The hemp and hemp-derived CBD industries currently face enormous legal uncertainty. Many clients have questions with regard to the marketing, sale, and transportation of hemp across state lines. Unfortunately, the authorities that define the rights, responsibilities, and liabilities that apply to the hemp industry are currently in conflict, and are also rapidly evolving. Below, we provide a summary of the relevant authorities applicable to these industries today, as well as evidence of legislative intent, and set forth predictions regarding the future of the legal treatment of the hemp industry.
I. The Controlled Substances Act (1970)
One of the primary issues facing industry participants and their advising attorneys is the conflict between these authorities. A brief timeline of recent hemp and CBD law and policy is as follows: Forty-eight years ago last month, then-sitting President Nixon signed into law the Controlled Substances Act (CSA). Drugs and other substances that are considered controlled substances under the CSA are divided into five categories, or schedules. Substances are placed in the relative schedule based on “whether they have a currently accepted medical use in treatment in the United States, their relative abuse potential, and the likelihood of causing dependence,” and their respective legal treatment corresponds to certain criminal and civil restrictions on their use, sale, transportation, research, and other activity. Schedule V contains drugs the DEA claims have a low potential for abuse, and often contain only limited quantities of narcotics, such as pain relievers and cough suppressants. Schedule I contains substances that have no currently accepted medical use in the United States, lack accepted safety protocols for use even under medical supervision, and have a high potential for abuse.
“Marihuana” and “Marihuana Extract” are listed as Schedule I Drugs. The term “marihuana” means “all parts of the plant Cannabis sativa L., whether growing or not; the seeds thereof; the resin extracted from any part of such plant; and every compound, manufacture, salt, derivative, mixture, or preparation of such plant, its seeds or resin. Such term does not include the mature stalks of such plant, fiber produced from such stalks, oil or cake made from the seeds of such plant, any other compound, manufacture, salt, derivative, mixture, or preparation of such mature stalks (except the resin extracted therefrom), fiber, oil, or cake, or the sterilized seed of such plant which is incapable of germination.” 21 U.S.C. § 802(16). The term “Marihuana Extract” includes the note: “Meaning 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.” 1 CFR Section 1308.11(d)(58).
II. The Agricultural Act of 2014 (“2014 Farm Bill”)
In February of 2014, sitting President Obama signed the Agricultural Act of 2014, or the Farm Bill, including Section 7606 of the Act, titled “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 and maintain research and pilot programs cultivating industrial hemp for limited purposes. Congress drafted and passed the law in order to study the growth, cultivation, or marketing of industrial hemp, and determine the feasibility and benefits of such a program in the United States. The law 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). The 2014 Farm Bill did not explicitly state that hemp and it’s extracts would fall outside of the CSA, though all evidence points to that being Congress’s clear intent.
III. Statement of Principles on Industrial Hemp (2016)
In August of 2016, multiple federal entities – including the U.S. Department of Agriculture in consult with the DEA and Food and Drug Administration (FDA) – released its own 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.” It 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.)
Additionally, the FDA’s FAQ page indicated in the previous section of this memorandum responds “A: No.” to the question: “Is it legal, in interstate commerce, to sell a food to which THC or CBD has been added?”
Neither statement establishes binding hemp and CBD laws nor imposes any other legal requirements, but reflects the conflict and tension between Congressional intent under the Farm Bill and these federal authorities. 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.” The Ninth Circuit subsequently disagreed with this statement.
IV. States’ Responses (2016)
In September of 2016, the Kentucky Department of Agriculture (KDA) wrote a letter of response expressing the state’s unwillingness to adhere to any of the statements or guidelines set forth in the Statement of Principles. The letter was directed to the USDA, DEA and FDA, and addressed to Agriculture Secretary Thomas Vilsack. This letter states: “[T]he statement’s declaration that ‘[i]ndustrial hemp plants and seeds may not be transported across State lines’ flies in the face of Congressional intent. …Given Congress’s clear command, the Statement’s attempt to discourage interstate movements of hemp plants and seeds is difficult to understand – let along justify. It is even more bizarre in light of two salient facts: first, importation from foreign sources was, and remains, lawful when conducted under the authority of a research pilot program; and second, the importation and sale of internationally grown hemp grain and fiber is lawful in all fifty states. I cannot understand why the importation rules should be more restrictive for interstate transfers than for international transfers. In any event, no federal agency may expend federal funds to implement this declaration. Accordingly, KDA considers this declaration to be null and void.” Quarles to Vilsack, et. al., September 12, 2016.
Virginia, California, and other states also responded by taking legislative action of their own, expanding the rights and protections available to hemp industry participants within their states, and across the country, including the right to transport parts of the industrial hemp plant across state lines. These states provided expansive authorizations that previously limited the transportation of hemp, simplified the laws applicable to certain parts of the cannabis sativa plant (specifically, seeds), repealed previous administrative requirements, and generally made it easier for individuals to get into the industry in the first place, or the expand the state’s market.
V. Congressional Response (2016)
Members of Congress, including Senate Majority Leader Mitch McConnell, also responded promptly, initiating both independent and private inquiries, as well as issuing public statements and letters as well. In early October 2016, McConnell – who is the author of the Omnibus Law – wrote, directly referencing the Statement of Principles, to Secretary Vilsack: “…[T]he Joint Statement appears to limit marketing research for industrial hemp products … in contravention of federal law. The Joint Statement provides that ‘industrial hemp products may be sold in a State with an agricultural pilot program or among states with agricultural pilot programs, but may not be sold in states where such sale is prohibited.’ Federal law, however, does not limit the ability to sell lawfully grown industrial hemp products only to states with agricultural pilot programs. It only requires that the products be from ‘industrial hemp that is grown or cultivated in accordance with’ an authorized pilot program. See Section 763(2) of P.L. 114-113 (Division A). The importation of hemp products is legal in all fifty states.” McConnell to Vilsack, October 6, 2016.
In late October 2016, several members of the House and Senate followed suit, joining together, and wrote a similar letter to Secretary Vilsack. Their letter states: “Congress prohibits the federal government from interfering with the transportation and sale of industrial hemp grown in accordance with a pilot program, while leaving it up to the states to regulate industrial hemp within their borders. … [T]he guidance prohibits the transport of plants and seeds across state lines. Again, because of Sec. 763, the federal government does not have the authority to issue this part of the guidance. We request that you please remove the attempted prohibition on transporting plants and seeds across state lines.” Senators Paul, Wyden, Merkley and Daines as well as by House Members Polis, Blumenauer, Massie, Bonamici, Cramer, DeFazio, Delbene, Lee, Norton, Pocan, Rohrabacher, Schrader, Yarmouth, Zinke, and Farr to Vilsack, October 27, 2016.
The above-cited letter from Senate Majority Leader Mitch McConnell also quotes Kentucky agronomist David W. Williams: “[…]if it becomes illegal to sell processed hemp products except in states with pilot research programs and/or for profit (general commercial activity) in this country, it will almost certainly have a very negative impact on the evolving hemp industry.” McConnell to Vilsack, October 6, 2016. Thus, Senator McConnell as well as many other members of Congress, clearly intended for that provision of section 7606 to authorize, as part of research, commercial sales of Farm Bill-compliant hemp products across state lines (that is, to allow the transportation of hemp across state lines) — and even to buyers within states that have not authorized a hemp research program.
VI. The DEA adds CBD to Schedule I (2017)
The DEA was not pleased with this overwhelming rejection of it’s authority. As a result, it set out to establish a new drug code specifically addressing hemp’s most popular derivative: CBD. On December 14, 2016, the DEA set forth a new rule 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 rule went into effect on January 13, 2017; Litigation ensued.
Upon reaching the Ninth Circuit on appeal in the spring of 2018, the Court in HIA v. DEA (Case No. 17-70162) declined to invalidate the new rule. 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.” )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.) In so stating, the court tells the DEA that to the extent that the CSA contradicts or conflicts with the Agricultural Act, the CSA has no force in law.
VII. “Internal Directive” – The DEA Acknowledges Its Limitations (2018)
On May 22, 2018, the DEA issued a nonbinding statement of it’s own 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, the DEA seems to indicate that these products may be sold – as well as distributed, transported, etc. – throughout the United States as well as imported and exported without restriction under the CSA, despite it’s contradicting 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).
Additionally, 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.
VIII. The Future of Hemp and CBD Legislation
Despite this equivocation, the DEA’s directives, clarifications, and other activities continue to ignore clear Congressional intent, resulting in a chilling effect on the industry. But the tide may be turning. In June of 2018, the FDA approved the first drug that includes CBD: Epidolex. At the end of September 2018, the DEA announced that certain Food and Drug Administration (FDA)-approved drugs that contain CBD are properly rescheduled as Schedule V drugs under the Controlled Substances Act (CSA). As of today’s date, Epidiolex is the only drug that has obtained FDA approval, and is thus the only cannabis-derived drug that the DEA does not currently consider a Schedule I substance. While this move is far from categorically rescheduling CBD – as only specific drugs will be placed on Schedule V rather than Schedule I – any movement of cannabis policy at the federal level is news.
Further, the 2018 Farm Bill would have amended the Controlled Substances Act to exclude industrial hemp from the definition of “marihuana” (Section 6. Conforming Changes to Controlled Substances Act), and therefore would have removed industrial hemp from the purview of the CSA. While the 2018 Bill failed to pass both the House and Senate before the 2014 version expired in the Fall of 2018, the failure was not attributed to the inclusion of additional rights and protections for the hemp industry, but instead failed due to fervently disagreement over the eligibility requirements and coverage of certain Supplemental Nutrition Assistant Program (SNAP) recipients. The farm bill has been updated and renewed at least every five years since 1933, when the first version – the Agriculture Adjustment Act – was passed by Congress as part of then-sitting President F. D. Roosevelt’s New Deal. The farm bill will now be before the potentially more friendly 116th Congress in 2019, and will likely offer expanded rights and permissions with respect to the interstate transportation industrial hemp plants, seeds, and derivatives which will expressly fall outside of the purview of the federal government’s drug enforcement agencies.
IX. Practical Considerations with Respect to Hemp and CBD
The federal agencies’ 2016 Statement, the DEA’s January 13, 2017 new rule defining a “marihuana extract” as “containing one or more cannabinoids that has been derived from any plant of the genus Cannabis,” the DEA’s argument in HIA v. DEA (Case No. 17-70162), and the DEA’s 2018 Directive prevaricate, but overwhelmingly continue to ignore both clear Congressional intent and also Judicial directives. Indeed, despite Congress, the Ninth Circuit, and the states all reigning in the DEA’s overzealous conduct and attitude toward industrial hemp and marijuana, DEA spokespersons have consistently indicated that marijuana and hemp-related activity is illegal but that enforcement is not a priority due to the need to devote resources to competing interests such as combating the opioid crisis. Additionally, the DEA is expressly prohibited from using federal funds to engage in enforcement activity which operate in contravention of the hemp provisions of the 2014 Farm Act due to the Consolidated Appropriations Act, respectively. (Pub. L. No. 114-113, § 763, 129 Stat. 2242, 2285 (2015).). 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.
In sum, these conflicting and rapidly evolving legal structures leaves industry participants, consumers, law enforcement, and attorneys in legal limbo with respect to the potential for enforcement with respect to the transportation of hemp across state lines, but there are obvious pitfalls clients can avoid to ensure enforcement agencies do not target you or your brand:
- First, more than 40 states have now approved industrial hemp, but the transportation of hemp across the state lines which have not approved such programs is particularly risky.
- Additionally, any marketing claims regarding health, including any claim that a product would diagnose, cure, mitigate, treat, or otherwise prevent disease, are strictly prohibited with respect to hemp and CBD products. In fact, if a product is not FDA-approved but may simply appear to have some medical benefits that have not been FDA-approved, products must include a disclaimer stating this.
- Finally, retain a qualified cannabis lawyer. While an ounce of prevention is worth a pound of cure, it is critically important in these legally volatile times to have counsel well-versed on these many specific authorities, and prepared to protect you and your business in the event of any – either justified or unjustified – enforcement action.
(For a more in depth understanding of these legal underpinnings, view our previous blog posts: CBD law and policy as of Fall 2018; The FDA’s approval of the first drug containing CBD in June 2018; An analysis of Hemp Industries Association, et al. v. U.S. Drug Enforcement Administration (Case No. 17-70162), in which the Ninth Circuit declined to invalidate the DEA’s new drug code specifically for “marihuana extract” that went into effect on January 13, 2017; and a reminder that the interstate transportation of marijuana is categorically illegal.)