“Absolute Confusion:” A New DEA Rule Worries CBD Businesses

By Alex Halperin
Sep 7, 2020

A new U.S. Drug Enforcement Administration (DEA) interim rule about CBD and hemp manufacturing has sown distress and confusion in the federally legal industry.

Operators say the rule makes it effectively impossible to produce CBD products legally. On his blog, North Carolina cannabis lawyer Rod Kight wrote that the new rule “threatens to destroy” the industry.

The federal government considers cannabis plants and products containing less than 0.3% THC to be hemp, which was legalized in the 2018 Farm Bill. Cannabis containing more than 0.3% THC, however, is an illegal schedule I controlled substance. Hemp businesses have long understood the distinction, and compliant operators strive to grow plants and sell products below the limit.

The rule, which was unveiled August 21 and took effect immediately, says any extract or substance produced during manufacturing or processing which contains more than 0.3% THC is an illegal drug, even if it derives from legal plants and is diluted or refined to legal limits before it reaches consumers. (Read the rule here.) While there are numerous ways to convert hemp plants into CBD products or additives, many if not all involve concentrating the plant matter, resulting in substances that contain more than 0.3% THC.

With the new rule, “It’s almost as if they’re trying to cut the legs out from under the industry,” said Dave DiCosola, CEO of Chicago-based CBD brand Half Day

The rule is in a public comment period until October 20. It has received more than 1,900 responses thus far. (Comments can be made here and should reference, “RIN 1117- AB53/ Docket No. DEA-500”)

(UPDATE: Erica McBride Stake, executive director of the National Hemp Association, commented, “There really isn’t anything in the DEAs IFR that hasn’t always been true. It just has sent shockwaves throughout the industry seeing it specifically spelled out in black and white from the DEA…It really has brought to the forefront the egregious legal gap between farm and consumer that leaves processors, through no fault of their own, vulnerable with no real way to remain federally compliant.”) 

“A small change in terminology”

Operators seem especially disheartened by the lack of clarity over whether the DEA set the rule out of ignorance of, or hostility to, the industry.

“All it would take is a small change in terminology” to resolve the issue, said Ben Gonzales, an executive at Wisconsin-based testing company Premium CBD Labs

Thus far, the DEA has declined to clarify the situation. An agency spokesman told L.A. Weekly, “The DEA is aware of the concerns of the CBD industry, and is evaluating policy options.”

Other government agencies have tried to mitigate some of the ambiguities surrounding “hot hemp.” Notably, last year the U.S. Department of Agriculture ruled farmers don’t commit a negligence violation if they make “reasonable efforts” to grow plants containing less than 0.5% THC, more than the legal limit.  

Gonzales doesn’t necessarily think the rule will trigger DEA raids on hemp processing facilities, but he suggested it creates an opening for local law enforcement to do so. The rule creates a “legal justification,” he said.

Asked by L.A. Weekly what enforcement of the rule might look like, the spokesman didn’t directly answer. Instead, he said the agency’s priority is disrupting illegal shipments of fentanyl and crystal meth from Mexico. 

“I do not buy this misdirection for a minute,” responded Harris Bricken cannabis attorney Daniel Shortt at the firm’s Canna Law Blog. “The DEA is actively looking to expand its jurisdiction.”

Marc Hauser, a San Francisco attorney who’s vice chair of firm Reed Smith’s cannabis practice, speculated that the DEA “has no incentive to do this industry any favors.”   

One possible remedy, Gonzales suggested, would be passing laws through state legislatures, like the marijuana industry has done. However, that process can take years and varies from state to state. 

“A really weird situation”

For operators, the DEA’s rule raises new questions in an industry already fraught with regulatory challenges. 

For example, attorney Hauser’s retailer clients often take possession of CBD products after they have been packaged at below 0.3% THC. That’s a problem for the retailer, who can’t legally buy products that were at one time a controlled substance. What’s not clear is the practical implication for the retailer. “There’s no definite answer,” he said. “It’s a really weird situation.” 

The Vitamin Shoppe, a national retailer which announced a big expansion into CBD days before the DEA released the rule, did not respond to a request for comment on Labor Day.

Jesse Smedberg, founder at Tulip Tree Gardens, an Illinois hemp farm and CBD brand, said he’s in “an absolute state of confusion.”

Among other things he has a contract to take in plants for processing and doesn’t know if he can accept it. Would processing the plants make the farmer an accomplice, he asked?

For the moment he’s somewhat reassured that he’s operating under an Illinois-state pilot program, though it’s not clear what he’ll do after it ends on October 31.

In the meantime, he says at least some operators are proceeding with business as usual. “I’m seeing guys quietly moving forward, gung ho,” he said.

Correction: This story has been amended to reflect what it means for retailers to buy products that were at one point controlled substances.

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