Everything old is new again. The Drug Enforcement Administration (“DEA”) has overstepped its rulemaking authority in almost exactly the same way that it did 13 years ago. The 9th Circuit Court of Appeals shot down the DEA then. Unfortunately, the DEA doesn’t seem to learn, at least when it comes to cannabis. But, I’m getting ahead of myself.
My email inbox has been blowing up today. If you’re in the cannabidiol (“CBD”) business I’m guessing that yours has, too. The reason is because of a final rule enacted by the DEA that amends 21 CFR 1308 to create a new Administration Controlled Substances Code Number for “Marihuana Extract” (“the Rule”). According to the DEA this new code number “will allow DEA and DEA-registered entities to track quantities of this material separately from quantities of marihuana. This, in turn, will aid in complying with relevant treaty provisions.” (With respect to the treaties, the DEA references two: the Single Convention on Narcotic Drugs, 1961 and the 1971 Convention on Psychotropic Substances. The treaty aspect of the Rule is an important piece that I’ll address later in the post.)
Importantly, and to the point of this blog post, the Rule defines “marijuana extract” (although the DEA uses this antiquated spelling I’ll use the current spelling, “marijuana”) as “an extract containing one or more cannabinoids that has been derived from any plant of the genus Cannabis, other than the separated resin (whether crude or purified) obtained from the plant.” With respect to CBD, is specifically states that CBD “fall[s] within the new drug code.” In plain English, the DEA contends that CBD is an illegal substance and has enacted a Rule to govern it.
What does it mean for businesses who currently sell legal CBD? That’s a tough question to answer.
I’ll start by saying that the DEA has explicitly placed CBD squarely in its crosshairs. Not only does the Rule go to pains to define marijuana extract as an “extract” that “contains cannabinoids”, a category into which CBD unqualifiedly falls, it goes on to address CBD specifically in the Comments section of the Rule. I won’t mince words. The DEA clearly contends that CBD is a Schedule I drug (the most restrictive schedule) under the Controlled Substances Act (“CSA”), regardless of its source or whether it comes in isolate form or in combination with other cannabinoids. This is wrong and illegal. I don’t say this lightly, but it does require me to go into a somewhat detailed analysis, along with a little history.
In order to understand any rule you must start with the language of the rule itself. In this case, the operative language that I want to focus on is the phrase “derived from any plant of the genus Cannabis.” The emphasis on the word “any” is mine and it is the crux of the DEA’s illegal and overreaching act. The Rule’s language purports to make illegal certain components (ie, CBD and other cannabinoids) of a plant that, at least under certain circumstances, are not illegal at all. Actually, it’s even more insidious than that. The DEA contends that it is merely amending a preexisting rule to separate into two categories items which were previously lumped together into one category for the purpose of allowing for “more appropriate accounting.” It says that marijuana extracts “remain in Schedule I.” (emphasis mine) But, that’s exactly the problem. Not all marijuana extracts are part of Schedule I or, indeed, any Schedule at all. To say that extracts from any cannabis plant “remain” in Schedule I is an intentional misrepresentation of the law and, more importantly, an unlawful expansion of the definition of marijuana under Schedule I.
There are at least three scenarios in which “marijuana extracts” (as defined by the Rule) are wholly legal under Federal law. The first scenario is the one in which extracts are derived from the “mature stalk” of the cannabis plant. This is because the mature stalks of the marijuana plant are specifically exempt from the definition of marijuana under the CSA. The term marijuana “does not include the mature stalks of such plant, fiber produced from such stalks, 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, or cake, or the sterilized seed of such plant which is incapable of germination.” 21 USC § 802(16) Clearly, any “marijuana extract” derived from the mature stalk is not included in Schedule I, notwithstanding the DEA’s sweeping language in the Rule. The DEA does not have the authority to make illegal that which Congress has expressly made legal.
The second scenario in which “marijuana extracts” are legal under Federal law is when they are derived from an industrial hemp plant lawfully grown in a State that has enacted hemp laws which comply with section 7606 of the 2014 US Farm Bill (“the Farm Bill”). The point of this blog post is not to give a detailed review of the hemp provisions of the 2014 US Farm Bill. You can read more about it by clicking here and here. For our present purposes I can tell you that in 2014 Congress specifically authorized individual states to enact pilot programs for hemp research. When a State enacts such a law (as many have) hemp is legal within its borders. (Hemp, by the way, is part of the genus Cannabis and unambiguously regulated by the CSA unless otherwise excepted from it.) More specifically, hemp that is cultivated in accordance with a State that has enacted a pilot research program pursuant to the Farm Bill is expressly legal. By extension, extracts from such a plant are legal, at least in the State in which they were derived. As with the above, the DEA lacks authority to make illegal that which Congress has expressly legalized. (In fact, the DEA cannot interfere with CBD sourced from a hemp-legal state due to a Congressional funding bill, even in states that haven’t enacted hemp bills. I’ll address that point in a moment.)
Before discussing the third scenario, I want to talk about the first two scenarios in a little more detail. In both of the above scenarios I said that the DEA lacks authority to make illegal that which Congress has expressly made legal. Let’s delve into that a little more. In the present case the Rule directly clashes with Federal statutes: the CSA in the first scenario and the Farm Bill in the second scenario. By attempting to extend the reach of CSA in scenario one and limit the reach of the Farm Bill in scenario 2 the DEA has exceeded its rulemaking authority. This is because the DEA is part of the executive branch of the Federal government, which is charged by Article II of the US Constitution with carrying out and enforcing Federal laws. Although it has the authority to enact rules to carry out its Constitutional obligations, the Executive Branch (which includes the Department of Justice (“DOJ”) and the DEA) does not have the authority to enact Federal statutes. If a rule promulgated by the Executive Branch clashes with a Congressionally enacted statute, including by extending its reach or by limiting its scope, the rule violates the Constitution. When a Congressional statute and an Executive Rule conflict the statute always wins. This is where the treaty language comes into play. Under certain circumstances the Executive Branch may enact laws. The DEA appears to be seeking cover under 21 CFR 1308.46, which allows the DEA to bypass normal rulemaking procedures. However, using this procedure, if that is what the DEA is attempting to do, essentially amounts to emergency rulemaking by the DEA that is an abuse of process. It is an attempt to circumvent both the Constitution and Congressional restrictions on its authority.
We’ve seen this before. On October 9, 2001 the DEA enacted rules that, when taken together, prohibited importing and distributing sterilized hemp seed, oil, and cake derived from hemp seed, and manufacturing and selling food and cosmetic products made from hemp seed and oil, even if they contained only non-psychoactive trace amounts of tetrahydrocannabinols (“THC”). The DEA’s rule stated that “any product that contains any amount of THC is a
schedule I controlled substance . . . .” Interpretation of Listing of THC in Schedule I, 66 Fed. Reg. 51530, 51533 (Oct. 9, 2001) This rule would have banned the possession and sale of imported hemp products that contained only trace amounts of THC. In a set of companion cases, Hemp Indus. Ass’n v. DEA, 357 F.3d 1012 (9th Cir. Cal. 2004) and Hemp Indus. Ass’n v. DEA, 333 F.3d 1082 (9th Cir. 2003) (collectively referred to as “Hemp Indus.“) found that the DEA had exceeded its authority and struck down the rules as void. Because of its similarity to the present situation the Court’s holding is worth quoting in full:
“The DEA’s definition of “THC” contravenes the unambiguously expressed intent of Congress in the CSA and cannot be upheld. DEA-205F and DEA-206F are thus scheduling actions that would place non-psychoactive hemp in Schedule I for the first time. In promulgating the Final Rules, the DEA did not follow the procedures in §§ 811(a) and 812(b) of the CSA required for scheduling. The amendments to 21 C.F.R. § 1308.11(d)(27) that make THC applicable to all parts of the Cannabis plant are therefore void. We grant Appellants’ petition and permanently enjoin enforcement of the Final Rules with respect to non-psychoactive hemp or products containing it.”
This is, in fact, the basis of the third scenario in which marijuana extracts are explicitly legal, namely, when they are sourced from “non-psychoactive hemp” (commonly referred to nowadays as “industrial hemp.”) At the time Hemp Indus. was decided, it was illegal to grow hemp in the United States (“USA”). So, from a practical standpoint the Court’s ruling applied only to hemp that was imported from outside the USA. However, now that it is legal to cultivate hemp in the USA (at least in states that have enacted hemp laws), Hemp Indus. applies to domestically cultivated hemp and its products (such as extracts containing CBD) as well as imported hemp and its products. In other words, marijuana extracts from non-psychoactive (industrial) hemp containing only trace amounts (or less) of naturally occurring THC is wholly legal. The Hemp Indus. cases dealt with different DEA rules; however, they were strikingly similar to the Rule at issue today: The DEA enacted rules which unlawfully expanded the reach and scope of the CSA. And it did so by calling the rules “clarifications” of existing law in an attempt to conceal the fact that it was unconstitutionally usurping Congress’s legislative role. This is exactly what the DEA did today. Fortunately, based on the Hemp Indus. cases, the Rule- at least the part of it that applies to “any” marijuana extract- is void.
Importantly, and aside from the issue of legality and the Constitutional separation of powers, Congress has expressly forbidden any Federal funds from being used to “prohibit the transportation, processing, sale or use of industrial hemp that is grown or cultivated in accordance with section 7606 of the Agricultural Act of 2014, within or outside the State in which the industrial hemp is grown or cultivated.” Section 763 of the Omnibus Appropriations Act of 2016 (P.L. 114-113) passed on December 18, 2015 (“the Funding Act”). Unless and until this provision lapses and is not renewed, the DEA and the DOJ are prohibited from using any Federal funds to enforce any laws (or rules) that would interfere with hemp (or its products) that are lawfully cultivated under state law in accordance with the 2014 Farm Bill. So, even if the Rule was lawful, the DEA can’t enforce it. The 9th Circuit Court of Appeals ruled that the DOJ was prohibited from using Federal funds to interfere with a State’s medical marijuana program by prosecuting state compliant medical marijuana users based on a similar funding clause. USA v. McIntosh, 833 F.3d 1163 (9th Cir. Cal. 2016) (“McIntosh”)
So where does this leave us? My opinion is that the Rule is void. It clashes with existing Congressionally enacted Federal statutes. The DEA exceeded its Constitutional authority in enacting it. Additionally, even if it wasn’t void it is unenforceable, at least to the extent that it purports to make CBD which is sourced from lawfully cultivated industrial hemp illegal.
Finally, assuming that the Rule is void, what do we do about it? In the Hemp Indus. cases the parties sued the DEA to have the rules declared void. In the McIntosh case the defendants asserted the Funding Act provision as a defense to prosecution. What strategy should you employ? If you are in the business of selling CBD and other marijuana extracts I would be happy to discuss this development and your legal options.