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October 25, 2022

Cross-border CBD compliance in a broken regulatory landscape

Cannabidiol (or CBD for short) is an interesting case study for payment professionals. CBD lacks psychoactive properties, yet is derived from cannabis, a drug placed under international control according to the provisions of the Single Convention on Narcotic Drugs of 1961. It is not a drug, but its legal status is complicated and varies from one jurisdiction to another. Additionally, even within one and the same jurisdiction, some products enriched with CBD are legal while others are not. So, if a payment professional is considering the merchant application of a CBD store, how can they be sure that the product portfolio of the merchant complies with all applicable rules and statutes?

The current legal situation in the EU

European CBD merchants were able to enjoy a significant legislative victory in 2020. The culmination of the KanaVape case resulted in a declaration by the Court of Justice of the European Union that CBD lacks psychoactive properties and that the free movement of CBD products between EU Member States should not be restricted by overzealous regulations. So far, so good, right? Well, as with everything else, the reality is more complicated.

There are many other factors and regulations besides the verdict of the Court of Justice that determine the legality of CBD products. It was without doubt a significant victory for the cannabinoid industry at large, but it was only one of several hurdles that still have to be overcome. For example, the decision of the Court is binding, but each Member State has to amend its own legislation in order to comply with the ruling. This is a time-consuming process. And even once updated laws or amendments are approved, they cannot be enforced right away. Meanwhile, merchants risk losing business and consumers risk purchasing unapproved and potentially unsafe products. So far, France and Slovakia have amended their domestic laws to comply with the Court’s decision. Other Member States are yet to do so.

Besides the CJEU ruling, several other regulations apply depending on the product category considered.

Selection of CBD tablets

The legal standing of edibles and supplements

CBD-enriched foods and dietary supplements, for example, are subject to Regulation (EU) 2015/2283 on novel foods. The Regulation states that foods which do not have a significant history of safe consumption before May 15th, 1997, have to go through a more thorough approval process to ensure the safety and proper labelling of novel foods. This means that foods and dietary supplements that contain CBD have to be approved by the European Commission before they can be sold in the European Union. Applications were ongoing for several CBD oils to be approved as novel foods, however in June 2022, the European Food Safety Authority announced that it lacks data on the effect of CBD on the physical and psychological well-being of consumers and thus pending new data the approval process has been stopped. It is currently unclear when and how the process will be resumed, leaving stakeholders in the limbo while the approval process is on hold.

The view on cosmetics

In the EU, cosmetic products are subject to Regulation (EC) No 1223/2009 on cosmetic products. Under Annex II of the Regulation, it is prohibited to add to cosmetic products any substances listed in Tables I and II of the 1961 Convention. At the first glance, it might seem that this has no ramifications for CBD – after all, it is not a narcotic. However, per definition it is an “extract of cannabis”, which is illegal under the 1961 Convention. This is the argument used by Austrian authorities to justify their ban on the commercial sale of CBD-infused cosmetics.

Simultaneously, we can observe the polar opposite in the EU – namely jurisdictions such as Slovenia, which consider cosmetics with CBD completely legal. How does Slovenia justify its approach, when we have just examined an instance of complete prohibition from Austria? The European Commission has created a database containing a glossary of all cosmetic ingredients that can be used on cosmetic labels in the EU (the CosIng database). The database itself is purely informational and has no legal value per se but was created for the purpose of standardising cosmetic labels across the EU. In February 2021, CBD was added to the glossary as a cosmetic ingredient with antioxidant properties. This is the reason why cosmetics that contain CBD are legal in Slovenia – according to local authorities, products that contain ingredients officially listed in the CosIng database are legal.

CBD products and cannabis leaves

What to look out for in smokable products

Foods and cosmetics are just two product categories caught in the middle of regulatory uncertainty, but the confusion extends to other categories as well. Let’s take a quick look at smokable products. Smokables pose a unique challenge to law enforcement because it would be impossible to visually distinguish law breakers from people who consume legal CBD-infused plant products. This is one of the reasons why France, which has amended its policy towards CBD to be compliant with EU law, refused to legalise smokable hemp plant products in 2021, despite making concessions for other product categories. Also, the intended use of the products is important. Let’s imagine we have in front of us the merchant application of an e-cigarette store. One of the products in their portfolio is a series of oils, which the merchant says are to be used as aroma oils for wellness. But why would an e-cigarette store sell wellness oils? Chances are high that the oils are indeed intended for use in e-cigarettes, and the merchant is lying to circumvent restrictions.

Why THC content matters

Once we have a clear picture of the regulatory puzzle, it is important to keep in mind that CBD is one of many compounds contained in the cannabis plant. As such, CBD products may contain trace amounts of tetrahydrocannabinol, or THC for short, which is an internationally controlled psychoactive substance. Once again, each jurisdiction has its own approach in regulating acceptable THC levels. Austria has set maximum trace THC content at 0,3%, the Czech Republic and Switzerland tolerate up to 1%, while in Ireland all CBD products must be THC-free in order to comply with local laws. This strict THC limit is currently being challenged in court.

After we’ve taken a look at the current legislative difficulties and the fragmented approach towards CBD products, let’s think about the perspectives for the CBD market. In the next few years, sales of CBD products are expected to grow steadily in the European and North American markets. As consumer interest in CBD products of various categories is inevitably growing, EU member states will have to bring their local regulations in compliance with the precedent set by the EU court of justice. All of this means that there will be more CBD products launching, more merchants carrying CBD products in their portfolios and an even greater need for professionals in the payments industry that can make competent decisions regarding the onboarding of CBD merchants.

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