The DEA’s Interim Final Rule (IFR) blindsided the hemp industry when it was released at the end of August. Not to be confused with the USDA’s Interim Final Rule, the DEA’s proposed regulatory move is not really a move at all, so the agency says.  The DEA is looking to codify rules they say are already in place:

“This interim final rule merely conforms DEA’s regulations to the statutory amendments to the CSA that have already taken effect, and it does not add additional requirements to the regulations.”

Their interpretation of the 2018 Farm Bill and how it comports with the Controlled Substances Act (CSA) is the focus of this ruleset from DEA.    The agency is essentially saying that the 2018 Farm Bill (Agriculture Improvement Act [AIA]) defers oversight of all cannabis containing less than .3% THC to the USDA, as hemp, and removes it completely from the CSA.  By extension, everything above .3% THC is under the jurisdiction of the DEA and continues to fall under the CSA as Schedule 1.

The problem for operators in the hemp space is that extracts are naturally high in THC throughout the manufacturing process, until remediation to remove measurable THC, or dilution by formulators preparing retail products.  When cannabinoids are extracted from hemp, all of the many cannabinoids and plant compounds are concentrated, and crude hemp extract may contain 3-5% THC.

This is not new.  Industry insiders have been talking about this for some time, that the lack of clarity on what cannabis attorney Rod Kight calls work in progress extracts (WIPHE), exposes operators to risk.  The DEA is taking a binary approach to regulating hemp extract, without acknowledging the impracticality of the rule for an emerging industry.  Lack of clarity on the part of the FDA complicates the crucial interplay needed for federal agencies to effectively regulate hemp extracts.

Hemp has created numerous chafe points for the three relevant agencies that oversee some aspect of hemp production and commerce: USDA, FDA, DEA.  Agriculture Secretary Sonny Perdue has openly attributed harsh interpretations of THC policy in the USDA IFR to the DEA, who were reportedly obstructive to the process throughout.  Secretary Perdue was forthright, in volunteering to Senator Jeff Merkely (D-OR), “We had some pushback from DEA, that really didn’t like the whole program to begin with.” Vote Hemp posted an excerpt on YouTube from the March 12 appropriations hearing where Secretary Perdue made these comments.

Large bureaucracies have a will of their own, and like a massive ocean freighter, they don’t quickly turn or stop.  There is little to stop the DEA from pressing forward. There is no substantive dialogue with the DEA like one finds with the USDA and their rulemaking process.  The Hemp Industries Association (HIA), along with RE Botanicals/Palmetto Harmony, a South Carolina CBD company, is suing the DEA for what many see as overreach that would crush the newly emerging hemp sector.

We were surprised to hear the National Hemp Association leadership criticize the move Wednesday, saying that a lawsuit antagonizes the DEA unnecessarily and prevents open dialogue.  We could not disagree more.  The Federal Register affords opportunity for dialogue, and the courts compel the DEA to come to the table.  Both are viable means, but the latter is a more practical approach given the history of the agency within the context of hemp.   It is essential that the electorate hold federal agencies accountable to equitably administrate policy set by the legislature.

Hemp Industries Association successfully sued the DEA in the early 2000’s and has undertaken legal action against the agency several times since their initial success in a 2004 ruling.  This is an example of historic overreach by the agency, that sought to include hempseed in the CSA, threatening to indiscriminately dismantle the developing hempseed food segment against all logic.  This is a good time for hemp stakeholders to set aside personal agendas and show some solidarity.  There is nothing untoward about legal action against a government agency.  The DEA is adequately “lawyered up” and needs this level of oversight to avoid implementation of regressive cannabis policy that no policymaker has promoted.  Bureaucracies are self-preserving, and the new cannabis policy landscape is an existential threat to the agency.

National Hemp Association leadership also noted Wednesday that the federal law would not necessarily impact producers, that DEA policy doesn’t translate to local enforcement.  While this may be true at times, this offers little protection to operators and their assets.  Local law enforcement can certainly pursue extractors at their whim.  This varies from location to location, but the opportunity for abuse of power will be too tempting for some.  See the Key Compounds case below, which happened in one of the most pro-cannabis states in the country. DEA rules impact local policy in the same way that FDA rules do.  The FDA has taken little enforcement action, but many states have queued up behind the agency and adopted the FDA view on CBD.  Banking and other key services hinge on the positions these agencies take.

We covered the case of Key Compounds in previous commentary, the Oregon company that folded as a result of local law enforcement intercepting a shipment of WIPHE from Phasex, the Massachusetts lab contracted to remediate Key Compound’s extracts.  Key Compounds was saddled with hundreds of thousands of dollars in legal fees to address the criminal charges, forcing the company to close, and losing millions in startup funds.  Key Compounds shows what one local sheriff’s department can do to a CBD business without adequate legal protections to manufacture low/no THC cannabinoid products.

Operators need protections similar to those found in the distilling industry, where we are under the assumption that distillers are protected by statute that allows them to transport quantities of “neutral spirits” that exceed 95% ABV.  WIPHE and extractors need clear protections so that the industry can function, so that the cannabinoid value chain can develop to meet increasing demand.   Dialogue with the DEA is needed, and encouraged, but any action arising for hemp stakeholders will be precipitated by legal action, in the courts, or in the legislature.  Nonetheless, consider making comments on the DEA IFR using the links we’ve provided in this commentary.