Hemp By Any Other Name…

October 21, 2020By Sara W. Koblitz & Karla L. Palmer

Back on August 20, 2020, the Drug Enforcement Administration (“DEA”) issued an Interim Final Rule (“IFR”) purporting to “clarify” certain provisions of the Agriculture Improvement Act of 2018 (“AIA”).  As we explained back when Congress passed the AIA in December 2018, the AIA upended the DEA’s regulation of hemp-derived products.  Historically, the DEA had interpreted the term “marihuana,” regulated as a schedule I drug under the Controlled Substances Act (“CSA”), to include hemp and hemp-derived products, but the AIA explicitly removed hemp from the “marihuana” CSA definition.  As a result, Congress implicitly transferred regulatory authority of hemp as defined in the AIA from DEA to the U.S. Department of Agriculture (“USDA”).  Further, the AIA added a definition of the term “hemp” to the CSA to make explicitly clear that DEA’s regulatory authority does not extend to hemp, which is now defined 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 [“THC”] concentration of not more than 0.3 percent on a dry weight basis.”  Accordingly, any cannabis or cannabis-derived product that includes THC in a concentration above 0.3 percent on a dry weight basis, as well as THC itself, is not hemp and remains a schedule I controlled substances.  The intent of the AIA’s removal of hemp from DEA control was to facilitate the growth of emerging hemp industry.

But DEA apparently had other ideas.  In the IFR, DEA explained that the definition of hemp “does not automatically exempt any product derived from a hemp plant, regardless of the Δ9-THC content of the derivative,” and that “a cannabis derivative, extract, or product that exceeds the 0.3% Δ9-THC limit is a schedule I controlled substance, even if the plant from which it was derived contained 0.3% or less Δ9-THC on a dry weight basis.”  This language has been interpreted to suggest that DEA believes that any hemp extract that exceeds the 0.3% limit—even if only as intermediate materials or byproducts during processing—are controlled substances subject to DEA regulation, effectively rendering hemp production where THC exceeds 0.3 percent subject to the CSA’s rigorous schedule I requirements.  Further, as set forth for the first time in the IFR, DEA excluded all synthetically-derived tetrahydrocannabinols from the hemp definition, noting that “[f]or synthetically derived tetrahydrocannabinols, the concentration of Δ9-THC is not a determining factor in whether the material is a controlled substance.” Thus, all synthetic forms of cannabis and its derivatives, regardless of the Δ9-THC content, are still subject to DEA control.

Importantly, DEA enacted the IFR without undertaking notice and comment as required under the Administrative Procedure Act (“APA”).  Specifically, the DEA framed the IFR as a clarification that “does no more than incorporate the statutory amendments into DEA’s regulations,” and a mere restatement of the AIA, subjecting it to the “good cause” exemption from rulemaking requirements under the APA.  The IFR explains that “DEA has no discretion with respect to these amendments,” particularly because the “statutory changes at issue have already been in effect since” passage of the AIA.

DEA’s position concerning synthetically derived CBD products with a THC content of less than 0.3 percent was an unwelcome “surprise” (putting it kindly) to several industry participants.  Notably, the IFR was the first time that DEA had publicly stated since the enactment of the AIA that synthetically derived tetrahydrocannabinols remain schedule I drugs.  Privately, in letters to industry, DEA had taken exactly the opposite position.  DEA expressly stated in 2019 letters to industry that, after a review of the AIA, it determined that synthetic cannabinols (CBD) containing less than 0.3% Δ9-THC met the definition of “hemp” and therefore were no longer scheduled drugs under the CSA.  DEA’s 2019 position concerning synthetics made sense for many reasons, including because the AIA’s definition applies to cannabis derivatives, “whether growing or not,” which can be interpreted to include synthetic cannabis.  And, CBD with less than 0.3 percent THC, whether plant-based or synthetic, has virtually the same chemical structure and psychoactive effect.

Regardless of whether DEA’s 2019 interpretation treating synthetics and plant-derived products the same, DEA’s August 2020 IFR makes no mention whatsoever of its “change in position,” but instead, ignoring its own previous interpretation and industry’s reliance interests, DEA remarkably insists that the IFR merely implements statutory changes that “have already been in effect since” December 2018.  Really?

The IFR has been the subject of over 3,000 comments, and, less than a month after publication, DEA was sued in the D.C. Circuit, and a subsequent lawsuit in the District Court followed last week.  The D.C. Circuit Petition for Review, filed by the Hemp Industries Association and RE Botanicals Inc., is a barebones petition alleging that DEA failed to comply with the procedures required by law in the CSA and APA, that the IFR exceeded DEA authority, and that the IFR is arbitrary and capricious due to its inconsistency with the AIA.  The District Court lawsuit, also brought by the Hemp Industries Association and RE Botanicals Inc., contains a detailed explanation of the hemp production process and argues that hemp intermediates or byproducts that may exceed 0.3% Δ9-THC during production but ultimately contain less than 0.3% Δ9-THC after completion of the manufacturing process, should not be schedule I drug products.  Though the IFR is not expressly clear that intermediates or byproducts will be regulated as schedule I drugs (requiring adherence to onerous schedule I regulatory requirements), it is clear that the hemp industry sees the disconcerting writing on the wall.  According to the plaintiffs, DEA’s interpretation subjecting the hemp production process when hemp intermediates or byproducts exceed 0.3% Δ9-THC during production would effectively subject almost all hemp to schedule I controls.  Based on this reading, the District Court complaint—relying on congressional intent and plain language of the statute—requests declaratory and injunctive relief and asks the Court to make a judicial determination that the definition of hemp includes intermediates or byproducts that exceed 0.3% Δ9-THC in midst of the production process and that those intermediates are not controlled substances, that DEA lacks any independent authority to regulate any aspect of hemp production, and that DEA is enjoined from enforcing the CSA as to intermediates.

Some of the comments on the IFR raise points related to the interpretation of “synthetically-derived tetrahydrocannabinols.”  Though the D.C. Circuit Petition for Review takes issue with the “good cause” exception absolving DEA from adhering to the APA’s notice and comment rulemaking requirements, the issue is not raised in the District Court lawsuit.  As a result, it would not be surprising if another industry participant also sued DEA in a district court over DEA’s application of the APA’s good cause exception as applied to synthetic CBD.

Based on some of the history provided in the District Court complaint, as well as the available comments, DEA’s exercise of statutory authority here is pretty expansive—and arguably well beyond that intended by Congress.  Congress transferred regulatory authority over hemp to USDA, which raises an argument that Congress intended that USDA – rather than DEA — interpret the statutory definition of hemp.  Further, with the growing importance of the hemp marketplace, it would not be surprising to see a slew of litigation challenging DEA’s authority to interpret the definition of hemp, the DEA’s actual interpretation of hemp, and the rulemaking process DEA used to interpret hemp.  After all (with apologies to the Bard), that which we call hemp — specifically synthetic – by any other name would not smell as sweet, at least according to DEA.