Rod publishes article on CBD in the Cannabis Law Journal

As published in Cannabis Law Journal – Issue 6, 1 September 2017. Many thanks to editor Sean Hocking for allowing this reprint.

THE LEGAL STATUS OF CANNABIDIOL, OTHER CANNABINOIDS, AND TERPENES DERIVED FROM INDUSTRIAL HEMP

Is CBD legal? This sounds like an innocent and simple enough question. Certainly, it deserves a simple, straightforward answer. As a lawyer who represents legal cannabis businesses I’m asked this question often. Unfortunately, the legal status of CBD, cannabinoids, and terpenes- all constituent components of the cannabis sativa plant- is anything but simple and straightforward. I intend to shed some light on the subject in this article.

I’ll start by saying that CBD is legal or not based on its source. (In order to minimize cumbersome writing, I’m going to refer to cannabidiol, tetrahydrocannabivarin, cannabigerol, the other cannabinoids, terpenes, and all of the other phyto-compounds found in the cannabis sativa plant, except tetrahydrocannabinol (THC), as “CBD” for purposes of this article. Unless otherwise qualified, my use of the term “CBD” will be shorthand for all of these things.) By “source” I mean two things, (1) the plant from which CBD is derived, and (2) the jurisdiction in which the plant is cultivated.

Regarding the plant from which CBD is derived, CBD derived from “marijuana” is illegal at the federal level. It is also illegal at the state level except in states that have legalized it. CBD derived from “industrial hemp” is legal at the federal level and, under certain circumstances, at the state level. I put quotes around the terms “marijuana” and “industrial hemp” because these are legal terms that have little to no botanical meaning. Both “marijuana” and “industrial hemp” refer to the same plant, cannabis sativa. “Marijuana” started out as a social term. It was incorporated into our criminal laws as a term of art in the 1930s. (Actually, the term originally used in the federal law is an antiquated slang term, “marihuana”, that appears to have been deliberately employed as an alternative to “cannabis” in order to sound more Mexican/Spanish as part of anti-immigration politics of the 1930s. But that is a different issue altogether.) From a botanical standpoint “industrial hemp” is the same plant as “marijuana”. The difference is mostly legal (as I discuss in this article), not biological, and is primarily based on THC concentrations- marijuana being higher in THC concentrations than industrial hemp.

Actually, and to be completely clear, “industrial hemp” has two separate, though similar, legal meanings. I’ll discuss both in this article. CBD is found in marijuana and industrial hemp. CBD derived from marijuana is federally illegal. It is only legal under state law in states that have enacted medical and/or adult use cannabis reform laws. The focus of this article is on CBD derived from industrial hemp, which is legal in certain jurisdictions and under certain circumstances.

Regarding the jurisdiction in which the plant is cultivated, there are two primary and parallel sources of legal CBD derived from industrial hemp. (From this point forward I will refer to CBD (and the other non-THC cannabinoids and terpenes found in the plant) derived from industrial hemp, as opposed to CBD derived from marijuana, as simply “CBD”.) The first legal source of CBD is from hemp cultivated in the United States (US) pursuant to the 2014 US Farm Act (the Farm Act). The second legal source of CBD is from industrial hemp cultivated outside the US pursuant to a federal court case called Hemp Industries Ass’n v. Drug Enforcement Agency (DEA), 357 F.3d 1012, 1018 (9th Cir. 2004) (Hemp Indus). In my practice I have found that these two parallel, but distinct, “legal paths” are often conflated and that people tend to hop between them when discussing CBD legality. This causes unnecessary confusion. In fact, the paths are mostly unrelated.

The first path I’ll discuss is CBD derived from industrial hemp cultivated in the US. Absent a specific and limiting state law to the contrary, CBD derived from industrial hemp lawfully cultivated in a state that has enacted an industrial hemp pilot research program pursuant to section 7606 of the Farm Act (7 U.S. Code § 5940 – Legitimacy of industrial hemp research) is legal in the state in which the hemp is cultivated. In addition to state-specific requirements to participate in the pilot program, the Farm Act requires that THC levels not exceed concentrations of 0.3% on a dry weight basis.

Additionally, pursuant to sections 538 and 773 of the Consolidated Appropriations Act, 2017 (the Funding Act), federal funds cannot be 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.” CBD from this “Farm Act” path is thus not only legal in the state in which the hemp is grown, but also at the federal level throughout the US (though not necessarily at the state level in every state.)

Claiming this broad federal legal status based on a spending prohibition in an appropriations act is fully supported by the ruling in US v. McIntosh, Case No. 15-10117 (9th Cir. 2016) (McIntosh), a federal case decided last year. McIntosh held that a similar Congressional spending prohibition regarding medical marijuana (the Rohrabacher–Farr amendment) contained in a Congressional appropriations act “prohibits [the Department of Justice] from spending funds from relevant appropriations acts for the prosecution of individuals who engaged in conduct permitted by the State Medical Marijuana Laws and who fully complied with such laws.” In other words, the McIntosh Court found that the spending prohibition contained in the Rohrabacher–Farr amendment prevented the Department of Justice (DOJ) from prosecuting marijuana users who were compliant with their state’s medical marijuana laws, despite the fact that those users were violating federal law. Similarly, the Congressional prohibitions on using federal funds to interfere with a state’s lawful industrial hemp pilot program, even in states that have not enacted hemp programs, means that federal agencies (and, for that matter, state agencies that receive federal funds) cannot prosecute for the transportation, processing, sale, or use of CBD derived from hemp that was lawfully cultivated under the Farm Act. Individual states may still prosecute if CBD violates their laws, even though it is legal at the federal level and under the laws of most states, unless the prosecuting state agency receives federal funds. If the prosecuting state agency receives federal funds then it is prohibited from prosecuting for the same reason that federal agencies are prohibited, namely, their use of federal funds to do so is a violation of the Funding Act.

The second path is CBD derived from hemp cultivated outside the US. Based on the Hemp Indus case CBD derived from non-psychoactive industrial hemp that contains only “naturally-occurring THC not contained within or derived from marijuana — i.e., non-psychoactive hemp products“ is lawful “because non-psychoactive hemp is not included in Schedule I [of the Controlled Substances Act (CSA)].” CBD is not separately listed in the CSA. THC is the only cannabinoid that is scheduled separate of marijuana. The Hemp Indus case involved a dispute between manufacturers of hemp products and the DEA over three DEA rules regarding hemp and THC. The primary rule at issue for our purposes was the first one (the Rule), which purported to interpret both the CSA and the DEA regulations to ban all naturally-occurring THC, including the THC found in hemp seed and oil, on Schedule I. (66 Fed. Reg. 51,530 (October 9, 2001)) The Rule would have made it illegal for hemp manufacturers to produce and sell their products, even ones that contained only trace amounts of naturally occurring THC.

In Hemp Indus the Court found that the DEA had exceeded its authority by enacting the Rule and struck it down. Although from a technical perspective the Hemp Indus case is about regulatory procedure and what constitutes an “interpretive rule”, which requires one set of procedures to enact, versus a “legislative rule”, which requires different and more cumbersome procedures to enact, the practical effect of the case was to strike down the DEA’s rule banning hemp products that contain only trace amounts of naturally occurring THC. This (re)opened the door for companies to import hemp and products derived from hemp (such as CBD and hemp oil) from countries that allow it and to sell them throughout the US.

I have participated in a number of discussions and debates about the effect of the Hemp Indus case in which the central (though often implied) question was whether it truly legalized all imported hemp products throughout the US. These discussions generally fall into two categories, (1) scope, and (2) definition, both of which I’ll address here. The first category (the Scope question) is whether the Hemp Indus case applies to jurisdictions other than the ninth circuit. The US is divided into thirteen federal judicial circuits, each of which is headed by a circuit Court of Appeals. They are all co-equal and one “step” below the US Supreme Court, the highest Court in the US. (In other words, an appeal from one of these circuit Courts of Appeal is to the Supreme Court.) Their rulings have precedential effect within their jurisdictions, but only persuasive effect outside their jurisdictions. The United States Court of Appeals for the Ninth Circuit (the 9th Circuit) is located in San Francisco, California, and encompasses the federal judicial districts in the following states: Alaska, Arizona, California, Idaho, Montana, Nevada, Oregon, and Washington. The Scope question is whether Hemp Indus, decided by the 9th Circuit, has any precedential effect outside the above-referenced states. In other words, can the DEA simply continue to enforce the Rule outside the ninth circuit? The short answer is no. This involves subtle issues of federal jurisdictional law that is beyond the scope of this article. Generally speaking, the reason that the Hemp Indus case applies across the country, despite it being a 9th Circuit ruling, is that the DEA did not appeal the ruling. When a federal court finds that a rule enacted by a federal agency is void, the agency can appeal the ruling. Absent an appeal the agency cannot continue enforcing its rule in other jurisdictions. A federal court has the authority to strike down a rule. When it does so, the rule has been found to be invalid and is thus unenforceable anywhere. (This is, in a nutshell, why the Trump Administration’s “revised travel ban” was enjoined nationwide immediately upon a ruling against it by the Fourth Circuit Court of Appeals.)

Additionally, and importantly, the Hemp Indus Court did not rule that hemp was legal. It did not create law. Rather, it struck down a DEA rule that attempted to make hemp illegal. It undid the DEA’s attempt to create law. (If hemp was already illegal then the DEA would not have had a reason to promulgate the Rule.) This is an important, but often overlooked, distinction that plays into the Scope question. Once the Rule was struck down as void things went back to the status quo. All of this is to say that the Hemp Indus case has nationwide effect, notwithstanding the fact that it was decided by the 9th Circuit.

The second category of debate regarding whether the Hemp Indus case truly legalized imported hemp products throughout the US has to do with definition (the Definition question). Although the Hemp Indus case has been helpful to the hemp industry, it harbors some significant ambiguities. The Court seems to say both that all “non-psychoactive hemp” is lawful, and that only certain parts of the hemp plant are lawful. Obviously, both of these things cannot simultaneously be true. Language supporting the former position can be found throughout the opinion, including these lines: “[The DEA] cannot regulate naturally-occurring THC not contained within or derived from marijuana — i.e., non-psychoactive hemp products — because non-psychoactive hemp is not included in Schedule I. The DEA has no authority to regulate drugs that are not scheduled, and it has not followed procedures required to schedule a substance” and “[N]on-psychoactive hemp is explicitly excluded from the definition of marijuana.” Most notable is the following line, contained in Footnote 2 of the Court’s opinion: “The non-psychoactive hemp used in Appellants’ products is derived from industrial hemp plants grown in Canada and in Europe, the flowers of which contain only a trace amount of the THC contained in marijuana varieties grown for psychoactive use.” Arguments supporting the view that only certain parts of the hemp plant are lawful to import are supported by the following lines: “The non-psychoactive hemp in Appellants’ products is derived from the “mature stalks” or is “oil and cake made from the seeds” of the Cannabis plant, and therefore fits within the plainly stated exception to the CSA definition of marijuana”, and this line, also found in Footnote 2: “We refer to hemp stalks, fiber, oil and cake made from hemp seed, and sterilized hemp seed itself —i.e., those substances excluded from the definition of marijuana under 21 U.S.C. § 802(16) — as “non-psychoactive hemp.” A “psychoactive” substance is one “affecting the mind or behavior.” Merriam-Webster Dictionary.”

So, which is it? Can you import the whole hemp plant (and, by extension, CBD derived from all parts of the plant), or just the stalks and other parts of the plant that are excluded from the definition of marijuana in the CSA? I contend that the better argument is the former: the entire non-psychoactive hemp plant is legal. Although I recognize the ambiguities, my position is based on the Court’s language in the Hemp Indus opinion as a whole. In both of the occasions when the Court discusses the stalks and other “excepted parts” of the cannabis plant it immediately qualifies its comments with reference to the “non-psychoactive” qualities of hemp plants, “the flowers of which contain only a trace amount of the THC contained in marijuana varieties grown for psychoactive use.” (emphasis mine) In other words, the Court makes a significant effort to distinguish between “marijuana” which is psychoactive and illegal, and “hemp” which is non-psychoactive and legal. To the Court, the key difference was psychoactivity, which is another way to say that the key difference is the level of THC concentrations in the plant. Marijuana has high concentrations of THC and is thus illegal. Industrial hemp has low levels of THC (“trace amounts”) and is thus legal.

All of this will hopefully be resolved soon. The Hemp Industries Association has filed a new case against the DEA that explicitly references the old case. The new case involves a number of related issues, including a request to hold the DEA in contempt of court for failing to abide by the ruling in the Hemp Indus case. Additionally, the new case seeks to strike down the “Final Rule establishing a new Controlled Substance Code Number (drug code) for marijuana extract” (the Marihuana Extract Rule), enacted by the DEA on December 16, 2016. The Marihuana Extract Rule purports to make illegal “marijuana extract”, which it defines 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.” In many ways the new Hemp Industries case resembles the old one. In the new case the DEA has enacted a rule which appears to be invalid on its face. The DEA failed to comply with proper rulemaking procedure. Additionally, the Rule purports to make CBD illegal across the board and in every respect, despite the fact that there are certain circumstances (discussed in this article) in which CBD is legal.

In fact, since promulgating the Marihuana Extract Rule the DEA has publicly backed off of its position two separate times and confirmed that CBD is not illegal unless its source (ie, marijuana) is illegal. The first time it backed off was in a “clarification” published on March 14, 2017 in which it said, “If a product consisted solely of parts of the cannabis plant excluded from the CSA definition of marijuana, such product would not be [illegal].” The second time it backed off was in its legal brief to the 9th Circuit in the new Hemp Industries case. Here are some quotes from its brief: “To the extent that a product consisting solely of exempt parts of the cannabis plant contained trace amounts of cannabinoids, such product would not be included in the new drug code.” (P.27) “DEA’s Rule does not control cannabinoids in their own right.” (P.25) “DEA is not seeking to schedule cannabinoids.” (P.29)

Briefs in the new Hemp Industries case have been filed by all parties. As of this writing oral arguments have not been scheduled. Although there is no way to guess how the Court will rule there are good reasons to think that it will rule in favor of the Hemp Industries Association and strike down the Marihuana Extract Rule.

CBD derived from lawful hemp is itself legal. Even the DEA begrudgingly admits that this is true. But this begs the question: Under what circumstances is hemp legal? Although significant grey area surrounds this question, there are two circumstances when we can reliably assert that a particular hemp crop is lawful: (1) when the hemp is cultivated in accordance with the 2014 US Farm Act (Domestic Hemp), and (2) when the hemp is non-psychoactive and imported into the US (Imported Hemp). With respect to Domestic Hemp the primary obstacle is determining the circumstances under which a particular state may prosecute for possession and use under its own laws. With respect to Imported Hemp the primary issue is whether the whole plant is lawful or just the stalks, non-germinating seeds, and other “excepted” parts of the cannabis plant. These are the cutting edge questions of CBD law that lawyers and the industry currently struggle to resolve. I sincerely hope that the 9th Circuit will address and resolve them in a way that clarifies some of the ambiguities and unanswered questions currently surrounding CBD. Only time will tell.

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.

Posted: 9-5-2017