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States Must Step Up to Fill Federal Delta-8 Loophole

By: Mira Baylson, Meghan Stoppel, and Gianna Puccinelli

When Congress passed the Farm Act in 2018, removing hemp and hemp-derived products from the definition of marijuana in the Controlled Substances Act, many argued that Congress inadvertently legalized delta-8—a psychoactive substance that may be manufactured from hemp-derived CBD for human consumption.  Although delta-8’s effects can be similar to those of delta-9 THC, because delta-8 is a hemp-derived product, certain businesses have exploited the loophole that the Farm Act created to bring delta-8 to market.  In response, state policymakers and state AGs have been working to either ban or restrict the sale of delta-8 due to public health concerns, especially reports that the chemical processes and ingredients used to create delta-8 may produce harmful byproducts or contain dangerous toxins.[1]  Within the last several weeks, there have been significant developments around the question of the legality of delta-8 and other similar products.  But it remains to be seen whether these developments will clarify the delta-8 landscape, or simply muddy the waters further, particularly in states where the AGs have already begun to act in response to delta-8 products.

Colorado First To Authorize Limits on Sale of Delta-8

First, on May 11, 2022, the Colorado state legislature passed SB 22-205, which authorized the Colorado Department of Public Health and Environment to limit the sale of delta-8 THC products and create a task force to study intoxicating hemp products.  The 20-person task force will submit a report to the General Assembly on January 1, 2023.  Additionally, the bill allocated $587,347 to the Colorado Attorney General to focus on consumer protection relating to hemp-derived products like delta-8 and other synthetic cannabinoids derived from hemp.  On May 18, 2022, SB 22-205 was sent to Governor Jared Polis for signature.  Governor Polis has until mid-June to sign the bill or veto it.  If he does neither, the bill will become law without his signature.

Ninth Circuit Weighs In on Farm Act Interpretation

Meanwhile, on May 19, 2022, the United States Court of Appeals for the Ninth Circuit issued an opinion which, in relevant part, held, for the first time, that the Farm Act legalized delta-8 THC.  In AK Futures LLC v. Boyd Street Distro, LLC, No. 21-56133, defendant Boyd Street, a smoke products wholesaler, appealed a district court ruling that prohibited Boyd Street from selling a counterfeit delta-8 THC product trademarked by plaintiff AK Futures, a producer of e-cigarette and vaping products.  Boyd Street argued that the delta-8 product could not be trademarked because it was an illegal controlled substance, but the Ninth Circuit disagreed.  It held that the Farm Act’s plain language legalized delta-8 because “the Farm Act’s definition of hemp encompasses its delta-8 THC products so long as they contain no more than 0.3 percent of delta-9 THC.”  Of note, this was simply a determination on a preliminary injunction, i.e. the likelihood of success on the merits.  The Ninth Circuit, and the lower court, did not actually reach the merits of this issue, so whether this analysis of the Farm Act is determinative on the merits, remains to be seen.  However, the Ninth Circuit’s opinion is still the first time a federal court has analyzed the Farm Act and declared delta-8, and other synthetics, legal—essentially providing companies who were producing delta-8 the green light to increase production across the entire nation while laying the foundation for a strong defense against potential federal prosecution.

Cannabis Companies Need to Watch Closely

It is undisputed that the sponsors of the Farm Act did not intend to legalize entirely new psychotropic cannabis derivatives and yet, the plain language of the Act appears to do just that, as the Ninth Circuit confirmed.  As a consequence, states are passing laws to protect their constituents from these otherwise unregulated new drugs; and while there have been no outright challenges to these laws yet, we would expect any state AG to defend these laws as well within a state’s authority and police power.  As the patchwork of state cannabis regulations continues to grow more complicated for industry, the AK Futures opinion offers a ray of hope for the gray-market delta-8 industry and the less popular, but growing market for other hemp-derived synthetics being sold throughout the nation without regard to state law or legal opinions issued by state attorneys general.[2]

Still, cannabis businesses should be closely monitoring relevant cannabis laws in the states where they operate, despite favorable interpretations of federal law, as not all state laws track the language or interpretation of the Farm Act.  Other states have passed laws specifically regulating delta-8.  Cannabis businesses should not rely on seemingly favorable federal legal analysis from the Ninth Circuit, to serve as a safe harbor for their conduct; indeed, despite what seems to be guiding federal law on the subject, states like Colorado are still earmarking funds for state AGs to focus on investigating hemp-derived products.  However, so long as businesses stay on the right side of state cannabis laws, they should be able to safely participate in the industry without risking AG scrutiny.

[1] See, e.g., Tiffany Kary, Pot Producers Are Pushing to Clamp Down on Delta-8 THC, Bloomberg (Jun. 2, 2021), https://www.bloomberg.com/news/articles/2021-06-02/a-pot-knockoff-sometimes-made-with-household-acid-draws-scrutiny.

[2] For example, in December 2021, Kansas Attorney General Derek Schmidt issued an opinion declaring that it is unlawful to possess and sell Delta-8 in Kansas if it contains more than 0.3% THC.  Kan. Att’y Gen. Op. 2021-4 (Dec. 2, 2021).  However, many industry advocates have disregarded this opinion, claiming that the AG and other state authorities have no authority to regulate Delta-8 in light of the Farm Act’s legalization of “hemp products.”  See, e.g., Press Release, Kan. Cannabis Chamber of Com. (Jan. 5, 2022), https://www.kansascannabischamber.com/general-8.