The HIA v. DEA Ruling and a Wisconsin Policy Underline Need for Clarity on CBD

CBD is having a tough week. The Court issued an unfavorable ruling in the HIA v. DEA case and Wisconsin issued a “Guidance” letter explicitly stating that CBD from industrial hemp is illegal in the state. I’ll discuss both.

I. HIA v. DEA.

A little over a year ago the Hemp Industries Association, Centuria Natural Foods, and other hemp businesses (collectively, “HIA”), filed a petition against the DEA seeking a Court order either striking down the Marihuana Extract Rule (MER) or clarifying it. The Court did neither. In an Order entered yesterday that is stunning both for its brevity and its unexpected ruling, the Court denied the HIA’s petition. The MER stands.

What does this mean?

Before delving into questions of meaning it is worth a brief summary of the Court’s ruling since the HIA is likely to appeal. First, the Court found that the HIA waived its right to contest the MER as an improper scheduling act since it did not object to it during the official comment period. It is a common practice for Courts to base their rulings on procedural, rather than substantive, grounds. This is practice is widely misunderstood by the general public since it often and understandably comes across as unfair, overly technical, and/or an abrogation of the Court’s role as arbiter of substantive disputes. In this case, there are some legitimate reasons for claiming that the Court’s reliance on procedural grounds to deny the HIA’s petition is, in fact, unfair. The primary reason is that the comments period expired years before Congress enacted the industrial hemp provisions of the Agricultural Act of 2014 (commonly known as the “Farm Act”). As it turns out, this not only provides a potential basis for appeal, but it also keeps the door open for CBD. This leads me to the second part of the Court’s ruling in which it discussed the Farm Act.

The Court found that the Farm Act “contemplates potential conflict between the Controlled Substances Act and preempts it. The Final Rule therefore does not violate the [Farm] Act.” In plain English, this means that to the extent that the industrial hemp provisions of the Farm Act conflict with the Controlled Substances Act (CSA), the Farm Act wins. In fact, during oral arguments the DEA attorney conceded this point.

So did the HIA “lose”? In a word, yes. A “win” would have been an Order striking the MER, or at least clarifying that it does not apply to CBD obtained from lawful hemp. Clearly, the HIA did not win: the MER was upheld and the Court did not address the issue of CBD from lawful hemp. That being said, the outcome was not entirely awful. One of the HIA’s goals, aside from actually having the MER stricken, was obtaining clarity that it does not apply to lawful hemp. That goal was achieved in this ruling: the Court explicitly found that the Farm Act preempts the CSA. Actually, the HIA’s goal was achieved shortly after the lawsuit was filed when the DEA published a “Clarification” of the MER. Although opaque, the Clarification made clear that CBD derived from a lawful source is lawful– ie, CBD is not illegal, per se.

So what does the ruling mean for CBD? Most obviously, it means that the MER is enforceable and that CBD (or any other cannabinoid) from marijuana is an illegal controlled substance. But that has always been the law. It also means that the Farm Act wins whenever it comes into conflict with the CSA. This, too, has always been the law. The Farm Act statute explicitly states that it preempts the CSA. In effect, the Court issued a ruling that simply reiterated what we already know. In some respects this is good news. However, it is also the crux of the problem. On the one hand, nothing has changed and life in the wake of this ruling is the same as it was before the ruling. On the other hand, things are more confusing than ever. By refusing to address the issue of CBD from lawful hemp while allowing the MER to stand, a rule which utilizes the all encompassing botanical term “cannabis” rather than the proper and limited legal term, “marijuana”, the Court effectively poured gasoline onto the fire.

Is CBD from industrial hemp lawful? In a word, yes. The Court found that the Farm Act trumps the CSA. This means that industrial hemp that is cultivated and processed pursuant to a state’s pilot program is lawful. The DEA has always contended that the scope of the Farm Act is limited and that it does not apply to commercial activity or authorize participation by private actors. There is nothing in the statute to support these views. Under the Farm Act (and the industrial hemp provisions in the current Appropriations Act) a state is free, and in fact, encouraged, to conduct commercial market research as part of its pilot program. Moreover, states routinely license private actors to perform various state functions. This is neither new nor controversial. There is nothing in the Farm Act that prohibits a state from authorizing private parties to grow, process, and sell industrial hemp products, including CBD and other extracts, derived from it. The Farm Act preempts the CSA, making these activities legal.

That being said, the Court’s flat refusal to address CBD directly will undoubtedly have a chilling effect on the industry. Will the DEA feel emboldened to take action regarding CBD oil from industrial hemp in the hope that it can convince a court to adopt its overly limited view of the Farm Act? I doubt it. The HIA v. DEA case was never an obstacle to the DEA taking an enforcement action in the hope that it could convince a court that the Farm Act’s scope is narrow enough to exclude activities (such as CBD sales) that it contends exceed its scope and are thus illegal. Protection against enforcement action is located in the Farm Act and Appropriations Act themselves, both of which are unaffected (and even bolstered) by this ruling. The bigger likelihood is that enforcement actions at the local level will increase. Due to massive confusion about industrial hemp and CBD it has become routine to hear about CBD raids by sheriffs and local police, combined with the spread of misinformation, in towns across the country. The most prominent example of this was the recent Candy Crush debacle in Tennessee. In the HIA v. DEA case the Court could have easily cleared up this type of confusion. A sentence or two in the Order stating that CBD from industrial hemp is lawful would have done the trick. The Court’s failure to make this finding made things more confusing. Its silence on the issue will invariably make things worse.

The bottom line is that CBD from lawful industrial hemp is legal if it is legal under a state’s laws. (It’s also legal if it is derived from the mature stalk of the marijuana plant or non-psychoactive hemp grown outside the US, both of which are excluded from the definition of illegal marijuana.) This is not new or groundbreaking, but it does underscore the fact that CBD from industrial hemp is not legal in every state, which brings me to Wisconsin.

II. Wisconsin.

CBD is not legal in Wisconsin, except under limited circumstances, despite the fact that it has an industrial hemp pilot program.

On April 27 the Wisconsin Statewide Intelligence Center issued guidance on the possession and sale of CBD in the state. The document says that CBD oil and other CBD products, with or without THC, are illegal to possess or distribute in Wisconsin. The only exception is for patients with a doctor’s certification, in very limited circumstances. The document specifically says that even CBD from industrial hemp grown under the Wisconsin’s pilot program under the federal Farm Act is illegal.

This is bad policy. It is bad for people in Wisconsin who need and use hemp CBD and bad for Wisconsin’s economy. Unfortunately, the policy is also perfectly lawful. The Farm Act did not require states to enact pilot programs, nor did it place many limitations on them. This cuts both ways. As I stated above, the Farm Act does not prohibit a state from setting up a commercial program nor from licensing private actors to carry it out. On the other hand, the statute does not prohibit a state from enacting a pilot program that restricts production and sale of CBD.

Clearly, a legislative fix is needed. The Hemp Farming Act of 2018, S. 2667, introduced by Senator McConnell on April 12, 2018 (Hemp Bill), is just that fix. By explicitly removing cannabinoids derived from hemp from the CSA, the Hemp Bill will solve the problem that the HIA tried to address via litigation and which the Court made more confusing in its ruling. Unless and until the Hemp Bill is passed,the hemp/ CBD industry will continue to labor under confusion and uncertainty.

Rod Kight is a lawyer based in Asheville, NC. He is licensed in North Carolina and Oregon and represents legal cannabis businesses. You can contact him by clicking here.