Predictably, a lawsuit was filed in mid-September against the DEA and its acting administrator, seeking to invalidate the agency’s interim final rule (IFR) titled “Implementation of the Agriculture Improvement Act of 2018.” As reported in the November 2020 issue of Marijuana Venture, the IFR, among other things, criminalizes “intermediary” hemp extract containing a delta-9 THC concentration in excess of 0.3% — even if such hemp extract is not intended for consumption (commonly referred to as “work-in-progress hemp extract” or WIPHE).
The IFR went into effect August 21, 2020, and instantly chilled the operations of hemp processors nationwide which, almost universally, extract and possess WIPHE. Many hemp processors operate under the auspices of state-granted licenses, and others may have received state-sponsored funding (New York, for example, in 2018, made $5 million in capital grants available to hemp processing operations).
The lawsuit was filed directly with the Court of Appeals for the D.C. Circuit by Hemp Industries Association (HIA), a 501(c)(6) nonprofit trade association, and RE Botanicals Inc., a vertically integrated, privately held, South Carolina-based corporation that produces a variety of hemp-derived products, including organic tinctures, oils and capsules.
Notably, the HIA, which represents roughly 1,050 member hemp businesses, including approximately 300 hemp processors and individuals who trade in WIPHE, has succeeded in three prior lawsuits against the DEA. The HIA has prevented the agency from criminalizing hemp products that derive from non-flowering parts of the hemp plant (such as hemp seed and hemp powder) and certain hemp-derived cannabinoids, thus helping to ensure the sustainability of the hemp industry. Attorneys for the petitioners include prominent hemp advocates Vicente Sederberg, the Kight Law Office, Hoban Law Group and Yetter Coleman.
The petitioners are asking the court to hold the IFR unlawful because: (a) the DEA’s acting administrator issued the IFR without observance of lawful procedure; (b) the IFR exceeds statutory jurisdiction, authority or limitations; and (c) the IFR constitutes agency action that is arbitrary, capricious, an abuse of discretion and otherwise unlawful. Plainly, the petitioners assert that the IFR contradicts the 2018 Farm Bill.
In the prior instances where the DEA has been sued (by the HIA) over the scope of its rulemaking authority when it comes to hemp, the DEA has defended itself based upon, among other things, a legal doctrine known as “Chevron Deference” — arguably the most important legal doctrine in administrative law (coined after the landmark 1984 case Chevron v. Natural Resources Defense Council Inc.). This doctrine essentially states that, where a statute is silent or ambiguous on a particular issue, a court must defer to an administrative agency’s interpretation of such issue, provided that the agency’s interpretation is “rational” or not “unreasonable.” Agencies cannot, however, rewrite the law or issue rules that directly conflict with a statute’s plain language.
The IFR directly conflicts with the plain language of the 2018 Farm Bill with respect to its criminalization of WIPHE. The 2018 Farm Bill, on its face, exempts from the Controlled Substances Act “the plant Cannabis sativa L., and any part of that plant, including the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with a delta-9 THC concentration of not more than 0.3 percent on a dry weight basis” (emphasis added). If we assume that inclusion of the term “extracts” is evidence of Congress’ intent to similarly exempt WIPHE from the Controlled Substances Act, then under a Chevron Deference analysis, Congress has not been silent, and the DEA’s interpretation of the IFR would be properly invalidated.
Given the litigious past between HIA and the DEA, it is not surprising that the HIA would not simply allow the IFR to become law. The outcome of this lawsuit will dictate the legality of hemp extract and the manufacturing of derivative products that incorporate hemp extract, including virtually all ingestible and topical products.
Meanwhile, the U.S. Department of Agriculture, which is responsible for implementing the 2018 Farm Bill), is facing tremendous pressure from hemp industry participants, including the nation’s largest hemp-producing states. The agency extended the timeframe within which states may operate under the 2014 Farm Bill, from November 1, 2021 to November 1, 2022 — a meaningful extension given material differences between the 2014 and 2018 bills. This extension may signal that the USDA recognizes its recent rules needlessly hamper market potential. For example, under the 2014 Farm Bill, “hemp” is defined as having a delta-9 THC of 0.3% or less; under the 2018 Farm Bill, the USDA promulgated a rule that defines hemp under a “Total THC” standard, thereby disqualifying many hemp varietals researched and grown pursuant to the 2014 Farm Bill.
If the HIA were to prevail against the DEA (again), and the USDA were to permanently roll back its controversial restrictions and requirements, it would create unprecedented regulatory stability, enabling vast prosperity for hemp industry participants.