Source Rule is Out, Hemp is In
April 29, 2022 — The DEA responded to a letter by New York attorney, Shane Pennington, regarding the legality of cannabis seeds. Kyle Jaeger, DEA Says Marijuana Seeds Are Considered Legal Hemp As Long As They Don’t Exceed THC Limit, Marijuana Moment (Apr. 7, 2022), https://www.marijuanamoment.net/dea-says-marijuana-seeds-are-considered-legal-hemp-as-long-as-they-dont-exceed-thc-limit/. Although marijuana is illegal on a federal level, the 2018 Farm Bill excluded hemp from the Controlled Substances Act’s (CSA) definition of marijuana. Agriculture Improvement Act of 2018 (“2018 Farm Bill”), Pub. Law 115-334, § 12619 (2018). Hemp and marijuana plants are both the same species, but this bill allowed hemp to be grown legally so long as the cannabis plant contains 0.3 percent or less delta-9-tetrahydocannabinol, also known as THC, on a dry basis. Sian Ferguson, Hemp vs. Marijuana: What’s the Difference? Healthline, (Aug. 27, 2020), https://www.healthline.com/health/hemp-vs-marijuana. Anything above 0.3 percent THC would be considered schedule I “marihuana.”
Pennington wrote a letter with the intention to clear up the confusion over the Source Rule: the argument that the legal status of a cannabis product hinges on whether it is ‘sourced’ from marijuana or hemp. Kyle Jaeger, DEA Says Marijuana Seeds Are Considered Legal Hemp As Long As They Don’t Exceed THC Limit, Marijuana Moment (Apr. 7, 2022), https://www.marijuanamoment.net/dea-says-marijuana-seeds-are-considered-legal-hemp-as-long-as-they-dont-exceed-thc-limit/. There was confusion in the hemp industry over whether the legality of any particular sample depended on the flowers containing more than 0.3 percent or if the substance itself, like the seeds, exceeds the 0.3 percent threshold.
The DEA cleared up the confusion by acknowledging that both hemp and the plant’s seeds are generally legal as they contain nominal THC levels and is thus uncontrolled by the CSA. Because of this recognition, the DEA is saying that regardless of how THC might end up being produced in flowers if those seeds were cultivated, if the seeds themselves contain less than the THC threshold then it is legal hemp. This clarity will allow people to ask three statutory interpretation questions to determine whether a cannabis product is marijuana or hemp. Pennington’s colleague, Matt Zorn, put together a flow chart that lays out this statutory interpretation illustrating our reading of 21 U.S.C. 802(16):
The DEA letter also clarifies other open questions such as tissue culture and any other genetic material derived from the cannabis plant that does not exceed the threshold on a dry weight basis meets the definition of hemp regardless of the bud’s THC content. Although this is not precedential, this letter still has legitimacy because it was written by the DEA, a federal agency. Congress allocated power to the USDA and the DEA to oversee the program and expand statutory definitions of hemp. Mark A Mcminimy, CRS, The 2018 Farm Bill (P.L. 115-334): Summary and Side-by-Side Comparison 29 (2019). This legitimacy, although not binding, should soon define new precedence.
This rule change is significant for three reasons. First, this letter further defines hemp. This clarified definition will help streamline and create consistency within the hemp industry. As seen earlier this year, some farmers were forced to burn their hemp crops because they were no longer in compliance with the USDA ruling that all hemp must have a total THC level not to exceed 0.3 percent (sometimes called a “Hot Crop”), a change from the statute initially created in the 2018 Farm Bill, which only counts Delta-9 THC levels on a dry weight basis and pushed 42% of hemp crops over this threshold. Kyle Horan, Hemp farmers forced to destroy crops over USDA rules, News Channel 5 Nashville, (Feb. 25, 2022, 5:20 PM), https://www.newschannel5.com/news/hemp-farmers-forced-to-destroy-crops-over-usda-rules. To read more about this story here. In addition, this will allow more businesses to enter the hemp industry because this allows for a broader definition of federally legal hemp.
Second, this letter kills the Source Rule as the determination is based on the substance itself—not its source. Shane Pennington, The Source Rule is Dead, On Drugs, (Apr. 4, 2022) https://ondrugs.substack.com/p/the-source-rule-is-dead?s=r. This method was developed before the 2018 Farm Bill and while theoretically and legally correct, it is not commercial practical as it is impossible or extremely difficult to identify the source of the substance of a cannabis product. Id. Eliminating the outdated Source Rule will redirect focus on the future of hemp instead of continuously trying to make all marijuana-derived products a controlled substance.
Third, this means that delta-8 THC, an increasingly popular, psychoactive cannabinoid, is hemp and not a controlled substance under federal law. The DEA measures cannabis THC content based on delta-9 THC, but their letter did not explicitly ban delta-8 THC. Id. If DEA or Congress wanted to regulate delta-8 THC as well, they could have.
This new definition creates more opportunities for those in the hemp industry. However, opportunities come with risks. Make sure that you and your company are protected federally through trademarks, patents, and other intellectual property laws. To find out more about protections, regulations and what this DEA letter means for you, call Gleam Law.
New Congressional Farm Bill Legalizes Some Marijuana
[Updated 12/21 10:45 am: As expected, President Trump signed the Farm Bill into law on Dec. 20. The Commissioner of the FDA also issued a notable statement on the Bill (h/t to Doug Berman). The Commissioner emphasizes the points I make below regarding the ongoing limitations imposed by the FDCA on the use of CBD in food / drug products. The full statement can be found here.]
Congress has just passed the 2018 Farm Bill, which President Trump is expected to sign soon. The Farm Bill includes some important changes to federal law governing marijuana. Marijuana Moment has compiled the relevant provisions into a relatively concise document (the entire bill is roughly 900 pages), which can be found here.
Unfortunately, even the Cliff Notes version of the Farm Bill is difficult to follow. Hence, in this post, I’ll summarize some of the key changes wrought by the Farm Bill and discuss their implications for marijuana law.
1) The bill legalizes some “marijuana” by narrowing the definition of marijuana under federal law.
As discussed in my book (Chapter 2), the Controlled Substances Act (CSA) adopts a broad definition of marijuana. To simplify somewhat, under the CSA, marijuana includes the buds, leaves, and germinating seeds of the cannabis plant, along with substances extracted from those parts of the plant. However, marijuana does not include the stalks and non-germinating seeds of the cannabis plant, or substances extracted from those parts.
Importantly, cannabinoids like THC or CBD play no role in the CSA’s definition of marijuana. The bud of a cannabis plant is still marijuana, even if it contains no THC. Conversely, the stalk of the same cannabis plant is not marijuana, even if it does contain THC. In similar fashion, CBD extracted from the bud of a cannabis plant is marijuana, but CBD extracted from the stalk of the same plant is not. (See my book, pages 21-31, and Is CBD Legal Under Federal Law?, for more in-depth discussion of these points.)
The 2018 Farm Bill changes the definition of marijuana in a critical way—even though, interestingly, it never mentions “marijuana” by name. The Bill (implicitly) declares that the buds, leaves, and germinating seeds of a cannabis plant and the substances extracted therefrom are no longer considered “marijuana”, as long as they contain very little THC. The Farm Bill does this by reclassifying such materials as “hemp.” Here’s the relevant language from the Bill:
“The term ‘hemp’ means 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.”
Farm Bill, Section 10113 (page 429).
The implications of this change are clear: Cannabis plants and any THC or CBD extracted from those plants are no longer considered marijuana – and thus, no longer subject to the CSA – if they do not exceed the .3% THC (once dried) concentration. In other words, the possession of these items is no longer a crime under federal law.
2) Hemp (née, marijuana) will still be subject to regulations.
While the Farm Bill removes hemp (née, marijuana) from the purview of the CSA, it subjects hemp to regulations (Plans) still to be written. Those Plans will be drafted either by the states or by the federal Department of Agriculture.
State Plan. The Farm Bill empowers states to assume primary responsibility for regulating hemp. (The Bill also empowers tribes to do the same, but for ease of exposition, I’ll only discuss states here.) To exercise this option, a state must submit a regulatory plan to the Secretary of Agriculture. The State Plan must satisfy some conditions enumerated in the Farm Bill. In particular, the state must:
a) Track where hemp is being produced in the state
b) Test THC levels in hemp
c) Provide for the disposal of plants and products derived from those plants that are in violation of the Farm Bill (more on this below)
d) Conduct random inspections of grow sites
e) Devote resources to the enforcement of the State Plan
f) Share information on hemp producers with federal law enforcement
Farm Bill, Section 10113 (pp. 429-432)
The Farm Bill also gives states the option of banning hemp outright, if they so choose. This, at least, is how I read the Bill’s preemption provision, which spares state laws that are “more stringent” than federal law. See Farm Bill, Section 10113 (page 430); see also id. (page 432) (seemingly acknowledging that the “production of hemp” could be “prohibited by the State”).
Federal Plan. In the alternative, that is, if state does not submit a State Plan or ban hemp altogether, hemp producers would be governed by federal regulations. These regulations will be promulgated by the federal Department of Agriculture. The Federal Plan must meet the same criteria set forth above for State Plans (e.g., it must track where hemp is being produced, etc.); it must also provide for the licensing of hemp producers.
I suspect states would prefer to assume primary responsibility for the regulation of hemp, but it remains to be seen how many will actually get on the ball and submit acceptable State Plans.
3) The Farm Bill’s impact on the market for CBD products will be somewhat limited.
Much of the excitement over the Farm Bill stems from its potential impact on the market for CBD products. Consumer demand for CBD already exceeds demand for other hemp-related products (often called industrial hemp), like hemp-based textiles. But while the Farm Bill shields hemp-derived CBD from the coverage of the CSA – thereby removing one market obstacle, it does not shield hemp-derived CBD from other federal laws that could continue to limit sales of CBD infused products.
For example, the Farm Bill expressly states that “Nothing in this subtitle shall affect or modify . . . the Federal Food, Drug, and Cosmetic Act [(FCDA)].” Farm Bill, Section 10113 (page 434). The Food and Drug Administration (FDA) has previously warned that it is “a prohibited act [under the FDCA] to introduce or deliver for introduction into interstate commerce any food (including any animal food or feed) to which THC or CBD has been added.” See FDA and Marijuana: Questions and Answers. If federal law prohibits the use of CBD in food products, I suspect that some large companies will decline to incorporate CBD into their beverages, snacks, etc., notwithstanding strong consumer demand for CBD—and notwithstanding the fact that the possession, manufacture, and distribution of the substance, by itself, is now legal (at least when derived from hemp).
Sean O’Connor and Erika Lietzan’s paper, The Surprising Reach of FDA Regulation of Cannabis, Even After Descheduling, does a wonderful job of explaining how the FDCA limits the market for CBD. They also identify some loopholes (my term, not theirs) in the FDCA . For example, it doesn’t appear to ban the sale of raw CBD, and it only applies to food products shipped across state lines or made with ingredients that were shipped across state lines. The existence of such loopholes suggest that sales of hemp-derived CBD could thrive post-Farm Bill, albeit perhaps not to the degree suggested by the most optimistic commentators.
The Farm Bill’s impact on the market for THC products will likely be even more muted. Under the Bill, farmers can grow hemp with high concentrations of CBD, thereby allowing for economical (volume) production of hemp-derived CBD. By definition, however, farmers cannot grow “hemp” with high concentrations of THC. In any event, even if hemp producers could economically extract large quantities of THC, the sale of such extracts would probably remain unlawful. After all, the Farm Bill imposes a tight cap on THC concentrations in hemp “extracts” as well as cannabis plants.
The Farm Bill contains a few other less important but still interesting provisions worth noting here.
4) The Farm Bill limits the sanctions that apply to negligent violations of State and Federal Plans, thereby reducing the legal risks faced by hemp producers.
The Farm Bill limits the punishment that the federal and state governments may impose upon hemp producers who negligently violate a State or Federal Plan. With regard to State Plans, for example, the Bill provides that,
“A hemp producer that negligently violates a State . . . plan . . . shall not as a result of that violation be subject to any criminal enforcement action by the Federal Government or any State government . . .”
Farm Bill, Section 10113 (page 431). Instead, negligent violations are subject only to “Corrective Action,” which basically means that the producer must promptly correct the violation. For example, a farmer who mistakenly grows plants that exceed the Bill’s THC limits would probably just need to destroy those plants.
This is an important protection for hemp producers. The THC content of any given cannabis plant can vary significantly over time, due to growing conditions, cultivation practices, and so on (see book pages 18 and 367). Because of these variations, producers may worry that the hemp they cultivate today could become marijuana tomorrow, exposing them to severe criminal sanctions under the CSA in the process. The Farm Bill reassures producers that if they breach the limits imposed by the law through mere negligence, they cannot be prosecuted under the CSA or comparable state laws.
5) The Farm Bill might force states to exclude marijuana producers from the hemp market.
Even though the Farm Bill offers states the opportunity to assume primary responsibility for regulating hemp, it might force them to exclude marijuana producers from the hemp market to take advantage of this opportunity. The relevant provision of the Farm Bill indicates that a State Plan must include (among other items noted above),
“a procedure for the effective disposal of— (I) plants, whether growing or not, that are produced in violation of this subtitle; and (II) products derived from those plants.
Farm Bill, Section 10113 (at 430).
Read literally, this provision appears apply to all marijuana within a state. After all, high-THC cannabis grown for the medical or adult use markets would be “produced in violation” of the Farm Bill. For example, the provision would seem to require California to adopt a “procedure for the effective disposal of” the high-THC marijuana now being produced for the state’s adult-use market, that is, if the state wants to assume primary responsibility for regulating hemp. At the very least, it might require California (and other legalization states) to exclude licensed marijuana producers (i.e., those that handle high THC products) from the hemp market, in order to comply with the Farm bill’s requirements for State Plans. After all, it would be difficult for a state like California to comply with this provision, if licensed hemp producers are also cultivating high-THC, at least in the same facility.
Note that this provision does not impermissibly commandeer the states. The Farm Bill imposes obligations on the states only if they choose to submit a State Plan; but because States may decline to submit a plan in the first instance (point 2) above), there is no command.
6) The Farm Bill reduces some barriers to interstate commerce in hemp.
Another, little noticed provision in the Farm Bill declares that,
(a) Nothing in this title . . . prohibits the interstate commerce of hemp . . . or hemp products.
(b) No State . . . shall prohibit the transportation or shipment of hemp or hemp products produced in accordance [a State or Federal Plan] through the State . . .
Farm Bill, Section 10114. This provision is likely designed to prevent states from interfering with shipments of hemp bound for other states. For example, it prevents Indiana from seizing a shipment of Kentucky hemp on its way to Michigan, even if possession (etc.) of hemp remain illegal under Indiana law.
Section 10114 only addresses transportation – i.e., it doesn’t explicitly block a state from banning the sale of out-of-state hemp within the state. Nonetheless, the provision could indirectly limit state power to discriminate against out-of-state hemp producers. Normally, such discrimination violates the dormant Commerce Clause. The assumption behind the dormant Commerce Clause is that Congress usually wants to eliminate barriers to interstate trade. With marijuana, that assumption arguably doesn’t hold water, because Congress is trying to quash interstate commerce in the drug, not promote such commerce. This is why many believe that state discrimination in the marijuana market, e.g., in the form of residency requirements for licensing (see book pages 451-452), does not (yet) violate the dormant Commerce Clause (see book pages 283-288). However, because the Farm Bill legalizes hemp, it might make resuscitate dormant Commerce Clause challenges to state discrimination in the hemp market. In other words, the Farm Bill might make it more difficult for states to sustain discrimination against out-of-state hemp producers.
That’s it for now. I’m sure there will be more to write about the Farm Bill in the near future.