Navigating the muddy regulations governing the production and sale of hemp is a challenge — even for the DEA. In fact, it seems the DEA has continuously overstepped its rule-making authority when it comes to the regulation of industrial hemp. A pair of lawsuits filed against the DEA in early 2017 seek to resolve the matter once and for all and require the DEA to fall in line with congressional policy that is almost a century old.
Putting the two lawsuits into historical perspective, hemp prohibition in the United States began in 1937, following congressional passage of the Marijuana Tax Act, which effectively outlawed cultivation, use and sales of “marihuana.”
The act was ultimately deemed unconstitutional. In 1970, it was repealed and replaced by the Controlled Substances Act. Significantly, the Controlled Substances Act adopted the previous law’s definition of “marihuana,” including the Hemp Exemption (see sidebar AT RIGHT). Yet, one cannot obtain materials that fall into the Hemp Exemption without growing an immature plant that violates the Controlled Substances Act. Thus, U.S. manufacturers and distributors of hemp products have been, for decades, lawfully sourcing hemp material from other countries, including Europe and Canada, where the plant is legal to cultivate and process.
In the early 2000s, the DEA — initially without notice or opportunity for public comment — attempted to issue a series of “rules” which would have classified the materials falling within the Hemp Exemption as a Schedule I drug, thereby criminalizing the very activities that local producers of hemp products had been lawfully carrying out for decades.
The Hemp Industries Association (HIA), with several of its constituents, sued the DEA to obtain clarity on this irreconcilable conflict. In 2004, the 9th Circuit Court of Appeals ruled in favor of the hemp petitioners and invalidated the DEA’s rules. The court issued an order permanently barring the DEA from enforcement with respect to non-psychoactive hemp and products containing it. This 2004 order, as explained by the court, was consistent with “clear” congressional intent to ban only psychotropic components of cannabis (proscribing “dope, not rope”). The court also went so far as to declare that only “synthetic THC” is governed by the Controlled Substances Act, not that which is “naturally occurring.” The DEA has never petitioned for review or sought modification of this 2004 order. Yet, to date, despite the 2004 order, the rules remain in the Code of Federal Regulations, and the listing for THC in the Controlled Substances Act still includes naturally occurring THC.
When Congress enacted the 2014 Farm Bill, it distinguished “industrial hemp” from illegal marijuana by defining hemp as Cannabis sativa L. that contains less than 0.3% THC on a dry weight basis. The Farm Bill also allowed states to implement regulations governing hemp research by higher educational institutions, through the states’ respective agriculture departments.
Since then, at least 31 states have enacted laws regulating industrial hemp. Notably, not all state programs focus on research. Some allow for cultivation by private entities and commercial sale of industrial hemp, including CBD extract derived from hemp. Subsequently, in 2016, Congress approved Section 763 of the Consolidated Appropriations Act, which precludes the government from using any federal funds “in contravention” of the Farm Bill or to “prohibit the transportation, processing, sale or use of industrial hemp that is grown or cultivated in accordance with the (Farm Bill), within or outside the State in which the industrial hemp is grown or cultivated.” This effectively paved an opportunity for Farm Bill-compliant producers of hemp materials to engage in interstate commerce without interference from the federal government.
Despite this obvious judicial, congressional and state liberalization of industrial hemp, the DEA has taken recent action in direct violation of the 2014 Farm Bill and the 2004 court order regarding the DEA’s enforcement over hemp products.
What exactly is marijuana?
The Controlled Substances Act defines “marihuana” as: all parts of the plant Cannabis sativa L., growing or not; seeds thereof; resin extracted therefrom; and every compound, manufacture, salt, derivative, mixture or preparation of such plant, its seeds or resin.
Certain components of the plant are specifically exempted from the Controlled Substances Act: mature stalks; fiber produced therefrom; 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, cake or the sterilized seed of such plant, which is incapable of germination — i.e., non-psychoactive components, or “hemp” (collectively, referred to as the “Hemp Exemption”).
In December 2016, precipitating the first of the two lawsuits, the DEA published the Establishment of a New Drug Code for Marijuana Extract, a final rule that classifies any cannabis extract in its own category of enforcement. Effectively, this final rule categorizes CBD extract, regardless of its source, as a Schedule I drug.
In January 2017, the Hoban Law Group sued the DEA on behalf of petitioners who either source CBD extract from Farm Bill-compliant states or lawfully import parts of the cannabis plant that fall under the Hemp Exemption.
Hoban’s lawsuit alleged, among other things, that the DEA overstepped its authority in issuing the final rule and that the final rule cannot be reconciled with existing congressional mandates. This case is pending in the 9th Circuit.
Separately, the same group of petitioners who successfully sued the DEA in 2004 filed a new lawsuit alleging the DEA is in contempt for failure to adhere to the court’s mandate prohibiting DEA interference in hemp that was set forth in the 2004 order. One of the petitioners, a North Dakota farm, Healthy Oil Seeds, LLC, had sought to ship to other states various hemp products, manufactured in compliance with the state Department of Agriculture’s Farm Bill statute and within the Hemp Exemption.
The state Department of Agriculture, however, informed the farmer that such transactions required registration with and approval by the DEA and that the absence of such approval could result in the loss of the farmer’s hemp license. According to the petitioners, a registration and approval requirement constituted precisely the sort of DEA interference with industrial hemp that the same court barred in the 2004 order.
Adding insult to injury, in an interview with The Cannabist, a spokesman for the DEA stated that the agency would continue to regulate legal hemp products designed for human consumption and some hemp personal care products. This, according to the petitioners in the contempt action, demonstrates that the DEA intends to continue its violation of the 2004 court order.
Shortly after filing the contempt action, Joseph Sandler, an attorney for the petitioners, withdrew the lawsuit, citing productive efforts by the DEA to provide clarity. Nonetheless, such productive efforts did not resolve the petitioners’ concerns and they refiled the contempt action in March. In this restored contempt action, the petitioners point out that the North Dakota Department of Agriculture has since allowed Healthy Oil Seeds to engage in its proposed transaction, but that such allowance should have never been required by the DEA in the first instance.
The restored contempt action further points out, among other things, that the allegedly unlawful approval requirement imposed upon Healthy Oil Seeds was not an isolated incident, and that DEA agents are confused over their authority to regulate industrial hemp, given the continued inclusion of the “rules” in the Code of Federal Regulations and outdated definition of THC in the Controlled Substances Act.
Thus, according to the petitioners, the DEA should be held in contempt of the 2004 order, and any confusion should be resolved by requiring the DEA to: (a) remove the invalidated “rules” from the Code of Federal Regulation; (b) amend the listing for THC in the Controlled Substances Act to remove the language, “naturally occurring”; and (c) advise state departments of agriculture that “no DEA approval or permit is required for the distribution, anywhere, of non-psychoactive industrial hemp.”
The DEA indicated that it would file a response to the restored contempt action by March 28, 2017, but those details were not available by Marijuana Venture’s press deadline. However, it seems that the DEA may finally be pressured into providing some much-needed regulatory stability to the hemp industry.
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.