Legality of CBD remains the subject of HIA lawsuit
New York Governor Andrew Cuomo hopes to woo hemp startups to the “Hempire State,” committing $10 million in startup capital through various funds administered by Empire State Development.
Citing more than 25,000 products that can be manufactured using industrial hemp, including clothing, food, building materials and pharmaceuticals, Empire State Development announced that $5 million has been allocated for grants to support research and production, and $5 million will be available to fund capital costs related to processing, including for construction and equipment. Grants awarded for processing may provide a minimum of $10,000 and a maximum of $500,000 for up to 50% of the total project costs; the recipient must match the remaining 50%.
The state’s capitalistic approach toward industrial hemp bears no resemblance to the state’s stance on medical cannabis. New York’s medical cannabis program is among the most restrictive in the country and is frequently criticized for its lack of patient access, whole-plant applications and affordable medication, even after the state added both post-traumatic stress disorder and chronic pain as qualifying conditions.
Hopeful that New Yorkers will embrace industrial hemp, Cuomo has announced several initiatives targeted at expanding the sector, including lifting the cap on authorized growing sites and hosting an industrial hemp summit to explore opportunities in the hemp industry.
Prior to the $10 million capital infusion, only 21 businesses had been licensed to grow industrial hemp. According to the Department of Agriculture, as of the state-imposed deadline of Nov. 22, 2017, New York received 103 applications from farms and businesses interested in growing industrial hemp in 2018.
Unlike growers, applications for hemp processors are being accepted on a rolling basis. Applications involving the processing of industrial hemp into products for ingestion, inhalation or topical uses are to be reviewed by the state Department of Health and other agencies.
The Department of Agriculture completed its initial review of all industrial hemp grower applications and, by mid-February, had received all responses from the Department of Health on applications that had been sent for review.
However, at that time, the Department of Health was still drafting a research partnership agreement with the Department of Agriculture, anticipating that applications specific to the production of CBD-rich industrial hemp or hemp products will require a separate rider.
New York’s extensive financial commitment to the hemp industry is the first of its kind, yet it arrives at a time when the federal legality of manufacturing products containing CBD remains in legal limbo.
Under the Agricultural Act of 2014 (the Farm Bill), Congress exempted “industrial hemp” from the definition of “marihuana” under the Controlled Substances Act, provided the crop naturally contains less than a “trace” amount of THC (0.3%) on a dry weight basis and is legally grown in states with enacted legislation under the Farm Bill (or certain countries abroad).
The Industrial Hemp Amendment to the Consolidated Appropriations Act of 2016 (the spending rider) removes funding that prohibits transportation, processing, sale or use of industrial hemp grown in accordance with the Farm Bill.
Read together, the production/cultivation and transportation of industrial hemp — in interstate commerce — is federally legal.
The legality of products derived from industrial hemp is less clear. In December 2016, the DEA published a “final rule,” the “Establishment of a New Drug Code for Marijuana Extract,” that classifies any cannabis extract, including CBD, regardless of its source, as a Schedule I drug. This rule conflicts with the Farm Bill and the spending rider and is currently the subject of litigation between the Hemp Industries Association and the DEA.
In January, 28 members of Congress (22 Democrats and six Republicans) filed an amicus brief in support of the HIA, admonishing the DEA’s inclusion of “extracts” from Farm Bill-compliant hemp in its 2016 definition of “marihuana extract.”
In their brief, members of Congress argue, among other things, that by the Farm Bill and the spending rider, Congress established rules for the executive branch and the individual states to respect in order to “research the viability of industrial hemp as an agricultural crop.” They ask the court to adhere to Congress’ actions and purposes and hold that the final rule constitutes an abuse of DEA authority.
Having bet $5 million on the future of hemp processing, the state of New York — among others — will certainly be watching the results.
Lauren Rudick represents investors and startup organizations in all aspects of business and intellectual property law, specializing in cannabis, media and technology. Her law firm, Hiller, PC (www.hillerpc.com), is a white-shoe boutique firm with a track record for success and handling sophisticated legal matters that include business and corporate law.