Actually discussing what bake sales are still allowed, and is specific to on campus during school hour sales. Absolutely nothing prohibits the students from setting up the bake sale off campus, on the weekend, etc.... Frankly, I have no problem with this. During school hours, my kid should be in class learning, not running a bake sale. Set the bake sale up after school is out, just off campus, where you can sell to both students and hungry parents, and you will have absolutely no problem (and make far more money) and the regulations do not prohibit this.
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A school policy preventing her from serving food cooked in her kitchen to other people's children who have allergies. I believe I covered this already. Like I said earlier, I don't want food coming from just anyone's kitchen to be served to my kid. Sorry, seen way too many cats on the countertops, dirty sponges, and tasting then stirring with the taste spoon in my time. I'm sorry that some good parents are disappointed, but, well, if everyone drove safely we wouldn't need seat belts either.
Look, I have a cousin who is fatally allergic to peanuts. Not once, not twice, but three times someone has given him food that contains peanuts because they 'didn't think it was that bad' or 'don't believe in allergies'. He can go to the hospital if someone slices their brownies with the same knife they used to spread peanut butter on toast and just wiped off with a paper towel.
As a kid playing at my neighbor's house, I saw my neighbor wipe her nose on the back of her hand, then use that same hand to dip her finger into a bowl of frosting so she could taste it. She then added a little more flavoring to the frosting, dipped her finger back in, and tasted it again.
Sadly, this is a regulation that very much exists for a very good reason.