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A new high for the CBD industry?

Case C-663/18

07 December 2020

In Case C-663/18, the Court of Justice of the European Union ("CJEU") held that a form of cannabidiol (more colloquially known as "CBD"), derived from the whole cannabis 'sativa' plant is not a narcotic drug under the United Nations Conventions.

This instalment of our "Green Rush" series examines the CJEU's decision and its potential impact on the CBD industry across Europe.

Background

The ruling in Case C-663/18 followed the prosecution of two former directors of 'KanaVape', a company based in the Czech Republic that produced electronic-cigarettes which were subsequently imported into France. The liquid in the e-cigarettes contained CBD derived from the whole hemp plant, including the 'controlled parts' of the plant (i.e. the leaves and flowers), by the process of carbon dioxide (CO2) extraction. However, French law restricts the cultivation, importation, exportation and industrial and commercial use of hemp solely to the 'uncontrolled parts' of the plant (i.e. the fibre and seeds).   

  • Criminal Court, Marseille:  the Court held that such production of CBD was in contravention with French law, which states that CBD may only be extracted from the seeds of hemp, as opposed to the whole plant.  The resulting prosecution resulted in 10,000 EUR fines for each of the directors, coupled with 18 month and 15 month suspended prison terms.
  • Court of Appeal, Aix-en-Provence: the directors appealed to the Court of Appeal, where the ruling of the Criminal Court was overturned because it was "potentially uncompliant with the freedom of movement of goods of the European Union".  Notably, the Court of Appeal explained that CBD "does not appear to have any recognised psychoactive effects".

Further to the above, the CJEU was asked to consider whether or not CBD is a "narcotic drug" under EU law.

CJEU Decision

The key findings of the CJEU were as follows:

(1) CBD is not a narcotic drug under EU Law

Two UN Conventions must be considered when determining whether a substance is a narcotic drug – (i) the United Nations Convention on Psychotropic Substances, 1971, and (ii) the United Nations Single Convention on Narcotic Drugs, 1961 (the Single Convention).

Literal interpretations of Articles 1(1)(b) and (c) of the Single Convention define:

  • "Cannabis" as "the flowering or fruiting tops of the cannabis plant (excluding the seeds and leaves when not accompanied by the tops) from which the resin has not been extracted, by whatever name they may be designated".
  • "Cannabis plant" as "any plant of the genus Cannabis"  

Despite the fact the CBD in question was derived from the Cannabis sativa plant itself, the sitting judges decided to deviate from a literal interpretation of the above-mentioned Articles.  Had the judges taken a more literal interpretation, it would follow that CBD is considered a "cannabis extract" and therefore a narcotic.

Instead, the judges held that the CBD at issue "does not appear to have any psychotropic effect or any harmful effect on human health" and that a more literal interpretation would "be contrary to purpose and general spirit of the Single Convention" based on current scientific knowledge.

(2) The prohibition on marketing of CBD was found to be equivalent to quantitative restrictions on imports between Member States

The sitting judges held that quantitative restrictions on the movement of the CBD question was prohibited under Article 34 of the Treaty on the Functioning of the European Union (TFEU), since the CBD in question was not a narcotic.  

The judges described the decision to prohibit the marketing of CBD as "the most restrictive obstacle to trade in products lawfully manufactured and marketed in other [EU] Member States", and noted that such restrictions "can be adopted only if that risk appears sufficiently established", which was deemed not to be the case with the sativa-derived CBD in this case.

What does this mean for the CBD industry?

As the highest court in the European Union, the decision of the CJEU is binding for all EU Member States and institutions.  This includes the European Commission – which is the key EU regulator. Interestingly, the Commission previously opined that sativa-derived CBD is a narcotic which was in stark contrast to the CJEU's latest decision.  Following the judgment in Case C-663/18, the European Commission reversed their opinion, stating "the Commission has reviewed its preliminary assessment and concludes that cannabidiol should not be considered as a drug … as a consequence, cannabidiol can be qualified as food, provided that also the other conditions of Article 2 of Regulation (EC) No178/2002 are met."

In 2019, the market intelligence company 'CB Insights' stated that the regulatory relaxation surrounding CBD products in Europe was a predominant driver of investment and gained momentum in the CBD industry in 2019.   As discussed in previous instalments of our "Green Rush" series, the regulatory landscape surrounding CBD use in the EU has been criticised for being fragmented and opaque.  The ruling in Case C-663/18 has provided much-needed clarity on the rules surrounding the movement of CBD products within the EU – which, in turn, will provide a boost for businesses looking to exploit the properties of CBD whilst staying in the margins of the law. Indeed, we anticipate that the Commission will re-commence reviewing novel food applications for cannabis-derived CBD food and supplement products with the CJEU's decision in mind. Accordingly, key stakeholders in the CBD food and supplement product industry should be taking action and legal advice now so that they are positioned to swiftly and lawfully launch on the European market ahead of their competitors.

Despite the positive strides for the CBD market, industry players operating in the EU have not yet entirely escaped legislative scrutiny. National courts still have scope to determine whether prohibitions on the free movement of CBD can be justified via the "public interest" grounds contained in Article 36 of the TFEU.  While these details are decided, the ruling is a decisive step in de-mystifying the regulatory landscape for companies in the CBD industry operating in the EU.

Uche Eseonu, Trainee, L&DR Group, contributed to the writing of this article.