In the ever-growing CBD world, the legal and regulatory landscape is continuing to evolve. In this episode, we are joined by Rod Kight, an award-winning attorney who specializes in cannabis law and runs his own firm, Kight on Cannabis.
Rod walks us through the legal side of Hemp and CBD by discussing some challenges that cannabis businesses face, as well as some of the current laws surrounding the production and regulation of CBD products.
Insights From The Episode
- Rod shares the backstory of his first-hand experience with CBD and his path to representing businesses in the cannabis industry.
- Some of the biggest legal challenges that cannabis businesses face, such as the lack of access to banking, and merchant processing.
- The FDA’s role in the cannabis legal landscape, and how the lack of leadership and regulation has led to complex state-by-state laws CBD companies must navigate.
- The lawful questions surrounding the incorporation of CBD into foods, beverages, and supplements… plus the legal boundaries regarding health claims on Hemp products.
- Some of the biggest legal missteps CBD businesses make, and how they can be avoided.
- The various chemicals in the cannabis plant other than CBD, and the legality surrounding the production of goods using these different cannabinoids.
- What the near future looks like for Hemp, and some of the upcoming projects of Kight Law Offices.
Resources & Links From The Episode
- 2018 Farm Bill – U.S. Department of Agriculture.
- FDA Regulation of Cannabis and Cannabis-Derived Products, Including Cannabidiol (CBD) – US Food & Drug Administration.
- Rod Kight and Shane Pennington Discuss DEA Lawsuit – Kight on Cannabis.
- The Controlled Substances Act – United States Drug Enforcement Administration.
Connect With The Guest
- Kight on Cannabis (website)
- Kight on Cannabis Blog
- Kight on Cannabis on Instagram
- Kight on Cannabis on LinkedIn
About Kight On Cannabis
Kight on Cannabis is a cannabis advocacy firm that is led by an award-winning lawyer, Rod Kight. Kight on Cannabis utilizes legal leadership and guidance for the cannabis industry and has nearly two decades of experience practicing. They offer the services of legal advocacy, business consulting, international law, and more.
Scott: Hey, how’s it going, everybody? And welcome to another episode of “The CBD Guide Podcast.” I’m your host, Scott Hawksworth here. And I’m really excited about this one because we’re going to be diving into a topic that is just really, really crucial when you’re thinking about CBD. And that is the legal considerations, especially for folks who are business owners or entrepreneurs in the field. Understanding the legal landscape is just crucial. And joining us to help explore this crucial topic is a man by the name of Rod Kight, who is an attorney who specializes in cannabis law.
Rod is a recognized industry leader, award-winning attorney selected as outstanding among his peers by the North Carolina Super Lawyers, Business North Carolina Legal Elite, and The Best Lawyers in America. Rod is an AV Preeminent peer-rated lawyer by the Martindale-Hubbell. And he has been quoted about cannabis business matters in media outlets, such as “The Wall Street Journal,” “Time,” “Politico,” and “Business Insider.” He is an advisory board member of the “American Journal of Endocannabinoid Medicine,” a peer-reviewed publication for which he also writes a legal column.
And as for his practice, the Kight Law Office represents clients in the cannabis industry throughout the United States and the world. Their attorneys are licensed in Colorado, North Carolina, and Oregon. And they maintain a network of legal relationships to ensure that client matters are handled timely and that they have the necessary licensure and local knowledge to provide that quality representation regardless of location of the client or the legal matter. So that’s a mouthful but needless to say, we’ve got a perfect guest when we’re going to talk about this. So, Rod, welcome to the show and thank you for being here.
Rod: Thanks for having me, Scott. I’m really excited to talk about the legal implications of hemp and CBD. So tell me what you want to know and what your listeners want to know? Well, I’m a geek about it. I’m happy to talk.
Scott: Absolutely. Well, before we dive into all of that, I just gave the sort of brief overview but can you give us a bit more of your backstory? What led you to really focusing your law practice and career around cannabis business law?
Rod: Yeah, sure. Well, I studied business law in law school and have represented businesses in legal matters for my legal career. I’ve also been in terms of a civil liberties perspective, always in favor of the legalization of cannabis. I became interested and passionate about it from a career standpoint when I used cannabis beneficially for chemotherapy treatments. I had testicular cancer about 10 years ago. I’m now in remission. I’ve been for years now but I found it to be incredibly helpful for relieving just the issues you experience with chemotherapy, nausea and headaches and sleeplessness and anxiety and all that type of thing.
And I became a true believer because I experienced firsthand the benefits that cannabis could bring. And I thought I really want to help clients in the cannabis industry as part of my career. And being a business lawyer and the fact that cannabis is becoming legal day by day, month by month, year by year across the United States and the world, I thought representing businesses was the appropriate way to do that.
Scott: I love it. So once again, yet another incredible personal story of being helped by cannabis and then taking that and turning that into action and moving forward from a career standpoint, it’s just a common theme with so many guests that we have on this show. So it’s great to hear that even on the legal side, that’s happening. So on this show, you were talking about the legal landscape. We focus on CBD and hemp specifically, which thanks to the 2018 Farm Bill, has become an industry that has really exploded for businesses. When you look at new and existing CBD-related businesses, Rod, what are some of the biggest legal challenges that they still face in spite of the 2018 Farm Bill?
Rod: Scott, disappointingly, hemp and CBD businesses still face quite a number of hurdles in spite of the fact that hemp and CBD are expressly lawful under the 2018 Farm Bill. So some of the biggest issues we see are access, or I should say lack of access to banking. And, in particular, merchant processing. I have clients who continue to call me. This is years after the Farm Bill has been enacted, and tell me that they were having trouble getting merchant processing to sell their products or they’ve recently gotten notice that they’re being terminated as a customer, just because of internal policies with the merchant processor with respect to hemp and CBD.
And banking is beginning to roll out. And there are some really good banks out there that are trying to help the industry but by and large banking also remains a problem. Additionally, a big issue that’s been an issue for years now is the FDA’s failure to step in and exercise some leadership and some regulations about CBD. And what this has led to is a state-by-state patchwork of laws and regulations regarding CBD, regarding hemp. What products may be sold, what products may not be sold. Requirements about selling them, whether it be labels or registrations.
And typically that’s not the case with other consumer products, you know, such as, you know, dietary supplements or foods or vapes or teas and things like that. Typically, the FDA regulations about them and standardized labels and state laws, for the most part, can’t interfere with that. And of the vacuum that’s been created by the FDA’s failure to regulate, then the states have jumped in to fill that vacuum. And unfortunately, there’s a lot of different regulations that companies have to abide by. And a lot of times those regulations conflict with each other.
So if you’re going to sell a product in one state, you do X but if you’re going to sell that same product in this state, you have to do Y. And the third state, that product may not be allowed at all. And this is a really difficult environment to do business in. And additionally, there continues to be a lot of gray area in terms of navigating all of these rules and regulations. Keeps lawyers busy and so we’re happy to help our clients but it’s not good for the industry and it’s difficult for a business.
Scott: Wow. What a great point you’re making, in the sense of, without the sort of leadership from the FDA, it’s just kind of creates this murky kind of situation. And from a business standpoint, when so many businesses now are online or what have you, or they want to sell to not just one state, they want to have customers in other states and things like that. It seems like there’s just been created just minefields. Right?
Rod: Right. Absolutely. A lot of minefields. In fact, sometimes what I do is walk clients through a minefield. It’s a good analogy.
Scott: And then, you know, one thing I wanted to add because I actually have worked in the merchant processing industry. And, yeah, that’s something that there is a lot of frustration in the industry because there is so much hesitancy from certain banks and processors and things like that of, “We don’t even want to touch this.” And you know, the hope is, is that it changes but it’s been changing slower than I think everybody would hope. So again, that is another challenge absolutely.
Rod: It is. And to be fair, I should say with respect to merchant processors and banks, you know, a lot of times it’s just, you know, a lack of education about hemp and CBD. A lot of times it’s just maybe an overly concerned policy. But a lot of times it has to do with this failure of the feds to step in and regulate. And so a merchant processor says, “Well, it just doesn’t make sense for us to try to regulate whether the products that each of our customers or clients are selling are lawful under this circumstance or that circumstance or this state or that state.”
And so it’s easier for them just to say no rather than risk inadvertently overstepping, you know, regulatory bounds because, you know, one of their customers is not abiding by the letter of the law of some state, or there’s a different interpretation that they might have than our client has and so on and so forth. So it really is difficult for banks and merchant processors as well.
Scott: Absolutely. Because if you just get… You know, maybe you approve the wrong thing and then you get card issuers angry, you get a slap on the wrist from the feds or something, you know, that can be a real big problem from a processor’s standpoint. So, okay. We were talking about the different landscapes. And one thing I’ve noticed is that there’s still a lot of challenges around CBD-infused foods, beverages, and supplements.
The FDA and DEA would say that CBD is not permitted to be sold in any of those. Yet, there are loads of companies that currently selling these types of products all over the country. I’m just curious from your perspective, what’s the nature of this discrepancy and how do you see CBD businesses navigating the legality of this successfully?
Rod: Yeah, sure. I think to be clear, we’re talking about two different federal agencies and the main one in this respect is the FDA. With respect to the DEA, it regulates and enforces the Controlled Substances Act. Fortunately, hemp and all the cannabinoids that are derived from hemp, including CBD have been removed from the Controlled Substances Act. So they are no longer controlled substances and the DEA doesn’t have any authority to regulate them whatsoever. With respect to the FDA, it has taken the position that the Food, Drug, and Cosmetic Act, and specifically within that statute, what’s called the drug exclusionary rule, prohibits adding CBD to food or dietary supplements. It doesn’t prohibit adding it to topicals or cosmetics by the way.
And the reason just to kind of dig in a little bit deeper, the reason that this is the FDA’s position under the drug exclusionary rule is due to the approval of Epidiolex, which as many of your listeners might know is a CBD-based medication for treating certain severe forms of epilepsy. Now, you make a really good point. So the FDA takes this position that you can’t add CBD to food or marketed as a dietary supplement. When I say food, I mean, you know, things that we ingest such as beverages and whatnot.
The reason the CBD industry has been able to flourish, and it really has flourished despite this prohibition is because the FDA has not enforced this prohibition. In other words, it’s exercise what we in the legal field call enforcement discretion. It has the right to enforce this prohibition but it chooses not to. And it’s discretion based on a number of factors. One might just be, you know, it doesn’t want to expend resources where it feels like it’s not necessary. One maybe it’s going to, you know, allow the industry to flourish and kind of watch and then regulate where it deems to be appropriate.
We don’t know but it’s just simply put it failed to enforce this prohibition. Now, it has enforced a related prohibition that has on CBD products making medical or health claims. So what the FDA has done in dozens of cases is it’s written cease and desist letters and warning letters to companies that say, you know, our CBD product or CBD in general, and then they’re selling a product that cures Alzheimer’s or treats pain and neuropathy, or it reduces anxiety or, you know, you name it. CBD has a lot of medical benefits. And a lot of clinical studies have been done on all the different and amazing things that CBD can do.
But as soon as you say that your product does that and market it for its health properties, then under our laws in the United States, that means you are marketing a drug. And unless that drug has been approved by the FDA, it’s unapproved and you’re not allowed to do that. You know, so that’s a long way of saying that the FDA has enforced its prohibition on making claims and continues to do so. And I think that’s a good thing.
Finally, I think it’s important to note that this drug exclusionary rule only applies to what’s called the same moiety or mixture that was approved as a drug. And so Epidiolex is a CBD isolate. It’s a purified form of CBD with flavoring and a liquid or aqueous solution. However, the drug exclusionary rule does not apply to the situation where that compound is naturally occurring within a different matrix or moiety. And so what I mean by that is a hemp extract that contains CBD as opposed to CBD isolate is actually not prohibited by the FDA. And I’ll say the FDA hasn’t made this distinction but that distinction exists in the law.
Scott: Wow. I mean, there’s a lot there to unpack and, Rod, thank you for kind of breaking it all down. I think it’s very clear that this whole landscape is okay, what is the FDA going to try to enforce versus what are they not trying to enforce? What is the FDA stepping in and taking leadership on versus what are they just kind of having a hands-off approach? And then it seems like all of this makes the legal frameworks that you and your clients have to kind of navigate. Right?
Rod: Yes, absolutely. A lot of gray areas and a lot of, you know, as you…a minefield of things to navigate.
Scott: I think it is important with the health claims. I’m glad that you mentioned that, you know, you support that because that’s something that I support as well. I think that is good because we’ve talked about it. We’ve had a lot of great, fantastic, you know, business owners and things on the show. And a lot of them talk about the importance of things like transparency, the importance of not overselling the benefits of CBD, the importance of not, you know, getting into some snake oil type sales things. That’s good for the industry.
So it’s good that the FDA is taking that kind of position. And then I think that from a legal standpoint, it’s just as a business you have to be aware that that is their position. So I know everyone I talk to is very clear and they’re like, “Okay, my website, I got to have my disclaimer here. I’ve got to have, you know, the ducks in a row here.” Right?
Rod: Right. For all the reasons, you know, for protecting the consumer, for making sure that the hemp industry and the CBD segment of that industry are really seen as a reputable industry that’s trying to do the right thing. Yeah, it’s hugely important. It’s hard because, you know, I’m a true believer in CBD. And I have experienced personally how it impacts me. I’ve had friends and family members and clients who’ve used it beneficially for all sorts of things. And if I am, you know, a researcher in a scientific field and I’m studying CBD, well, then, you know, there’s no problem talking about the benefits of CBD in that context.
It’s when you own a CBD company and you’re selling a CBD-based product, those claims then are imputed to your company and to your products by the FDA. And those are drug claims and you just can’t make those claims. And I stress that to my clients. And very often they don’t want to hear it but do, and they listen usually, and we’ll remove the health claims. So if I could stress anything to the listeners, it’s, you know, as much as you want to talk about how your product helps with anxiety or whatever, and you know that it does, it doesn’t matter. Don’t make that claim on your website, promotional materials labeling, so on and so forth.
Scott: I know that Kight Law is part of the legal team in a case where the Hemp Industries Association, the HIA, and RE Botanicals, which also owns the Palmetto Harmony brand of hemp products has actually sued the DEA. So not the FDA but the DEA regarding its position on hemp extract, which you were just talking about. This seems to me like a tremendously important lawsuit. So I’m wondering if you can maybe give just a brief overview of the nature of the background of it and what its implications might be.
Rod: Yeah. Thanks, Scott, for asking about that. I am really proud to be part of the legal team that is suing the DEA regarding what’s known as its interim final rule on hemp. Unfortunately, I can’t really discuss it, certainly not in any depth because this is an ongoing case. And the legal team, we’ve made all of the statements that go out to the public very carefully because we don’t want to harm our case. What I will say is that we’re challenging the DEA’s position that intermediate hemp extract and waste hemp extract, both of which contain THC concentrations in excessive 0.3% are controlled substances.
The DEA takes that position and we say that’s not correct. And so I will say the HIA hosted a webinar. And I spoke with my colleague and co-counsel, Shane Pennington very recently. And we reviewed what types of comments that we could share with the public to educate the public about the nation of lawsuits in that webcast. And you can find it on my blog. That’s kightoncannabis.com.
Rod: K-I-G-H-T-O-N, kightoncannabis.com. And it’s very recent. It’s not the most recent blog post but it’s one of the most recent, and you can watch the video there if you’re interested in the case.
Scott: Fantastic. And yeah, everyone, we’ll make sure we drop a link in our show notes to that because absolutely an important case. Rod, when kind of taking it back to the cannabis businesses out there, CBD businesses specifically and hemp. What do you think some of the biggest or most significant legal missteps new businesses in this industry, again, particularly hemp and CBD make and how can those legal missteps be avoided?
Rod: Yeah, sure. I’ll say three. And fortunately, over the years I’ve seen all three of these issues problems begin to get better generally speaking among most of the participants. But first of all, we’ve already discussed it. Well, a big legal misstep is to make drug health medical claims about your products. Again, I don’t want to beat a dead horse but just don’t do it. That can cause problems.
Secondly, a legal misstep involves making what I, you know, sometimes refer to as bathtub gin. You know, you buy some isolate and you buy some solution to mix it up within your kitchen or even your, you know, a more industrial facility. You mix it up and you pop the lid on it and you start marketing it. That happened a lot in the early days of CBD but really CBD is like any other consumer products that we ingest, like dietary supplements and foods. And those products need to be made in facilities and under circumstances where similar compounds and I mean, similar types of products are made.
So you wouldn’t expect to buy your ginseng or whatever, from somebody who made it in their kitchen and slinging it out on the shelves. Same way you wouldn’t expect to buy your CBD from someone who did it in the same circumstances. So make sure that you’re producing your products in the appropriate facilities and, if possible, using GMP, which is good manufacturing practices in doing so. And then, you know, finally, as far as one of the legal missteps, this has to go to the law itself. But we see a lot of clients who will do handshake deals over a beer, as far as a joint venture doing X, Y, or Z or, you know, their contract so to speak is scribbled out on a note pad or consist of a very scanty text thread of not much information.
You know, treat your CBD business as a real business. And, you know, I’m not trying to sell legal services but, you know, just like if you have a complicated tax situation, you want a CPA or a tax attorney to handle. If you’re going into a real joint venture or some other business transaction, you want a lawyer to help you draft it. And whether that’s your local lawyer who does contract law, or if it’s really involved in hemp or CBD, my firm or some other firm that really focuses on that area, it’s really important. Because we’ve seen so many problems happen that could have been avoided by people if they had just taken the time at the front end to really articulate and create a good fence about the nature of the relationship or the transaction and created a good contract.
Scott: I really think that’s good advice there, Rod. And I mean, one thing I’d point out, we’ve talked on this show about how much this industry has exploded and continues to grow. And there’s a lot of people that are being really successful in what they’re doing in the CBD and hemp industry. And you know, handshake deals and things like that, and things scribbled on notepads or whatever, things get funny when success arrives. Right?
Rod: That’s exact but, you know, when there’s no money to fight about it, there’s nothing to fight about. But right, as if you’ve had that handshake deal with a guy you’ve only met twice, and then you’re making tons of money, it’s often ripe for a dispute and those disputes can get really expensive and really difficult.
Scott: I’m curious because, you know, we talked mostly about CBD here, but there’s been a significant amount of attention paid to various other chemicals in the cannabis plant from hemp and things like this. Particularly those like CBN, CBG. I’m curious if from a legal perspective, are there any notable differences for a company creating products around these as opposed to CBD itself?
Rod: I think that’s a great question. I’m really passionate about cannabinoids in general, and I’ve written a lot of posts about CBG and CBN and various forms of THC and CBC and their legal implications. I think the way to break it down is those compounds, those cannabinoids are lawful when they’re extracted from hemp. And that’s because the 2018 Farm Bill when it defined hemp and removed hemp from the Controlled Substances Act, it defined it by virtue of hemp and all of its cannabinoids extracts, derivatives, isomers, and so on and so forth.
So from the standpoint of whether or not these are controlled substances, something that the DEA would regulate, they’re not. When they come from hemp they are not controlled substances. But as we discussed earlier, there are other statutes and laws and regulatory agencies that oversee these types of things. And most notably the FDA and the FDA rules, the Food, Drug, and Cosmetic Act does apply to these compounds if you’re selling them for humans and animals to consume.
But fortunately, and I’m being very general here, CBG and CBN, the two that you mentioned were not the subject of clinical trials for drug products prior to them being marketed in food. And for this reason, the drug exclusionary rule that I referenced earlier in the podcast does not applied to them. And they may be added to food under appropriate circumstances. You know, and moving forward in different cannabinoids, the biggest issue as of this moment in time regarding non-CBD and cannabinoids is Delta-8 THC, which as your listeners might be aware of, is a form of THC that has intoxicating properties.
When it’s extracted from hemp, it’s legal. And that’s just due to the nature of the definition of hemp, which is cannabis and all of its cannabinoid isomers extracts, derivatives, and so on and so forth but with Delta-9 THC concentration of no more than 0.3%. And so it’s clear that when it’s extracted, it’s lawful. However, the real legal issue has to do with Delta-8 THC that is derived from CBD, which has been extracted from hemp.
And the legal question is, is that hemp as defined in the 2018 Farm Bill and thus a legal compound, or is that a synthetic form of THC that many contend is illegal? And this is an open and hotly disputed question in the law right now. I contend that it’s legal at the federal level. Different states have begun to regulate it differently and it is illegal in certain states. So this is an issue that’s evolving in real-time right before our eyes. As a side note, when it comes to Delta -8 THC, or for that matter, any marketing of any of the other cannabinoids CBG, CBN, CBC, or some combination of them, it’s really important.
I go back to my thing I said earlier about not making bathtub gin. We want these products to be safe and cannabinoids generally speaking are safe for humans but sometimes the processes that get these cannabinoids into products are not safe. Whether it be, you know, residual pesticides from hemp that was grown in the ground or heavy metals, or whether it be residual catalysts that you use to create the Delta-8 say from CBD, those residual compounds may not be healthy or beneficial for humans and could in fact be harmful.
And it’s really, really important for the products that go out to the world when they contain cannabinoids not contain these other toxic substances. That’s going to hurt people. That’s going to hurt the industry. And I’m a big advocate for clean, open disclosure about what’s in a product and making sure that consumers get something that’s not going to harm them
Scott: 100%. I’m glad you pointed that aspect of it out as well. So clearly there’s still a little bit of, you know, question marks when you start talking about what’s being extracted but when we’re talking about CBN and CBG, it sounds like most of overall, you know, you’re good to go. I’m curious as we kind of wind down our discussion here, Rod, what do you see in the future for the cannabis legal landscape, particularly when it comes to CBD as a whole? How might this landscape that we’re in right now change in the months and years to come?
Rod: Yeah, I think we’re going to see CBD become a common food additive. It’s going to be noncontroversial, and then we’re going to see it in a lot of things, whether it be foods, beverages, dietary supplements, and so on and so forth. From a business standpoint, I think we’re going to see a big and significant consolidation of the market as the bigger players, the traditional companies that have provided these types of consumer products get more involved and they’re already beginning to get involved. They’re going to buy up, joint venture with, or, unfortunately, compete with and defeat a lot of smaller companies. And so we’re going to see the big companies be big participants.
Additionally, I think we’re going to see new or novel cannabinoids and cannabinoid mixtures and combinations that are going markets. So we’ll just see, you know, CBD or even CBD, CBG. We’re going to see combinations of these things. And additionally, cannabinoids that the general public is unaware of right now are going to be more common, just as CBD became a more common and generally accepted.
And then finally, you know, and I’m looking into my flawed crystal ball. I feel pretty certain that the market is going to continue to grow more and more international. This is happening in Latin America. This is happening in Europe. This is happening in Southeast Asia. We’re seeing the CBD and other cannabis space cannabinoids. Now, I’m using that term cannabis to encompass hemp as well, become more accepted, more lawful, and more regulated in a positive way. And so CBD is going to be international.
Scott: I like that you said more regulated in a positive way. Because I think, you know, some people have different takes on it, and I think, you know, thoughtful regulation can help industries but thoughtful is the keyword there. Right?
Scott: Last question here, what’s next for Kight Law Offices and your work in general? Any exciting projects going on that you can share, of course, that our listeners might find to be interesting.
Rod: Yeah. Sure. Thanks for asking. So just to piggyback on what we just said, we’re seeing much more in the way of international transactions and just business in hemp and CBD. And we’re really enjoying that. And in particular, we’re anticipating the market in Mexico to explode and become the biggest cannabis market in the world. There’s some bills that are going through the Mexican Congress right now as we speak and we anticipate they’ll be passed.
Additionally, we are quietly beginning to represent some major players in the psychedelics field, which is, you know, a related but different field altogether. But when we talk about beneficial compounds, particularly compounds that affect our neurological system, we’re big proponents of psychedelics, and we’re going to be doing more and more of that.
Scott: It’s going to be fascinating to see. Rod, thank you so, so much for joining me on this show today, walking us through a bit of this legal landscape, the minefield that we were talking about.
Scott: I really appreciate it. And before I let you go, if folks are listening and let’s say, you know, they have a legal question, they maybe need some help, whatever, where can they go? Where should they do that?
Rod: Yeah, sure. I’m happy to speak with people. I enjoy talking about this, and certainly, we’re available to help people and companies that need assistance. So our website is cannabusiness.law. You can reach me by email Rod, that’s R-O-D, email@example.com. And you can also call U.S number (828) 255-9881. And I hope you and your readers will or listeners will read my blog. It’s Kight On Cannabis, kightoncannabis.com.
Scott: Awesome. Thanks again, Rod.
Rod: Thanks so much, Scott.