DEA Hemp Rule Could Lose Edge under Biden Admin The difference between legal CBD and hemp, which are governed by the U.S. Department of Agriculture and the U.S. Food and Drug Administration, and the federally criminal narcotic of marijuana, governed by the U.S. Drug Enforcement Administration, rests on a decimal point of difference of psychoactive THC potency in the product — 0.3% versus 0.31%. While it is unknown whether the DEA or federal enforcement agencies will use that fine line to prosecute those who are involved in any part of the process that results in a variance above the 0.3% threshold, those involved with CBD and hemp should pay heed to the DEA's recent proposed rule on this and how the landscape for marijuana-related businesses could change in light of the November election. The DEA Interim Final Rule On Aug. 20, the DEA issued an interim final rule implementing changes to its regulations as a result of the 2018 Farm Bill, which permits hemp cultivation and the sale, possession, and transfer of hemp and hemp-derived products across state lines for commercial purposes, provided that the products are produced in a manner consistent with the law. The comment period on the DEA's interim final rule closed about two weeks ago. As background, the 2018 Farm Bill defines hemp as any part or derivative of the Cannabis sativa L. plant containing, by dry weight, no more than 0.3% THC, which is the psychoactive compound in the plant. The Farm Bill also exempts from Schedule 1 of the Controlled Substances Act CBD derived from hemp meeting the definition above, where the hemp is produced by a licensed grower in compliance with pertinent state and federal regulations. The preamble to the DEA's interim final rule explains that the rule is not intended to add any additional requirements to the regulations, but rather, to conform DEA's regulations to the 2018 Farm Bill's statutory amendments to the CSA. However, as will be discussed below, the rule could be construed to cover a step in the supply chain that is not addressed under the 2018 Farm Bill: namely, the processing of hemp plants into derivative substances like CBD extracts. In greater detail, while the 2018 Farm Bill legalizes the cultivation of hemp and makes hemp derivatives, extracts, and cannabinoids legal under the CSA, it does not expressly provide that processing hemp into derivatives, extracts, and cannabinoids also lawful. The DEA's interim final rule could be interpreted as filling in this regulatory gap. The preamble to the rule provides that "the definition of hemp does not automatically exempt any product derived from a hemp plant, regardless of the derivative's delta-9 THC content. To meet the definition of 'hemp,' and qualify for the exemption from Schedule I, the derivative must not exceed the 0.3% delta-9 THC limit." The interim final rule is explicit that any cannabis-derived material that exceeds the 0.3% THC limit "remains controlled in Schedule 1 ... even if the plant from which it was derived contained 0.3% or less delta-9 THC on a dry weight basis."
The DEA's interpretation of the 2018 Farm Bill puts hemp processors at risk of federal criminal prosecution under the CSA and other laws discussed below because the interim final rule does not indicate that only end-use products containing more than 0.3% of psychoactive THC remain on Schedule 1. As written, the rule treats as a controlled substance all hemp extracts over the 0.3% threshold, regardless of whether those derivatives will be further processed and ultimately diluted below the legal THC content limit. To illustrate, under one reading, the rule would treat as a Schedule 1 drug CBD crude oil concentrates that exceed the 0.3% limit, even if the processor had intended to dilute the work-in-progress concentrate before the time of sale. According to Kinner & McGowan PLLC, which submitted a comment on the rule to the DEA on behalf of Georgetown Hemp, this would be similar to the Bureau of Alcohol, Tobacco, Firearms, and Explosives issuing a rule providing that alcohol distillers would violate federal regulations if at any point in the fermentation and distillation process, the mash of yeast, water and carbohydrates exceeded the permitted alcoholic content of the finished alcohol product. Many who have submitted interim final rule comments to the DEA contend that it is difficult to control the THC concentration while extracting derivatives from the plant, as the extraction process concentrates cannabinoid content, including THC. For instance, cannabis plants contain both psychoactive THC as well as THCA, or tetrahydrocannabinolic acid. While THCA does not produce a high, it partially converts to delta-9 at high temperatures, which may occur during the CBD extraction process. Similarly, when processors separate the parts of the hemp plant that contain higher levels of THC and CBD, the leaves and flowers, from the parts of the plant that contain minimal amounts of these compounds, the stalks, and stems, the concentration of THC would inherently be higher. The DEA's proposed rule also has implications for those who provide ancillary services to hemp processors. For instance, the rule means that those who transport or sell CBD extracts that exceed 0.3% across state lines may also face exposure under the CSA, which forbids transporting controlled substances across state lines. As another example, a company that offers cold storage to a hemp processor that has extracted crude CBD concentrate from a hemp plant could be punished under the CSA for aiding and abetting violations of federal criminal law Potential Implications under Federal Criminal Law The DEA retains the power to arrest those who cultivate, process, or sell industrial hemp products, including CBD, and fail to comport with the Farm Bill's requirements as interpreted by the DEA's own agency rules. The risks under federal law include violation of the CSA, which outlaws a wide variety of drug-related activity, including manufacturing, distributing, dispensing, or transporting across state lines a controlled substance, or conspiring to do so. The U.S. also has a money laundering statute that makes it unlawful to deposit, withdraw, transfer or exchange funds through financial institutions where the funds are derived from certain unlawful activities, including the manufacture, importation, sale, or distribution of Schedule I drugs, including cannabis.
Additionally, transactions with cannabis proceeds also potentially implicate the Travel Act. As relevant here, the Travel Act prohibits foreign or domestic travels or uses of the mail or "any facility in interstate commerce," e.g. wires, email, telephone or fax, with the intent to distribute the proceeds of any unlawful activity or otherwise promote or facilitate the promotion of any unlawful activity, defined to include any business enterprise involving narcotics or controlled substances. Click here to continue reading.