Month: September 2019

Cannabis Smoke: The Good, the Bad and the Ugly

The last few days we’ve seen a flurry of activity related to smokable cannabis products. It’s been tough to keep track of everything that’s gone on, so today I’m going to take a page out of legendary Italian director Sergio Leone‘s book and break down the Good, the Bad, and the Ugly in all things related to cannabis smoke.

The Good. On September 13, 2019, the U.S. District Court for the Southern District of Indiana struck down Indiana’s ban on “smokable hemp” deeming it unconstitutional (shout out to Kristen Nichols, editor of Hemp Industry Daily, for covering this case and for linking to the court’s Order at the top of her story).

Why is this decision good? Preemption! When a state law conflicts with federal law, federal law wins due to the Supremacy Clause of the Constitution. With that in mind let’s take a look at the match-up between Indiana’s smokable hemp ban and the 2018 Farm Bill.

The 2018 Farm Bill removed hemp from the Controlled Substances Act (“CSA”) and defined “hemp” as the Cannabis sativa L. plant with 0.3% or less THC “and any part of that plant, including . . . all derivatives, extracts, [and] cannabinoids . . . whether growing or not[.]” The 2018 Farm Bill did specifically did not preempt states or Indian tribes from passing laws regulating the production of hemp more stringently than federal law. However, the 2018 Farm Bill did explicitly preempt states and Indian tribes from passing laws that “prohibit the transportation or shipment of hemp or hemp products produced in accordance with” the 2018 Farm Bill.

In response to the 2018 Farm Bill, Indiana passed SEA 516 to legalize the commercial production of hemp in Indiana while also criminalizing the manufacture, finance, delivery, and possession of “smokable hemp,” i.e., hemp derivatives that can be introduced to the human body through inhalation. Notably, the ban on smokable hemp did not reference the “production” of hemp. This lead to the Midwest Hemp Council and several other hemp stakeholders to sue Indiana for violating federal law and to enjoin the state from enforcing portions of SEA 516 pending the lawsuit.

To recap, federal law says that states can’t interfere with the right to transport hemp products in interstate commerce. Indiana law says that it’s illegal to manufacture, finance, possess, and deliver certain smokable hemp products and does not limit that prohibition to intrastate activities. The court ruled that the Plaintiffs had a high likelihood of success on challenging SEA 516 as being preempted by the 2018 Farm Bill and granted the injunction.

It’s also worth noting that the court considered Indiana’s legitimate claim that the passage of the 2018 Farm Bill made it difficult for law enforcement to differentiate between hemp and marijuana, especially smokable hemp. However, the court was not convinced that these challenges were enough to justify an outright ban on smokable hemp especially when other options were available (e.g., earmarking funds to purchase THC testing equipment; increasing penalties for knowingly selling marijuana packaged as hemp).

This court order won’t immediately impact states outside of Indiana but does show the impact of the 2018 Farm Bill on all hemp products, including smokable hemp.

The Bad. Donald Trump found out about vaping and announced that his administration would ban flavored vaping products. The Food and Drug Administration (“FDA”) issued a News Release shortly after Trump’s announcement stating that:

the FDA intends to finalize a compliance policy in the coming weeks that would prioritize the agency’s enforcement of the premarket authorization requirements for non-tobacco-flavored e-cigarettes, including mint and menthol, clearing the market of unauthorized, non-tobacco-flavored e-cigarette products.

As this is the Canna Law Blog, you may be wondering how this ban will impact cannabis, including both marijuana and hemp-derived vapor products. We’ll certainly get more insight once the FDA announces its compliance plan referenced above, along with promised guidance on how the FDA will regulate Hemp-CBD generally.

However, even though we don’t have the full picture, we already know this ban is bad policy, and likely to lead to an increase in unregulated and illegal vapor products. To understand this, I want to break down the vapor market into five major categories:

  1. Legal vapor products containing nicotine or tobacco;
  2. Illegal vapor products containing nicotine or tobacco;
  3. Largely unregulated hemp-derived CBD vapor products;
  4. State-legal marijuana-derived vapor products; and
  5. Illegal vapor products containing marijuana.

Trump’s ban will have the biggest impact on lawful manufacturers of tobacco products in category one, who can no longer sell flavored vapor products. For years, the FDA has been focused on moving tobacco product manufacturers from category two to category one. The FDA even provides resources specifically designed to allow small businesses to comply FDA regulations in manufacturing tobacco products, which have changed a lot in the last few years.

In 2009, the Tobacco Control Act (“TCA”) granted the FDA regulatory authority over any “tobacco product,” that is, a “product made or derived from tobacco that is intended for human consumption, including any component, part, or accessory of a tobacco product.” In 2016, the FDA expanded its regulatory authority to include as e-cigarettes, cigars, pipes and waterpipes. Trump’s ban isn’t going to make it easier for the FDA to get illicit manufacturers to “buy in.”

Trump’s ban is also likely to cast a shadow on categories three and four: manufacturers of Hemp-CBD and state-legal marijuana vapor products. The FDA’s website (here and here) seems to suggest that the agency currently does not interpret “tobacco products” so broadly as to include products free of nicotine or tobacco. Accordingly, it’s plausible that the FDA will not enforce Trump’s ban to explicitly ban Hemp-CBD and marijuana vapor products that are nicotine or tobacco-free.

Despite these jurisdictional issues that may limit the FDA’s enforcement ability, Trump’s ban places a target on all flavored vape products. This could mean seizures of cannabis-based vapor products in states where they are legal. It could also cause state regulators to ban certain marijuana and hemp vapor products.

In reality, the only products that won’t be impacted are likely marijuana and tobacco vapor products that are currently being manufactured illegally under federal and state law.

The Ugly. People are getting sick and dying as a result of vape-related illnesses and it’s likely going to get worse before it gets better because no one really know what’s going on. Let’s assume for a second that I’m totally wrong about Trump’s ban and it effectively kills the flavored vape market. If that happens do we really think vaping will be safe? Probably not because it doesn’t seem like flavoring is what’s causing illness and death.

What about vitamin E acetate? On September 6, a few days before Trump’s ban was announced, the Washington Post reported that FDA investigators found vitamin E acetate present in samples of cannabis oil linked to vaping illnesses across the country. Vitamin E acetate is an oil derived from vitamin E that naturally occurs in certain foods like almonds and olive oil. It’s found in topical products and dietary supplements. However, it’s very dangerous when inhaled. This is a chilling reminder that otherwise harmless articles can be dangerous when inhaled.

To further complicate things, vitamin E acetate may not even be the biggest problem. In a warning about THC vaping products the FDA wrote:

No one substance has been identified in all of the samples tested. Importantly, identifying any compounds that are present in the samples will be one piece of the puzzle but will not necessarily answer questions about what is causing these illnesses.

Scientific American also reports that though these vaping illnesses are popping up across the country, the symptoms vary wildly from person to person. This is an ugly, and frankly scary situation with more questions than answers.

We’ll continue to monitor smokable hemp, Trump’s ban, and these troubling vape-related illnesses and report the good, the bad, and the ugly.

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Litigation Update: Who Decides Whether You Can Ship Hemp Through Idaho?

Regular readers know that we are in the midst of presenting a 50-state series analyzing how each state treats hemp-derived cannabidiol (“Hemp CBD”). Recently we covered Idaho, which we neatly summarized as “probably the worst state in the country to get caught with hemp.” The article explains why this is so in detail. Among the reasons is that last winter the Idaho State Police seized a shipment of 13,000 pounds of hemp which was being transported across Idaho from Oregon to Colorado. (See here.) The case has received considerable attention from the press and the hemp industry. Indeed, the American Trade Association of Cannabis and Hemp filed amicus briefs in both the federal district court and the Ninth Circuit in support of the owner of the hemp.

The Ninth Circuit sends hemp owner to Idaho state court on the basis of the Younger abstention doctrine.

The seizure led to a federal lawsuit by the owner of the seized load. Big Sky Scientific, LLC v. Jan M. Bennetts, No. 1:19-cv-00040-REB (D. Idaho). Big Sky sought a declaration that (i) the cargo is industrial hemp under provisions of the 2018 Farm Bill, (ii) hemp is not a controlled substance under federal law, and (iii) Idaho cannot interfere with the interstate transportation of hemp.

Big Sky also quickly moved for a preliminary injunction asking the federal court to compel the Idaho State Police (“ISP”) to return the hemp. Big Sky contended the cargo was deteriorating and losing its value as it sat in ISP’s possession. Meanwhile, ISP filed a state-court complaint in rem for forfeiture of the hemp under Idaho state law.

In considering the motion, the federal district court directed the parties to address “whether the Court has jurisdictional authority to compel the relinquishment of property seized in connection with a state criminal case.” ISP drew upon the Younger abstention doctrine to argue the federal court lacked jurisdiction and ought to abstain from exercising jurisdiction over Big Sky’s request for equitable relief.

The federal court denied the motion for a preliminary injunction and ruled that it need not decide the abstention question. Big Sky appealed the denial to the Ninth Circuit, wherein ISP argued the district court abused its discretion by not abstaining pursuant to Younger.

In a short, unpublished opinion issued on September 4, 2019, the Ninth Circuit agreed with ISP and reversed the district court’s decision not to apply Younger abstention. The decision was based, in part, on ISP’s representation at oral argument that (i) Idaho will immediately move to lift the stay in the in rem forfeiture action, and (ii) the assumption that the Idaho state court would proceed expeditiously with the in rem action, including Big Sky’s challenge to Idaho’s interpretation of the 2018 Farm Bill.

In plain terms: the Ninth Circuit ruled that the federal district court should refrain from exercising jurisdiction over Big Sky’s case because doing so may interfere with the ongoing proceedings in Idaho state court. (Feel free to email me for a copy of the opinion.)

What is Younger abstention?

The Younger abstention doctrine is named after the Supreme Court’s 1971 decision in Younger v. Harris which held that federal courts may not enjoin state court criminal proceedings. At heart the Younger abstention doctrine arises from our system of federalism and its separation of powers. States are independent sovereigns (as are Indian tribes in many respects) and most abstention doctrines proceed from this understanding. Since 1971, federal courts have applied the principles of Younger to proceedings far beyond the criminal context. Generally speaking, the doctrine operates to prevent federal courts from enjoining pending state court proceedings.

The doctrine is controversial in several respects for reasons we won’t get into here. (See Federal Jurisdiction by Erwin Chemerinsky for a thorough analysis). Other abstention doctrines include Colorado River abstention – which is concerned with avoiding duplicative litigation; the Rooker-Feldman doctrine – which concerns federal court review of state court decisions; Pullman abstention – which concerns refraining from deciding questions based on unclear state law; and Burford abstention – which concerns deferring review of complex state administrative procedures.

For now, I’ll briefly explain the elements of Younger abstention and turn to the implications of the Ninth Circuit’s decision. As the Court explained, “Younger abstention is appropriate when (1) there is an ongoing state judicial proceeding; (2) the proceeding implicates important state interests; (3) there is an adequate opportunity in the state proceedings to raise constitutional challenges; and (4) the requested relief seeks to enjoin or has the practical effect of enjoining the ongoing state judicial proceeding.”

In Big Sky, the Ninth Circuit found these elements met because of the pending in rem forfeiture proceeding in Idaho state court in which Big Sky may raise its federal claims. Although the state courts had stayed that action, ISP’s promise to move to lift that stay, and the “assumption” the state court would proceed to resolve that action expeditiously and permit Big Sky to raise its constitutional challenges led the Ninth Circuit to conclude Younger abstention was appropriate.

What are the implications of the Ninth Circuit’s ruling in Big Sky for shipping Hemp-CBD across state lines?

The Ninth Circuit’s decision has several immediate consequences relevant to anyone operating in the Hemp-CBD marketplace:

1) Big Sky (and others) who have Hemp-CBD shipments seized in Idaho may ending up winding their way through state court and the state court appellate process (this is less than ideal);

2) Other states that take a dim view of hemp (we are looking at you, South Dakota) may see this as a template for seizing Hemp-CBD shipments and keeping related proceedings out of federal court (though South Dakota is in the Eighth Circuit so not bound to follow the Ninth);

3) Trucking and shipping companies may decline to offer Hemp-CBD shipping services because of the potential of seizure;

4) The risk and costs of shipping Hemp-CBD ought to be addressed in your contracts – as we have said before – and you should consider spelling shipping routes to lessen the risk of seizure;

5) Ensure that your Hemp-CBD shipments and shippers have the proper manifests and other chain-of-custody documents; and

6) Finally, if one of your Hemp-CBD shipments is seized by law enforcement, act quickly with your litigation attorneys to commence a federal court action and be prepared to make sophisticated jurisdictional arguments.

For now, it may be best to stay away from Idaho.

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Hemp-CBD Across State Lines: Indiana

The Agriculture Improvement Act of 2018 (“2018 Farm Bill”) legalized hemp by removing the crop and its derivatives from the definition of marijuana under the Controlled Substances Act (“CSA”) and by providing a detailed framework for the cultivation of hemp. The 2018 Farm Bill gives the US Department of Agriculture (“USDA”) regulatory authority over hemp cultivation at the federal level. In turn, states have the option to maintain primary regulatory authority over the crop cultivated within their borders by submitting a plan to the USDA.

This federal and state interplay has resulted in many legislative and regulatory changes at the state level. Indeed, most states have introduced (and adopted) bills that would authorize the commercial production of hemp within their borders. A smaller but growing number of states also regulate the sale of products derived from hemp.

In light of these legislative changes, we are presenting a 50-state series analyzing how each jurisdiction treats hemp-derived cannabidiol (“Hemp CBD”). Each Sunday, we summarize a new state in alphabetical order. Today, we turn to Indiana.

The Office of Indiana State Chemist (“OISC”) regulates hemp cultivation activities. Currently, the OISC is allowing applications for hemp researchers but expects to allow commercial cultivation applications in 2020 (absent a change in applicable laws or regulations) in light of the 2018 Farm Bill’s allowance of hemp production programs and a series of laws and regulations in Indiana. Pursuant to these OISC FAQs, the final rules for the 2020 application process are still being worked out, and the state hopes that the first round of commercial hemp crops will be planted next year. The FAQs also state that hemp seeds can be imported from other states and that the license types that will eventually be issued will be for Growers, Handlers, and Researchers.

Perhaps surprisingly, Indiana has some of the most robust Hemp CBD requirements of any U.S. state. Indiana’s legislature passed SB-52, allowing the sales of FDA-approved Hemp CBD products, or “low THC hemp extract” that complies with Indiana law effective in 2018. These requirements are broad and require independent lab testing with a passing certificate of analysis, and require products to have comprehensive labels with scannable QR codes linking to even more comprehensive information.

SB-52 doesn’t list each and every kind of Hemp CBD product that may be sold, but subsequent legislation has clarified the state’s position on certain products. Earlier this year, the state passed SB-516, which among other things, makes clear that smokable hemp isn’t a permitted product in Indiana. “Smokable hemp” is defined broadly and arguably includes both flower products and vape products.

Stay tuned to the Canna Law Blog for developments on hemp and Hemp CBD in Indiana. For previous coverage in this series, check out the links below.

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Will California Get a Hemp Social Equity Program?

As states across the country develop regulated cannabis programs, more and more are incorporating social equity programs. Illinois’ new adult-use cannabis law, for example, made waves for its broad social equity program. Here in California, cannabis social equity is not a central part of the state-level regulations, but many of the larger cities throughout the state have adopted and are in the process of implementing comprehensive social equity programs: for example, Los Angeles, San Francisco, and Long Beach. Others will probably follow in the future.

But the same isn’t really true for California hemp or hemp-derived cannabidiol (“Hemp CBD”). California hasn’t really made any progress on adopting hemp social equity programs, probably because of the murky legality of hemp to start. Most Hemp CBD products are “illegal” according to the California Department of Public Health, and . AB-228—the bill that may change that, if it ever moves forward—won’t really do anything to create any kind of social equity benefits for Hemp CBD manufacturers or sellers. California’s existing hemp cultivation law—the California Industrial Hemp Farming Act (or “CIHFA”, which I’ve written about here)—is half a decade old and essentially is limited to regulating very limited aspects of cultivation.

The CIHFA is not really geared towards the easy creation of a social equity program for hemp farmers. It doesn’t necessarily require city or county permitting, but instead requires that commercial cultivators file simple registration forms with county agricultural commissioners and pay a pretty nominal fee. This is in contrast to the state’s cannabis law—the Medicinal and Adult Use Cannabis Regulation and Safety Act and its corresponding regulations (or “MAUCRSA”)—which requires local approval and thus creates the opportunity for cities to fill the gap with their own individualized social equity programs. Because there’s currently not an equivalent licensing program for hemp, and because the state laws on point don’t address social equity, we just aren’t seeing that happen.

Moreover, a possible amendment to the CIHFA (SB-153) will actually hurt the chances of the state getting a social equity program that looks anything like cannabis social equity programs. One of the current provisions of SB-153 states:

Any person convicted of a felony relating to a controlled substance under state or federal law before, on, or after January 1, 2020, shall be ineligible, during the 10-year period following the date of the conviction, to participate in the industrial hemp program.

This provision is a bit vague and we don’t yet know how it will be implemented—for example, what the state means by “participation” is not yet clear so we don’t know if that would bar someone from being an owner of a hemp farm, or even being employed by one. It is also similar to exclusionary language found in the federal 2018 Farm Bill, which bars “any person convicted of a felony relating to a controlled substance under State or Federal law.”

We wrote about the discriminatory impact of that language here. Under the similar SB-153 language, if someone had a controlled substances conviction—likely even a cannabis conviction anywhere in the U.S.—within 10 years of attempting to participate in the industrial hemp program, they would be ineligible. This is anathema to social equity programs which in many cases will give assistance to persons were convicted for possession of controlled substances (i.e., Los Angeles’ program). The upshot is that if a locality were to adopt a social equity program, it may not be able to use prior convictions as a basis for eligibility and would have to design it a lot differently.

At the end of the day, it’s too early to tell whether the state will bring social equity to hemp. We’ll report back on any updates to this, so stay tuned to the Canna Law Blog.

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Hemp-CBD Across State Lines: Illinois

The Agriculture Improvement Act of 2018 (“2018 Farm Bill”) legalized hemp by removing the crop and its derivatives from the definition of marijuana under the Controlled Substances Act (“CSA”) and by providing a detailed framework for the cultivation of hemp. The 2018 Farm Bill gives the US Department of Agriculture (“USDA”) regulatory authority over hemp cultivation at the federal level. In turn, states have the option to maintain primary regulatory authority over the crop cultivated within their borders by submitting a plan to the USDA. This federal and state interplay has resulted in many legislative and regulatory changes at the state level. Indeed, most states have introduced (and adopted) bills that would authorize the commercial production of hemp within their borders. A smaller but growing number of states also regulate the sale of products derived from hemp.

In light of these legislative changes, we are presenting a 50-state series analyzing how each jurisdiction treats hemp-derived cannabidiol (“Hemp CBD”). Each Sunday we will summarize a new state in alphabetical order. So far, we’ve covered Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii and Idaho. Today we turn to Illinois.

Overview. Since 2016, Illinois has limited the cultivation of industrial hemp by the Illinois Department of Agriculture (“IDA”) and institutions of higher learning for research purposes only. However, on August 26, 2018, Governor Bruce Rauner signed SB 2298, which expanded the state’s industrial hemp regulations to cover commercial activity. SB 2298 updated Illinois’ industrial hemp laws to allow individuals and entities to cultivate hemp by registering with the IDA and removed industrial hemp from the definition of cannabis.

Earlier this year, the IDA adopted temporary rules under SB 2298. Under the rules, “Industrial Hemp” means

the plant Cannabis sativa L. and any part of that plant, whether growing or not, with a delta- tetrahydorcannabinol (THC) concentration of not more than 0.3% on a dry weight basis that has been cultivated under a license issued under the Act or is otherwise lawfully present in this State and includes any intermediate or finished product made or derived from industrial hemp.

Production of Hemp and Hemp-CBD Products. Pursuant to Illinois law, only licensed growers and processors may sell or transfer living hemp plants or viable hemp seeds to (1) other IDA licensees, or (2) others outside of Illinois so long as the sale is authorized by a state agency in the destination state.

The IDA also permits the sale and transfer of “stripped stalks, fiber, dried roots, nonviable seeds, seed oils, floral and plant extracts (excluding THC in excess of 0.3%) and other marketable hemp products to members of the general public, both within and outside the State of Illinois.” Note that neither the bill nor the IDA rules define “marketable hemp products.”

However, Section 25 of SB 2298 provides the following provision:

Nothing in this Act shall be construed to authorize any person to violate federal rules, regulations, or laws. If any part of this Act conflicts with a provision of the federal laws regarding industrial hemp, the federal provisions shall control to the extent of the conflict.

Accordingly, because there is no permissive language that allows for Hemp-CBD products and because of Section 25, the sale of these products is illegal at worst, and unregulated at best.

In addition, only registered processors can process Hemp-CBD grown under the program. However, nothing in SB 2298 nor the IDA rules expressly prohibit the introduction of hemp products lawfully processed under another state plan.

Possession. Pursuant to SB 2298, “[n]othing in this Act shall alter the legality of hemp or hemp products that are presently legal to possess or own.” Consequently, the possession of Hemp-CBD products seems limited to those approved by the FDA or that meet the standards set by IDA rules (i.e., containing no more than 0.3% THC and that satisfy other requirements).

Transportation. Only a licensed grower or registered processors may transport hemp so long as the hemp contains no more than 0.3% THC. Note that the IDA rules state that the transportation of Hemp-CBD products is not restricted after sold to a member of the public.

Marketing or Advertising Restrictions. As of the date of this post, the state has not enacted regulations governing the marketing or advertising of Hemp-CBD products.

Bottom Line. Although the production and sale of Hemp-CBD products isn’t clearly authorized or restricted, Illinois is authorizing the cultivation of the crop and has not taken any enforcement actions against these products. For these reasons, Illinois should be considered a hemp friendly state. That being said, there is a possibility that things may change upon the adoption of final rules by IDA.

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