Federal Courts Are Split on the Legality of Transporting Hemp and CBD in Interstate Commerce

by Ian Stewart

When the 2018 Farm Bill was signed by President Trump on December 20, 2018, there was widespread optimism that hemp and hemp-derived products, including cannabidiol (CBD), soon would be freely moving in interstate commerce without interference by state and local authorities. That optimism may have been premature. State and local governments across the country are beginning to take enforcement action against companies that distribute hemp and hemp-derived products across state lines.

Under the Farm Bill, hemp is now defined as any part of the cannabis plant with a concentration of THC (tetrahydrocannabinol, the main active ingredient of cannabis) of not more than 0.3 percent on a dry weight basis. This distinction is not readily apparent to the casual observer. Indeed, hemp may look and smell exactly the same as illegal cannabis to state authorities and law enforcement officers.

In addition to expanding the federal definition of hemp, the 2018 Farm Bill prohibits the states from interfering with the interstate transportation or shipment of hemp or hemp-derived products. Section 10114 of the Farm Bill states in relevant part:

“(a) RULES OF CONSTRUCTION. Nothing in this title or an amendment made by this title prohibits the interstate commerce of hemp … or hemp products.

(b) TRANSPORTATION OF HEMP AND HEMP PRODUCTS. No State or Indian tribe shall prohibit the transportation or shipment of hemp or hemp products produced in accordance with subtitle G of the Agricultural Marketing Act of 1946 … through the State or territory of the Indian tribe, as applicable.”

The Farm Bill instructs the Department of Agriculture to create regulations that will oversee state hemp programs. Each state is free to adopt the Department of Agriculture regulations, create its own program consistent with federal regulations or prohibit the cultivation of hemp. This process is under way and will take months to complete.

In the meantime, two underlying issues are now being tested in the federal courts. The first question is whether hemp products may be shipped between states before the Department of Agriculture and the states complete their respective regulations and hemp plans authorized by the Farm Bill. The second disputed issue is whether hemp-derived CBD isolate, which is banned by the Federal Drug Administration (FDA) in food and supplements, should be treated differently than other hemp-derived products for purposes of interstate commerce.

Federal courts in Idaho and West Virginia are the first to address these questions, and they have made inconsistent rulings as to the legality of interstate movement of hemp and hemp-derived products. These rulings are consequential because they will provide the basis for diverging interpretations of what is presently legal under the 2018 Farm Bill. The result may prove chaotic in the short term.

The Idaho Dispute

In Big Sky Scientific LLC v. Idaho State Police et al., the U.S. District Court for the District of Idaho recently ruled that it is illegal to transport in interstate commerce industrial hemp that is grown prior to the completion of federal or state “plans” to regulate the production of industrial hemp under the 2018 Farm Bill. That case involves the seizure of industrial hemp being transported from Oregon to Colorado for processing into CBD isolate. Big Sky purchased the industrial hemp from Boones Ferry Berry Farms, an industrial hemp grower licensed with the Oregon Department of Agriculture. The subject industrial hemp was being shipped from Oregon to Big Sky’s processing facility in Colorado. On January 24, 2019, a semi-truck carrying the industrial hemp was stopped at the East Boise port of entry in Ada County, Idaho. The driver was arrested and charged with marijuana trafficking in Idaho state court, which carries a mandatory minimum five-year prison term. The Idaho state police also seized the contents of the truck consisting of approximately 7,000 pounds of industrial hemp worth approximately $1.3 million.

Attorneys for Big Sky provided the Ada County prosecutor with various documents, including testing reports from two laboratories and a copy of Boones Ferry’s industrial hemp license with the State of Oregon. Big Sky contended that the seizure of the cargo was improper interference with interstate commerce and violated the 2018 Farm Bill. In response, the County rejected Big Sky’s argument that the 2018 Farm Bill applied to preclude seizure of the industrial hemp because the regulatory framework for industrial hemp required by the 2018 Farm Bill had not yet been created, such that the hemp could not have been “produced in accordance with subtitle G of the Agricultural Marketing Act of 1946” as required to fall within the interstate commerce protections of the Farm Bill.

The federal court agreed with the County in its order dated February 2, 2019. The court explained:

“The difficulty for the Court in accepting Big Sky’s argument lies in gleaning whether the product that was seized from the Big Sky shipment is ‘hemp’ under the 2018 Farm Bill amendments, when the current record suggests that the timing of the hemp harvest and shipment predate the creation of either a state or federal ‘plan’ as called for in the 2018 Farm Bill’s regulatory framework for hemp production.… Big Sky does not contend, and it is not clear on the record whether it could contend, that the product seized was actually produced in compliance with subtitle G.”

The court also raised issues as to the evidence presented to establish that the seized cargo was in fact industrial hemp, noting that the testing reports submitted to the court contained blanks where there should have been listings for batch number, batch size and harvest/production date. The federal court concluded:

“The takeaway from an examination of the respective arguments of Big Sky and the defendants … is that a reasonable argument can be made that even though Big Sky may, at some point in time, be able to purchase industrial hemp that has been ‘produced in accordance with subtitle G,’ the hemp that was seized in Idaho could not possibly meet that standard, because no ‘plans’ to regulate the production of industrial hemp under the 2018 Farm Act have either been approved (by the federal government as to Oregon, as pertinent here) or created and promulgated by the United States Department of Agriculture or the federal government (to apply in the absence of an approved state or tribal plan).”

In its ruling, the court appeared to commiserate with Big Sky’s predicament, stating that “in one setting, it might be said that Big Sky was taking a gamble that it thought was worth taking; in another view, it might be said that Big Sky did not realize that Idaho might take a different position about whether Big Sky was free to move industrial hemp around the country (or at least across its borders).” Either way, the court could not conclude from the record that the seized product constituted “hemp” under the 2018 Farm Bill.

It is possible that the court’s assessment may change after the evidentiary record is more fully developed by the parties as litigation continues. That may be small comfort to Big Sky as its $1.3 million in seized hemp is perishing with each passing day.

The West Virginia Dispute

In contrast to the Idaho federal proceeding, a federal judge in West Virginia recently ruled that the protections of the 2018 Farm Bill was indeed applicable on similar facts. In United States v. Matthew Mallory et al., the defendant hemp companies were accused by federal authorities of improperly acquiring hemp seeds and failing to implement security measures. In September 2018, a federal judge issued a preliminary injunction that prevented defendants from selling or transporting any portion of the processed hemp. After passage of the 2018 Farm Bill in December 2018, defendants moved to lift the stay, which would allow them to fulfill prior contractual obligations with a Pennsylvania processing facility and to transport the hemp to Pennsylvania for processing into CBD isolate.

The federal judge in West Virginia dissolved the preliminary injunction on January 17, 2019, citing the 2018 Farm Bill’s removal of hemp from the CSA and the intent of Congress to permit states to exercise primary control over hemp production. The court ruled: “Despite being enacted after the issues in this case arose, the 2018 Farm Bill expresses congressional intent that the current public policy supports States exercising primary control over hemp production. In addition, Section 12619 of the farm bill removes hemp from the controlled substance list and from under the jurisdiction of the U.S. Department of Justice.”

The court also rejected the government’s argument that even if the Controlled Substances Act (CSA) does not apply to hemp-derived CBD isolate, the product should be embargoed because CBD is regulated under the Federal Food, Drug, and Cosmetic Act (FDCA) and its use is prohibited by the FDA. The court reasoned that FDA jurisdiction is triggered only when it is clear the CBD is intended for human consumption, stating:

“The mere potential of a downstream use that may violate certain federal regulations does not entitle the Government to an injunction on producing and selling the CBD isolate here. In fact, there is no evidence before this Court that Defendants will be adding the CBD isolate to food or health products or making unsubstantiated health claims about the benefits of CBD without approval of these agencies.”

The defendants were nevertheless admonished that “if they intend to tout the health benefits of CBD or add it to food or health products without approval, they risk running afoul of FDCA and FDA regulations.”

Discussion

Two federal courts have now issued contradictory interpretations of the current legality of shipping hemp and hemp-derived products in interstate commerce pursuant to protections afforded by the 2018 Farm Bill. A federal judge in West Virginia has confirmed that the 2018 Farm Bill’s protections are in full effect and protect the interstate transport of hemp-derived products, including CBD. A federal judge in Idaho, however, has refused to lift an embargo on seized hemp without evidence establishing that the subject hemp was grown pursuant to a federal or state plan in accordance with subtitle G of the 2018 Farm Bill. These cases highlight not only the legal complications surrounding hemp and hemp-based products but also the practical implications for those in the industry. It also is clear that state and local authorities do not yet have adequate means to readily distinguish between marijuana and hemp due to the highly technical dividing line of 0.3 percent dry weight concentration of THC. This sets the stage for further conflict between the hemp industry, state regulators and law enforcement.

Wilson Elser’s Cannabis Law practice is keeping a close eye on developments across the country.

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