CBD and the Source Rule

The legal status of CBD is an issue that continues to confuse people, including law enforcement. It’s actually a simple matter, though misinformation (and disinformation) have caused significant uncertainty.

In the wake of a big week for CBD I thought it would help to discuss the Source Rule, which I developed (initially as the “Source Theory”) and articulated for the first time in a blog post on September 30, 2016. Applied properly, the Source Rule quickly and directly determines whether CBD is lawful under a given set of circumstances. It can be summarized in a sentence: CBD is legal- or not- based on its source.

There are at least three, and arguably four, legal sources of CBD: (1) CBD derived from industrial hemp lawfully grown in the US (2014 Farm Act); (2) CBD derived from non-psychoactive hemp lawfully grown outside the US (2004 HIA v. DEA case); and (3) CBD derived from the mature stalks of the marijuana plant (Controlled Substances Act). Also, (4) if CBD is derived from anything else that is not a scheduled drug then it is lawful. (As with any legal concept, there are collateral and sub issues with respect to each of these sources; however, they are beyond the scope of this article. I’ve written about them in depth in a September 2017 article for the Cannabis Law Journal.)

This week a coalition of county, state, and federal agents raided 28 retail outlets in Rutherford County, TN. They seized CBD products, closed the stores indefinitely, and issued a number of criminal indictments. The basis for the raids is that the stores were selling CBD. I happened to be visiting Nashville, TN, about 40 minutes north of the Rutherford County seat, when the raids occurred. One of my clients’ products was prominently displayed by law enforcement and the local news media, and I received a number of concerned calls and emails. I watched the press conference and later spoke with the prosecutor in charge of the case for about 45 minutes. I was shocked and disheartened to learn that Rutherford County officials were completely uninformed about CBD. The Sheriff can be seen on video saying that people buy it “to get high”. The prosecutor told me that CBD is an illegal marijuana product. Of course, they’re both wrong. The problem is that businesses and families are currently suffering due to their ignorance. This is not the first, nor the last, time that this type of thing will happen. As I explained the Source Rule to the prosecutor he got agitated in the way that people do when it dawns on them that they have staked out an improper position. After disparaging the “foreigners” who operate the closed businesses, he quickly pivoted to the scourge of synthetic cannabinoids such as Spice and K2 (a concern I share), demanded to know why a business would put CBD in gummies (why not?), and accused me personally of writing laws to make marijuana, a “dangerous drug”, legal. It was a difficult conversation.

In more positive news, attorney Bob Hoban did an excellent job arguing on behalf of the Hemp Industries Association and its co-plaintiffs this week in the pending 9th Circuit case against the DEA. The crux of the lawsuit is the “Marihuana Extract Rule” (MER) which on its face makes any mixture of one or more cannabinoids an illegal schedule 1 substance. In broad terms the plaintiffs allege that the MER is an improper scheduling action because it purports to make legal compounds, such as CBD derived from a lawful source, illegal. Bob Hoban brought up the Source Rule to the panel of judges during his arguments. The DEA attorney acknowledged the Source Rule (though not by name) by stating that the MER does not apply to the Farm Act, one of the lawful sources that the Rule addresses, because industrial hemp is not a marijuana product. The DEA has previously validated the Source Rule in the “Clarification” it published on March 14, 2017 by stating that the MER does not apply to non-marijuana products and again its brief to the 9th Circuit. Unfortunately, and despite these clarifications, the DEA is the primary source of disinformation. Although it has validated the Source Rule in public statements, it has yet to state in a clear and concise manner that CBD is legal when it is derived from a lawful source. People routinely tell me that CBD is a schedule 1 substance and refer me to the MER to support their position. I then have to point them to the Clarification and the DEA’s legal briefs, neither of which have been read by most people, and neither of which are as clear as they could be. The DEA does not appear to have a strong desire for the fog surrounding CBD to lift.

I am happy that the Source Rule has gained traction in the hemp/CBD industry and is being referenced in the Hemp Industries case because it simply and directly clarifies the confusion that continues to wreak havoc on lawful businesses. My hope is that the 9th Circuit will officially adopt it in its opinion so that it is easily referenced and citable, rather than a logical summation of the current state of the law. Only at that point will the fog cease being an ally of the DEA and other law enforcement agencies in their war against a substance that is both beneficial and, under proper circumstances, lawful.

This article was originally published in the Cannabis Law Report, February 16, 2018. Thanks to Sean Hocking, John Taylor, and the entire CLR group for their excellent journalism about the cannabis industry.

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.