The FDA recently issued Guidance announcing its decision to exercise enforcement discretion with regard to the Produce Safety Rule for entities growing, harvesting, packing or holding hops and wine grapes, as well as almonds and pulse crops (dry, edible seeds in the legume family harvested solely in dried form).

More specifically, while the FDA considers rulemaking to address the unique circumstances of these four crops, the FDA does not expect entities growing, harvesting, packing or holding these commodities to meet any of the Produce Safety Regulation requirements with respect to these commodities.

  1. Hops: The FDA’s rationale for exercising enforcement discretion for hops is that hops used in the making of beer receive adequate pathogen reduction through means other than a cook step (e.g., pH, alcohol content and fermentation) and hops are not used outside of the brewing process.
  2. Wine Grapes: For wine grapes exclusively grown for use in winemaking, the FDA believes similarly, i.e., that wine grapes receive adequate pathogen reduction through means other than a cook step citing again pH, alcohol content and fermentation. In addition, the FDA believes that wine grapes grown, harvested and used solely for wine are a sufficiently distinct commodity from table grapes so they can be regulated differently (table grapes remain subject to the Produce Safety Rule). Furthermore, in the law that ended the government shutdown earlier this year, Congress said that no funds may be used to enforce the Produce Safety Rule with respect to grape varietals that are used solely for wine and receive commercial processing that adequately reduces the presence of microorganisms of public health significance. Undoubtedly, this helped move the FDA towards its decision to not enforce the Produce Safety Rule with regard to wine grapes.

The FDA’s guidance is effective immediately.

On March 18, 2019, the Washington Court of Appeals upheld a trial court’s decision that three advertising campaigns for 5-Hour Energy® made by Living Essentials, LLP and Innovative Ventures, LLP (collectively, Living Essentials) violated the Washington Consumer Protection Act (CPA) by making deceptive advertising claims.

Living Essentials makes and markets the energy drink 5-Hour Energy®. The three advertising claims at issue involve claims about the efficacy of the drink. Living Essentials claimed or implied that: (1) 5-Hour Energy® was “Superior to Coffee” (Superior to Coffee claim); (2) decaf 5-Hour Energy® was effective “for hours” (Decaf claim); and (3) 73 percent of doctors would recommend 5-Hour Energy® (Ask Your Doctor claim). The trial court found all three advertising claims in violation of the CPA. It also assessed a civil penalty against Living Essentials of $2,183,747 and awarded the State $1,886,866.71 in attorney fees and $209,125.92 in costs. The court of appeals affirmed.

Living Essentials argued on appeal that the trial court (1) erred by adopting the Federal Trade Commission’s (FTC) prior substantiation doctrine; (2) that the prior substantiation doctrine violates article I, section 5 of the Washington State Constitution and the First Amendment to the United States Constitution; (3) that Living Essentials’ claims were mere puffery which did not require substantiation; (4) the trial court applied the wrong standard for necessary substantiation; and (5) the trial court erred in concluding that Living Essentials’ Ask Your Doctor claim was deceptive. Living Essentials also challenged the trial court’s penalty and award of attorney fees. Continue Reading Washington Court of Appeals Upholds Multi-Million Dollar Fine for 5-Hour Energy Advertising Claims

On May 31, 2019, the Food and Drug Administration (FDA) will hold a public hearing on cannabis products. The hearing seeks to obtain scientific data on cannabis and cannabis-derived compounds, along with additional information regarding health and safety risks, manufacturing and product quality, marketing, labeling and the sale of such products.

The FDA’s notice announcing the hearing recognizes that the regulatory landscape surrounding cannabis continues to evolve at both the federal and state levels. At the state level, 33 states and Washington, DC, allow for the medical use of marijuana and 14 additional states have medical programs limited to cannabidiol (a/k/a CBD) products. Moreover, 10 states and Washington, DC have legalized marijuana for recreational use, while 13 additional states have decriminalized recreational marijuana possession in some form.

At the federal level, the Agriculture Improvement Act of 2018, Pub. L. 115-334 (often called the 2018 Farm Bill), removed hemp and its derivatives from the Controlled Substances Act, so they are no longer classified as controlled substances under federal law. This has prompted an avalanche of businesses marketing products containing hemp-derived compounds – most notably CBD – in ways that the FDA views as violations of the federal Food, Drug, and Cosmetic Act. According to the FDA, many questions remain concerning the safety implications of the widespread use of these products. Therefore, the FDA seeks relevant information to inform its position in regulating the development and marketing of cannabis products. Continue Reading FDA Announces Public Hearing on Products Containing Cannabis or Cannabis-Derived Compounds

On Friday, March 29, the US District Court for the Eastern District of Missouri handed down its decision in Sarasota Wine Market v. Parson, No. 4:17CV2792. The decision upholds Missouri’s laws permitting in-state retailers to sell and deliver directly to consumers’ homes, but withholding that same privilege to out-of-state retailers. Plaintiffs had challenged the Missouri statutes under both the so-called “dormant” Commerce Clause and the Privileges and Immunities Clause of the Federal Constitution.

The decision is not surprising, as Missouri lies within the jurisdiction of the US Court of Appeals for the Eighth Circuit. The Eighth Circuit, in a challenge to a residency requirement in a case entitled Southern Wine & Spirits v. Division of Alc. & Tobacco Control (2013), previously held that state laws regulating retailers and wholesalers are immune from dormant Commerce Clause scrutiny under the 21st Amendment. The Sarasota Wine Market decision relies heavily on Southern Wine & Spirits in rejecting the plaintiffs’ dormant Commerce Clause challenge. And, the court reasoned that because the right to engage in the wine trade is subject to the limitations of the 21st Amendment, the Privileges and Immunities Clause is not implicated.

Whether the 21st Amendment insulates state laws regulating retailers and wholesalers from dormant Commerce Clause scrutiny is currently pending before the Supreme Court in the Tennessee Wine & Spirits Retailers Association v. Blair (f/n/a Byrd) case. Thus, the Sarasota Wine Market opinion faces almost-certain reversal or affirmance, depending on how the Supreme Court rules in Blair. In the meantime, the decision serves to underscore the stakes of the question currently pending before the Supreme Court.

In September 2018, the U.S. Supreme Court granted a petition for a writ of certiorari brought before the Court by the Tennessee Retailers in Tennessee Wine and Spirits Retailers Association v. Byrd. The petition requested that the Court review the lower court’s decision upholding a finding that Tennessee’s two-year residency requirement for retail license applicants is unconstitutional. Specifically, the question Tennessee retailers posed to the Court is whether the 21st Amendment of the U.S. Constitution gives states the authority to, consistent with the so-called “Dormant” Commerce Clause of the Constitution, regulate sales of alcohol beverages by imposing residency requirements on retail (or wholesale) license applicants. The court heard oral arguments on January 16, 2019.

In an article published by The New Brewer, Marc Sorini and Bethany Hatef discussed the Sixth Circuit’s opinion in the Byrd case, the circuit split it created and the potential impacts of the pending SCOTUS decision.

Read the full article.

Originally published in The New Brewer, March/April 2019.

The Agricultural Act of 2018, better known as the 2018 Farm Bill, authorizes the US Department of Agriculture (USDA) to approve plans submitted by states, territories and Native American tribes for the commercial production of hemp. Under the 2018 Farm Bill, “hemp” is the cannabis plant and any part of that plant, including the seeds and all derivatives, extracts, and cannabinoids, with a delta-9 tetrahydrocannabinol (THC) concentration of not more than 0.3 percent on a dry weight basis. The USDA is currently drafting regulations on hemp production, which could address topics such as sampling processes, testing requirements, disposal of violative plants and products derived from those plants, inspections, licensing, compliance and other procedures.

To solicit stakeholder input on these procedures and their implementation, the USDA Agricultural Marketing Service hosted the 2018 Farm Bill Webinar on the Domestic Hemp Production Program on March 13, 2019. The webinar drew more than 2,100 participants and featured over 40 speakers, including state agricultural and government officials; representatives of Native American tribes; and representatives from banks, testing laboratories and standards organizations, trade associations, law firms and hemp product companies.

During the webinar, the USDA announced plans to issue its regulations in fall 2019, in time for the 2020 growing season. However, this timeline may be a tall order, given the number of complex and controversial factors involved, such as plant testing procedures and interstate transportation of hemp and hemp products. Based on the robust discussions during the webinar, any regulations or procedures for plant testing are likely to be heavily scrutinized, as different states test different portions of the plant; test the plants at different times (e.g., before or after harvest); and use different testing methods.

Click here to view the full webinar.

Last week, the Massachusetts Supreme Judicial Court upheld a $2.6 million fine against beer wholesaler Craft Brewers Guild (a Sheehan family-owned company) for violating anti-price discrimination statutes and commercial bribery regulations. In the same decision, the Court overturned a fine lodged against a bar that received such kickback payments, holding that Massachusetts retailers do not violate commercial bribery regulations by accepting kickback payments.

Beginning in 2013, Craft Beer Guild, LLC d/b/a Craft Brewers Guild (CBG), a licensed wholesaler, implemented a “pay-to-play” scheme involving alcohol beverage suppliers, retailers, and various management and marketing companies associated with licensed retailers. CBG paid “rebates” to these third-party companies in exchange for their associated retailers agreeing to sell CBG products at their bars and restaurants. To hide these unlawful payments to retailers, the third-party companies billed CBG for various unperformed services such as “marketing support” and “promotional services.”

CBG did not offer these rebates to all retailers, and rebate amounts differed among the retailers involved. Rebel Restaurants, Inc. d/b/a Jerry Remy’s (Rebel), a licensed retailer, received a $20 rebate for each keg sold in exchange for carrying CBG-distributed brands. Rebel received the payments through its associated third-party company, Rebel Marketing. Rebel Marketing was not a licensed retailer.

Continue Reading Massachusetts’ Highest Court Upholds Record Fine Against Beer Distributor for Pay-To-Play Scheme But Overturns Fine for Bar that Accepted Kickbacks

In this lunchtime talk at CiderCon 2019 (the annual conference of the US Association of Cider Makers), Marc Sorini discusses the historic development of the current legal structure regulating alcohol beverage businesses. Topics include the origins of “tied house” laws and the evolution of the three-tier system, the often-confusing status of cider under federal law, and cider’s treatment under alcohol excise tax laws.

Marc’s talk begins at the 19:30 minute mark.

Listen to the full presentation.

Last week, in Connecticut Fine Wine and Spirits LLC v. Seagull, the US Court of Appeals for the Second Circuit affirmed a lower court’s motion to dismiss a lawsuit from Total Wine & More challenging parts of Connecticut’s Liquor Control Act and related regulations. Though the decision represents a victory for state alcohol regulatory regimes, the Second Circuit’s ruling was decided on the basis of established antitrust law and did not raise or rely on state regulatory authority under the 21st Amendment. Nonetheless, state alcoholic beverages regulators will embrace the court’s ruling.

In Connecticut Fine Wine, Total Wine challenged three sets of provisions in Connecticut’s alcohol laws. First, Total Wine challenged “post-and-hold” provisions. Under the post-and-hold provisions, state-licensed wholesalers are required to post a “bottle price” and “case price” each month with the Connecticut Department of Consumer Protection. Those prices are then made available to industry participants. During the four days after prices are posted, wholesalers may “amend” their posted prices to match—but not drop below—lower prices offered by competitors. Wholesalers are then obligated to “hold” their prices for a month.

Second, Total Wine challenged the state’s minimum-retail-price provisions. The minimum-retail-price provisions require retailers to sell alcohol beverages to customers at or above a statutorily defined “cost,” which is determined by adding the posted bottle price and a markup for shipping and delivery. Combined with the post-and-hold provisions, the minimum-retail-price provisions bind retailer prices to wholesaler prices.

Third, Total Wine challenged the state’s price discrimination and volume discount provisions. The price discrimination/volume discount provisions preclude wholesalers from offering a given product to different retailers at different prices and from offering discounts to retailers who are high-volume purchasers. Continue Reading Second Circuit Rejects Total Wine Challenge of Connecticut Pricing Laws

116th Congress’ first cannabis-related hearing

Next week, Congress will hold a long-awaited hearing on the future of banking in the cannabis industry.

On Wednesday the 13th, the House Financial Services Committee Consumer Protection and Financial Institutions Subcommittee will convene a hearing entitled, “Challenges and Solutions: Access to Banking Services for Cannabis-Related Businesses.”

Among the discussion points will be the Secure and Fair Enforcement (SAFE) Banking Act, which was introduced and championed in the last Congress by Rep. Ed Perlmutter (D-CO), a member of the committee. The Perlmutter bill provides safe harbor to banks working with businesses in the cannabis industry operating legally within their jurisdiction. Groups including the Credit Union National Association and the Independent Community Bankers of America support such legislative efforts. Last year, a bipartisan group of 19 state attorneys general sent a letter to Congress urging passage of the SAFE Banking Act. The bill had 95 cosponsors (including 13 Republicans) in the last Congress. Its companion legislation in the Senate, introduced by Jeff Merkley (D-OR), had 20 bipartisan cosponsors.

Banks, particularly the largest financial institutions, remain hesitant to provide services to the cannabis industry for fear of violating federal money laundering laws. That leaves many businesses in the industry to deal in cash. For a $10 billion (and growing) industry, “cash only” is not a sustainable policy. Business interests, regulators and (increasingly) Congress agree that something must be done in order to bring the cannabis industry into the banking system. Next week’s hearing is the first significant step of the 116th Congress to address this issue. In the coming weeks, banking legislation will be re-introduced, negotiated, marked-up in the Financial Services Committee, and possibly brought to the floor of the House.

Hearing details:

House Committee on Financial Services – Maxine Waters (D-CA), Chair

Subcommittee on Consumer Protection and Financial Institutions – Gregory Meeks (D-NY), Chair

Challenges and Solutions: Access to Banking Services for Cannabis-Related Businesses

Wednesday, February 13, 2019 at 2:00 pm ET

2128 Rayburn House Office Building

Streaming on https://financialservices.house.gov