Another lawsuit challenging state regulations that attempt to curb the use of hemp-synthesized intoxicants (HSI) in consumer products was commenced last week.
In a complaint filed in federal court in Alaska on November 2, 2023, AK Industrial Hemp Assoc. et al. v. Alaska Department of Natural Resources, et al, the plaintiffs challenge the constitutionality of Alaska regulations that prohibit the sale in Alakska of hemp products for human consumption that contain delta-9 THC or synthetic cannabidiol.
There are now more than half a dozen lawsuits challenging state regulations that target HSIs, which further demonstrates the need for Congress to make clarifying changes to the definition of hemp in the 2023/24 Farm Bill to correct the loophole that has resulted in the proliferation of these intoxicating and potentially unsafe substances.
This restriction, referred to as a “Total THC Standard,” is intended to prevent the sale to consumers of ingestible, smokable, and otherwise consumable products that contain intoxicants derived from federally lawful hemp that are the functional equivalent of the delta-9 THC in federally unlawful marijuana. Such products have proliferated since the 2018 Farm Bill because chemical processes can be used to convert the chemicals in hemp into intoxicating compounds like delta-8 THC.
The Court in No. VA Hemp determined that the plaintiffs were unlikely to succeed on the merits of their claims because, among other things, the 2018 Farm Bill did not preempt states from regulating hemp products sold in their states.
The Nebraska Attorney General and the California Attorney General have filed lawsuits recently under their states’ consumer protection statutes targeting the manufacturers of hemp products containing Delta-8 THC, noting the health and safety risk to consumers of these products. Such products, known as “hemp synthesized intoxicants” or “HSIs” are often just as intoxicating as the Delta-9 THC in state-legal adult-use and medical marijuana, but may not be subject to the same types of licensure, testing, and packaging/labeling requirements imposed under state cannabis programs.
Opponents of HSIs argue that hemp was legalized as an agricultural commodity, and the 2018 Farm Bill was focused on the production (cultivation) of hemp, not consumer finished products that could be manufactured using its constituents. They posit that Congress did not intend for the chemicals in hemp to be converted into a host of compounds just as intoxicating as Delta-9 THC.
State AG consumer protection lawsuits against manufacturers of products containing HSIs are an attempt to curb their proliferation. Congress may address the perceived loophole that is being exploited to manufacturer HSIs in the forthcoming Farm Bill.
The 2018 Farm Bill legalized “Hemp,” defining it as “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.” The .3% delta-9 THC threshold distinguishes hemp from marijuana, which remains a federally unlawful Schedule I controlled substance, based on the psychoactive effect of delta-9 THC.
Today, consumers can walk into convenience stores, gas stations, and the like, or shop online, and purchase an array of cannabis products that have the same psychoactive effects as delta-9 THC in federally unlawful Marijuana, i.e., delta-9 THC at greater than .3% on a dry weight basis, but, because they were manufactured using “derivatives, extracts, cannabinoids, isomers” found in Hemp, their manufacturers claim they are legal. These products, which contain delta-8 THC, delta-10 THC, and other chemical compounds, are the result of chemical processes that convert the Hemp “derivatives, extracts, cannabinoids, isomers” into compounds that are the functional equivalent of the delta-9 THC in federally unlawful Marijuana.
Manufacturers of delta-8 products believe the 2018 Farm Bill does not prohibit the conversion of the “derivatives, extracts, cannabinoids, isomers” in Hemp into an intoxicating compound, which begs the question: did Congress really intend to legalize intoxicating compounds created from Hemp “derivatives, extracts, cannabinoids, isomers” that are functionally equivalent to the delta-9 THC in federally unlawful Marijuana? It would seem that the .3% delta-9 THC distinction between Hemp and Marijuana is about psychoactive effect, not about a particular chemical.
Just ahead of the Senate Banking Committee’s vote on the Secure and Fair Enforcement (SAFE) Banking Act, the Financial Crimes Enforcement Network (FinCEN) has reported that a total of 812 banks and credit unions filed reports in the 2d quarter 2023 indicating they are actively providing banking services to cannabis industry participants, referred to by FinCEN as Marijuana Related Businesses, which is the highest number since FinCEN began reporting on cannabis banking activity in 2014. However, those 800 or so banks are just a fraction of the thousands of FDIC banks that could be providing banking services to the cannabis industry. Even with the increase in banks providing their services to the cannabis industry since 2014, the industry remains burdened by a dearth of banking. Cannabis companies, employees, and consumers are not able to access traditional financing, payroll services, credit cards, ACH, and debit services, which are the lifeblood of other consumer packaged goods industries. Meanwhile, banks are routinely analyzing entering the cannabis space, but deciding against it because of the cost of compliance, among other reasons. SAFE Banking would provide access to critical banking services.
Earlier today, on August 30, 2023, the U.S. Department of Health and Human Services (HHS) officially recommended that cannabis be moved from Schedule I to Schedule III under the Controlled Substances Act (CSA) – a landmark recommendation from HHS which indicates that HHS no longer considers cannabis to be a drug with high abuse potential and no medical value.
After completing a scientific review into cannabis per a requested review from the Biden Administration, HHS advised the Drug Enforcement Administration (DEA) that it believes marijuana should be placed in Schedule III of the Controlled Substances Act.
Note, HHS’s recommendation is NOT binding on the DEA but given the report’s findings and growing public sentiment is likely that the DEA agrees with the recommendation and shifts its policy.
Historically, cannabis has been federally prohibited as a Schedule I controlled substance. As noted by many pundits, the rescheduling to Schedule III would have major implications for researchers who have long criticized the Schedule I classification that creates significant barriers to access for studies.
For researchers, this change would likely mean that they would no longer need to go through the onerous registration process with the DEA in order to access cannabis for studies as a Schedule III drug. The shift to Schedule III would also enable various federal tax deductions to become applicable to the cannabis industry and unlock value for them that is currently stuck in an onerous tax structure under the Internal Revenue Code. Schedule III drugs are not subject to the same onerous structure under federal rules.
The cannabis ball is now firmly in the DEA’s court as the DEA has the final authority to schedule a drug as Schedule III rather than Schedule I under the CSA (or transfer a controlled substance between schedules or remove such a drug from scheduling altogether).
Parting Hits – With Congress due to reconvene after Labor Day, and the Biden Administration looking for a win on moving this issue along, look for pressure to continue to mount for some type of Congressional action in the Banking arena under a SAFE legislation bill and for the DEA to move through their rule making process in a swift and firm manner.
Duane Morris has a full service cannabis group that helps clients and investors in a wide array of cannabis-related issues including, but not limited to, licensing, fundraising, intellectual property protection and real estate. If you have any questions, please do not hesitate to contact Brad Molotsky or the attorney with whom you regularly communicate at Duane Morris.
Although several states have relaxed their stances on marijuana, and in turn protected employees’ lawful off-duty use of marijuana, employees (and often contractors) of the federal government are usually excluded from these protections. Marijuana remains a Schedule I substance under federal law, and thus is unlawful, without exceptions.
However, the federal government is starting to take steps towards softening its stance on marijuana, which may be welcomed news to many considering that the federal government is the largest employer in the United States.
On July 27, 2023, Representatives Jamie Raskin (D-MD) and Nancy Mace (R-SC) introduced bipartisan legislation in the U.S. House of Representatives that would allow job applicants who are current or former marijuana users to receive federal security clearances and have access to federal job opportunities. The Act, titled the Cannabis Users’ Restoration of Eligibility Act, or the “CURE Act,” would amend the Intelligence Reform and Terrorism Prevention Act to prohibit current or past use of marijuana from being a consideration with respect to a person’s eligibility for security clearances or eligibility for employment with the federal government.
Individuals who are denied security clearance or employment will also be afforded the opportunity to have that decision reviewed by the applicable federal agency under the Act. If it is determined that current or past marijuana use was the reason for the denial, the agency is to reconsider the same.
The Act, in its current form, is silent as to whether federal agencies can continue to test current employees for marijuana, and what actions, if any, agencies can take against current employees who test positive for marijuana.
The CURE Act has a ways to go before it becomes law, and it is likely to meet significant resistance along the way. Nevertheless, the progress marijuana has made in becoming more acceptable and mainstream is evident, and those on Capitol Hill are taking notice.
The warning letters explain that the products at issue are adulterated under the Food, Drug and Cosmetics Act, because Delta-8 THC has not been authorized by the FDA as a “food additive.” They note that the FDA has received numerous adverse event reports pertaining to products containing Delta-8 THC, especially such products ingested by children, and emphasize the FDA is particularly concerned about the marketing of gummies containing Delta-8 to children. In this connection, the warning letters also claim the products at issue were marketed in a deceptive manner in violation of the FTC Act.
The manufacturers were told to cease and desist the sale of the allegedly offending Delta-8 containing products. The warning letters will likely result in further investigation by the FDA and a process by which the manufacturers will work with the FDA to resolve the issues raised in the warning letters.
Since the legalization of Hemp under the 2018 Farm Bill, a market has grown for products that synthesize Hemp-derived compounds into intoxicants that provide a high for consumers. Manufacturers of such products claim they are legal because they were synthesized from federally legal Hemp. Because FDA and most states do not have regulations specifically addressing such Hemp-synthesized intoxicants, products containing Delta-8, Delta-10 and a synthesized version of Delta-9 are being marketed widely, and with little, if any, federal or state regulation. Consequently, such products propose a health and safety risk to consumers, and undermine state-legal cannabis programs throughout the U.S. Last week, the American Trade Association for Cannabis & Hemp issued a comprehensive policy paper calling for the regulation of Hemp-synthesized intoxicants. ATACH urged federal and state lawmakers, as follows:
Amend the definition of hemp to account regulation for final product
Adopt standards for all intoxicating cannabinoids, whether from marijuana or hemp
TTB should regulate intoxicating products in adult-use settings
FDA should provide a pathway for non-intoxicating cannabinoids such as CBD
State labs should be provided with federal technical assistance
Retail sales should be limited to adults 21 or over anywhere intoxicants are available
Intoxicating cannabinoid products should be regulated in marijuana programs
Regulators should adopt uniform testing and labeling standards
Enforcement efforts should be supported, and regulations should promote public health and safety
On April 26, 2023, the National Basketball Association (NBA) announced the ratification of its new, seven-year Collective Bargaining Agreement (CBA) with the National Basketball Players Association (NBPA). The CBA will take effect on July 1, 2023, and will run through the 2029-30 season. The CBA provides, among other things, certain key changes to cannabis-related matters, particularly in connection with the NBA’s Anti-Drug Program and NBA players’ business opportunities.
Anti-Drug Program
According to a summary of the agreement as reported by Law360, the NBA decided to remove cannabis from its Prohibited Substances List. However, NBA players are still subject to random drug tests. The NBA has authority to conduct up to 1,925 random urine tests each season. In addition, teams may refer players to a treatment program if they suspect them of (1) being under the influence of cannabis while participating in league activities, or (2) experiencing a dependency on cannabis.
Furthermore, the NBA may still discipline players for violating the law or for being under the influence during league or team activities. Players who neglect or fail to comply with the Anti-Drug Program will be banned from league activity. Nevertheless, players may now apply for reinstatement of eligibility after one year, as opposed to the two-year rule enforced since 1983.
Business Opportunities
NBA players are also now permitted to: (1) invest in companies that make CBD-infused products, and (2) hold a passive, non-controlling interest in companies that make products with more substantial concentrations of THC. Although players may now promote companies that make CBD-infused products, the NBA continues to prohibit players from promoting cannabis companies and marijuana products.
