Big Win for Smokable Hemp in Indiana Elevates Issue to a National Level

As we previously reported, several parties in Indiana filed a federal lawsuit this summer seeking an injunction to prohibit enforcement of Indiana’s smokable hemp ban. The ban is codified in SEA 516, a statute that was enacted in May, 2019 and went into effect in July. In a big victory for the hemp industry, the US District Court for the Southern District of Indiana granted a preliminary injunction late Friday afternoon, September 13, 2019. This ruling prevents Indiana’s smokable hemp ban from being enforced pending final resolution of the case. In this article I am going to discuss the basis for the lawsuit and summarize the Court’s ruling. (A copy of the Court order is embedded at the end of the article.)

INTRODUCTION

As a preliminary matter, I spoke with attorney Justin Swanson, of counsel at at Bose McKinney and Evans, the law firm representing the Plaintiffs, on Monday. (For the non-lawyers reading this article, the “Plaintiffs” are the parties who filed the lawsuit seeking the injunction, namely, C.Y. Wholesale, Inc.; CBD Store of Fort Wayne, LLC; Indiana CBD Wellness, Inc.; Indy E Cigs LLC; 5 Star Medicinal Products, LLP; Dreem Nutrition, Inc.; Midwest Hemp Council, Inc.; and El Anar, LLC.)

Swanson made several important points during our conversation. First, he made it clear that the Court’s ruling only enjoins the prohibitions on smokable hemp. These provisions are “severable” meaning that the Court’s ruling does not impact the rest of the statute. In other words, SEA 516’s provisions regulating hemp, other than the ones regarding smokable hemp, remain enforceable.

Second, Swanson indicated that this is important ruling that will elevate the national conversation about raw hemp flower. I agree. Swanson stated that a primary goal of the lawsuit is to remove the stigma surrounding hemp from farmers and other legitimate businesses in the industry and to de-couple hemp from marijuana. This ruling will go a long way towards attaining that goal.

PRELIMINARY INJUNCTION

The Court’s order delves into several areas, many of which are technical. The Court summarizes the nature of the case succinctly:

“On June 28, 2019, Plaintiffs filed their Complaint, alleging that the portions of SEA 516 that carve out “smokable hemp” from the federal definition of “hemp,” and criminalize its manufacture, finance, delivery, or possession are unconstitutional, either because they are preempted by the 2018 Farm Bill or because they violate the Commerce Clause of the United States Constitution. Plaintiffs simultaneously moved for a preliminary injunction, seeking to have the Court enjoin the State from enforcing these portions of SEA 516 until a final decision can be reached on the merits in this case.”

After providing the background, including a brief discussion of the 2014 Farm Bill, 2018 Farm Bill, and enactment of SEA 516, the Court articulates the specific provision that forms the basis of the Plaintiff’s challenge:

“The provision of SEA 516 criminalizing dealing in smokable hemp provides as follows:

 (a) A person who:
(1) knowingly or intentionally:

(A) manufactures; (B) finances the manufacture of; (C) delivers;
(D) finances the delivery of; or (E) possesses;

smokable hemp; or
(2) possesses smokable hemp with intent to:

(A) manufacture; (B) finance the manufacture of; (C) deliver; or (D) finance the delivery of;

smokable hemp;
commits dealing in smokable hemp, a Class A misdemeanor.

IND. CODE § 35-48-4-10.1.

No reference to “production” appears in this list.” (As I will explain, this last line about production” is important.)

The Plaintiffs asked the Court to impose a preliminary injunction pending final resolution of the case. In granting the injunction the Court found that the Plaintiffs had adequately shown the three necessary elements to obtain one: (1) a reasonable likelihood of success on the merits; (2) no adequate remedy at law; and (3) irreparable harm absent the injunction. While this Order does not resolve the case, the fact that the Court made a determination that the Plaintiffs are likely to succeed in the case is significant.

LEGAL THEORIES

The Plaintiffs presented three legal theories to support their position. The first two are based on the doctrine preemption, which is the invalidation of a US state law when it conflicts with federal law. Specifically, the Plaintiffs contend that SEA 516’s provisions criminalizing the manufacture, finance, delivery, or possession of smokable hemp conflict with portions of the 2018 Farm Bill and are thus preempted by federal law under either a theory of (1) express preemption, or (2) conflict preemption.

The Plaintiffs’ third argument is that SEA 516 violates the Commerce Clause of the US Constitution. The Court did not address the Commerce Clause theory, stating in a footnote: “Because we have found that Plaintiffs have shown a likelihood of success on the merits of their preemption claims, we need not address their alternative arguments under the Commerce Clause, which we find less convincing.” I will discuss the preemption claims, both of which the Court found to be compelling.

EXPRESS PREEMPTION

Express preemption applies when Congress clearly declares its intention to preempt state law. Regarding express preemption in this case, the Court summarized the Plaintiff’s position: “Plaintiffs argue that, by criminalizing the manufacture, finance, delivery, or possession of smokable hemp, which is defined under SEA 516 to specifically include hemp bud and hemp flower, the Act precludes the transportation of hemp or hemp products in or through Indiana in direct contravention of the 2018 Farm Bill’s express prohibition on restricting the transportation of hemp and its derivatives in interstate commerce.”

The State of Indiana’s only response to Plaintiff’s express preemption claim is the contention that the challenged provisions of SEA 516 apply solely to intrastate activity and therefore are not preempted by the 2018 Farm Bill, which explicitly provides that it does not “preempt or limit[] any law of a State or Indian tribe that—(i) regulates the production of hemp; and (ii) is more stringent than this subchapter.”

To this argument the Court states that Indiana “relies heavily on the fact that the 2018 Farm Bill permits states to impose stricter regulations on the “production” of hemp within state borders to support its argument that the challenged provisions of SEA 516 are not expressly preempted, and, in fact, are supported by the 2018 Farm Bill’s anti-preemption language. However, this argument ignores the fact that SEA 516’s provisions criminalizing smokable hemp on their face do not exclude interstate activity. Additionally, the anti-preemption language on which the State relies specifically references more stringent in-state regulation only of the production of hemp, which the USDA’s General Counsel has explained means that states may continue to enforce laws “prohibiting the growing of hemp” within their borders. Thus, Indiana is free, for example, to place limits on the acreage that can be used to grow hemp, or to dictate the type of seeds that can be used, or to impose setback restrictions.” However, SEA 516’s restrictions on smokable hemp go far beyond mere regulation of hemp production.

This second point, regarding a state’s right to restrict production of hemp, but not other hemp activities, is one of the strongest points the Court makes. In many respects, it is the crucial piece distinguishing between a state’s right to regulate production (ie, cultivation) and the federal prohibition on a state restricting other hemp-related activities.

The Court concludes its analysis of the Plaintiff’s express preemption argument by stating: “In sum, the 2018 Farm Bill clearly provides that states may not pass laws that interfere with the right to transport in interstate commerce hemp—including hemp derivatives like hemp bud and hemp flower—that has been lawfully produced under a State or Tribal plan or under a license issued under the USDA plan. Indiana’s law criminalizing the manufacture, finance, delivery, and possession of smokable hemp without limiting the prohibition to intrastate activity does just that.”

CONFLICT PREEMPTION

Conflict preemption applies when it is impossible to comply with both state and federal law or that state law constitutes an obstacle to satisfying the purposes and objectives of Congress. The Plaintiffs argue that the challenged provisions of SEA 516 criminalizing smokable hemp constitute an obstacle to satisfying the 2018 Farm Bill’s objective of legalizing all low-THC hemp products, including all hemp derivatives.

The Court found that the Plaintiff’s arguments for conflict preemption were not as strong as for express preemption, though it did find that conflict preemption also applies, stating:

“The 2018 Farm Bill expands the federal definition of hemp beyond that set forth in the 2014 Farm Bill to specifically include hemp derivatives and extracts, such as hemp bud and hemp flower, and removes low-THC hemp from federal controlled substance schedules. Plaintiffs have shown at least some likelihood of establishing that the challenged provisions of SEA 516, which criminalize the manufacture, finance, delivery, and possession of hemp bud and hemp flower—hemp derivatives of the kind specifically legalized under the 2018 Farm Bill—frustrates these congressional purposes and objectives.”

The state of Indiana argued that there is no evidence that Congress even contemplated, let alone had the purpose or objective of, legalizing smokable hemp with the passage of the 2018 Farm Bill. Moreover, the 2018 Farm Bill’s anti-preemption provision permitting states to enact stricter regulations on hemp production reveals the congressional intent to permit states to exercise their police powers to restrict hemp production within their own borders, thus establishing that the bill does not preempt Indiana’s criminalization of smokable hemp.

The Court dealt with the 2018 Farm Bill’s anti-preemption provision in its discussion on express preemption, finding that it only applies to production (ie, cultivation) of hemp. With respect to the fact that Congress did not contemplate “smokable hemp” flower, the Court disagreed, finding that, “[t]he 2018 Farm Bill’s expansion of the federal definition of hemp and removal of all low- THC hemp from the federal list of controlled substances evinces a clear congressional objective to legalize all forms of low-THC hemp, including the hemp derivatives specifically criminalized under SEA 516.”

CONCLUSION

In the remaining portion of the Court’s order, it discusses the other elements a Plaintiff must establish in order to be granted a preliminary injunction, “Irreparable Harm and Inadequate Remedy at Law” and “Balance of Harms and Public Interest”. While important, these issues are more subtle and technical. With one exception, I will not address them in this article.

I believe that it is instructive to discuss the Court’s response to Indiana’s contention that if smokable hemp is allowed, “law enforcement will likely face significant obstacles in their ability to enforce Indiana’s laws against marijuana.” Specifically, the Court addressed Indiana’s “concern regarding whether law enforcement would still have probable cause to conduct searches based on the smell of marijuana, given that smokable hemp has the same odor, and also noted that scientific testing would have to be performed on suspected marijuana in every case before any criminal charges could be filed.” This probable cause issue has arisen in other states, most notably in law enforcement testimony before the North Carolina General Assembly in its hearings regarding a new bill that would ban smokable hemp. The Court is unequivocal in addressing this concern:

“[T]he fact that local law enforcement may need to adjust tactics and training in response to changes in federal law is not a sufficient basis for enacting unconstitutional legislation.”

Although neither this lawsuit nor the issue of smokable hemp is fully resolved, the court’s issuance of a preliminary injunction in the Indiana case is a key moment in the advancement of sensible hemp policy and an enormous victory for the industry. As Justin Swanson said, this order is not just about Indiana; it elevates the conversation on smokable hemp to a national level. Kudos to the Plaintiffs and their astute legal team. This is an inspiring moment.

Here is the Court order:

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September 17, 2019

Rod Kight is a cannabis attorney who represents hemp farmers and hemp businesses.  He speaks at cannabis conferences across the country, drafts and presents cannabis legislation to foreign governments, is regularly quoted on cannabis matters in the media, and maintains the Kight on Cannabis legal blog, where he discusses legal issues affecting the cannabis industry. You can contact him here.