When it comes to the legality of cannabis, we’ve gotten used to confusion, legal gray areas, and conflicts between state legalization and federal prohibition. However, because of the prominence of CBD products in mainstream commerce, it was not business as usual when the DEA recently issued a three-page notice targeting CBDs and opening an entirely new level of surrealism, bewilderment, and angst.
On the surface, the DEA notice (which was published last December in the Federal Register) was a simple administrative action. It created a new Administration Controlled Substances Code Number for “Marihuana Extract.” [Previously, there have been DEA codes only for Marijuana (#7360) and THC (#7370). Now, extracts with various cannabinoid profiles will be identified with the code #7350]. Some observers consider it to be a potentially positive move because by giving CBD its own code it could make it easier to document the potential medical benefits of CBD and other cannabinoids. However, most of the cannabis community believes the DEA's move is far from harmless. At best, they theorize, it is DEA over-reach. At worse, it is an attempt by the DEA to ban all CBD products, psychoactive or not.
The resulting tempest is understandable given recent cannabis developments at the federal level, including: 1) A consistently cannabis unfriendly DEA, which by refusing to reschedule cannabis from Schedule I continues to equate it with heroin and other Schedule I drugs; 2) Alabama Drug Warrior Jeff Session’s nomination to Attorney General by President elect Donald Trump; and 3) The nomination of fellow drug hard-liner Rep. Tom Price of Georgia for Secretary of Health and Human Services. Add these to the DEA CBD notice and marijuana activists are more than skeptical.
Green Rush Daily wrote: “The DEA’s actions seem to protect big pharma’s pockets more than the health of American citizens.”
Vice News wrote: “The weed extract CBD doesn't even get people high — but the DEA continues to treat it like heroin.”
Leafy wrote: “By publishing a final rule in the Federal Register this week, the DEA has essentially staked out new legal ground around CBD. The agency has formally stated that the DEA believes CBD products to be illegal Schedule I substances.”
Rolling Stone Magazine: "Immediately our reaction was panic," said one CBD-infused product manufacturer.
The DEA shot back that much is being made of nothing. DEA spokesperson Russ Baer professed that the notice was primarily an “administrative move,” “not a change in enforcement priorities,” and not a “broader conspiracy at play.” At the same time Baer reiterated that the DEA’s position is that “those who ship CBD oil would be in violation of federal law.” (Note: Walmart sells CBD oil across state lines, more on that later).
Not everyone agrees that this was a change in policy. The law firm Harris Briken, who publish the popular Cannalawblog, wrote: “In truth, CBD merchants were probably always on the wrong side of the gray area in DEA’s eyes because CBD extracts almost necessarily contain other cannabinoids.” The executive director of the Hemp Industry Association, Eric Steenstra, also said the rule doesn’t do anything new (beyond the tracking code)– "...since CBD products are already [federally] illegal.” Of course, if CBDs are already federally illegal why has the U.S. Patent and Trademark Office (a federal department) issued trademarks for CBO products but not cannabis products, which they claim they can't because of the cannabis' federal illegality? (source: LA Times). As we said, lots of confusion, gray areas, and conflicts.
Background: What is CBD?
Cannabis contains hundreds of compounds and over sixty of these interact with a body’s endocannabinoid system. These are called cannabinoids. The two most common are tetrahydrocannabinol (THC) and cannabidiol (CBD). The difference between the two primarily comes down to the difference in how each interacts with the brain’s CB1 receptors. THC activates CB1 receptors (through binding) while CBD does not. This activation means that THC has psychoactive properties (e.g., getting “high”) while CBD does not. Many people have become aware of CBDs and their potential medical benefits via Dr. Sanjay Gupta’s CNN Series “Weed.” CBDs are thought to benefit conditions including epilepsy, glaucoma, chronic pain, PTSD, and other ailments.
The CBD market is currently tiny. Forbes cited industry sources who estimated total U.S. sales of CBD products of just over $200 million for 2015. However these same sources expect sales to increase significantly to $2 - $3 billion over the next four years.
CBD From Industrial Hemp vs. Cannabis?
CBDs are derived (that is extracted) from Cannabis Sativa L. plants, a genus that includes both hemp and marijuana. The primary difference between hemp and marijuana concerns the level of THC. Hemp is defined as having only trace amounts of THC (less than .03%). Marijuana, in contrast, can contain any amount of THC with some strains testing at over 20%. Hemp is typically grown for its fibers and seeds and has been harvested for thousands of years.
There is disagreement as to whether the efficacy of CBD extracted from hemp differs from CBD extracted from marijuana. To some there is no difference as CBD is an organic compound and is the same molecules no matter what plant from which it originates. Others argue that while hemp is an extremely useful plant, its low levels of cannabinoids inhibit its medicinal qualities and thus it fails to achieve the full benefits of CBD.
CBD's from industrial hemp are marketed in all 50 states while 15 states have laws permitting limited use of cannabis derivatives, such as CBD, with low levels of THC for medicinal purposes.
Domestic vs. Chinese vs. European CBD
Another factor is the geographical source of the CBD. Much of today’s CBDs comes from industrial hemp grown abroad, a fact that is driven both by economics (cheap Chinese imports) as well as for (convoluted) regulatory reasons. It turns out that even though the DEA doesn’t have enforcement power over hemp products, it does control the cultivation of hemp. From the Cannalawblog:
“In order to grow hemp in the U.S., you have to have a permit from the DEA which the DEA typically never issues. Therefore, cultivating hemp without a permit from the DEA remains a federal crime. The only exception is the 2014 federal Farm Bill which allows state departments of agriculture, universities, and colleges to cultivate hemp without a permit from the DEA (solely) for educational and research purposes. Because of the prohibition on hemp cultivation without a DEA permit, the hemp products we see in the U.S. typically come from hemp imported from overseas. This means that companies and individuals may freely sell CBD derived from processed hemp (not from marijuana) imported from outside the U.S.”
Beyond the question of legality, industry participants argue on the quality and relative safety of Chinese and other imported CBDs versus CBDs extracted from domestic marijuana or hemp. The true answer won't be known until independent qualified studies are conducted. Until then, vested interests will continue to push whatever positions help them most. Caveat emptor.
CBD’s Bizarre Legal Status and is Walmart’s CBD Oil Really Illegal?
Most regular users in cannabis legal states understand that their use of marijuana products is protected from local enforcement actions by local and state laws (for example, in California by the Compassionate Use Act and Prop 64). Most also know that these protections do not change the fact that cannabis remains illegal at the federal level. These consumers generally know that they are in a legal gray area between the two (federal and state). However, it is unlikely that users of industrial hemp derived CBD oil purchased at mass merchants (for example, Walmart) have any idea about the debate over the legality of these purchases or have ever heard of the Industrial Hemp Act of 2015 for which much of the legality of their purchase is based.
This brings up Walmart, Target, Google, and every other major retailer carrying CBD products. It is unlikely such major players would carry products that could risk them being in violation of the Controlled Substance Act. That said, newspapers are filled with stories of big companies being charged with violating various laws so it’d be a mistake to rely solely on Walmart and others carrying CBD products as prima facie that they are legal.
Major retailers are likely relying on the fact that since hemp is not scheduled under the federal Controlled Substances Act, it is therefore not under the enforcement authority of the DEA. They are also likely carrying products from which the CBDs were derived from hemp grown outside the United States.
But the retailers’ CBD positions may change by the publishing of last week’s DEA notice since it’s likely impossible for the retailers to know whether or not there are even trace amounts of THC in their CBD products and they don’t want to risk a fight (even a war of words) with the DEA. [From Green Rush Daily, “the DEA has made extracting CBD completely illegal whether it is from hemp or not.”]
Smaller retailers, distributors, manufacturers and others with a more vested interest in maintaining their CBD revenues are less likely to drop their CBD products because of this notice. Even though the DEA itself has said that the December notice had nothing to do with a change of enforcement priorities, if there is a problem down the line retailers will likely consider using the following defenses and arguments in their favor:
In Hemp Industries v. DEA, the US 9th Circuit Court concluded unanimously that non-psychoactive hemp had not been regulated by Congress under the scheduling system established by the Controlled Substances Act. Therefore, if the DEA wants to schedule hemp, it has to follow the established rules for doing so, which means going through Congress. It is this court decision that is most likely the reason that retailers such as Whole Foods sell hemp seed oil and the likely defense that industry attorneys will employ against any DEA action. (Leafy)
A federal judge may not agree with the DEA’s interpretation and invalidate the final rule as it relates to CBD.
In legal medical marijuana states, the Rohrabacher-Farr amendment, which prohibits the Justice Department, of which the DEA is a part, from interfering in any way with state medical marijuana laws (including CBD-only states) and regulatory systems. CBD products fall under the protections of that amendment. Consequently, even if the DEA considers CBD oil illegal, it may not be able to enforce it.
The 2014 Farm Bill (aka Agricultural Act of 2014) may also provide a defense.
If the Industrial Hemp Farming Act of 2015 is passed (currently there are versions in the House and Senate, H.R. 525 and S. 134) all current restrictions on the cultivation of industrial hemp would be removed, along with its classification as a Schedule 1 controlled substance.
This fight might be one that the DEA did not intend to be challenged in court. It's one thing for them to take on THC-laden plants and products, but industrial hemp / CBD pulls together a large contingent of patient advocates, agricultural interests, and cannabis activists who would have public opinion and a strong judicial win under their belt (the Hemp Industries case).
Hemp in California and Prop 64
Those this might change with the passage of Proposition 64, hemp farming has been moribund in California. The California Hemp Act of 2013 created an "insurmountable legal contradiction" in that it failed to establish a mechanism for the issuance of hemp cultivation permits. Consequently, there were regulations in place but no legal means by which the state's commercial farmers could actually grow the crop. A further conundrum was that the California Hemp Act required federal compliance.
The passage of Prop 64 addressed these problems and eliminated the need for a federal license. State licenses for industrial hemp cultivation, production, and manufacturing will be issued under Division 10 of the Business and Professions Code, and will be regulated by California’s Bureau of Marijuana Control.
Under Prop 64, commercial hemp farmers are required to obtain a laboratory test report from a DEA registered testing facility indicating the level of THC from a random sampling of the dried flowering tops. The percentage content of THC must be less than or equal to 0.3%, if it tests higher the hemp must be destroyed.
Attorney Bob Hoban, who heads the cannabis business law firm Hoban Law Group, cautioned that the “marihuana extract” notice could trigger consequences for the cannabis industry. Hogan told Leafy:
“Even if this new code may be rooted in an administrative action to better track research and imports and exports, the danger lies in when other federal and state agencies use the drug codes as defining factors of what’s legal and illegal.”
Hoban noted specifically U.S. Customs and Border Protection, which could seize products that appear to be illegal substances.
“At a minimum, it interferes with commerce, at a maximum, it exposes people potentially to criminal action.”
At the time of the announcement, Hoban warned that (instead of waiting for a DEA enforcement action) a lawsuit challenging the DEA rule could come soon and that his law firm was in communication with other cannabis attorneys and experts around the country. Hogan was later quoted in Rolling Stone Magazine:
"As an attorney, I've become tremendously frustrated by people who say that CBD is a controlled substance, because it’s simply not a controlled substance per se. The definition of marijuana – laid out in the CSA – excludes certain parts of the cannabis plant, so if CBD is extracted from those exempt parts, it would not, in fact, be classified as marijuana. Moreover, CBD, or any cannabinoids, derived from domestically produced industrial hemp under the Farm Bill are expressly excepted from the CSA."
It didn't take long to happen. In early January, the Hemp Industries Association, RMH Holdings, and Centuria Natural Foods filed suit in the U.S. Court of Appeals for the 9th Circuit in San Francisco against the DEA (calling the DEA's action "arbitrary, capricious, and unconstitutional"). The group is represented by Hogan. [You can read their complete petition here.]
What the DEA's Notice means to Individuals, Producers, and Investors
For individuals and patients, there will likely be very little impact from the DEA’s notice and there is very little risk of any DEA enforcement against individual consumers. It is possible that instead of buying their CBD products from Walmart they may need to buy them smaller retailers or, if in medical legal states, from dispensaries. However, the DEA's action could have the unintended consequence of increasing the awareness of the different types of CBDs on the market (industrial hemp vs. marijuana) and the different sources (including cheap Chinese CBD) and what these mean in terms of safety and efficacy. The resulting dialogue could end up leading to a more robust and healthier CBD market.
For producers of CBD products, it is critical that they become aware of their state’s CBD laws and not rely on the belief that if Walmart is carrying CBDs then everything with CBDs must be legal. From Cannalawblog:
Anyone undertaking the sale of hemp-derived CBD should make very clear to regulators and to its customers that its products come from imported hemp and not from marijuana. Moreover, anyone selling or making hemp-derived CBD should take great care to avoid making any medical claims about those products or else they risk facing the consequences under the FDCA.
For investors, CBD-infused products are likely to become an important product category. Because of the potential to sell them in all 50 states, CBDs could be a good way to develop a national brand. However, CBDs derived from industrial hemp already face competition from cheap Chinese imports that could squeeze margins and possibly tarnish the industry. Furthermore, investing in a company that creates a product for human consumption with imported raw materials will have unique and difficult-to-mitigate risks that shouldn't be ignored.
March 2017 Update:
The DEA has just published a clarification [sic] to the notice published last year (and discussed above) that caused a ruckus (not to mention lawsuits). Under this clarificaiton, CBD products derived solely from hemp that do not contain any THC are not prohibited under the “marihuana extract” rule. However, as the Cannalawblog notes, "this clarification is not an official ruling by the DEA as it does not have the same authority as a formal rule." The lawsuit filed by the Hemp Industry Association and others is continuing so more clarifications (if not changes) should be expected.
Article Contributed by: Wesley