Hemp and CBD Due Diligence

While the 2018 Farm Bill provided for a legal hemp market, several questions remain as to how to properly administer client accounts. Specifically, we have been hearing that as long as a client complies with the 2018 Farm Bill, they are considered to be legal hemp clients and no further action is necessary. However, how do you get to that conclusion? Due diligence is critical. First and foremost, the USDA only recently submitted its draft guidelines to the White House Office of Management and Budget for approval. What this means is that a client cannot possibly comply with the 2018 Farm Bill until those guidelines are approved. If you’re currently banking hemp, the client(s) would need to comply with the provisions of the 2014 Farm Bill to be legal. That’s an important distinction.

When it comes to Cannabidiol (CBD), we must be equally mindful of due diligence. According to The U.S. Food and Drug Administration, "We [the FDA] recognize the significant public interest in cannabis and cannabis-derived compounds, particularly CBD. However, there are many unanswered questions about the science, safety and quality of products containing CBD…The recent increase in the number of CBD products may be because of both recent changes in state law, and because the 2018 Farm Bill removed hemp…from the definition of marijuana in the Controlled Substances Act. However, CBD products are still subject to the same laws and requirements as FDA-regulated products that contain any other substance. Other than one prescription drug product to treat severe forms of epilepsy, the FDA has not approved any other CBD products, and there is very limited available information about CBD, including about its effects on the body.”

Unlike drug products approved by the FDA, unapproved CBD drug products have not been subject to FDA review as part of the drug approval process, and there has been no FDA evaluation regarding whether they are safe and effective to treat a particular disease, what the proper dosage is, how they could interact with other drugs or foods, or whether they have dangerous side effects or other safety concerns.

The primary driver for compliance is THC concentration. To be considered legal hemp, the plant and/or byproduct must contain THC levels below 0.3%. Lab tests must be able to demonstrate these levels through a Certificate of Analysis (COA). While there are labs that are able to make the distinction in THC levels and can issue COAs, the question then becomes, when and how often to you need to obtain the COAs? Keep in mind that while THC levels may fall below 0.3%, your acceptance of the client relationship must consider the risk of banking the relationship: Is it truly a legal hemp client that has been approved to cultivate hemp, for example, or a CBD retailer who is obtaining their product from a third-party vendor? The more we venture down this rabbit hole, the more complex the issues become.

Source: Sterling Compliance

The 411 on CBD Banking

Interested in learning even more about cannabis banking? Join us Tuesday, December 17th for our Cannabis Banking: Yes, No...or Maybe So webinar with guest speakers Angela Lucas and Ralf Kaiser, Sterling Compliance, LLC! Together we will ask/answer questions such as: How do you define a Cannabis-Related Business (CRB)? Have you looked at your customer base? Have you established a method of effectively identifying CRBs to ensure your policies, procedures and risk assessments meaningfully address the associated risk and provide for appropriate controls? Register now or reach out to Member Support at 800.500.0100 or via email at memserve@epcor.org for more information.