Lawsuit: DEA Marijuana Extract Rule Has Chilled Hemp Industry

A marijuana extract rule adopted by the Drug Enforcement Administration (DEA) “stands to chill the entire legal hemp industry through confusion, misinterpretation and misapplication of law," the Hemp Industries Association (HIA) proclaimed last week in a brief filed with a federal appeals court in San Francisco.

In the nearly 14,000-word opening brief, HIA and its co-plaintiffs blasted DEA’s final rule establishing a drug code for marijuana extracts. The lawsuit was filed in January by HIA, Centuria Natural Foods Inc. and R.M.H. Holdings Inc.

It is DEA’s position that all individuals seeking to manufacture, distribute, disperse, import, export or research substances subject to a drug code must register with DEA, Denver- and San Francisco-based lawyers with the Hoban Law Group noted in the April 3 brief filed with the U.S. Court of Appeals for the Ninth Circuit.

“Consequently, this misguided action by DEA has instantly and severely ‘chilled’ the global industrial hemp industry," the plaintiffs’ attorneys asserted, “predominantly involving U.S. distribution, import and export of Farm Bill-cultivated and imported hemp-derived products."

In a Federal Register notice establishing the drug code, DEA defined a marijuana extract as “an extract containing one or more cannabinoids that has been derived from any plant of the genus cannabis, other than the separated resin (whether crude or purified) obtained from the plant."

Marijuana extracts, DEA said, would continue to be treated as Schedule 1 substances. Schedule 1 substances are illegal under federal law.  

DEA’s notice prompted criticism that the agency continues to treat all cannabis the same, contrary to Section 7606 of the Agricultural Act of 2014—otherwise known as the Farm Bill.

Unlike industrial hemp, marijuana contains a high amount of tetrahydrocannabinol (THC), the psychoactive ingredient that makes a person stoned or high. Section 7606 authorized the growth, cultivation or marketing of industrial hemp under agricultural pilot programs, provided such growth or cultivation is allowed under the laws of the state in which the activity occurs.

Plaintiffs also referenced appropriations bills passed by Congress, including one currently in effect, which bars federal agencies from using funds to contravene Section 7606.

What’s more, DEA’s marijuana extract rule functions as a scheduling action under the Controlled Substances Act (CSA), and DEA abused its authority because it failed to follow the appropriate procedures in scheduling marijuana extract and cannabinoids, the hemp industry argued.

“DEA, through its final rule and other interpretive and directive actions, continuously fails to distinguish between industrial hemp and hemp-derived materials, versus those known as psychotropic marijuana," plaintiffs’ 59-page brief stated, “despite Congress requiring DEA to make these distinctions pursuant to the CSA and the Farm Bill."

Even if DEA followed the proper scheduling procedures, the brief asserted, the agency could not meet its burden of establishing cannabinoids, such as cannabidiol (CBD), have a high potential for abuse.

CBD is often sold in products labeled as dietary supplements in the United States, and industry representatives said it can be derived from industrial hemp lawfully grown in the United States under the Farm Bill.

Hemp must carry a delta-9 THC concentration of no more than 0.3 percent to meet the definition of industrial hemp under the Farm Bill. By contrast, plaintiffs’ brief noted, marijuana contains between 3 and 20 percent THC in the plant’s flowering portions.

Drug Code Implications

In the Federal Register notice, DEA explained it was establishing a separate code number for marijuana extract so it could better track the materials and comply with international treaty provisions.

But DEA’s action is said to have broader implications. During the recent NoCo Hemp Expo in Loveland, Colorado, an industry lawyer explained other agencies, such as U.S. Customs and Border Protection, rely on DEA’s codes.

DEA treats the marijuana extract rule “as a mere recordkeeping measure," noted Garrett Graff, an associate attorney in Denver with the Hoban Law Group and one of the lawyers representing the hemp industry in the Ninth Circuit. “While they may in fact adhere to that, the problem is that other agencies don’t. Other agencies look to the DEA. I’ve literally seen emails from other agencies saying, ‘We entirely defer to the DEA’s interpretation of law,’ as if DEA is Congress themselves. And that’s the problem."

Spokespersons for DEA and the U.S. Justice Department declined to comment on the lawsuit.

In a document responding to questions about the marijuana extract rule, DEA said the new drug code does not include materials or products that are excluded from the definition of marijuana under the CSA, such as the mature stalks of the plant Cannabis sativa L.

However, DEA noted only trace amounts of cannabinoids are found in the portions of the plant excluded from the definition of marijuana. The scientific literature, the agency noted, indicates cannabinoids such as CBD are found in parts of the plant that meet the definition of marijuana.

“Thus, based on the scientific literature, it is not practical to produce extracts that contain more than trace amounts of cannabinoids using only the parts of the cannabis plant that are excluded from the CSA definition of marijuana, such as oil from the seeds," DEA explained in its clarification document. “The industrial processes used to clean cannabis seeds and produce seed oil would likely further diminish any trace amounts of cannabinoids that end up in the finished product."

Since the filing of the lawsuit, plaintiffs’ counsel proposed to DEA that it change the term “cannabis" in the agency’s rule to “marijuana," said Patrick Goggin, a San Francisco-based lawyer with the Hoban Law Group, in an interview during the NoCo Hemp Expo. Goggin said his colleague, Bob Hoban, noted in correspondence with DEA that such a change would require going through the rulemaking process.

DEA responded through its counsel that the agency wasn’t “necessarily rejecting the proposal," Goggin said, “but that they didn’t feel like … rulemaking at this point was viable."

The legal fight, Goggin indicated, is over the ability to source cannabinoids such as CBD from the flowers of the hemp plant without falling subject to DEA’s marijuana extract rule.

The lawyer said the hemp industry is confident in its case, but he didn’t rule out the specter of reaching a compromise with DEA. “If we get to a point of being able to … come to a compromise, great," said Goggin, who added DEA may be more inclined to reopen talks after reading the industry’s brief.