California Governor Gavin Newsom’s emergency order prohibiting THC in food products claiming to be derived from hemp went into effect yesterday. The order expands the definition of THC under California law to include a broad range of THC molecules, such as Delta-8 and Delta-10, that can be intoxicating, and that are manufactured by chemically converting non-intoxicating cannabinoids that are found in hemp, such as CBD. The emergency order was issued in the interest of public safety, as Governor Newsom noted that such intoxicating substances are being marketed in ingestible products without the same types of regulation as state-legal marijuana, which contains intoxicating Delta-9 THC, and thus may be consumed by those unaware of their intoxicating effect, including children.
As reported by Marijuana Moment, Manufacturers of ingestible products made using hemp and the now CA banned chemically converted synthetic THCs have challenged the emergency order in Court. While that, and potentially similar actions to be filed, play out, legislators on Capitol Hill may consider a federal solution to the loophole created by the 2018 Farm Bill that has resulted in the proliferation of intoxicating substances chemically converted from non-intoxicating hemp cannabinoids on the claim that those substances were “derived” from hemp. Earlier this year the House Agriculture Committee approved an amendment to a new Farm Bill proposed by Rep. Mary Miller (R-IL) that would close the loophole by restricting synthetic intoxicating substances converted from hemp in ingestible products. Similar language was adopted in a House appropriations bill.
The FDA, which has authority over foods and beverages, has not established a regulatory framework for CBD or synthetic intoxicating substances chemically converted from hemp, but rather has said they are prohibited in foods and beverages, and has issued warning letters to manufacturers of foods and beverages containing such substances on the basis that they are adulterated under the Food, Drug and Cosmetics Act.
As reflected in the Marijuana Moment article, manufacturers of synthetic intoxicating substances chemically converted from hemp concede that those substances should be regulated because of their intoxicating effect, but they argue measures like Newsom’s emergency order and the Miller amendment go too far in restricting the substances.
There now seems to be consensus around the need to regulate synthetic intoxicating substances chemically converted from hemp. Federal legislation that creates a clear definition of hemp or such intoxicating substances, and places their regulation under state authority, could clarify whether and how such intoxicating substances may be manufactured and marketed.
I originally published the blog below with the title “Delta-8 Bans Are Having a Moment,” which on reflection seems a bit flip. The reality is that the ambiguities in the 2018 Farm Bill and the lack of federal regulation of such substances have created a conundrum for those who market Delta-8 and similar substances, as well as for the cannabis industry, and for states that are weighing public safety against financial interests.
Just as those who were participating in the cannabis industry in its early days – before federal cannabis policy was so transparent – had to weigh the risk of federal enforcement and criminal penalties, purveyors of intoxicating substances manufactured from hemp cannabinoids must weigh the risk that the 2018 Farm Bill could be read by some, including Congress and state governments, as not legalizing those substances simply because they have some relation to legal hemp.
As a lawyer who represents clients who manufacture and market cannabis and hemp products, I have seen them weigh the risks attendant to the unclear regulatory landscapes for both cannabis and hemp, and I have not been surprised – and have been disappointed – when some have opted not to make the leap into cannabis or hemp.
Even today, where cannabis is legal and where federal cannabis policy has de-prioritized enforcement against state cannabis activities that comply with state law, the cannabis market is too risky for the vast majority of businesses to expand into. Think about all of the consumer packaged goods companies that have been watching cannabis and hemp, but have not made the move, not even to CBD, not to mention almost the entire financial institution market.
Thus, when those who have decided to market Delta-8 and similar intoxicating substances on the basis that the 2018 Farm Bill legalized them, I can’t help but think about whether they were advised about and accepted the risk that the 2018 Farm Bill could be read differently, or they simply jumped into the market blindly or on poor advice. Yes, the market for those substances has grown and is in the billions, but that does not somehow make the 2018 Farm Bill less ambiguous or somehow make the substances any safer.
The fact that cannabis companies are increasingly moving to hemp and even Delta-8 and similar substances also does not change the ambiguity in the 2018 Farm Bill. It does, however, underscore the risk cannabis market participants took when they entered a space burdened by the capital restraints resulting from federal prohibition and 280E. Many of these companies are now desperately in need of another source of revenue, and hemp is a logical choice, but there is still a risk when it comes to Delta-8 and similar substances.
The tack of saying there is a cannabis and hemp “civil war,” or that state bans against Delta-8 and similar substances and clarifying changes to the 2018 Farm Bill will “kill the hemp industry” seems to miss the mark. This does not seem to be about the “hemp industry” or “hemp farmers,” but rather about a market that has developed for intoxicating ingestible products that may be manufactured using hemp cannabinoids and other chemicals. Every intoxicating substance poses a public safety risk, and the public safety risk resulting from Delta-8 and similar substances should outweigh financial interest. As such, the emphasis should be on whether and how to regulate Delta-8 and similar substances in a way that ensures public safety.
That state legislators and regulators are imposing restrictions in that direction does not seem surprising. States should have the right to govern these types of intoxicating substances. While bans may be undesirable, in the absence of clarity in federal law or federal regulation, it appears to be the solution for some states. As a result, those manufacturing and marketing Delta-8 and similar substances must continue to weigh the risks and manufacture and market their products knowing there is uncertainty as to the legal/regulatory landscape.
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My original blog posted under the title “Delta-8 Bans Are Having a Moment.”
Ingestible products containing substances that are manufactured using naturally occurring hemp cannabinoids, such as CBD, and other chemicals to creating intoxicating hemp substances, such as Delta-8 THC, have become increasingly available throughout the U.S., being sold at gas stations, vape shops, and convenience stores. Such substances are often as or more intoxicating than marijuana, but by and large they have not been regulated with the same product safety requirements as marijuana that has been legalized in states for adult or medical use. The FDA views such intoxicating substances as prohibited in food and beverages, and while the FDA may take enforcement action, which it has done, it has not created a regulatory framework for the manufacture and ingestion of intoxicating hemp substances. Instead, it is waiting for Congress to clarify what some perceive to be a loophole in the 2018 Farm Bill that has allowed the proliferation of such substances, because of language legalizing hemp and its “derivatives.”
Safety concerns have been raised about the intoxicating potency of these substances, as well as about the chemicals used to manufacture them, resulting in state regulations restricting or banning their use. Regardless of where you stand on whether the 2018 Farm Bill legalized intoxicating substances that can be manufactured using cannabinoids from legal hemp, in the absence of federal regulation, states have been banning or heavily restricting them in the name of public safety. While advocates of such substances decry those bans and limits, states who view them as a safety risk are taking action to protect their citizens.
In contrast, whereas Missouri has legalized and regulates the sale and use of marijuana for medical purposes, on August 1, Missouri Governor Michael Parson issued Executive Order 24-10, which bans “unregulated psychoactive cannabis products,” including “delta-8 tetrahydrocannabinol (THC), delta-10 THC, hexahydrocannabinol (HHC), tetrahydrocannabinol (THC-O), tetrahydrocannabiphoral (THCP), tetrahydrocannabivarin (THCV), and other similar compounds.” As the Executive Order states, “there are currently no safety standards, packaging requirements, or other regulations related to the safety of consuming unregulated psychoactive cannabis products in Missouri,” and “actions must be taken to protect consumers, including children, from the sale of foods that include unregulated psychoactive cannabis products.”
In Iowa, like Missouri, marijuana has been legalized for medical use, and the sale and consumption of marijuana is governed by Iowa’s medical regulatory program, and, like Missouri, Iowa recently issued regulations, effective July 1, 2024, banning “synthetic consumable hemp products,” including “Delta-8 THC, Delta-10 THC, Hexahydrocannabinol (HHC), Tetrahydrocannabiphorol (THC-P), and Tetrahydrocannabinol-O-acetate (THC-O).” Iowa’s ban of synthetic consumable hemp products was challenged in Climbing Kites LLC, et al., v The State of Iowa, et al., et al., 4:24-cv-202 (SD IA), by a low-dose THC beverage manufacturer, along with other low dose-THC beverage manufacturers, but after the Court refused to enjoin the ban, the lawsuit was withdrawn.
South Dakota HB-1125 went into effect on July 1, 2024, and provides that no person may “(1) chemically modify or convert industrial hemp as defined in § 38-35-1, or engage in any process that converts cannabidiol, into delta-8 tetrahydrocannabinol, delta9 tetrahydrocannabinol, delta-10 tetrahydrocannabinol, or any other tetrahydrocannabinol isomer, analog, or derivative; or (2) Sell or distribute industrial hemp or an industrial hemp product that contains chemically derived cannabinoids or cannabinoids created by chemically modifying or converting a hemp extract.” HB 1125 includes the following definition for the term Chemically Derived Cannabinoid: “a chemical substance created by a chemical reaction that changes the molecular structure of any chemical substance derived from the cannabis plant. The term does not include: (a) Cannabinoids produced by decarboxylation from a naturally occurring cannabinoid acid without the use of a chemical catalyst; (b) Non-psychoactive cannabinoids; or (c) Cannabinoids in a topical cream product.”
Clearly, the manufacture and sale of intoxicating substances using hemp cannabinoids, such as Delta-8, is being scrutinized. As such, manufacturers and sellers of such products need to be mindful of the regulatory landscape.
In the absence of federal enforcement action, state legislatures have stepped into the breach, enacting laws regulating products containing intoxicating substances that are chemically synthesized versions of chemicals in hemp. Those substances are referred to here as hemp-synthesized intoxicants or HSIs. Challenges to state authority to regulate HSI are being filed. In a recent decision that may foreshadow what is to come, a federal court declined to enjoin Wyoming’s hemp law.
As we have previously reported, the passage of the Agriculture Improvement Act, commonly referred to as the 2018 Farm Bill, opened the floodgates to unregulated intoxicating hemp products across the country. Though the 2018 Farm Bill authorized the U.S. Food and Drug Administration to regulate hemp-derived products intended for human consumption, the FDA has yet to promulgate rules for such products or HSIs. In the absence of federal regulations, states have begun to enact their own rules.
In Green Room LLC, et al. v. State of Wyoming, et al., a group of HSI wholesalers, retailers, and manufacturers filed a federal suit challenging amendments to Wyoming’s hemp laws and requesting a preliminary injunction. In pertinent part, the amendments expanded the definition of THC to include any psychoactive structural, optical, or geometric isomers of THC, encompassing both CBD and the popular Delta-8 THC. Because cannabis remains illegal in Wyoming, the amendments effectively prohibited the possession, sale, transport, and production of intoxicating substances synthesized from hemp. The plaintiffs argued, in part, that the amendments were unconstitutional because they were preempted by the 2018 Farm Bill, which they claim legalized all hemp substances, including intoxicating substances synthesized from hemp, for intrastate and interstate purposes.
On July 19, 2024, the federal court denied plaintiffs’ request to enjoin enforcement of the new law, finding that they do not have a substantial likelihood of success on the merits.
Specifically, the court found that the 2018 Farm Bill does not prevent states from regulating HSIs. The court found the 2018 Farm Bill did not confer any right on plaintiffs to manufacture or sell intoxicating products resulting from hemp, but merely redefined the term hemp. Most important, it held the 2018 Farm Bill contains an express “no preemption” clause permitting states to regulate hemp more stringently than federal law. The no preemption clause expressly permits a state to enact laws regulating intoxicating substances synthesized from hemp in a manner “more stringent” than the 2018 Farm Bill. The court further concluded that Wyoming’s amendments do not violate the dormant commerce clause, do not amount to a regulatory taking, and are not unconstitutionally vague or overbroad.
Green Room is not the first challenge to state restrictions on HSIs. In Bio Gen LLC et al. v. Sanders et al., the State of Arkansas appealed a trial court decision enjoining Arkansas regulations that restrict the manufacture and distribution of products that contain synthetic cannabinoids that could be intoxicating, such as Delta-8 THC. In Northern Virginia Hemp and Agriculture LLC, et al. v. Commonwealth of Virginia, et al., the plaintiffs, an HSI product manufacturer/distributor and consumer, appealed a trial court decision that denied their motion to enjoin the State of Virginia from enforcing Virginia regulations that restrict the manufacture and distribution of products that contain synthetic cannabinoids that could be intoxicating, such as Delta-8 THC.
Those pending appeals present the possibility of a federal circuit split on the question whether the 2018 Farm Bill legalized intoxicating substances that could be derived from hemp. On behalf of the American Trade Association for Cannabis & Hemp, Duane Morris filed an amicus brief in each case that asserts that the 2018 Farm Bill did not legalize hemp-synthesized intoxicants, and it reserved for states the right to regulate such substances in the interest of public safety.
As more states roll out new restrictions on intoxicating hemp products and operators, we expect to see more challenges. Though not a final ruling on the merits of the suit, the court’s decision suggests these plaintiffs and others challenging state intoxicating hemp laws have an uphill battle ahead.
A recent study by ASTM International’s Journal of Testing and Evaluation published a study entitled Market Audits Combat Cannabis Misinformation demonstrates through “off the shelf” testing that the labels of cannabis products are very often materially inaccurate with respect to THC potency, microbial contaminants, and heavy metals. While the study advocates for using periodic off the shelf testing and forensic data from seed-to-sale tracking systems to identify bad actors and police such conduct, the public safety risks from mislabeling raise the likelihood of products liability and consumer fraud lawsuits as another check on mislabeled cannabis (including hemp) products.
A number of consumer fraud class action lawsuits have been filed in California and other states arising out of the alleged mislabeling of infused pre-rolls. Such claims assert that consumers were duped by the THC potency claims on packaging and labeling, and should be compensated for being duped. In contrast, a products liability action would result from a physical injury caused by an improperly labeled cannabis product. Improperly labeled THC potencies, microbial contaminants, and heavy metals could all lead to such injuries, and state laws would give rise to claims for damages, including punitive damages, for such injuries.
Manufacturers who sell and the labs who test products that are labeled inaccurately are exposed to this litigation risk, and should consider incorporating risk mitigating compliance protocols into their quality assurance and control programs.
The public comment period for the DEA’s proposed rulemaking to reschedule cannabis from a Schedule I controlled substance to a Schedule III drug has ended. Approximately 43,000 comments were submitted! As Headset reports, this is the most comments received in response to a DEA proposed rule, and the comments were overwhelmingly in favor of cannabis either being moved to Schedule III or being de-scheduled and fully legalized altogether. According to Headset, 9 out of 10 comments were in favor of removing cannabis from Schedule I, with 35% of commenters supporting rescheduling and 57% supporting de-scheduling. Of course, many of the proponents of de-scheduling would support rescheduling as opposed to leaving cannabis under Schedule I. In contrast, just 7% of commenters advocated no change.
“Duane Morris helps clients across all sectors of the multi-faceted legal cannabis industry. The group has extensive experience with the wide array of issues attendant to legal cannabis business activities, including licensing for cultivation, processing and dispensing; litigation; banking and finance; raising and deploying capital; protecting intellectual property; real estate development and leasing; public company representation and SEC filings; land use and zoning; healthcare and research; taxation; and cross-border transactions.”
The Legal 500 2024 has also placed the Cannabis Industry Group in Tier 1 nationally, with clients noting that “Duane Morris’ cannabis practice is simply the best in the country. They have the most thorough knowledge of our ever-changing industry and its regulatory landscape.”
“What makes Duane Morris unique among peer firms is the entrepreneurial spirit of the cannabis practice, backed up by extensive institutional knowledge and experience of business. They created laws, regulations and precedents that govern and protect the cannabis industry today and advised businesses how to operate within them.”
Clients also acknowledged “the passion and commitment of Duane Morris’ lawyers to serve businesses and entrepreneurs.” The Legal 500 named partners Seth Goldberg and Michael Schwamm “Leading Lawyers” in the Cannabis Industry – as well as recognizing Tracy Gallegos, Paul Josephson and Justin Santarosa for their work.
“The firm has acted as a pathfinder through a constellation of state laws and regulation – many of which the firm’s cannabis practice has helped shape.”
There are countless strains of the plant Cannabis sativa L. Depending on the strain, the plant will contain a range of different chemicals called cannabinoids. New cannabinoids are still being discovered. Some of those, such as delta-9 tetrahydrocannabinol (D-9 THC), can cause psychoactive effects, while others such as cannabidiol (CBD) do not cause psychoactive effects. Nonpsychoactive cannabinoids like CBD can be chemically altered to become substances, such as delta-8 tetrahydrocannabinol (D-8 THC), that cause psychoactive effects.
In 2018, Congress passed a Farm Bill that defined “hemp” as:
[T]he 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.
Recently, FDA announced issued an alert warning consumers that a brand of ingestible chocolate bars, cones, and gummies called Diamon Shruumz has been linked to a variety of severe heath symptoms, including seizures, central nervous system depression (loss of consciousness, confusion, sleepiness), agitation, abnormal heart rates, hyper/hypotension, nausea, and vomiting. As the name suggests, Diamond Shruumz products are marketed as a product that allows consumers to microdose – take in small doses – psilocybin and other psychoactive chemicals in mushrooms. These products are not subject to strict federal and state regulations, and can be purchased in gas stations and c-stores, or online by anyone who passes a simple age-gate. They are marketed with names that could easily be confused by consumers as products that do not contain intoxicating chemicals, such as “Hawaiian punch,” “cookies & cream,” “birthday cake,” and “cookie butter,” and their packaging is colorful and attractive. It seems obvious that intoxicating products like these need to be regulated in the interest of public safety. Regulation does not mean prohibition. It means safeguards that enable consumers to use products without unnecessary health risk, and they can protect manufacturers and supply chain participants from liability risk.
Multiple news sources reported today that the DEA will be recommending rescheduling cannabis to a Schedule III drug. The recommendation will then lead to a public comment period and then a Final Rule will be issued, so the actual reclassification of cannabis is months away. However, as with recent moves toward rescheduling, such as the HHS recommendation and President Biden’s directive to study whether to reschedule, today’s news and the forthcoming recommendation will boost the cannabis market, as operators and investors look forward to a better performing industry resulting from the reclassification. The actual reclassification will have an immediate impact on operator profitability, as IRS Code 280E, which prevents cannabis operators from deducting normal business expenses, will no longer apply to cannabis businesses. This is just one of the very significant changes to the industry that will spur more capital and more growth. Banks and other sources of capital that have been reluctant to enter the space may finally get off the sidelines and join the game, which would obviously be the shot in the arm the industry has needed for some time.
More than 75% of the U.S. population lives in states that have legalized cannabis for adult and/or medical use. Pursuant to a 2022 directive from President Joe Biden, a 2023 recommendation of the U.S. Department of Health and Human Services, and a scientific review released in January supporting the HHS’s recommendation, the U.S. Drug Enforcement Administration is now evaluating whether to reclassify cannabis as a Schedule III drug.
