Cannabis Civil War heats up as courts make important rulings about hemp

The past year has seen intense lobbying efforts, social media campaigns and lawsuits in what is becoming known as the “Cannabis Civil War” between the hemp and marijuana industries.

At stake is control over the rapidly expanding and lucrative market in cannabinoids and cannabis products. I use the term “cannabis” in this context as a generic botanical term to encompass both federally legal hemp and federally illegal marijuana.

In this article, I will discuss rulings in four recent lawsuits filed by hemp companies and hemp organizations against various states regarding laws and rules they contend violate state and/or federal law. By way of disclosure, my firm has worked with the hemp plaintiffs in some of these lawsuits.

Additionally, I will discuss the landmark ruling in a trademark dispute between two private parties that addressed the legal status of delta-8 tetrahydrocannabinol (D8 THC) and a decision by the Georgia Court of Appeals regarding D8 THC in the context of a criminal seizure. These cases appear to be the tip of the proverbial iceberg in the Cannabis Civil War, and I anticipate several more to follow.

BioGen v State of Arkansas. In this case, several Arkansas hemp companies filed a lawsuit against the state, seeking an injunction prohibiting enforcement of Senate Bill 358, enacted on April 11, 2023, as “Act 629” (the “Act”). This bill criminalized all hemp products “produced as a result of a synthetic chemical process” and “[a]ny other psychoactive substance derived therein.”

The hemp companies argued the Act is preempted (i.e., superseded) by the federal 2018 Farm Bill and that its provisions are unconstitutionally vague and thus void. The U.S. District Court agreed and entered an injunction barring enforcement of the Act. In its ruling, the court made three important findings: (1) the Act is preempted by federal law under the principle of “conflict preemption,” (2) the Act is preempted by federal law under the principle of “express preemption,” and (3) the Act is unconstitutionally vague and thus void.

Maryland Hemp Coalition Inc. v Moore. The Maryland hemp industry sought an injunction prohibiting the enforcement of Maryland Code Ann. Alc. Bev. §36-1102, known as the Cannabis Reform Act (CRA) (the “CRA”), “against any person who was already lawfully in the business of selling hemp-derived products prior to July 1, 2023.”

In an expansive ruling in favor of the Maryland hemp industry, the Washington County Circuit Court found “the interests of [the hemp industry] plaintiffs are not ‘merely academic, hypothetical, or colorable’ but rather, they are interests of survival, prosperity and, indeed, of life, liberty and property.”

In its ruling, the court addressed the issue of “whether the strict and exclusive licensing scheme under the CRA and as applied to the hemp industry is a valid exercise of legislative prerogative.” In finding it is not a valid exercise, and thus prohibiting enforcement of the CRA against the state’s hemp industry, the court ruled the CRA “creates a monopoly that unfairly excludes many from their right to continue, or enter, a profession of their choosing, all to the detriment of the public.”

The Washington County Circuit Court went on to state that, “[b]ased on the evidence and argument offered thus far, the court cannot find a rational basis to support the exclusive and exclusionary licensing scheme that has put plaintiffs out of their legitimate businesses.”

In short, the court found the CRA creates an illegal monopoly, it unlawfully puts legitimate hemp companies out of business, and it is a “severe” and “draconian” licensing scheme that fails to “actually benefit the communities found to have been impacted.” It also noted the plaintiffs were not challenging the health and safety portions of the CRA.

Northern VA Hemp and Agriculture LLC v the Commonwealth of VA. Several Virginia hemp companies sought an injunction prohibiting enforcement of SB 903, which state lawmakers enacted “in response to the growing concerns regarding delta-8 and other adulterated hemp products on the market.” The restrictions placed on hemp products by SB 903 are dramatic enough to destroy most of the state’s hemp industry.

The hemp company plaintiffs argued that SB 903 was preempted by federal law, namely the 2018 Farm Bill. The hemp companies made two preemption arguments. The first was based on federal and state definitions of hemp, and the second preemption argument was related to the ability of Virginia hemp processors to ship or transport hemp through the Commonwealth. The U.S. District Court found these arguments failed and denied the request for an injunction. Consequently, SB 903 is currently in effect.

Sky Marketing Corp dba Hometown Hero v TX Department of State Health Services. Several Texas hemp companies filed a lawsuit and sought an injunction prohibiting the Department of State Health Services (“DSHS”) from enforcing a rule it promulgated that made D8 THC a controlled substance.

The Travis County District Court ordered DSHS to “remove from its currently published Schedule of Controlled Substances the most recent modifications of the definitions to the following terms: ‘*(31) Tetrahydrocannabinols’ and ‘*(58) Marihuana extract,’ and any subsequent publications of the same (if any) until further order of this Court.” The court further “enjoin[ed] the effectiveness going forward of the rule stated on DSHS’s website that Delta-8 THC in any concentration is considered a Schedule I controlled substance.” Consequently, D8 THC is not a controlled substance in Texas.

AK Futures LLC v Boyd Street Distro LLC. Unlike the cases summarized above, this case did not arise from a lawsuit filed by hemp companies. Rather, it arose in the context of an intellectual property dispute between the two private parties. The plaintiff, AK Futures LLC (“AK”), makes vaping products. It sued Boyd Street Distro LLC (“Boyd”) for infringing on its trademark and copyright rights by selling a fake version of its “Cake”-branded vaping products that contain D8 THC.

In an unusual defense, Boyd argued AK’s case should be dismissed because its trademark rights were unenforceable based on its position that D8 THC is illegal under federal law. In ruling for AK, the U.S. Court of Appeals for the Ninth Circuit upheld the injunction issued by the lower court, ruling the 2018 Farm Bill legalized the D8 THC products. Specifically, the Ninth Circuit held that D8 THC is not a controlled substance under the plain and unambiguous text of the 2018 Farm Bill and that it fits within the legal definition of “hemp.”

The court also found the method of manufacture is irrelevant. Since most D8 THC is produced through an isomerization of cannabidiol (CBD), rather than an extraction from the plant, this portion of the ruling is particularly notable.

Elements Distribution v. State of GA. This case arises out of a criminal seizure in which the plaintiff, Elements Distribution LLC (“Elements”), sought return of business records, money and products from law enforcement. In February 2022, Gwinnett County, Ga., law enforcement officers executed a search warrant upon a warehouse owned by Elements and seized business records, currency, and edible and nonedible products containing D8 THC and D10 THC.

The warrant was issued based on the affidavit of a law enforcement officer that Elements had violated OCGA §16-13-30(b), which prohibits the possession of a controlled substance with the intent to distribute, by possessing and selling products containing D8 THC and D10 THC. In ruling that Elements was entitled to a return of the seized items, the Georgia Court of Appeals found the warrant authorizing the seizure was not supported by probable cause.

The state argued that, even though D8 THC and D10 THC are not themselves controlled substances, edible products containing them are controlled substances unless those products also meet the definition of “hemp products” under OCGA §2-23-3of the Georgia Hemp Farming Act. The court found the state’s argument to have “no merit” and ordered the state to return the items it seized from Elements.

No end in sight to Cannabis Civil War

As the cases above demonstrate, there is a growing body of case law regarding the legal status of hemp and hemp products, particularly D8 THC. Of note is an emerging trend by hemp companies to sue state agencies regarding laws and regulations that severely restrict distribution of products they sell.

The 2018 Farm Bill, which is the foundational federal law regarding the legal status of hemp, has just been extended to September 30, 2024. Meanwhile, a recent report by Whitney Economics found total demand for hemp-derived cannabinoid products exceeds that of the marijuana industry and is on par with the craft beer industry.

The latter report and extension of the 2018 Farm Bill means we can expect to see the Cannabis Civil War—and lawsuits regarding hemp products—continue in 2024.