost to industry growth moving forward.
Indeed, there may be a lot riding on this election for the CBD and cannabis industries—a Biden victory, as well as the possibility of the U.S. Senate switching to being Democrat-controlled (with Democrats retaining control of the U.S. House), could lead to the passage of federal legislation and regulatory rulemaking beneficial to both the CBD and cannabis industries.
For starters, the Biden campaign has publicly committed to "decriminalization" of cannabis, and passage of such a measure would likely trigger passage of cannabis-related business reforms, such as allowing access to financial services (i.e., checking/savings accounts, mortgages/loans, line-of-credit, etc.) and other critical banking services not currently available to cannabis industry members. However, former Vice President Joe Biden has also consistently stated that he is in favor of more cannabis research before he endorses federal legalization of cannabis. Of note, Biden’s running mate, Sen. Kamala Harris, D-CA, is from a state where cannabis is legal and is considered a supporter of eventual federal legalization of cannabis. Proposed post-election Democratic Party reforms are said to include:
- Federal decriminalization of cannabis
- Banking reform (the SAFE Banking Act)
- Elimination of cannabis from Schedule 1 of the Controlled Substances Act
- Resolution of conflicts between federal and state laws
- Criminal Justice Reform
- Access to cannabis for veterans
Current Cannabis Landscape in the U.S.
Recreational cannabis remains a Schedule I drug under the Controlled Substances Act and is therefore federally prohibited. On the state level, recreational cannabis is currently legal in 11 states and the District of Columbia and medical cannabis is legal in 22 other states. Notably, four more states, including Arizona, Montana, New Jersey, and South Dakota, have recreation cannabis initiatives on the ballot this fall, while a fifth state, Mississippi, has a medical cannabis initiative on the ballot. Thus, there is a good chance that at least one or more of these state measures will pass, which, at the very least, will expand the number of states where cannabis can be legally sold under state law for recreational/medical use.
Such expansion of "legal states" where cannabis can be legally bought/sold may also provide impetus for neighboring non-legal states to follow suit. For example, passage of a recreational cannabis law in New Jersey could put added pressure on surrounding northeast states to pass similar laws because of the increased exposure to cannabis by the neighboring citizens who will take advantage of New Jersey's new law, which would put pressure for reforms on neighboring states' elected officials. New Jersey will also potentially act as a successful role model and undercut arguments against legalization by potentially demonstrating the success of a well-implemented regulatory regime in the region. Similarly, if more conservative-voting states like Arizona and Montana pass recreational cannabis measures, that could give "regulatory cover" to other conservative states leaning towards enacting similar reforms permitting the sale of medical/recreational cannabis. Further, the prospect of generating state tax revenue from the sale of cannabis products and the permitting of associated businesses (e.g., manufacturing, processing, distribution, and retail) may be increasingly seen as a welcome benefit, particularly in states with significant budgetary pressures.
Banking Reform Legislation
Banking reform is a critical issue for the cannabis industry, and its passage would allow cannabis businesses operating in the U.S. the same access to traditional banking services that are available to most other types of businesses. Of note, The SAFE Banking Act, HR 1595, passed the House on September 26, 2019 and was referred to the Senate for further action. Though the Senate has not yet taken up the measure, it may still do so before the end of this Congress. Otherwise, the bill will likely be reintroduced next in the next Congress, which begins in early 2021.
Current CBD Landscape
Nielsen has released its 2020 forecast for the U.S. Hemp-CBD and CPG Industries, and is predicting that, conservatively, the market could be a $2.25-2.75 billion industry in 2020. In addition, Nielsen's forecast shows that with U.S. Food and Drug Administration (FDA) approval, ingestible formats (foods/supplements) could grow their existing user base as much as 250-375 percent in a year's time, which would be a tremendous upside. Nielsen's data also shows that 37 percent of dog owners who currently give their dogs vitamins and supplements say they would be likely to give their dog a CBD-infused vitamin should they become available in the marketplace.
The FDA regulates the use CBD derivatives (e.g., CBD oil) added to drugs, foods, supplements, and cosmetics. When Congress passed the 2018 Farm Bill, it became lawful to purchase, sell, or possess CBD in all 50 states if the CBD is derived from a hemp plant that contains no more than 0.3 percent THC. However, there is still no official federal regulatory framework for CBD or CBD-containing non-drug products. As a consequence, the FDA currently prohibits the inclusion of CBD in foods, beverages, and dietary supplements—though the FDA allows cosmetics to contain CBD when marketed for traditional cosmetic uses in compliance with the Food, Drug, and Cosmetic Act (FD&C Act). Indeed, the FDA has taken, and continues to take enforcement action against marketed foods and dietary supplements that contain CBD, including the issuance of Warning Letters charging regulatory violations of the FD&C Act, such as marketing an "unapproved new drug" or "unapproved new animal drug" based on the use of therapeutic claims in product promotions and for other purported violations of the FD&C Act.
In sum, industry members would like to see the FDA promulgate federal rules and regulations to create greater regulatory certainty on the use and marketing of CBD in regulated products. Whether a Biden Administration would be more amenable than the current Trump Administration to supporting the FDA''s work with industry to approve use of CBD in foods/supplements (e.g., either as a food additive or as a substance that is generally recognized as safe (GRAS)) is unclear. The FDA approval of CBD for use in foods will ultimately rely on FDA approval of regulatory submissions from industry (e.g., Food Additive Petition/GRAS Notice) that establish CBD as safe and effective for food use. Alternatively, The Natural Product Association (NPA) has advocated that the FDA should prioritize conducting a health-hazard evaluation to establish a safe use level for hemp-derived CBD in both dietary supplements and food/beverages. Whatever regulatory approach is ultimately utilized by the FDA, it may benefit the next administration to be on board and committed to working on some form of regulatory framework for the regulation of CBD foods and supplements going forward.
Post-Election Prospects
This week's 2020 Presidential election, depending on the outcome, has the potential to change the regulatory landscape for the regulation of cannabis and CBD in the U.S. Depending on election results, as many as five states (four recreational/one medical) may legalize the sale, distribution, and use of cannabis, which would further energize the industry and its growth prospects. Further, a Biden win could help bring about federal regulation of cannabis and trigger banking reform that would allow cannabis businesses to utilize banking services that are currently prohibited. A Biden win may also improve prospects for establishing a federal regulatory framework for the use of CBD in foods and supplements. Conversely, a second Trump term may also lead to increased support for cannabis and CBD regulatory liberalization, particularly given the industry's expected strong economic growth prospects in the years ahead. The Trump Administration's budget proposal for the 2021 fiscal year (should he be re-elected) includes a $5 million-line item for the FDA to continue CBD enforcement actions and to develop regulatory policies for cannabis and its derivatives. Thus, the FDA is slated to receive a modest FY2021 budget from the current administration to continue its efforts on developing a federal regulatory framework for use of CBDs in FDA-regulated products.
Post-election, Wilson Sonsini Goodrich & Rosati intends to publish a follow-up assessment on what the election results are likely to mean for the CBD and cannabis industries on a going forward basis and what the expected timeframes are likely to be for future reforms.
