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)
I. Hemp Industries Ass’n. v. DEA (April 30, 2018)
The Ninth Circuit Court of Appeals issued its decision in Hemp Industries Association, et al. v. U.S. Drug Enforcement Administration (Case No. 17-70162) last week, siding against industry attorneys who argued that DEA’s new rule essentially adds cannabis extract, specifically CBD, to the Controlled Substances Act (CSA) as a Schedule I substance without proper action from Congress. The Court successfully avoided all substantive arguments and instead resolved the case on procedural grounds; the text of the decision is a mere three-and-a-half pages – double-spaced and in size 13 font.
Legally speaking, the Petitioners – the leading non-profit trade association for 24 years consisting of nearly 1,000 hemp businesses – appealed to the Court seeking review of a final DEA decision, 21 U.S.C. § 877. The new section establishing a new drug code specifically for “marihuana extract” was noticed on July 5, 2011. The Final Rule was published on December 14, 2016, and went into effect on January 13, 2017. The parties to the appeal did not participate in the comment period prior to 2016. Therefore, the Court held they “fail[ed] ‘to make an argument before the administrative agency in comments on a proposed rule,’ [so] they are barred ‘from raising that argument on judicial review.’ ” Hemp Industries Ass’n. v. DEA (2018)
Had the Court ruled on the merits of the issues posed by the appeal, the Court would have had to analyze whether or not the DEA’s definition of a “marihuana extract” as “containing one or more cannabinoids that has been derived from any plant of the genus Cannabis” in effect put hemp-derived extracts in the same restrictive Schedule I category as THC, the chemical compound in cannabis responsible for a euphoric high. Under federal law, “hemp” is defined as cannabis plants with less than 0.3% of THC content. Anything with more is considered “marijuana” under the Controlled Substances Act. As such, CBD oil from hemp was commonly considered to fall outside Schedule I.
Proponents of the appeal hoped the court would issue a decision parallel to its fifteen-year-old decision in Hemp Industries Ass’n v. Drug Enforcement Admin., 357 F.3d 1012 (9th Cir. 2004). In that case, the Ninth Circuit held that the DEA overstepped its authority by attempting to reschedule hemp products, defined by their naturally occurring THC content, as Schedule I substances. The court held that the DEA was wrongfully essentially attempting to regulate drugs that were not scheduled, and that the agency or Congress need to follow the correct procedures to schedule or re-schedule a particular substance before it can be regulated. The Petitioners in last week’s decision made a similar argument and invited the court to issue a decision akin to that issued in 2004: that by including CBD products as Schedule I drug in the new rule (instead of the THC products the DEA was prohibited from regulating in 2004), the DEA is again attempting to overstep their bounds and regulate unscheduled substances. As explained above, the Court declined Petitioners’ invitation.
II. The Effects of the DEA’s New Rule
The effects of the new rule – if any – is yet to be seen. Petitioner’s briefing in the case blamed the new rule for a rash of federal seizures of cannabidiol products, and some early reports regarding the decision feared the DEA’s rule could “set the stage for a wave of raids on CBD retailers and related businesses,” but other industry participants were still confident in the CBD and specialized cannabinoid industry’s continued legitimacy and growth following the decision. Despite the chilling effect some report the market experiencing in recent weeks, The U.S. Hemp Roundtable, a coalition of hemp companies and other industry participants, analyzed the decision and concluded that – while the decision may create confusion and concern regarding the DEA’s enforcement intentions – it changes nothing substantively or functionally in the operations or legality of the hemp industry due to the protections of the 2014 Farm Bill.
They just might be right. The Agricultural Act of 2014, also known as the 2014 Farm Bill (H.R.2642), provides that “ ‘[n]otwithstanding the Controlled Substances Act . . . or any other Federal law, an institution of higher education . . . or a State department of agriculture may grow or cultivate industrial hemp,” provided it is done “for purposes of research conducted under an agricultural pilot program or other agricultural or academic research” and those activities are licit under the relevant State’s laws. 7 U.S.C. § 5940(a)’ ” Hemp Industries Ass’n. v. DEA (2018). This action by Congress, titled the “Legitimacy of industrial hemp research,” not only established federally authorized hemp transportation, processing, sale, or use programs in the states, but also sent a clear message to the federal government that citizens want to be able to exploring the scientific, medical, and chemical makeup and effects of naturally derived cannabinoids.
More importantly though, the Ninth Circuit, in its recent Hemp Industries Assoc. v. DEA decision, expressly states: “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 federal government that those programs and participants contemplated by the 2014 Farm Act are to remain unaffected by the new rule. Indeed, the DEA argued that the new rule is merely administrative, aimed at better tracking research into extracts and complying with international drug-control treaties. The Ninth Circuit’s express recognition of Congress’ power over the DEA communicates that the federal agency is permitted to enact the new rule, but is simultaneously limited to using the rule for only internal administrative tasks. That is, the Court is stating that it will not support federal enforcement actions taken under the new rule that would otherwise interfere with hemp or help-related products developed under state pilot programs authorized by the 2014 Farm Bill.
It is also important to note that the decision is titled “Memorandum*”, asterisk included. In the footnote, the Court states, “This disposition is not appropriate for publication and is not precedent […]”. Only opinions that are published have precedential value, which means that the effect of the case or the legal rule articulated in the case is binding on or persuasive with respect to another, usually lower tribunal when deciding subsequent cases with similar issues. What that means in this case, as succinctly explained by Joy Beckerman, President of Hemp Industries Association and member of NORML National Board of Directors, is “By using the specific title ‘Memorandum’ and by including that footnote, the Justices are acknowledging that this is a murky and rapidly developing area of law and policy, and experience dictates that they don’t want this to be precedent setting because here in the USA we decide cases based on their merits, and not based on technicalities (such as because a comment wasn’t submitted during a 2.5-month notice-and-comment period).”
III. Legal Remedies in the Court
The Ninth Circuit’s solidarity with the cannabis industry is important and appreciated but, nevertheless, creates uncertainty for industry participants. A strict legal reading of the black letter of Hemp Industries Ass’n. v. DEA (2018) makes two conflicting things clear: (1) while it is true that those permitted under the 2014 Farm Bill to grow or cultivate hemp across the states may do so, (2) it is also now true under Federal Law that any “extract containing one or more cannabinoids that has been derived from any plant of the genus Cannabis” – including industrial hemp – is now considered a Schedule I controlled substance, creating legal uncertainty and confusion in the industry.
For now, the DEA rule will remain in place. The Petitioners are permitted to request a rehearing within 45 days of the judgment, before it becomes final. If there is a mistake in the court’s decision, such as a material misstatement of fact or error of law, the court could grant the motion for rehearing and reassess the issues put forth by the appeal. Following entry of final judgment, the parties are still able to seek relief by petitioning for certiorari to the Supreme Court – and, as Hemp Industry Daily reported, an appeal is already in the works. “We will be appealing, and we will be funding that appeal,” Michael Brubeck, CEO of Centuria Natural Foods and a petitioner in the case, said the very day after the Court issued its decision.
IV. A More Complete Solution: the Hemp Farming Act of 2018
However, Bob Hoban, a Denver-based attorney representing the industry group in the challenge, has yet to decide whether or not to request rehearing or to file for appeal. He is reportedly reaching out to his many colleagues, including the approximately 30 U.S. Legislators that backed the lawsuit, for their input. “Given the pervasive confusion and irreconcilable conflicts of the law that have led to product seizures, arrests and criminal charges against those involved in the lawful hemp industry,” he explains, “the Petitioners believe that the Final Rule must be invalidated, absent the Court clarifying and further resolving these conflicts and their severe consequences.”
What he is suggesting is that another, better remedy for the DEA’s overreach and subsequent resulting confusion exists – and lies in the Hemp Farming Act of 2018, introduced by none other than U.S. Senate Majority Leader Mitch McConnell (R-KY) on April 12, 2018.
The influence of the Hemp Farming Act of 2018 cannot be understood without a brief background regarding the 2014 Farm Bill, discussed above. At the heart of the Hemp Industries Association v. DEA case is Section 7606 of the Agricultural Act of 2014 – otherwise known as the 2014 Farm Bill. The law authorized higher education institutions and state agricultural departments to cultivate the plant if “the industrial hemp is grown or cultivated for purposes of research conducted under an agricultural pilot program or other agricultural or academic research.” While the passage of the Farm Bill at the time was an overwhelming win for the hemp industry, according to an amici curiae brief, it “fell short of the full legalization some Members desired.” Nevertheless, the “the pilot programs provided enough latitude to allow for a growing body of knowledge regarding the viability of a domestic hemp market. Congress recognized and acknowledged the need for research and development to investigate hemp-derived products, including CBD, and gave states broad discretion to create pilot programs to accomplish this research.”
A more complete and permanent solution to the confusion now exacerbated by the Ninth Circuit’s decision surrounding experimentation with commercial research and development of industrial hemp, including extracts and derivatives therefrom – and the ability to do so without interference from the DEA – lies in the Hemp Farming Act of 2018 (S. 2667). The Hemp Farming Act of 2018, if passed, would remove industrial hemp from Schedule I of the Controlled Substances Act, and federally legalize commercial cultivation of the crop. As explained by HIA President Joy Beckerman said, “Despite the clear language of [the 2014] Farm Bill, […] the DEA continues to put forth guidance and implement Rule that conflicts with legislative intent” – actions recently endorsed, to some extent, by the Ninth Circuit’s recent decision. Passage of the Hemp Farming Act of 2018 would ensure full protection for individual farmers as well as the interstate commerce of U.S. grown and manufactured hemp products; normalize finance, banking, insurance, and other business proceedings for the hemp industry; advance research opportunities; ensure access to public water rights for hemp farmers; and protect the increasing and perhaps unlimited variety of hemp-derived products by promulgating a “whole plant” definition of Hemp.
The Senate Bill was first introduced last month by U.S. Senate Majority Leader Mitch McConnell (R-KY). U.S. Senate Minority Leader Chuck Schumer (D-NY) joined his counterpart last week, and argued it is time for hemp to be permanently removed from the purview of the Controlled Substances Act. In our polarized political environment, such bipartisan effort seems impossible with respect to any topic or issue. But it comes as no surprise to the hemp industry that common ground can be found on the hemp fields. “It’s a crock,” Schumer said in his own words. “It makes no sense that the DEA is the primary regulator, and that they stop farmers and investors from growing hemp,” the Minority Leader continued. “Why are we buying hemp from other countries, when we have hundreds of acres that could be grown right here in our backyard?”
Such is the sentiment echoed by Ms. Beckerman of the HIA: “We expect research and American innovation to springboard under this proposed full legalization.” She explains, “One of cannabis’s many jobs is to transcend, bring us together, help us focus on our similarities.”
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- A special thank you to Joy Beckerman in contributing her insights and passion to this article, and everything she touches.