Tag Archives: Hemp

USDA Delays DEA Registration Requirement for Hemp Testing Laboratories

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On February 26, 2020, the United States Department of Agriculture (USDA) took a significant step toward allaying industry concerns by announcing that it delaying enforcement of the interim final rule (IFR) requirement that hemp producers only use testing laboratories registered with the Drug Enforcement Administration (DEA).

When the IFR was published in late October of 2019, it faced near-immediate criticism from industry participants and stakeholders who, among other things, voiced concerns that the DEA registration requirement would create a bottleneck given capacity issues. Appearing to respond to those critiques, the USDA explained that its enforcement discretion “will allow additional time to increase DEA registered analytical lab capacity.”

Notwithstanding other applicable provisions of law, the requirement that hemp testing labs be DEA-registered largely foreclosed the potential for a single laboratory facility to test both hemp and marijuana, as the DEA, which is a division of the U.S. Department of Justice, continues to treat marijuana as an illegal, Schedule I controlled substance. While this delay may provide an opportunity for labs that currently test medical and recreational marijuana pursuant to state law to also test hemp for compliance with the 2018 Farm Bill, it is not certain that the DEA registration requirement will not be reinstated. It is also not clear what further requirements states may impose.

Under the USDA’s guidance, hemp testing may be “conducted by labs that are not yet DEA registered until the final rule is published, or Oct. 31, 2021, whichever comes first.” Until that time, labs conducting hemp testing are still subject to the other compliance requirements of the IFR, including those related to methods of testing.

Next Chapter in the Big Sky Case: Idaho State Court Approves Seizure of Hemp

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On January 21, 2020, an Idaho state court held the Idaho State Police had the authority to seize a shipment of federally lawful hemp that was transported through Idaho in January 2019. Idaho State Police v. One White 2013 Freightliner Commercial Vehicle et al. Although the hemp businesses involved had turned to federal courts for help, when we last left off with the story, the Ninth Circuit had held that the federal courts should abstain from hearing the case until the Idaho state courts fully resolved both the pending criminal and civil actions. Big Sky Scientific LLC v. Jan Bennetts et al.[1]

Big Sky Scientific, LLC, a Colorado-based hemp processor, had purchased hemp from a state-licensed hemp cultivator in Oregon after passage of the 2018 Farm Bill. The parties arranged to ship the hemp from Oregon to Colorado via motor carrier. En route to Colorado, the shipment entered Idaho, where the Idaho police seized the cargo and arrested the driver, alleging violations of Idaho state law. Idaho initiated a state court criminal proceeding against the driver, and a state court civil proceeding against the hemp itself, to ensure the hemp would not be returned to Big Sky.

In response, Big Sky filed a motion for a temporary restraining order and preliminary injunction in federal court to force the Idaho State Police to return the seized cargo and stop seizing hemp shipments that pass through the state. The federal District Court ruled in favor of the Idaho State Police, and on appeal, the Ninth Circuit declined to rule on the merits of the case, and instead sent it back to state court. Shortly after the Ninth Circuit’s ruling, prosecutors announced the state reached a plea deal with the trucker that had been charged with illegally transporting hemp through Idaho. With the criminal case resolved, only the civil proceeding against the hemp itself remained.

In the state court civil proceeding the state police “implicitly conceded that the plant and plant parts it seized were entirely low-THC C. sativa.” With this fact established, the court turned to the statutes at issue—the 2014 Farm Bill, the 2018 Farm Bill, and the Idaho Controlled Substances Act—to consider whether federal law regarding an entity’s ability to transport hemp in interstate commerce preempted Idaho state law. Central to this argument is a provision in the 2018 Farm Bill that provides “No state or Indian tribe shall prohibit the transportation or shipment of hemp or hemp products produced in accordance with” the Agricultural Marketing Act.

It was undisputed that the hemp seized by the state police was cultivated prior to passage of the 2018 Farm Bill. Therefore, in order for Big Sky to prevail, the court would need to find the provision of 2018 Farm Bill that protects hemp transportation applied retroactively to hemp cultivated under the 2014 Farm Bill. The Idaho police argued it did not, and the court agreed: “the plain language of the [2018] Farm Bill . . . applies only to low-THC C. sativa grown after the enactment of the 2018 Farm Bill and after the various regulations . . . have been promulgated.”

The court then turned to the question of whether the hemp at issue, which was grown in accordance with Oregon state law, was even compliant with the 2014 Farm Bill. The court held that Oregon’s 2014 hemp program was non-compliant for two crucial reasons.

First, Big Sky argued that the Oregon cultivator’s sale of his hemp crop “may be considered research into the marketing” of hemp—a common assertion among hemp businesses that sell their crops and are licensed pursuant to a 2014 Farm Bill program. But the court scoffed at that rationale. “That argument is absurd on its face. . . . he wasn’t growing the crop to help the Oregon Department of Agriculture do research, he was trying to make money.”

Second, the court found Oregon’s hemp law was so dissimilar to both the 2014 and 2018 Farm Bills that hemp cultivated under Oregon’s program could not be considered compliant with federal law. The 2014 and 2018 Farm Bills define hemp as only those Cannabis sativa L. plants with a THC concentration of 0.3% or less, but the Oregon hemp laws only require the 0.3% THC concentration to apply crop wide. “Through the miracle of legal linguistics and basic math, C. sativa plants that would be ‘marijuana’ under Oregon law if grown individually, suddenly became ‘hemp’ if grown in the right field.” Additionally, while federal law defines hemp only with respect to Cannabis sativa L., Oregon law does not limit the definition to only that strain of cannabis. Thus, a field of Cannabis indica with a crop-wide average of 0.3% THC would be lawful hemp in Oregon, but illegal federally. Accordingly, the Court found there is insufficient evidence that the hemp at issue was botanically within the federal definition of cannabis permitted under the 2014 Farm Bill

This last holding could portend continued problems for hemp transportation through Idaho, and perhaps elsewhere. For example, while this litigation was ongoing, in November 2019, Idaho Governor Brad Little issued executive order 2019-13, which ordered “the State of Idaho permit, on and after October 31, 2019, the interstate transportation of hemp produced in accordance with the 2014 Farm Bill or the 2018 Farm Bill and the rules and regulations promulgated thereunder.” Although clearly intended to prevent future litigation on this issue, under the Idaho state court opinion, if a state in which the hemp was grown has a definition of hemp not identical to the federal definition, the grower/transporter might be required to offer proof that the its hemp meets the federal definition. Stay tuned.

For Further Information

 If you have any questions about this blog post, please contact David Landau, Joe Pangaro, any of the attorneys in our Cannabis Industry Group or the attorney in the firm with whom you are regularly in contact.

[1] Duane Morris filed an amicus brief on behalf of the American Trade Association for Cannabis and Hemp in support of Big Sky, arguing that an adverse ruling would have a serious negative impact on the hemp industry. (Duane Morris is the national law firm partner of the American Trade Association for Cannabis and Hemp.). Duane Morris has previously written about the oral argument before the Ninth Circuit and the court’s subsequent decision that remanded the case to state court.

Spate of FDA and FTC Warning Letters Sets Stage for Wave of False Advertising Consumer Class Action Lawsuits

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Since the 2018 Farm Bill passed in December 2018, removing hemp from the Controlled Substances Act and thus legalizing it under federal law, consumer goods containing the hemp-derivative cannabidiol (CBD) have become exceptionally popular. With that growing popularity among consumers has come increased scrutiny by federal regulators whose mission is consumer safety and protection, such as the Food and Drug Administration and Federal Trade Commission, and now by the plaintiffs’ bar, which files consumer class actions based on advertising. As the recent spate of warning letters and consumer class actions demonstrate, hemp-derived CBD product manufacturers and others in the supply chain for those products have to be mindful of the claims they make to consumers about their products.

View the full Alert on the Duane Morris LLP website.

Federal Banking Regulators Take Steps to Allow Financial Services for Hemp-Related Businesses

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Banking has been an impediment for the cannabis industry because the Bank Secrecy Act of 1970 (BSA) and related regulations―which seek to prevent money laundering and other financial crimes―place onerous requirements on banks when a transaction is suspected to involve illegal activity. 12 C.F.R. Section 21.11. Notwithstanding billions of state-legal cannabis dollars exchanging hands, the commercial banking industry, which is largely federally regulated, is virtually nonexistent in the cannabis space. In 2014, the Treasury’s Financial Crimes Enforcement Network (FinCEN) provided guidance intended to enhance the banking of cannabis-related monies by establishing a category of suspicious activity reporting for “marijuana related businesses.” But, according to FinCEN, as of June 30, 2019, just 553 commercial banks and 162 credit unions had filed an SAR for a “marijuana-related business.”

View the full Alert on the Duane Morris LLP website.

U.S. Senators Urge Changes to Testing Requirements Under USDA Interim Final Rule for Hemp Program

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When the United States Department of Agriculture released the interim final rule for the hemp program in October 2019, many stakeholders—including businesses and state agencies—were caught off guard by certain testing-related requirements contained in the rule. Because hemp is now legal under the 2018 Farm Bill if it contains no more than 0.3 percent THC concentration, testing for THC levels is critical. However, significant questions and issues with the testing requirements must be clarified.

On November 20, 2019, Senators Ron Wyden and Jeff Merkley, both from the state of Oregon, submitted a letter to the secretary of the USDA, in which they flagged—“in no particular order”—five controversial testing-related requirements and requested modifications to those requirements. Below, we have summarized the senators’ concerns and proposed solutions to three particularly controversial testing-related requirements in the interim final rule.

View the full Alert on the Duane Morris LLP website.

Neville Bilimoria Quoted on FDA Rules in Cannabis Era

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Duane Morris partner Neville M. Bilimoria is quoted in the Law360 article, “CBD Rules In Limbo As FDA Grapples With New Cannabis Era.”

Hemp may have been legalized less than a year ago, but CBD derived from it is already on its way to becoming a multibillion-dollar industry. However, sales of everything from CBD gummies to lattes are occurring in a legal gray area as the U.S. Food and Drug Administration struggles with regulating the largely unstudied ingredient. […]

“This is a watershed year for the FDA and its coming to grips with the increasing demand from the consumer public over marijuana, cannabis, CBD, hemp. It’s trying to catch up to what the consumers are touting as being therapeutic uses for CBD and THC,” Mr. Bilimoria said. “It’s basically saying, ‘Wait, everybody slow down. We’re the FDA. We rely on science before we can approve any uses and regulate any uses of cannabis or CBD.'” […]

Mr. Bilimoria said he can’t blame the FDA for “taking it slow,” but said doing so is frustrating when CBD is already all over store shelves. […]

To read the full article, visit the Law360 website (subscription required).

USDA Issues Regulatory Framework for Hemp Production Under 2018 Farm Bill

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Seth Goldberg
Seth A. Goldberg

The long awaited regulations establishing a regulatory framework under the 2018 Farm Bill passed last December were issued today (10/29/19).  An Interim Final Rule will be published in the Federal Register later this week, which will make the U.S. Domestic Hemp Production Program effective.   As explained in the Interim Final Rule: “The program includes provisions for maintaining information on the land where hemp is produced, testing the levels of delta-9 tetrahydrocannabinol, disposing of plants not meeting necessary requirements, licensing requirements, and ensuring compliance with the requirements of the new part.”  USDA has published the Interim Final Rule and Guidelines for Sampling and Guidelines for Testing pursuant to the Interim Final Rule on its website.

Among other key provisions, the new regulatory framework provides for USDA’s approval of State and Tribal Land hemp programs established under the 2018 Farm Bill, which will end debate as to whether hemp activities in a State or Tribal Land receiving such approval are federally lawful.  To be approved, those plans will have to contain stringent requirements for testing the THC content of hemp to ensure it does not meet the definition of marijuana, and contain procedures for the enforcement of violations of the State or Tribe’s hemp program.  Importantly, the regulatory framework provides for USDA’s granting of hemp production permits in states and territories that do not establish hemp programs for approval by USDA.

Duane Morris attorneys will be publishing a more fulsome review of the Interim Final Rule.  Please visit our Alerts and Updates webpage, or our cannabis industry webpage for that information.

 

Federal Court Halts Indiana’s Ban on Smokeable Hemp

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On September 13, 2019, a federal district court in the Southern District of Indiana issued an Order regarding Indiana’s treatment of “smokeable hemp” that could have far-reaching consequences for the hemp industry.  C.Y. Wholesale Inc. et al. v. Holcomb et al., 1:19-cv-02659 (S.D. In., Sep. 13, 2019). The court issued a preliminary injunction against the state of Indiana that prohibits the enforcement of certain provisions of a new Indiana law that regulated criminalized the manufacture, finance, delivery, or possession of “smokeable hemp.”  Id.

On May 2, 2019, Indiana Governor Eric Holcomb signed Senate Enrolled Act No. 516 (the “Act”) into law.  Among other things, the Act made it a Class A misdemeanor to manufacture, deliver, finance the manufacture or delivery of, or possess “smokeable hemp.” Ind. Code § 35-48-4-10.1. The Act defined “smokeable hemp” as “a product containing not more than three-tenths percent (0.3%) delta-9-tetrahydrocannabinol (THC), including precursors and derivatives of THC, in a form that allows THC to be introduced into the human body by inhalation of smoke.” Ind. Code § 35-48-1-26.6.

The Act’s prohibition on “smokeable hemp” is not unique.  For instance, Kentucky’s industrial hemp regulations list products that are not to be sold to the public, and those products include “Hemp cigarettes” and “Hemp Cigars.” 302 Ky. Admin. Regs. 50:070. And the North Carolina legislature is considering a bill that would similarly ban “smokeable hemp.” Such bans are viewed as assisting local law enforcement in the performance of their duties.  As federally lawful hemp and federally unlawful marijuana have the same appearance and a virtually identical smell, police officers throughout the country often have trouble distinguishing between the two.  A ban on “smokeable hemp” would help officers and citizens avoid the waste of time and resources that could be caused by confusing unlawful marijuana and lawful hemp.

However, on June 28, 2019, a few days before the Act became effective, a group of Indiana businesses that sell hemp products at wholesale or retail filed a motion for a preliminary injunction to prohibit enforcement of the smokeable hemp ban.  The plaintiffs argued Indiana’s smokeable hemp ban was unconstitutional because it was preempted by the 2018 Farm Bill and because it violated the Commerce Clause of the Constitution. The Court agreed.

First, the court held that Indiana’s “smokeable hemp” ban was impermissible because it was not limited in scope to intrastate activities, and as such interfered with interstate commerce.  The 2018 Farm Bill explicitly provides “No State or Indian Tribe shall prohibit the transportation or shipment of hemp or hemp products produced in accordance with,” federal or state law.  2018 Farm Bill § 10114.  By criminalizing the delivery and possession of “smokeable hemp,” the Act precludes transportation of hemp or hemp products through Indiana “and thus impede[s] the interstate commerce of hemp in contravention of the 2018 Farm Bill’s express prohibition on state laws that do so.” C.Y. Wholesale Inc. et al., 1:19-cv-02659 at 8. For instance, the court explained, “a driver traveling along I-74 from Ohio to Illinois who passes through Indiana with smokeable hemp in the vehicle, including hemp bud or hemp flower, would be in ‘possession’ of smokeable hemp and thus subject to arrest and criminal penalties under SEA 516.” Id.

Second, the court held Plaintiffs had shown a likelihood of success on the merits of their conflict preemption claim.  “[T]he plain language of the 2018 Farm Bill, as well as statements from its legislative sponsors, reflect Congress’s intent to de-stigmatize and legalize all low-THC hemp, including its derivatives and extracts, and to treat hemp as a regulated agricultural commodity in the United States.” Id. at 10. However, Indiana’s smokeable hemp ban would “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—[which] frustrates these congressional purposes and objectives.” Id. at 11.

Although the dispute has not been finally resolved, in granting the plaintiffs’ motion for a preliminary injunction, the court has given a strong indication of its view on the matter. If the court ultimately finds Indiana’s law unconstitutional, it is likely to impact other federal court analysis of similar state laws across the country. Duane Morris will continue to monitor this case and will provide additional updates as necessary.