The Evolving and Conflicting Legal Landscape of Hemp and CBD Laws

I.      Background

Recently, we reported on the current state of hemp and CBD laws in the United States following the Ninth Circuit’s April 2018 decision in HIA v. DEA (Case No. 17-70162), the proposed Hemp Farming Act of 2018 (S. 2667), and reading through to the subtler “messages” the Court and Congress have sent to federal drug enforcement as well as the hemp and CBD industries through the structure, format, and (intentionally omitted) content of these legal texts: “Unlikely Heroes in Hemp Legalization: An Analysis of Hemp Industries Association, et al. v. U.S. Drug Enforcement Administration (Case No. 17-70162) and the Hemp Farming Act of 2018 (S. 2667)”.

Based on recent congressional activity, and inactivity, with respect to the Hemp Farming Act of 2018 (S. 2667), the legal future and judicial treatment of “cannabinoids that have been derived from any plant of the genus Cannabis” is currently in flux (81 FR 90194; effective 01/13/2017). Here, we explore in detail the existing federal and state hemp and CBD laws, as well as their operations, and highlight important changes that may be coming soon under the Hemp Farming Act of 2018, recently discussed at the CBD Expo West 2018

II.       Existing Federal and State Law

In February of 2014, sitting President Obama signed the Agricultural Act of 2014, or the Farm Bill, including Section 7606 of the Act, titled the Legitimacy of Industrial Hemp Research. This section authorizes institutions of higher education or state departments of agriculture – in states which have opted in by passing their own laws to conduct and regulate the relevant conduct – to begin research and pilot programs cultivating industrial hemp for limited purposes.

The law also defines industrial hemp as distinct from marijuana, as Cannabis sativa with less than a 0.3% of delta-tetrahydrocannabinol concentration (on a dry weight basis). It has no use as a recreational substance having low THC and thus being nonpsychoactive. It is additionally distinguishable from marijuana, as it is legally defined, in its physical appearance: growing taller, denser, and from a single stalk. However, many federal agencies have been outspoken about the fact that hemp and its derivative CBD are still properly categorized as a Schedule I controlled substance.

The law was passed in order to determine whether hemp farming would be beneficial for American farmers and businesses. Under this existing law, state departments of agriculture regulate hemp research and pilot programs, and therefore may pass their own unique regulations regarding such research and pilot programs that differ from one another. Farmers in these permissive states must be registered by the relevant department of agriculture, certified, and be conducting an authorized research or pilot program.

Many states have taken advantage of this program, as the plant’s raw material alone is estimated to be used in more than 25,000 products, spanning more than nine markets including agriculture, textiles, recycling, automotive, furniture, food/nutrition/beverages, paper, construction materials, and personal care. To date, at least 38 states have passed legislation related to industrial hemp, and approximately as many permit hemp cultivation and production programs. States allowing for industrial hemp programs are almost constantly updating their policies and regulations with respect to licensure, registration and permitting, funding, seed certification and access, criminal justice reform, and more.

Current debate exists regarding the scope of such programs, and whether the sale of hemp or its derivatives, or the marketing of such products without demonstrable sales to date, are allowed. The black letter of Section 7606 provides for programs which “study the growth, cultivation, or marketing of industrial hemp.” While the text and intent of the law seems to contemplate and allow distribution, or at least the study of potential distribution without demonstrable sales, the DEA has remained hostile to any and all commercial activity related to hemp and hemp-derived products. 

III.         Adverse DEA Actions

       A.     2016: Statement of Principles on Industrial Hemp

On August 12, 2016, the U.S. Department of Agriculture, in consult with the DEA and Food and Drug Administration (FDA), released its own document reflecting on the new hemp and CBD laws titled Statement of Principles on Industrial Hemp and intending to “inform the public how Federal law applies to activities associated with industrial hemp that is grown and cultivated in accordance with Section 7606 of the Agricultural Act of 2014.”

The Statement of principles stated: “For purposes of marketing research by institutions of higher education of State departments of agriculture (including distribution of marketing materials), but not for the purpose of general commercial activity, industrial hemp products may be sold in a State with […] or among States with agricultural pilot programs but may not be sold in States where such sale is prohibited. Industrial hemp plants and seed may not be transported across State lines.” (Emphasis added.)

While the statement does not establish any binding hemp and CBD laws or other legal requirements, the statement advised: “The Federal Government does not construe section 7606 to alter the requirements of the Controlled Substances Act (CSA) that apply to the manufacture, distribution, and dispensing of drug products containing controlled substances. Manufacturers, distributors, dispensers of drug products derived from cannabis plants, as well as those conducting research with such drug products, must continue to adhere to the CSA requirements.” This now contradicts the DEA’s new rule including CBD in the Schedule I substances included in the CSA, affirmed by the Ninth Circuit in Hemp Industries Association et al. v. U.S. Drug Enforcement Administration (April 30, 2018).

It additionally notably stated: “Section 7606 did not amend the Federal Food, Drug, and Cosmetic Act. For example, section 7606 did not alter the approval process for new drug applications, the requirements for the conduct of clinical or nonclinical research, the oversight of marketing claims, or any other authorities of the FDA as they are set forth in that Act.” This is important, because CBD producers are specifically prohibited from making any health claims that would bring them into the purview of FDA regulation, including any claim that a product would diagnose, cure, mitigate, treat, or otherwise prevent disease. The new 2018 proposal also does not amend the FDA or authorize new approval processes for CBD and related products.

       B.     2017: Hemp Industries Association et al. v. U.S. Drug Enforcement Administration (April 30, 2018)

On January 13, 2017, a new Rule promulgated by the Drug Enforcement Administration (DEA) went into effect defining a “marihuana extract” as “containing one or more cannabinoids that has been derived from any plant of the genus Cannabis,” in effect putting hemp-derived extracts in the same Schedule I category as THC. (21 CFR Part 1308.11 Schedule I, subsection (d)(58); Establishment of a New Drug Code for Marihuana Extract, 81 Fed. Reg. 90194 (Dec. 14, 2016).) Prior to this rule, CBD derived from hemp was commonly considered to fall outside of the Schedule I classification.

The court avoided all substantive arguments regarding the effects the DEA’s new rule would have on existing hemp and CBD laws and instead resolved the case on procedural grounds. The ruling was not completely hollow, though. Importantly, the 9th Circuit expressly stated: “The Agricultural Act contemplates potential conflict between the Controlled Substances Act and preempts it. The Final Rule therefore does not violate the Agricultural Act.”

In so stating, the court tells the DEA that those programs and participants contemplated by the 2014 Farm Act are to remain unaffected by the new rule. The DEA had argued in support of its case that the new rule is merely administrative, aimed at better tracking research into extracts and complying with international drug-control treaties. The 9th Circuit’s express recognition of Congress’ power over the DEA communicates that the federal agency is limited to using the rule – and arguable reclassification of CBD as a Schedule I substance – for only internal or administrative tasks. The court will therefore not support federal enforcement actions taken under the new rule that would otherwise interfere with hemp or hemp-related or derived products authorized under state pilot or research programs.

       C.     2018: Internal Directive Regarding the Presence of Cannabinoids in Products and Materials Made from the Cannabis Plant

On May 22, 2018, the DEA issued a statement titled Internal Directive Regarding the Presence of Cannabinoids in Products and Materials Made from the Cannabis Plant. The statement reads: “Products and materials that are made from the cannabis plant and which fall outside the CSA definition of marijuana (such as sterilized seeds, oil or cake made from the seeds, and mature stalks) are not controlled under the CSA.” As a result, these products may be sold – and distributed, transported, etc. – throughout the United States as well as imported and exported without restriction under the CSA. The “mere presence of cannabinoids itself” does not make a product fall within the Schedule I classification of marijuana and its derivatives.

However, this Directive expressly stated that it does not alter the DEA’s previous statements regarding the CSA’s definition of marijuana extract, which includes: “an extract containing one or more cannabinoids that has been derived from any plant of the genus Cannabis, other than the separated resin (whether crude or purified) obtained from the plant” (Section 1308.11(d)(58), Schedule I) — the new rule the Ninth Circuit failed to overturn in Hemp Industries Association, et al. v. U.S. Drug Enforcement Administration (Case No. 17-70162). Thus, the DEA did no more than clarify that cannabinoids “in their own right” are not unlawful, the position they have maintained throughout the HIA v. DEA litigation. Only when the cannabinoids are derived from an illegal source, in this case, “any plant of the genus Cannabis,” are they illegal as Schedule I substances under the CSA (Section 1308.11(d)(58), Schedule I).

However, the DEA’s directive did not mention industrial hemp: the largest source of cannabinoids, at this stage in research and development and as well with respect to availability, in the U.S. This was an opportunity the DEA could have seized – reflecting that it’s policies of, and understanding with respect to, hemp have evolved and matured – but did not, leaving uncertainty with respect to the potential for enforcement activity using the contradictory hemp and CBD laws against market participants.

IV.         Saved by the (Appropriations) Bill

Arguably the strongest protections available for the hemp and CBD industries are derived from Congressional prohibitions on the use of federal funds to engage in enforcement activity which operate in contravention of the hemp provisions of the 2014 Farm Act. To date, these restrictions have been successful in keeping the DEA – who appears to remain hostile, as well as eager to act, against hemp and related industry participants – at bay.

Since passing Section 7606’s hemp and CBD laws, Congress has acted to protect the hemp industry. (Consolidated Appropriations Act, 2016, Pub. L. No. 114-113, § 763, 129 Stat. 2242, 2285 (2015).) In 2016, it expressly did so in an Appropriations Act not once – but twice. Specifically, it prohibited “funds made available by this Act or any other Act [from being] used (1) in contravention of section 7606 of the Agricultural Act of 2014 (7 U.S.C. 5940).” It also states, perhaps more pointedly, “None of the funds made available by this Act may be used in contravention of section 7606 (“Legitimacy of Industrial Hemp Research”) of the Agricultural Act of 2014 (Public Law 113-79) by the Department of Justice or the Drug Enforcement Administration.” (Section 543).

These provisions are critical to the current functioning of the nation’s hemp businesses because the DEA, a sub-agency of the Justice Department, is funded exclusively by federal funds. Therefore, the DEA cannot – under this Act – use any of its funds or resources gained from the use of those funds to take any action against hemp industry participants properly registered, certified, and operating under state programs. It is also important to note that state and local law enforcement agencies that receive federal funds are also bound by these provisions: no federal funds may be used in contravention of Section 7606.

Not only that, but the FY2018 Appropriations Act includes an additional provision that specifically encourages that funds provided by this and previous Appropriations Acts be made available for hemp research, both functionally expanding protections for hemp. These provisions, taken together, are also important in that they highlight for the DEA that they are not to interfere with lawfully operating hemp businesses.

Congress has the constitutional authority to control such agency actions by controlling their purse strings, authority they seized with both hands by issuing these hemp protections since 2016. Additionally, the Ninth Circuit expressly ruled in Hemp Industries Association, et al. v. U.S. Drug Enforcement Administration (Case No. 17-70162) that the industrial hemp provisions contained in Section 7606 of the 2014 Agricultural Act preempt the CSA. Briefly, preemption means that when laws conflict, one of the laws will prevail over the other, and that law will be implemented in full force while the other is completely disregarded. Thus, the Controlled Substances Act, to the extent it conflicts with the Agricultural Act, has no force in law.

V.         Conclusion

The legal landscape with respect to hemp and CBD laws is muddled, at best. And while the 2018 Farm Bill as passed by the Senate and contemplated for implementation will alleviate some of these issues by removing hemp – defined as parts of the Cannabis sativa plant with less than 0.3% THC concentration – from the Controlled Substances Act, meaning such products would no longer be considered Schedule I illegal substances. The bill specifically (see, Section 297A(1), Definitions) includes “the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not,  with a delta-9 tetrahydrocannabinol concentration of not more than 0.3 percent on a dry weight basis as “not include3” in the definition of the “term ‘marihuana’” – yes, the CSA still spells marijuana with an “H”.

But the 2018 Farm Bill is not a cure-all. It leaves many questions unanswered, and also presents new problems such as including a categorical prohibition on industry participation by individuals who have suffered drug-related felonies – convictions which, as a result of the drug war, have overwhelmingly disproportionately affected communities of color or low socioeconomic status. And convictions which many states and local governments have independently moved to expunge or vacate – that is, undo. It also, as we mention above, does not amend the FDA or authorize new approval processes for CBD and related products.

Look out for a future article highlighting the differences between the 2014 and 2018 Farm Bills

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