The Source Rule is Alive and Well

The Source Rule, which states that the source of a cannabinoid determines its legal status, is embedded into the legal fabric of the cannabis industry. While this concept seems like no-brainer nowadays and is generally taken as a given, it was not always so. When I developed the Source Rule in 2016, the hemp industry was struggling to find legal footing to support the quickly emerging market for CBD products.

WHY DOES THE SOURCE RULE MATTER?

Immediately following enactment of the 2014 Farm Bill most hemp industry participants assumed CBD was lawful, by which I mean, “not a controlled substance under federal law”. However, a legal theory was desperately needed to support this position. Without one, any “cannabis compound”, including CBD, was a target for law enforcement. On the one hand, CBD itself was not listed on the Controlled Substances Act (CSA). On the other hand, the CSA’s definition of “marihuana” (going forward I will use the contemporary spelling, “marijuana”), which includes “all parts” of the cannabis plant, was broad enough to “capture” CBD and anything else from the plant within the CSA. The 2014 Farm Bill provided a limited, but important, exception for industrial hemp grown under a state’s pilot program. Under the exception, industrial hemp was lawful. Since CBD was not listed as a controlled substance and because it could be obtained from both lawful cannabis and unlawful cannabis, it logically followed that CBD from lawful cannabis, which at that time primarily consisted of “industrial hemp”, was not a controlled substance. Conversely, CBD from unlawful cannabis was controlled since it is a “part” of the marijuana plant. This laid the legal foundation for what is now a flourishing hemp CBD market and an innovative hemp industry that produces products containing formulations of all sorts of cannabinoids, from CBD to CBG to delta-8 THC to THCV and beyond. 

IS THE SOURCE RULE DEAD?

According to Heraclitus, the only constant is change. In law, we see this philosophical rule play out as an ever-changing flow of laws, regulations, and court cases. Naturally, this leads to the demise of laws and rules that are no longer relevant. Is this the case with the Source Rule? In a series of LinkedIn comments and in a follow up article, my colleagues, friends, and co-counsel in a pending case against the DEA, Shane Pennington and Matt Zorn (Pennington and Zorn), have boldly declared, “The Source Rule is dead”. Are they right?

The short answer is no. The slightly longer answer is that the cannabis industry is in the process of explosive growth and rapid evolution. In the context of these changes, the Source Rule has evolved to address a wider range of issues and requires clarification of its role in the contemporary debates regarding the legal status of emerging cannabinoids.

In this article I will explain why the Source Rule is not dead and, in fact, is more relevant than ever. Although I have “skin in the game” since I authored the Rule, I am checking my ego at the door. Pennington and Zorn make a compelling argument and address important issues; however, after a sober re-analysis of the Source Rule in conjunction with current US law and thoughtful consideration of the arguments against it, I can confidently speak for the Source Rule using the words of Mark Twain, who once said, “Reports of my death are greatly exaggerated”. The Source Rule is far from dead. It remains a central tenet to the hemp and cannabinoid industry. Frankly, though, I look forward to its demise, which will likely occur when all cannabis is lawful and the source of a cannabinoid is irrelevant to its legal status. Until that time, however, the Source Rule remains alive and well.

REFUTING THE ARGUMENTS AGAINST IT

At this time, the only arguments against the Source Rule I am aware of come from Pennington and Zorn’s article. (Nicole Rash recently published an article that rehashes Pennington and Zorn’s points, but it does not make any new ones.) For this reason, much of the following discussion is a refutation of their points, all of which deserve a thorough airing. With that being said, it is important to note that Pennington and Zorn do a good job of explaining the history of the Source Rule and pointing out its relevance to the CBD industry. I appreciate the time they took to highlight its importance.

The 2018 Farm Bill did not kill the Source Rule, it codified it.

Pennington and Zorn make their first error in conjunction with their initial argument. They mistakenly assert that the Source Rule died upon enactment of the 2018 Farm Bill: “In the wake of the 2018 Farm Bill, however, the Source Rule gave way to the .3% threshold as the critical consideration when assessing the legality of any particular sample of cannabis-related material.” (emphasis added) This is completely wrong.

Rather than bringing about its demise, the 2018 Farm Bill codified the Source Rule as federal law by expressly stating that the hemp exception to marijuana includes not only the hemp plant itself, but also “any part of that plant”, including “the seeds thereof and all derivatives, extracts, cannabinoids, acids, isomers, acids, salts, and salts of isomers, whether growing or not,” with a delta-9 THC (D9-THC) concentration not exceeding 0.3% on a dry weight basis. (In order to avoid repetition, I am going to refer to this standard, which is well known, as “the Legal Limit” for the remainder of the article.) Pennington and Zorn focus their attention solely on the Legal Limit and ignore the threshold issue: in order to qualify for the 2018 Farm Bill’s hemp exemption, the cannabis seeds, derivatives, extracts, etc., which I will refer to as “the Materials”, must come from a lawful source. Let’s dig a little deeper.

Rebutting this argument requires us to engage in the task of statutory construction, which is the legal equivalent of diagramming a sentence. Here’s the full statutory definition of “hemp” in the 2018 Farm Bill: 

“The term ‘hemp’ means the plant Cannabis sativa L. and any part of that plant, including the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with a delta-9 tetrahydrocannabinol concentration of not more than 0.3 percent on a dry weight basis.” (emphasis added)

The crux of this issue is identifying what Congress meant by “any part of that plant”. In using these specific words does Congress mean any part of cannabis generally, regardless of whether it is hemp or marijuana? This is the position taken by Pennington and Zorn. Alternatively, does it mean any part of cannabis that meets the definition of hemp? This is my position based on a proper reading of the statute. 

Pennington and Zorn’s position requires one to disregard the context of the language in the 2018 Farm Bill and also to ignore the common usage of certain words. When Congress said that hemp means “the plant cannabis sativa L” it did not stop there. It went on to qualify this language by making it subject to the Legal Limit. In other words, “hemp” is not just “cannabis sativa L”. If that was the case then the 2018 Farm Bill legalized all cannabis, including marijuana. This clearly did not happen. Rather, the 2018 Farm Bill defined “hemp” as “cannabis sativa L… [within the Legal Limit].” You cannot read the definition of hemp in any other way. It is not “cannabis sativa L”. It is “cannabis sativa L” within the Legal Limit. For this reason, when the definition goes on to include the phrase “and any part of that plant” it specifically means “hemp”, not “cannabis sativa L” generally.  

Another way to think about the phrase “that plant” is to consider how Congress uses the conjunction “and”. By parsing the statute as we would in an English grammar class, we see that under the 2018 Farm Bill “hemp” includes two types of things: (1) “the plant” cannabis when it is within the Legal Limit, and (2) “any part of that plant”. When the “and” is taken into consideration, which it must be since Congress included it in the definition, there is no question that the phrase “that plant” refers to “hemp”, not cannabis generally. Regardless of the grammatical analysis, this makes logical sense given that Congress specifically clarified that, from a legal standpoint, hemp is both the plant and its parts. In other words, a proper reading of the statute confirms the Source Rule rather than heralding its demise. 

“Scarecrows can’t [or at least shouldn’t] talk.” – Dorothy Gale, The Wizard of Oz

In their article, Pennington and Zorn go on to argue against the Source Rule by presenting what they assert is the only “serious argument” in support of it, which I copied and pasted directly from their article: 

1. All parts of the marihuana plant are illegal controlled substances;
2. Therefore, to obtain cannabinoids from the marihuana plant, you’d have to possess and process a controlled substance, which is illegal;
3. Therefore, the process of obtaining marijuana-derived CBD (and any other marijuana-derived material) violates the law;
4. It therefore follows that all marijuana-derived CBD (and any other marijuana-derived material) is a controlled substance.

Using this as a straw man (an intentional distortion of the actual argument that allows the argument to be easily attacked), they assert that the argument has two flaws. The first claim is that “because marijuana is a controlled substance, nobody can possess or process it.” They contend that since DEA licensees can possess and process marijuana, point #2 fails. I agree. Second, they argue that “even if it were impossible to derive CBD from marijuana without violating the CSA, that wouldn’t prove that marijuana-derived CBD is a controlled substance. It would only prove that processing and handling marijuana is illegal…” Again, I agree. The problem with these two attacks is not that they are wrong. The problem is that they are both based on a misstatement, or misunderstanding, of the “serious argument” supporting the Source Rule. 

In other words, Pennington and Zorn miss (or misstate) the point. The issue is not whether possessing and processing marijuana is unlawful. Everyone agrees these actions are unlawful unless you have a DEA license (more on this, below). The issue is that the legal definition of “marijuana” is broad and, as I discussed above, includes the plant and all of its parts. Given the expansive reach of this definition, cannabinoids and other cannabis material from the marijuana plant never get an opportunity to be “hemp” because they are controlled substances at their inception. They are illegal before they even get a chance to be “hemp”. In a metaphorical sense, they are born in original sin. It is not the act of possessing or of processing these materials that makes them illegal. They are illegal in and of themselves because they are from marijuana. 

The exception proves the rule.

Pennington and Zorn continue with their straw man approach by asserting that marijuana can legally be possessed and processed by individuals with a DEA license. This is true, though I am not sure how it undermines the Source Rule, which simply states that the source of a cannabinoid (or other cannabis material) determines its legal status under the CSA. Instead of creating my own straw man to attack I will quote Pennington and Zorn on this point:

“[The argument above] assumes that because marijuana is a controlled substance, nobody can possess or process it. That’s demonstrably untrue. The CSA expressly permits DEA to register people to handle marijuana. Indeed, Matt and I won a series of lawsuits that ended the NIDA monopoly and opened the door for DEA to issues [sic] several additional marijuana “grow” licenses. The CSA also permits DEA to waive the statute’s requirements for various reasons and under various conditions. See 21 USC 822(d), 872(e). So the premise that it’s impossible to obtain cannabinoids from a marijuana plant without violating the law is simply mistaken.“

If a person possesses and processes marijuana subject to a DEA license, then that person lawfully possesses and processes marijuana. Importantly, the cannabis materials in that person’s possession are legal in that context within the bounds of the license. In this instance, the Source Rule merely applies to a scenario that is somewhat uncommon and which previously has not been addressed. Provided the person in question does not violate the parameters of the DEA license, the cannabinoids and other cannabis materials are lawful within the scope of what is legally allowed under the license. In this situation, the “lawful source” contemplated by the Source Rule is marijuana that is covered by the DEA license. 

Even if we grant, for argument’s sake, that Pennington and Zorn’s position somehow proves that the Source Rule does not apply to this fairly uncommon scenario since the source material remains controlled though lawful to possess and process by the licensee, their argument would properly be seen as the “exception that proves the rule”. This is because it addresses circumstances that are extremely limited – they apply almost exclusively to researchers – and have little to no direct impact on the cannabis industry at large. Typically, DEA licenses to possess and process marijuana are granted to specific individuals for research purposes and do not allow for general commercial activity. Even if we take the view that Pennington and Zorn have identified an exception to the Source Rule, they only underline the fact that the Source Rule applies in other circumstances. Moreover, it operates as a theoretical exemption that has little to no impact on the commercial cannabis industry. 

From water to whine – absurdity in the law merely proves that the law is absurd, not that the Source Rule is wrong.

Pennington and Zorn go on to make the point that under the Source Rule water extracted from a marijuana plant is a controlled substance. They point to the absurdity of this result to contend the Source Rule is wrong. This is a classic argumentative technique known as “reductio ad absurdum”, in which a proposition (in this case, the Source Rule) is disproven by following its implications logically to an absurd conclusion. While using reductio ad absurdum works well for mathematical proofs and other arguments that rely on strict application of internally consistent logic, it typically fails when addressing legal theories for the simple reason that lawmakers rarely, if ever, enact laws that are logically coherent under all circumstances. Legislative bodies are human constructs and laws are the product of compromises. It is not unusual for strict application of a law to have some unintended and occasionally absurd consequences. 

The fact that water and other innocuous parts of the marijuana plant are controlled substances is an obvious absurdity, but it is routinely confirmed in criminal court cases involving marijuana possession. In these cases, the weight of the plant and/or plant material is usually a critical factor in determining the severity of the charges and the resulting penalties, including incarceration. The moisture content and weight of other compounds and materials contained in the plant play a critical factor in the outcome of the case. If water and other compounds in the marijuana plant were not controlled substances, then the defendants’ charges and subsequent sentencing would be based on the seized cannabis material minus all of the water, chlorophyll, and other supposedly non-controlled compounds. In fact, if we take Pennington and Zorn’s argument to its most absurd conclusion, then a defendant charged with marijuana possession could not be charged or sentenced until all parts of the plant were removed, leaving only D9-THC upon which to base the charges and penalties.

The idea that water from marijuana is a controlled substance is absolutely absurd, but it is absolutely accurate. For better or worse (I say worse), Congress defined marijuana in such a way that all parts of the marijuana plant, except the mature stalks and non-germinating seeds, are controlled substances. As ridiculous as it may sound, this includes water and other similarly innocuous parts of the marijuana plant, such as chlorophyll. Congress did not see fit to clarify that these otherwise non-controlled substances remain uncontrolled when they come from marijuana. Instead, it simply decreed that all parts of the marijuana plant are controlled, with two explicit exemptions, neither of which include water or chlorophyll or anything other than the mature stalks and non-germinating seeds.

To be clear, I’m not defending the statute or Congressional skill in drafting statutes.  We can all agree that it is ridiculous for water to be a controlled substance under any circumstance, but we must simultaneously acknowledge that water from marijuana is, in fact, a controlled substance under current law. The fix is not to deny the statute. The fix is to enact a better one. Pennington and Zorn’s reductio ad absurdum argument lays bare the absurdity in the current law and is a compelling argument to change the law, but it does not undermine the Source Rule, which mechanically applies current law to the facts of any given situation. 

Don’t rely on the DEA.

Pennington and Zorn’s coup de gras is that the DEA effectively told them that the Source Rule is irrelevant. In a written response to an inquiry by Pennington, the DEA issued a letter stating that marijuana seeds are not controlled substances provided they do not exceed the Legal Limit. In its letter the DEA doubled-down on this point by stating, “tissue culture or any other genetic material that is derived or extracted from the cannabis plant such as tissue culture and any other genetic material that has a D9-THC concentration of not more than 0.3% on a dry weight basis meets the definition of “hemp” and thus is not controlled under the CSA.” According to Pennington and Zorn, this proves their point and ends the inquiry. Except that it doesn’t. To take the position that what the DEA says is self-evidently right is, to put in bluntly, self-serving. Pennington and Zorn certainly do not usually think this way. In fact, as I write this article we are all co-counsel on two pending cases against the DEA in which we assert that the DEA is wrong about a rule it issued. What gives? I think the answer is simple. Pennington and Zorn like the DEA’s response because it suits their purposes. First, it makes it easier for their research clients without a DEA license to conduct cannabis research since under Pennington and Zorn’s interpretation they are free to use material that was formerly considered controlled. I fully understand and respect this position, even as I disagree with it. Second, it supports the contention that the Source Rule is dead, which is the central premise of their article. However, as I have discussed above, and will conclusively show below, the DEA is simply wrong on this point, regardless of whether we like it or not. This a difficult thing to say since most cannabis advocates, myself included, like what the DEA says in its response to Pennington’s inquiry. However, if we expect to make real progress in cannabis reform we have to stick to what the law actually says, not to the whims and often incorrect interpretations of it by a federal agency. Given its historically belligerent attitudes and actions toward cannabis, I am concerned that the DEA’s response was calculated and made to gain advantage in pending litigation, not to mention to entrap the unwary.

What about THC?

The DEA’s response letter to Pennington exposes legal contradictions when we apply its logic to THC. First, under the DEA letter’s logic all delta-8, delta-10, and other naturally occurring forms of THC are not controlled except for D9-THC in excess of the Legal Limit. Indeed, the DEA has said as much in at least two public pronouncements in the context of hemp. However, delta-8 THC (D8-THC) is on the DEA’s most recent list of Schedule I controlled substances, published on April 12, 2022, three months after the DEA’s January 6, 2022 letter to Pennington. How can this be? The only logical explanation is that D8-THC has a dual legal status. It is unlawful when from marijuana, hence its continuing status as controlled. Conversely, it is lawful when from hemp, hence the DEA’s pronouncements that it is not controlled in the context of hemp. Additionally, and perhaps most importantly, “tetrahydrocannabinols”, all of them, remain controlled substances. The only exceptions are “THC in hemp” (more on that in a moment), and THC that meets the definition of “hemp” under the 2018 Farm Bill. This logic paints the DEA into a corner. Either passage of the 2018 Farm Bill completely gutted the listing for THC in the CSA, leaving only D9-THC in concentrations exceeding the Legal Limit as controlled, and completely liberating over 30 other forms of THC, or the DEA does not actually hold this position. If the former is the case, this is a stunning and radical legal and policy shift predicated on literally zero public announcements, agency rule changes, hearings, requests for public comment, etc. This is inconsistent with decades of DEA policy and patterns of action. Furthermore, if this is the DEA’s position, why did it wait three years after enactment of the 2018 Farm Bill to announce it? The more logical and coherent position is that the DEA does not actually hold this position and the THC listing in the CSA remains fully intact except when the THC is in or from hemp, which supports the Source Rule.

Finally, what about the often-overlooked provision in the 2018 Farm Bill that expressly amends the definition of THC in the CSA to exempt “THC in hemp” from the CSA? The meaning and application of this provision has always been a bit of a mystery. Does it mean that all THC naturally found in hemp is and remains lawful, provided it came from hemp? If so, this supports both the Source Rule and the hemp industry generally since processing hemp always alters its THC concentrations relative to the Legal Limit. Or does it mean that only THC meeting the definition of hemp is exempt from control? While the latter premise seems a reasonable interpretation on its face, it raises thorny issues, such as: why didn’t Congress simply say that; how can D9-THC, which is unqualifiedly “in hemp”, ever be 0.3% of itself; and why did Congress even bother to use the term “hemp” in the exemption if the 2018 Farm Bill actually removed all THC from the CSA except D9-THC in excess of the Legal Limit? These difficult questions can be answered using a Source Rule analysis but remain elusive without it. 

CONCLUDING REMARKS

I welcome opportunities to discuss and defend the Source Rule, and appreciate that Pennington and Zorn raise important points in their article. That being said, the brazen announcement that “the Source Rule is dead” invites a vigorous defense of it, though not because it is mine. Rather, it is because the Source Rule is a crucial legal foundation underpinning and supporting the legal status of the hemp industry and hemp products that contain cannabinoids. It continues to be relevant and to inform policy discussions at all levels of the hemp supply chain. Attempting to “off” the key legal pillar of an entire industry warrants a strong and thoughtful response. In addition to my defense in this article, my colleague Nathalie Bougenies recently penned an excellent refutation of Pennington and Zorn’s arguments in the regular cannabis legal column she writes for Above the Law. Her insights are worth reading. As I mentioned at the beginning of this article, I look forward to the day when Congress completely removes all forms of cannabis and THC from the CSA and the Source Rule becomes a relic. Until that time, it not only remains alive, but it continues to reinforce the legal status of all hemp amid rapid industry innovation and the struggle of regulatory bodies to keep up.

Special thanks to my wife and office manager, Ashley, for taking the time to read, edit, pose challenging questions, and re-read this article with me before I published it.   

Rod Kight is an international hemp lawyer. He represents businesses throughout the hemp industry. Additionally, Rod speaks at cannabis conferences, drafts and presents legislation to foreign governments, is regularly quoted on hemp matters in the media, and is the editor of the Kight on Cannabis legal blog, which discusses legal issues affecting the hemp industry. You can contact him by clicking here.