Seyfarth Synopsis: Through a reintroduced
House bill, Congress is taking strides to push for cosmetic
regulation reform and, separately, through the SAFE Act, it is
seeking to establish a safe harbor for financial institutions to
support the burgeoning cannabis industry. Plus, the USDA just
issued an interim rule for hemp production.
USDA Issues Proposed Rule for Hemp Production
The 2018 Farm Bill, which federally legalized hemp (formerly a
Schedule I drug like its close cousin, marijuana), opened the gates
for mass hemp productionwell, almost. While the law set the
record straight between hemp and marijuana, it also tasked the US
Department of Agriculture (USDA) with promulgating regulations and
guidelines to establish and administer a program for the production
of hemp in the US. On October 29, 2019, the USDA issued its proposed rule for hemp production. Publication
in the Federal Register is expected later this week. As noted by
the USDA, [t]he effective date of the interim final rule is,
and the comment period will not begin until, the date of
publication in the Federal Register.
The proposed rule creates a process by which States and Indian
Tribes can submit plans to monitor hemp production in their
respective territories. The plans must incorporate procedures for
sample and testing hemp to ensure that the cannabis grown and
harvested does not exceed the acceptable hemp THC level. In
addition, the plans must include procedures for the disposal of
non-compliant plants (i.e. those with THC levels above 0.3%). Other
plan requirements include establishing information sharing
procedures and obtaining a certification of resources.
Alternatively, the rule establishes a Federal plan for producers in
States or territories of Indian tribes that do not have their own
USDA-approved plan.
Exercising its authority from the 2018 Farm Bill, the USDA sets
forth in the rule the process by which producers can apply for and
be issued a license for hemp production by the USDA. USDA has also
established specific compliance requirements for USDA licensees,
including the USDAs ability to conduct random audits and
issue corrective action plans for producers negligent
violations. Actions deemed violatory could result in a suspension
or revocation of a USDA license. The rule further provides an
appeal procedure for applicants who are denied a license.
Within the announcement of the rule, the USDA cautions that
hemp production in the US has seen a massive resurgence in
the last five years; however, it remains unclear whether consumer
demand will meet supply. This consideration will likely be
influenced by how quickly the federal government mends the
patchwork of rules and regulations both at the state and federal
level governing the legality of marijuana and CBD. Until then, the
USDA seeks to add some clarity to the conversation so that States,
Indian Tribes, and cannabis producers can plan accordingly.
Schakowsky Re-Introduces Consumer Protection Bill
On September 12, 2019, Illinois Representative Jan Schakowsky
introduced H.R. 4296, the Safe Cosmetics and Personal
Care Products Act of 2019, which aims to set guidelines for
cosmetics and personal care products labeling. As characterized by Congresswoman Schakowsky, the
bill will provide cosmetics safety that consumers and
workers want and deserve; address the over-exposure to toxic
chemicals that communities of color and professional salon workers
experience every day; and hold companies accountable for the safety
of ingredients in their products. While this bill bears many
similarities to its previous iterations, there are several new
aspects of this bill that are worth considering.
To begin, the bill places greater accountability on the
cosmetics industry. Cosmetics and personal care products
brands1 would have to register with the Department
of Health and Human Services (HHS), providing their name, location,
list of cosmetic products, their function, and their gross sales
receipts. Brands would be required to update this information
annually for display on the Food and Drug Administration (FDA)
website, as well as, disclose the ingredients used in a product
(both professional and retail). Additionally, the manufacturer
would be required to publish the products ingredient list on
its website if the product can be purchased online. They would also
have to provide the ingredient list for any products sold online,
along with any products sold on third-party vendors
websites.
The bill, if passed, would also give the HHS and the FDA
expanded regulatory authority and a number of new responsibilities.
Under H.R. 4296, the Secretary would have the ability to issue
several different kinds of recalls for products in violation of the
bill under certain circumstances and make public notice of these
recalls. The bill also prompts the HHS Secretary to place
ingredients on one of four lists: (1) Prohibited; (2) Restricted;
(3) Safe Without Limits; or (4) Priority Assessment. The bill
requires a number of ingredientsproven to be toxicto
be immediately added to the Prohibited list and outlines a roadmap
for populating the other three lists with ingredients. This
provision of the bill varies from the Personal Care Products
Safety Act (S. 726), a similar bill introduced in the
Senate by US Senators Dianne Feinstein and Susan Collins. The
Senate bill would require the FDA to review a minimum of five
ingredients a year to determine their safety. H.R. 4296 instead
requires 20 ingredients to be placed on a Priority Assessment List
within the first year of enactment, and the Secretary must then
evaluate a minimum of 10 additional agreements a year (until all
ingredients actively being used in cosmetics and personal care
products have been categorized). H.R. 4296 seemingly seeks to move
fast right out of the gate and aims to keep up that momentum in the
years following its enactment.
Other noteworthy provisions of the bill include banning the use
of animal testing, in favor of non-animal testing alternatives and
monitoring any adverse health effects related to the use of
nanotechnology2 in cosmetics. The FDA already has
several programs in place researching and
monitoring the use of nanotechnology in FDA products. Under this
bill, the HHS Secretary would (1) monitor developments in
scientific understanding from any adverse health effects related to
the use of nanotechnology and (2) consider the scale-specific
hazard properties of ingredients when reviewing and evaluating the
safety of cosmetics and ingredients.
Beyond the above-described highlights, the bill further breaks
new ground through research and development initiatives. For
example, the bill creates a new grant program administered by the
FDA in coordination with the Environmental Protection Agency to
support the creation of safer alternatives to dangerous chemicals
in both the professional use of products and products marketed to
women of color. Another grant program, created within the National
Institute of Environmental Health Sciences, will focus on
supporting research and public outreach on marketing, sale, and use
of harmful cosmetics by women of color.
Overall, this bill seeks to significantly increase the amount of
regulation in the cosmetics industry, and would likely result in
many manufacturers having to modify their operations to meet the
new safety standards. Nevertheless, beyond the enforcement
mechanisms present in the bill, the creation of grant programs
intended to fund research on safer alternatives means cosmetics
companies will not be entirely alone in navigating this new
regulatory landscape.
In summary, here are the important takeaways from the bill,
should it get passed as proposed:
Cosmetics brands would have to
disclose and annually update information about their companies,
products, and ingredients for display on the FDAs
website.
The HHS Secretary would begin
actively monitoring, restricting, and prohibiting ingredients for
use in cosmetics, placing each ingredient on one of the four
aforementioned lists.
The HHS Secretary could enforce these
new provisions by issuing product recalls and making public notice
of the recalls.
Animal testing would be prohibited
provided there is a viable, non-animal testing alternative.
Nanotechnology would be monitored
with the same attention as it is with other FDA-regulated
products.
Research grants focusing on finding
safer alternatives to certain ingredients could help mitigate
enforcement activity. This research would also pay special
attention to how the cosmetics industry disproportionately harms
communities of color.
Backed by 16 Representatives alongside Rep. Schakowsky and over
50 NGOS and safe cosmetics companies, the bill has been referred to
House Committees on Energy and Commerce and Education and
Labor.
The SAFE Banking Act May Help CBD Industry
Because cannabis at the federal level is considered an illegal
substance, most banks are not servicing cannabis businesses. In
addition, there is major confusion surrounding the legalization of
marijuana and CBD with growing state laws addressing these topics.
In one attempt to manage this conflict, on September 25, 2019, the
House passed the Secure and Fair Enforcement (or SAFE) Banking Act of 2019, and it is now with
the Senate for consideration.
The SAFE Act was introduced in March 2019, by Colorado
Representative Ed Perlmutter, seeking to prohibit the penalization
of depository institutions for providing banking services to
legitimate cannabis-related businesses by creating a safe harbor.
Under the SAFE Act, a federal banking regulator may not (1)
terminate or limit the deposit insurance or share insurance of a
depository institution solely because the institution provides
financial services to a legitimate cannabis-related business; (2)
prohibit or otherwise discourage a depository institution from
offering financial services to such a business; (3) recommend,
incentivize, or encourage a depository institution not to offer
financial services to an account holder solely because the account
holder is affiliated with such a business; (4) take any adverse or
corrective supervisory action on a loan made to a person solely
because the person either owns such a business or owns real estate
or equipment leased or sold to such a business; or (5) penalize a
depository institution for processing or collecting payments for
such a business. Importantly, Section 3 of the bill makes proceeds
from cannabis-related legitimate businesses or service providers
exempt from federal money laundering laws.
Despite the large strides made by this bill, it is not a
guaranteed path to funding for cannabis companies. Section 5 of the
bill explicitly states that there is no requirement for depository
institutions to provide financial services or to associate with
these companies. While institutional support for the bill exists, not
all depository institutions can be expected to engage with the
cannabis industry.
Even though there is no requirement for depository institutions
to provide funding to cannabis-related companies, the SAFE Banking
Act still has the capacity to make a significant change in the
cannabis industry by giving businesses added legitimacy, which in
turn, can help companies secure requisite financing. Seyfarth
Shaws Cannabis Law Practice Group and Consumer Financial
Services Practice Group continue to monitor this space and are
ready to assist both current and prospective clients with
navigating this complicated and dynamic regulatory regime.
Footnotes
1 Applies to foreign and domestic brand owners that
receive more than $1 million in gross receipts. The HHS Secretary
would also establish a registration fee system for brands that
receive over $10 million in sales.
2 Nanotechnology is utilized in a wide array of
products including foods, cosmetics, drugs, devices, veterinary
products, and tobacco products. Nanotechnology allows scientists to
work with materials measured in nanometers, opening up a wide array
of new possibilities. Given that these materials can have different
chemical, physical, and biological properties from their larger
counterparts, the FDA monitors the development and use of these
materials in order to safeguard public health.
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guide to the subject matter. Specialist advice should be sought
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