Philip Steffan

Likely Outcomes of the 9th Circuit Court of Appeals Siding with the DEA

The Federal Court of Appeals in San Francisco ruled in an unpublished Memorandum of Disposition this week that the Drug Enforcement Administration’s December 2016 Marijuana Extract rule change stands. The rule change added a new code number to the DEA rules for “Marihuana Extracts” to make it easier for the DEA to track and trace CBD and other Marijuana Extracts imported to and exported from the United States.

The troublesome part of the new code is that it redefines “Marihuana Extracts” 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.” The challenge to the rule was based on the expansion of the definition of Marijuana to all plants in the genus Cannabis, which could now arguably include extracts from hemp. The DEA made it clear in their rule statement: their policy is that “Extracts of marihuana will continue to be treated as Schedule I controlled substances.”

However, the 9th Circuit based their disposition on procedural grounds — the Hemp Industry Association’s arguments lost not because they were wrong, necessarily, but because they did not raise their arguments during a specified public comment period. The court did not decide whether the DEA has the authority to create the 2016 rule or whether expanding the definition of Marijuana to include all plants in the genus Cannabis exceeded the DEA’s authority. Specifically, under existing 9th Circuit Court precedent and the Controlled Substances Act (“CSA”), the DEA lacks the legal authority to add or remove substances from the Schedules within the CSA. The CSA permits only the Attorney General (or congress through legislation) to add or remove substances from the CSA.

This changes nothing. This changes everything.

The DEA’s new “Marihuana Extracts” rule went into effect in December 2016, so this week’s decision was not actually a change in policy at the DEA — that happened months ago. All that happened this week is that a three-judge panel quashed a challenge to the rule, a decision that will most likely be appealed. Cannabis in almost all forms is still illegal under Federal law, but also legal in some form in over 30 states and the District of Columbia. Hemp and marijuana are treated differently in some ways, and the same in others, often turning on some legal fiction that is unsupported by either science or common sense.

Photo credit: Blogtrepreneur

CBD derived from marijuana is legally equivalent to THC, heroin, and psilocybin.

While the DEA’s rule change did not add CBD to the official list of Schedule I controlled substances, the clear effect and stated intent of the rule change is to treat CBD as a Schedule I drug, just like THC, heroin, magic mushrooms, ayahuasca, and PCP. No one really expects the DEA to start raiding CBD supplement companies, but that risk is higher than it was last Thanksgiving, and slightly higher today than it was last week.

All 29 state governments that license and regulate MMJ are criminal co-conspirators

When Washington State passed its medical marijuana regulatory bill in 2011, then-Governor Christine Gregoire asked then-US Attorney Jenny Durkan (who is now Seattle’s Mayor) whether state employees who license and regulate medical marijuana providers could be prosecuted under Federal drug statutes. Ms. Durkan, in her official capacity as the top Federal prosecutor for Western Washington, answered with an unequivocal yes. Her official position was that Federal prosecutors could not only investigate and charge MMJ providers, but also doctors, landlords, financiers, and any state employee who licensed, regulated, audited, or inspected those businesses.

Today, it is clear that the DEA has little appetite for charging state employees with federal drug conspiracies and they are also precluded from using their budget to interfere with the implementation of state medical cannabis laws. Additionally, the Department of Justice is further prohibited from using federal funds to interfere with transport, processing, sale, or use of products derived from federally authorized industrial hemp pilot programs. These limitations don’t fix the contradictions and conflicts in the law, they merely delay the hard choices.

Legal and logistical burdens of recreational cannabis may now apply to CBD

The trend in the industry has been to treat CBD the same regardless of the source. With the DEA’s rule and the 9th Circuit’s disposition of the challenge, it is now more important than ever to document the source of CBD sold outside of the adult-use and medical marijuana markets. In order for a business to sell CBD outside the state regulated markets, the business will need to prove the CBD came from one of the two legal sources of hemp.

The first legal source for hemp comes from the parts of the “Marihuana” plant that are specifically excluded in the CSA. Since this is primarily the mature stalks of the plant, it must be grown outside the U.S. and imported. Until 2014, this was the only legal source of hemp, hemp oils, and hemp extracts available within the U.S.

However, in 2014, Congress passed an Amendment to the Farm Act that created federal industrial hemp pilot programs. These pilot programs permit research into the growth, cultivation, and marketing of industrial hemp in states that establish industrial hemp pilot programs. The Farm Act is silent as to what the states can do with the industrial hemp once it is grown and each state that has adopted a pilot program has passed drastically different rules on what can and cannot be done with the industrial hemp after it is harvested. Some states strictly prohibit processing the hemp for human consumption while other states clearly permit the processing of that hemp into hemp oil and other hemp extracts that would include CBD. Therefore, CBD extracted under a state-regulated industrial hemp pilot program remains hemp and remains outside the DEA’s authority to control.

Photo credit: Shango Los

There is no guarantee that the DEA will adhere to this differentiation. In fact, in a non-binding Statement of Principles on Industrial Hemp issued jointly in 2016 by the DEA, FDA, and USDA, the agencies made it clear that they intend to tightly construe the Farm Act and industrial hemp pilot programs. Their opinion is that the Farm Act did not remove hemp from the CSA and that any drugs derived from such industrial hemp still fall within the CSA. Luckily, at least for the time being, Congress has curtailed any interference from such federal agencies by prohibiting the use of federal funds to interfere with the transport, processing, sale, or use of products derived under a state industrial hemp pilot program. This prohibition extends to all state enforcement agencies that accept federal funds for any purpose.

In conclusion, the question of whether or not CBD is a controlled substance continues to hinge on the source of the CBD. If the CBD is derived from a source that is already legal in commerce, then the CBD itself is still legal under federal law and the DEA’s guidelines. Although the DEA maintains that “it is not practical to produce extracts that contain more than trace amounts of cannabinoids [CBD] using only the parts of the cannabis plant that are excluded from the CSA definition of marijuana, such as oil from the seeds.” The DEA also maintains that “if a product, such as oil from cannabis seeds, consisted solely of parts of the cannabis plant excluded from the CSA definition of marijuana, such product would not be included in the new drug code (7350) or in the drug code for marijuana (7360), even if it contained trace amounts of cannabinoids [CBD].”

Editor’s Note: This article was co-authored by Orion Inskip, an attorney at Gleam Law who specializes in litigation issues.

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Authored By

Ammon is a Cannabis attorney at Gleam Law, PLLC where he focuses on intellectual property, regulatory compliance, and business law. He holds a JD/MBA from Seattle University where he founded the Cannabis Law Society and was the Grand Prize winner of the 2015 Harriet Stephensen Business Plan Competition. With an eye towards building a national Cannabis market, Ammon loves finding creative solutions for his clients that bridge the divide between business and law.

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