Attorney East Hampton

By Karin F.R. Moore & Ricardo Carvajal & Riëtte van Laack —

Welcome to the latest edition of HP&M’s monthly wrap up of food, beverage and supplement news, including regulations, guidances, events, and whatever else is catching our eye.

Food & Beverage

• Are your cows happy? Check out Karin’s blog post on corporate social responsibility claims.
• Is it a Sugar? Riëtte and Ricardo wrote about FDA’s request for information pertinent to nutrition labeling of sugars that don’t act like traditional sugars.
• Cell-Based Meat and Seafood Labeling: The North American Meat Institute and the Alliance for Meat, Poultry and Seafood Innovation joined forces to back a mandatory labeling requirement for cell-based meat and poultry products. Meanwhile, FDA published a constituent updateand Federal Register notice asking for comment by March 8, 2021 on a number of questions pertaining to labeling of “foods comprised of or containing cultured seafood cells.”  More details can be found in Ricardo’s blog post on the notice.
• Some processes preclude a “100% natural” claim. The National Advertising Review Board recommended that GSK discontinue a “100% natural” claim for a product consisting solely of wheat dextrin because consumers “would likely conclude that the manufacturing exceeded minimal processing” compatible with that claim. The panel held out the possibility that a qualified use of “natural” might be supportable.
• Gluten Free Alcoholic Beverages: TTB has updated its guidance on gluten content statements for wines, distilled spirits, and malt beverages in response to the August 2020 FDA final rule on verifying “gluten-free” labeling claims for fermented or hydrolyzed foods.
• The Incredible, Edible Egg: The HAACP and sanitation SOPs for egg producers final rule was just published in the Federal Register.
• Take Me to the Pilot: The FDA is launching a voluntary pilot program to evaluate alignment of private third-party food safety audit standards with the food safety requirements in Preventive Controls for Human Food and the Produce Safety rules.
• Ingredient safety assessments under fire: A late September 2020 citizen petition asks FDA to enforce the FDC Act requirement regarding the cumulative effect of food substances as part of safety assessment. See Riëtte’s blog post for more details.
• Boring but important: FDA is issuing guidance establishing a U.S. Agent Voluntary Identification System (VIS) for food facility registration, which is intended to be used in conjunction with the food facility registration database to streamline and expedite the U.S. agent verification process.
• Also boring but important: Don’t forget to renew your food establishment registration.

Supplements

• DMAA out. The Supreme Court rejected a request to review a case involving the legality of DMAA (1,3-dimethylamylamine), a once-prevalent ingredient marketed in sports supplements, leaving in place a 2019 ruling by the 11^th Circuit – which you can read about in our blog posting on that ruling.
• Branched chain amino acids? Natural Products Association Petitions FDA on Nutrition Facts and Supplement Facts Labeling Regulations Pertaining to Caloric Values.
• Challenge to DEA’s Clarification of the Farm Bill: Should intermediates containing in excess of 0.3% THC that have been derived from hemp be regulated as controlled substances by DEA? Not if plaintiffs in these lawsuits

Some Things We Are Monitoring:

• 2020-2025 Dietary Guidelines: Expected by year end.
• A hemp case where HIA and RE Botanicals filed a lawsuit against the DEA in the D.D.C., seeking a declaration that the definition of hemp in Section 1639o, includes “intermediate hemp material” (IHM) and “waste hemp material” (WHM) and that the THC in IHM and WHM is not a controlled substance. You can read about that litigation in our colleagues’ blog posting.
• Supreme Court oral arguments on December 1 on the application of the Alien Tort Statute to ethical sourcing claims in Nestlé v. Doe I and Cargill v. Doe I.
• Interesting perspectives on the possible direction of the FTC’s consumer protection mission under a Biden administration, particularly when it comes to consumer redress and civil penalties.

Upcoming Events:

• FDA public meeting on ‘‘CBD and Other Cannabinoids: Sex and Gender Differences in Use and Responses.” November 19, 2020
• FDA public meetings on the proposed rule for “Requirements for Additional Traceability Records for Certain Foods.” November 6, 2020, November 18, 2020, and December 2, 2020.
• The Center for Research on Ingredient Safety at Michigan State University will host a virtual CBD Science Symposium on November 11-12. Ricardo will present a primer on key issues in the regulation of hemp-derived CBD.

By John A. Gilbert & Karla L. Palmer —

Today, more than two years after Congress passed the Preventing Drug Diversion Act of 2018 (PDDA) and after more than a decade of industry requests for regulations addressing the Drug Enforcement Administration’s (DEA) interpretation of suspicious order requirements under 21 C.F.R. § 1301.74(b), DEA has finally spoken, with its proposed rule “to revise its regulations relating to suspicious orders” and “clarify the procedures a registrant must follow” to identify and report suspicious orders.  Suspicious Orders of Controlled Substances, Notice of Proposed Rulemaking, 85 Fed. Reg. 69,282 (Nov. 3, 2020).

DEA’s New Definitions

DEA’s proposed rule establishes three new definitions: (1) “orders received under suspicious circumstances (ORUSC),” (2) “order,” and (3) “due diligence.”  DEA’s existing regulations only define a “suspicious order,” which the PDDA codified in 2018 as including orders, or a “series of orders” of unusual size, pattern or frequency.  DEA’s new definition of an “order received under suspicious circumstances” is essentially a prequel to a suspicious order determination permitting registrants to identify an order as “potentially suspicious.”  The regulatory definition of ORUSC is critical for DEA to establish the two-option order review framework summarized below.

DEA defines the term “order,” to standardize what is a controlled substance order, which definition is far broader than considered before.  DEA proposes the following “order” definition:

[A]ny communication by a person to a registrant proposing or requesting a distribution of a controlled substance, regardless of how it is labeled by the person or the registrant, and regardless of whether the distribution is made by the registrant, except that simple price/availability inquiries, standing alone, do not constitute an order.

(Emphasis added.)

DEA’s definition raises questions when one considers the logistical and financial differences in the way that the regulated industry engages in distribution of controlled substances.  And, speaking of the “regulated” industry, DEA clarifies that proposed suspicious order reporting requirements will apply to practitioners when such distributions are made pursuant to the five percent rule.  The rule also will apply to “all registrants authorized to distribute controlled substances: distributors, manufacturers, importers, pharmacies, hospital/clinics teaching institutions, practitioners, Mid-level Practitioners (MLP), MLP- Ambulance Services, Researchers, Analytical Labs and NTPs,” but not reverse distributors.

The Two-Option Framework for Orders

After years of telling the regulated industry that it would not approve any particular method for identifying and reporting suspicious orders, DEA is now establishing a “two-option framework.”  The NPRM states that, upon receipt of an ORUSC, registrants will have a choice: (1) immediately file a suspicious order report through the DEA centralized database, decline to distribute the order, and maintain a record including any due diligence conducted related to the suspicious order; or, (2) before distributing pursuant to the order, conduct due diligence to investigate each suspicious circumstance surrounding the ORUSC, and maintain a record of its due diligence regarding the ORUSC.  The two options proposed by DEA are consistent with the D.C. Circuit’s 2017 Masters Decision and a recognition that, in the absence of sorely needed guidance from DEA over the past decade, most manufacturers and distributors have adopted some variation of these two options, otherwise known as a “Flag and Terminate,“ or  “Order of Interest” systems.

In regard to the second option, the DEA is establishing a deadline of seven calendar days for the registrant to determine if all of the suspicious circumstances for the held order have been resolved.  If the registrant is able to resolve all suspicious circumstances, then the order is not considered a suspicious order.  The registrant must maintain a record of its due diligence (thus likely leaving registrants’ due diligence subject to DEA scrutiny and second-guessing in the future).

Due Diligence Requirements

DEA defines its expectations for “due diligence” that a registrant must follow — within a seven calendar-day time period — before clearing an order to ship.  The expansive definition of “due diligence” includes: a “reasonable and documented investigation” and “examination of all facts and circumstances.”  And, concerning another “broad” definition, DEA’s new regulation will require the following concerning the system to identify suspicious orders:

In addition, the system shall be designed and operated to identify suspicious orders based on facts and circumstances that may be relevant indicators of diversion in determine whether hat person (or a person submitting an order) is engaged in, or is likely to engage in the diversion of controlled substances.

The failure to conduct sufficient due diligence has been at the heart of a number of civil and criminal settlements, and litigated cases over the years.  It will be interesting to see how these new requirements compare to already well-established industry procedures.  For example, DEA states that, “regarding recordkeeping, the proposed rule would require more than just a ‘check the box’ type of documentation.”  DEA also footnoted “rigid formulas” (using the terms “algorithm,” “blocked,” “flagged,” “held,” “order of interest,” “pended,” or “threshold”) that may not identify suspicious orders.  The new rule instead would require the registrant’s “record” to include:

(1) how the registrant handled such orders;

(2) what information and circumstances rendered the order actually or potentially suspicious;

(3) what steps if any the registrant took to investigate the order;

(4) if the registrant investigated the order, what information it obtained during its investigation;

(5) where the registrant concludes that each suspicious circumstances had been dispelled the specific basis for each such conclusion.

Of course, the significant irony here is that the rulemaking comes more than 15 years since DEA first announced its “Distributor Initiative,” which resulted in hundreds of millions of dollars in civil penalties, administrative suspensions and revocations of registrations, and several criminal charges — all based on DEA’s claims that the industry failed to comply with the requirement to identify and report suspicious orders.  Like the play, the regulated industry has been waiting for guidance from DEA concerning what “is” a suspicious order, other than an order of unusual size, pattern or frequency; and what to do about a suspicious order once detected.  As a result of its waiting, industry has engaged in all sorts of philosophical (and likely quite expensive) interpretations of DEA’s vague order monitoring requirements.  And while waiting, registrants have moved forward developing policies, procedures and elaborate monitoring systems without clear guidance from DEA as to its expectations.  Industry generally relied instead on two DEA “guidance” letters to industry dated in 2006 and 2007, and two cases referenced in the NPRM, Southwood and the fairly recent Masters decision, in developing “systems” to report to the registrant orders of unusual size, frequency and pattern.

More to Come

The NPRM provides additional background and detail as to how DEA arrived at the proposed rule, which will be the subject of further posts in the coming days, including, but not limited to, a post on the content of reports that must be submitted to DEA once an order is deemed suspicious, and a  post on industry comments on the proposed rule.  So, while the wait is over, we are just beginning another act in DEA long-running suspicious order saga.

By Sara W. Koblitz —

Identification of and comparison to a Reference Listed Drug (“RLD”) and Reference Standards (“RS”) are the lynchpin of generic drug development and approval.  It’s therefore no surprise that, upon significantly updating the Orange Book in January 2017, FDA dedicated an entire guidance to fundamental definitions and procedures relating to RLDs and RSs.  Now, on the 40^th anniversary of the Orange Book, FDA has updated and finalized this guidance, formally titled Referencing Approved Drug Products in ANDA Submissions, as part of its ongoing Drug Competition Action Plan.

Admittedly, very little has changed between the draft and final versions of the guidance Referencing Approved Drug Products in ANDA Submissions.  Subtle changes dominated, including a shift in the language used to discuss ANDAs approved under section 505(j): the draft guidance generally referred to ANDAs as drugs that are “the same” as their RLDs while the new version chose the much more precise word, “duplicates.”  Given that FDA has shifted its interpretation of the PDUFA exception for “same product as another product” from therapeutic equivalence to pharmaceutical equivalence, it could be that the use of “duplicate” rather than “same” was intended to avoid revisiting discussions of whether same drug, in this case, means therapeutic equivalents or pharmaceutical equivalents.  Regardless, this choice of language makes it very clear when FDA is referring to true ANDAs rather than suitability petition ANDAs or pharmaceutical equivalents approved as 505(b)(2) NDAs.

The most notable change in the guidance document is practical.  Previously, sponsors seeking designation of an additional RLD or RS were required to submit a Citizen Petition; a Controlled Correspondence could be used for such a request only when no RLD or RS was designated.  Because, unless a Citizen Petition is subject to Section 505(q) of the FDC Act, FDA responds at a snail’s pace, Citizen Petitions for new RLDs or RSs languished for years.  Now, the final guidance directs all requests for new RLDs and RSs through the Controlled Correspondence pathway, subjecting them to PDUFA response deadlines of 60 days for non-complex questions and 120 days for complex questions.  Theoretically, designation of RLDs and RSs should not be complex, but even if such requests are considered complex, a 120 day response timeline is significantly preferred to no discernable timeframe.  A question remains, however, of how and when FDA will deal with the many outstanding Citizen Petitions requesting a new RLD or RS, particularly because Controlled Correspondence PDUFA goals do not apply when the Controlled Correspondence is related to a pending Citizen Petition; in such a case, the PDUFA timeline starts only after FDA has responded to the Citizen Petition in question.

There are some other small but notable changes in the final version of the guidance.  In the final version, FDA explains that it can move a listed drug product to the Discontinued Section of the Orange Book if the “listed drug is not available for sale.”  Previously, FDA would only move a listed drug to the Discontinued Section after an applicant notifies FDA that it is withdrawing the listed drug from sale or if FDA determines that the listed drug has been withdrawn; the final guidance appears to change the policy so that FDA can merely determine that a product is “not available for sale.”  Whether this means that FDA will move a product of its own volition based on an inability to obtain the product on the open market is yet to be seen, but it certainly seems as though FDA is giving itself more leeway to proactively move products to the Discontinued List.  Similarly, FDA previously had stated that it would select a new RS based, among other elements, on “units sold,” but the final guidance revises this factor to “commercial data,” which, again, provides FDA more flexibility to interpret the term “commercial data” so that it is not bound to select an RS based specifically on “units sold.”

FDA included a few other revisions.  The final guidance also notes that authorized generics can be used as an RS, but suggests that additional documentation may be required; sponsors are directed to contact Office of Generic Drugs for more information.  The guidance suggests that all in vitro testing be performed in the RS, even though not specifically required under FDA regulations.  And, even though the 2017 guidance made clear that only NDAs approved under 505(c) are eligible as RLDs, the final version made it expressly clear that ANDAs cannot serve as RLDs (so please stop asking!).

In sum, the revised guidance isn’t game changing, but the procedural elements should help facilitate the designation of additional RLDs or RSs.  The little changes throughout will likely have minimal effect, but to the extent that they do, they provide FDA more flexibility than the draft version.  Regardless, both versions are certainly helpful for generic manufacturers navigating the generic drug approval system to do what they do best – making copies.

We have a free Election-eve presentation for you to download!  On October 28th, 2020, Hyman, Phelps & McNamara, P.C. Director Jeffrey K. Shapiro presented a webinar, titled “The Potential Life Sciences Implications of the Election.”  Mr. Shapiro explored the role politics plays at FDA and analyzed the potential impact of upcoming U.S. presidential election, with a special focus on the medical device industry.  It was an engaging discussion with lots of questions at the end.  MedMarc has now made the entire webinar available for free download in order to allow a broad audience to access it.  You can access the webinar at either of these places: Landing page or YouTube.

By Karin F.R. Moore —

Companies are embracing corporate social responsibility (CSR) more and more; it is a way for companies and brands to incorporate the company’s values into their business model, and engage with customers and employees on a different level. It is not without risk, however, and our readers should be cognizant of the risks when the company’s values make their way to their product labels – whether it’s food, cosmetics, personal care products, or any other product for sale.

What does “sustainable” mean, anyway?

If you were to ask me five years ago what “sustainable” meant, I would have given you some response that likely included the words “environment” and “recyclable”.   Today, a quick Google search shows “sustainable” encompasses the management of environmental, social and financial demands and concerns to ensure responsible, ethical and ongoing success of a company. That is a whole lot wrapped into one word, a great deal of which is the subject of litigation.  It encompasses recycling and biodegradability (see FTC Green Guides, the EPA’s guidance, and more and more state laws), fair trade, animal welfare claims (happy cows, anyone?), ethical sourcing, child and slave labor (on the Supreme Court docket, oral arguments on December 1, 2020), worker’s rights, fair labor practices, and responsible land management, among many other things.  Given the breadth of concepts, and the importance that companies and consumers are placing on these types of claims, what should companies consider when conveying these concepts on their product labels?

The “reasonable consumer”:  While the marketing and advertising departments may focus on millennials or the target demographic du jour, you should keep the “reasonable consumer” front of mind.  The “reasonable consumer” is sometimes the recipient of scorn (the lack of fruit in Froot Loops), but is the standard that governs whether a label claim is misleading.

Location, location, location.  Any self-respecting HGTV binge watcher knows location matters.  Regulatory lawyers know the same thing.  CSR statements on product packaging may increase a company’s risk of litigation, as courts may presume that consumers relied on those statements when pulling products from the store shelves.

Go beyond the label.  Statements on websites may also present some risk, in particular if there are online sales.  Adding disclaimer language with classic “waffle” words, like “should,” “expect,” or “endeavor” may help to keep the CSR statements aspirational.  But do know that courts are likely to review a claim in context with all the other things on a label – as well as things off the label, like advertising and the company websites.

Do your research.  This cannot be emphasized enough. Understand how that “reasonable consumer” will interpret the claims on your label and your website. Be familiar with the CSR statements on the company websites, public filings, and other public statements.  Know what words are defined in regulations, and more importantly, what words are not defined.  Know what terms have been the subject of litigation. Know everything about any third party “seals of approval” and what they may – or may not – cover.

Do even more research.  Talk to your supply chain experts.  Know where your ingredients come from.  Find out where the fish are caught, where the cows are raised, where the mica and cobalt are mined.  Know where the ingredients are produced, and whether the risk of labor abuse is high. You want to know more about your product and your claims than anyone else.

By Riëtte van Laack & Ricardo Carvajal —

As we previously reported, FDA was petitioned to exempt allulose, a monosaccharide, from being included as a carbohydrate, sugar, and added sugar in the Nutrition Facts box, as well as recognize that the number of calories for this monosaccharide is less than the 4 calories per gram used for traditional sugars.  In response, FDA issued a draft guidance, which was finalized on  Oct. 16.  The final guidance informs manufacturers that the Agency plans to exercise enforcement discretion regarding the requirement to include allulose in the amount of total sugars and added sugars, and for the use of 0.4 calories per gram of allulose when calculating calories for purposes of nutrition labeling.  However, allulose must be included in the amount of total carbohydrates.

On the same day, FDA announced that it would be issuing a request for information regarding the nutrition labeling of “sugars” (i.e., mono- and di-saccharides) that are metabolized differently than “traditional sugars,” and thus do not provide the same amount of calories per gram (traditional sugars provide 4 cal/g), do not cause an increase in blood glucose and insulin upon consumption, and are not associated with tooth decay.  FDA has received requests from industry to treat these “non-traditional” sugars, such as allulose, D-tagatose and isomaltulose differently from “traditional sugars” for purposes of nutrition labeling.  As mentioned above, FDA has decided to exercise enforcement discretion for allulose, and a petition to do the same for D-tagatose is pending.

FDA asks for information about several topics, including:

1. General information about sugars that are metabolized differently than traditional sugars.
2. Should the non-traditional sugars be included in total sugars and added sugars for purposes of nutrition labeling and, if yes, how should the amount be corrected for the difference in metabolic effects?
3. Should FDA adjust the % Daily Value for “added sugars,” using the caloric value of the non-traditional sugar?
4. Should FDA allow inclusion of the non-traditional sugars in the Nutrition Facts box similar to sugar alcohols?

The answers to these questions could carry significant implications for nutrition labeling of foods that contain non-traditional sugars, and thereby affect the formulation of such foods.

Comments may be submitted until Dec. 18, 2020.

The medtech industry has significantly changed during the Trump administration’s last four years. FDA processes are streamlined, the medical device excise tax repealed, and the Senate is in the process of confirming a third Supreme Court nominee. The industry also rapidly responded to the unprecedented COVID-19 health crisis.

What changes are on the horizon for the medtech industry after the November 3rd election, whether with another Trump administration or a Biden administration?  On Wednesday, October 28th, 2020, from 2:00 – 3:00 p.m. ET, Hyman, Phelps & McNamara, P.C. Director Jeffrey K. Shapiro will present at a webinar, titled “The Potential Life Sciences Implications of the Election.”  Mr. Shapiro will cover the upcoming U.S. presidential election and its possible ramifications for the medical device industry.

You can register for this free webinar here.

Genetics and genomics are becoming crucial to clinical care. As the “precision medicine” revolution spreads, cancer treatment, rare disease diagnosis, and cardiac care increasingly utilize genomics. Unfortunately, law and policy lag behind science, and the law governing genomics remains unclear – which means the time is ripe for analysis and thoughtful recommendations.

On Wednesday, December 2, top experts from Harvard Medical School, Columbia University, Vanderbilt University, the University of Minnesota, and other leading genomics and regulatory institutions will convene online to tackle these issues. Hyman, Phelps & McNamara PC is co-hosting this conference on “LawSeq^SM: Facing the Legal Barriers to Genomic Research & Precision Medicine.” Join us to discuss pressing legal and policy issues in genomic research and clinical care; FDA regulation of genomic devices, software, and algorithms; and uses of genomic data. Speakers include Gail Javitt, JD, MPH, from Hyman Phelps; Mark Barnes, JD, LLM, from Ropes & Gray; Alberto Gutierrez, PhD, and Elizabeth Mansfield, PhD, both formerly at FDA; Wendy Chung, MD, PhD, from Columbia University; Barbara Bierer, MD, from Harvard Medical School; and Ellen Wright Clayton, MD, JD, from Vanderbilt University. An agenda and more information is available here. This free conference will offer general CLE credits for New York, California, Illinois, and Minnesota.

Register now to attend. The event is presented by the Consortium on Law and Values in Health, Environment & the Life Sciences at the University of Minnesota in collaboration with Ropes & Gray, LLP, Hyman, Phelps & McNamara PC, and Vanderbilt University Medical Center. This conference grows out of an NIH-funded grant on “LawSeq^SM: Building a Sound Legal Foundation for Translating Genomics into Clinical Application” based at the University of Minnesota and Vanderbilt University Medical Center, in collaboration with a Working Group of national experts. For more information on “LawSeq^SM,” visit here.

By Sara W. Koblitz & Karla L. Palmer —

Back on August 20, 2020, the Drug Enforcement Administration (“DEA”) issued an Interim Final Rule (“IFR”) purporting to “clarify” certain provisions of the Agriculture Improvement Act of 2018 (“AIA”).  As we explained back when Congress passed the AIA in December 2018, the AIA upended the DEA’s regulation of hemp-derived products.  Historically, the DEA had interpreted the term “marihuana,” regulated as a schedule I drug under the Controlled Substances Act (“CSA”), to include hemp and hemp-derived products, but the AIA explicitly removed hemp from the “marihuana” CSA definition.  As a result, Congress implicitly transferred regulatory authority of hemp as defined in the AIA from DEA to the U.S. Department of Agriculture (“USDA”).  Further, the AIA added a definition of the term “hemp” to the CSA to make explicitly clear that DEA’s regulatory authority does not extend to hemp, which is now defined as “the plant Cannabis sativa L. and any part of that plant, including the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with a delta-9 tetrahydrocannabinol [“THC”] concentration of not more than 0.3 percent on a dry weight basis.”  Accordingly, any cannabis or cannabis-derived product that includes THC in a concentration above 0.3 percent on a dry weight basis, as well as THC itself, is not hemp and remains a schedule I controlled substances.  The intent of the AIA’s removal of hemp from DEA control was to facilitate the growth of emerging hemp industry.

But DEA apparently had other ideas.  In the IFR, DEA explained that the definition of hemp “does not automatically exempt any product derived from a hemp plant, regardless of the Δ9-THC content of the derivative,” and that “a cannabis derivative, extract, or product that exceeds the 0.3% Δ9-THC limit is a schedule I controlled substance, even if the plant from which it was derived contained 0.3% or less Δ9-THC on a dry weight basis.”  This language has been interpreted to suggest that DEA believes that any hemp extract that exceeds the 0.3% limit—even if only as intermediate materials or byproducts during processing—are controlled substances subject to DEA regulation, effectively rendering hemp production where THC exceeds 0.3 percent subject to the CSA’s rigorous schedule I requirements.  Further, as set forth for the first time in the IFR, DEA excluded all synthetically-derived tetrahydrocannabinols from the hemp definition, noting that “[f]or synthetically derived tetrahydrocannabinols, the concentration of Δ9-THC is not a determining factor in whether the material is a controlled substance.” Thus, all synthetic forms of cannabis and its derivatives, regardless of the Δ9-THC content, are still subject to DEA control.

Importantly, DEA enacted the IFR without undertaking notice and comment as required under the Administrative Procedure Act (“APA”).  Specifically, the DEA framed the IFR as a clarification that “does no more than incorporate the statutory amendments into DEA’s regulations,” and a mere restatement of the AIA, subjecting it to the “good cause” exemption from rulemaking requirements under the APA.  The IFR explains that “DEA has no discretion with respect to these amendments,” particularly because the “statutory changes at issue have already been in effect since” passage of the AIA.

DEA’s position concerning synthetically derived CBD products with a THC content of less than 0.3 percent was an unwelcome “surprise” (putting it kindly) to several industry participants.  Notably, the IFR was the first time that DEA had publicly stated since the enactment of the AIA that synthetically derived tetrahydrocannabinols remain schedule I drugs.  Privately, in letters to industry, DEA had taken exactly the opposite position.  DEA expressly stated in 2019 letters to industry that, after a review of the AIA, it determined that synthetic cannabinols (CBD) containing less than 0.3% Δ9-THC met the definition of “hemp” and therefore were no longer scheduled drugs under the CSA.  DEA’s 2019 position concerning synthetics made sense for many reasons, including because the AIA’s definition applies to cannabis derivatives, “whether growing or not,” which can be interpreted to include synthetic cannabis.  And, CBD with less than 0.3 percent THC, whether plant-based or synthetic, has virtually the same chemical structure and psychoactive effect.

Regardless of whether DEA’s 2019 interpretation treating synthetics and plant-derived products the same, DEA’s August 2020 IFR makes no mention whatsoever of its “change in position,” but instead, ignoring its own previous interpretation and industry’s reliance interests, DEA remarkably insists that the IFR merely implements statutory changes that “have already been in effect since” December 2018.  Really?

The IFR has been the subject of over 3,000 comments, and, less than a month after publication, DEA was sued in the D.C. Circuit, and a subsequent lawsuit in the District Court followed last week.  The D.C. Circuit Petition for Review, filed by the Hemp Industries Association and RE Botanicals Inc., is a barebones petition alleging that DEA failed to comply with the procedures required by law in the CSA and APA, that the IFR exceeded DEA authority, and that the IFR is arbitrary and capricious due to its inconsistency with the AIA.  The District Court lawsuit, also brought by the Hemp Industries Association and RE Botanicals Inc., contains a detailed explanation of the hemp production process and argues that hemp intermediates or byproducts that may exceed 0.3% Δ9-THC during production but ultimately contain less than 0.3% Δ9-THC after completion of the manufacturing process, should not be schedule I drug products.  Though the IFR is not expressly clear that intermediates or byproducts will be regulated as schedule I drugs (requiring adherence to onerous schedule I regulatory requirements), it is clear that the hemp industry sees the disconcerting writing on the wall.  According to the plaintiffs, DEA’s interpretation subjecting the hemp production process when hemp intermediates or byproducts exceed 0.3% Δ9-THC during production would effectively subject almost all hemp to schedule I controls.  Based on this reading, the District Court complaint—relying on congressional intent and plain language of the statute—requests declaratory and injunctive relief and asks the Court to make a judicial determination that the definition of hemp includes intermediates or byproducts that exceed 0.3% Δ9-THC in midst of the production process and that those intermediates are not controlled substances, that DEA lacks any independent authority to regulate any aspect of hemp production, and that DEA is enjoined from enforcing the CSA as to intermediates.

Some of the comments on the IFR raise points related to the interpretation of “synthetically-derived tetrahydrocannabinols.”  Though the D.C. Circuit Petition for Review takes issue with the “good cause” exception absolving DEA from adhering to the APA’s notice and comment rulemaking requirements, the issue is not raised in the District Court lawsuit.  As a result, it would not be surprising if another industry participant also sued DEA in a district court over DEA’s application of the APA’s good cause exception as applied to synthetic CBD.

Based on some of the history provided in the District Court complaint, as well as the available comments, DEA’s exercise of statutory authority here is pretty expansive—and arguably well beyond that intended by Congress.  Congress transferred regulatory authority over hemp to USDA, which raises an argument that Congress intended that USDA – rather than DEA — interpret the statutory definition of hemp.  Further, with the growing importance of the hemp marketplace, it would not be surprising to see a slew of litigation challenging DEA’s authority to interpret the definition of hemp, the DEA’s actual interpretation of hemp, and the rulemaking process DEA used to interpret hemp.  After all (with apologies to the Bard), that which we call hemp — specifically synthetic – by any other name would not smell as sweet, at least according to DEA.

By Anne K. Walsh & John R. Fleder & Robert A. Dormer —

Although it is difficult to glean much positive during these COVID-times, particularly if you are (or could be) the subject of a government enforcement action, this post attempts to provide a possible silver lining.  As part of an effort to support economic recovery during this public health emergency, on May 19, 2020, President Trump issued Executive Order 13924 to set forth what he asserted were ten principles of fairness that federal agencies “shall consider” in administrative enforcement and adjudication actions.  The Office of Management and Budget recently expanded on these principles in a memorandum detailing “best practices” for federal agencies to follow in implementing rules under the Executive Order, and stating that it expects federal agencies to issue any final rules under the Executive Order by November 26, 2020, absent a waiver.   See M-20-31, Implementation of Section 6 of Executive Order 13924 (Aug. 31, 2020).  There is no doubt that the Executive Order and the OMB memorandum apply to all federal agencies, including FDA, FTC, DEA, CPSC, and USDA.   In this post, we will focus on one of those agencies, FDA.

So far, we have not seen any rulemaking from FDA that adopts these principles or best practices into FDA procedures.  Because the OMB deadline falls after the elections, it will be interesting whether FDA will follow these recommendations should there be a change in Administration.   But if FDA adopts these recommendations, it would go a long way to making FDA more transparent, fair, and accountable when opening and investigating conduct by FDA-regulated industry.

The Executive Order lists the following principles of fairness:

(a) The Government should bear the burden of proving an alleged violation of law; the subject of enforcement should not bear the burden of proving compliance.

(b) Administrative enforcement should be prompt and fair.

(c) Administrative adjudicators should be independent of enforcement staff.

(d) Consistent with any executive branch confidentiality interests, the Government should provide favorable relevant evidence in possession of the agency to the subject of an administrative enforcement action.

(e) All rules of evidence and procedure should be public, clear, and effective.

(f) Penalties should be proportionate, transparent, and imposed in adherence to consistent standards and only as authorized by law.

(g) Administrative enforcement should be free of improper Government coercion.

(h) Liability should be imposed only for violations of statutes or duly issued regulations, after notice and an opportunity to respond.

(i) Administrative enforcement should be free of unfair surprise.

(j) Agencies must be accountable for their administrative enforcement decisions.

While the principles themselves are straightforward, the OMB memorandum suggests certain “best practices” that are not consistent with some of FDA’s established practices.  For example, when negotiating the terms of a consent decree, the question of whether to include a sunset provision is often a hot topic for discussion, with FDA at times arguing against the inclusion of any expiration date, or proposing the same time period be used in all consent decrees without regard to the violation at issue or the public health impact.  The OMB memorandum recommends that agencies “adopt expiration dates and/or termination criteria for consent orders, consent decrees, and settlements that are proportionate to the violation of the law that is being remedied.  Decade(s)-long settlement terms that are disproportionate to the violation(s) of law should be strongly disfavored absent a clear and convincing need for time to implement a remedy . . . .”  OMB Memo, subsection (f).

OMB also expects that federal agencies will “publish a rule of agency procedure governing civil administrative inspections,” in subsection (b) of the OMB memo.  This mandate simply reiterates a requirement from Executive Order 13892, which was issued a year ago:

Within 120 days of the date of this order, each agency that conducts civil administrative inspections shall publish a rule of agency procedure governing such inspections, if such a rule does not already exist. Once published, an agency must conduct inspections of regulated parties in compliance with the rule.

As it stands now, the principles governing FDA inspections are set forth in a hodgepodge of reference documents (e.g., Compliance Program Guidance Manual, Compliance Policy Guides, Regulatory Procedures Manual, Investigations Operations Manual, and Inspection Guides), none of which has been subject to rulemaking.

Another area that, if adopted, would be a sea-change from FDA’s current practice is the recommendation that federal agencies provide regulated industry with notice about the closure of an investigation:  “If a party has been informed by an agency that it is under investigation, the agency should inform the party when the investigation is closed and, when the agency has made no finding of violation, so state.”  This courtesy notification will obviate the current dilemma a target faces when in limbo, not knowing whether the government still is investigating but too nervous to “poke the bear” to ask directly.

There are several other “best practices” that would level the playing field for subjects of an investigation, like requiring the government to provide favorable evidence to the subject of an enforcement action, or to apply enforcement discretion if the regulated party attempted in good faith to comply with the law.   As noted, the November 26, 2020 deadline presents an interesting scenario for us to watch; it is extremely unlikely that in one month FDA can issue final rules that have not yet been proposed, and given the drastic changes that are recommended, we expect there is tremendous internal debate on making any proposals before the elections.  But if FDA does, in fact, issue new (or revised) procedures in accordance with these recommended best practices, there may be some lemonade squeezed from these COVID-lemons.