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January 23, 2024 Feature

2023: Year in Texas Cannabis Legal Developments and National Hemp Litigation Trends

Lisa L. Pittman

2023 saw several consequential legal developments for the cannabis industry despite the failure of any law, pro or con, related to cannabis to pass during the Legislative Session, due to Leadership’s showdown over competing property tax proposals, despite the postponement of the new Farm Bill until next year, and despite the FDA’s punt on CBD. Most of the legal action this year occurred in the court system across the country, where the terrain of what part of the plant is legal in what state continues to shift daily. Here is the latest as of December 2023 by topic:

Smokable Hemp

Though the smokable hemp case was decided last year, its chilling effects were felt in 2023. The Crown Distributing case challenged statutory language in the Texas Hemp Act that addressed manufacture and sale, where the manufacture of hemp for smoking was specifically forbidden. The chief impediment to the passage of Texas’ 2019 hemp law was the skepticism that cannabis would only be used for industrial and therapeutic CBD purposes; therefore, they did not want it to be smoked. They thought if they kept you from making it, then you couldn’t sell it, not thinking about the internet and interstate commerce. State Department of Health Services (DSHS) subsequently issued a rule that also explicitly forbade the sale of smokable hemp. Because the retail ban was not as specific in the statute, the court held DSHS did not have the authority to also ban the sale of smokable hemp. But the manufacturing ban was clear and so we are stuck with that. Because the mere application of labels to a consumable product is “manufacturing,” this one element of the operation now has to be outsourced to another state, at a significant economic disadvantage to Texans. In 2023, DSHS posted a notice on its website about the case and that the manufacture ban would be enforced, and formally adopted a rule banning the manufacture of hemp for smoking. DSHS also commenced inspections and has been citing local companies making their own pre-rolls. To remedy this absurdity, this Session, Rep. Briscoe Cain filed HB 4918 to eliminate the manufacturing ban in the statute. Other Congressmen who in sessions past were vehemently against smoking were less preoccupied with the issue in 2023. This bill died with all the others. The next opportunity to modify the smokable hemp law will be in the 2025 Legislative Session.

Delta 8, THC Isomers, and Intoxicating Cannabinoids

Intoxicating cannabinoids have been a controversial thorn in the legislature’s side, as each session brings fresh drama between dueling prohibitionist hemp bills that threaten to wipe out the entire industry through vague and expansive language. At the same time, positive hemp bills are being introduced, which made for a rich session of intense lobbying, only for it to all collapse under the property tax showdown. Particularly worrisome was Sen. Perry’s SB 264 which prohibited the manufacture, sale, or purchase of a consumable hemp product that contains synthetically derived THCs, without defining what was meant by synthetically derived. The bill also forbade the sale or distribution of cannabinoids unless they were GRAS by the FDA, an impossibility, and created concerning beyond the law penalties. This bill did not pass. Recently, Rep. Stephanie Klick, the author of the Compassionate Use Program (CUP), wrote in the Fort Worth newspaper about the scourge of Delta 8 and other THC isomer products and the necessity of preventing children from accessing these products. Rep. Klick is influential on these topics and was supportive of SB 264. The next time to address these issues legislatively will be in 2025.

In September 2023, the Third Court of Appeals heard procedural arguments in the lawsuit pending against DSHS over how its Health & Human Services Commissioner changed the definition of THCs in the Texas Controlled Substances Act (CSA) in January 2021. It is the Commissioner’s mandated duty to establish and modify the CSA schedules, and she does so periodically, through a required notice and comment process. The new THC definition makes all THCs illegal, except for Delta 9 from hemp under .3%, effectively making Delta 8 and any other THC isomer illegal controlled substances. DSHS testified in the 2021 Legislative Session at a hearing on a bill to outlaw Delta 8 that it considered Delta 8 to be illegal already anyway due to this definition. After a lawsuit was subsequently filed against DSHS by hemp companies, a temporary injunction was issued to suspend the effectiveness of the definition change until a later legal resolution. The court delayed an uncommonly long time in hearing arguments in this case, likely waiting out the legislative session so a ruling would not be rendered moot. The only effect of the September court ruling is that the injunction will continue to stay in place allowing business to continue as usual until a trial is held in the lawsuit which will finally determine the matter of whether the definition change was effective or not. This should occur in 2024.

Law enforcement intervention of hemp stores selling various types of intoxicating hemp products, including THCa flower, hit a fever pitch in 2023, along with DSHS inspections and enforcement. THCa brings its own legal conundrums and growers and sellers are subject to two distinct bodies of law that are not congruent with one another: civil/regulatory/administrative versus criminal law and the CSA. The Texas Crime Lab decarboxylates products, instantly converting THCa flower into marijuana, and tests other products under differing standards from hemp labs, resulting in stiff felony charges for products carrying a “compliant” hemp Certificate of Analysis. None of these criminal cases has made it through the system, so 2024 will likely bring a reckoning on the exploitation of perceived loopholes in the hemp laws. Note that the 2018 Farm Bill made falsification of a COA a felony—and we are seeing lots of modified COAs.

Hemp Laws and Lawsuits in Other States

States across the country are enacting legislation to severely curtail or completely eliminate hemp-derived THCs and intoxicants, motivated by a mixture of governments seeking to ban intoxicating cannabinoids and marijuana industry players who have to spend considerably more on their regulated products than hemp companies do. Procedurally, as in Texas, in most of these cases, the current posture of the lawsuits is that an injunction is in place allowing the manufacture or sale of the to-be-banned cannabinoids until trials on the merits can be conducted to resolve the legal disputes. In March, DEA declared THC-O to be a controlled substance. In May, the DEA announced that a rule regarding synthetic cannabinoids would be forthcoming, but we have not seen it yet, and an official stated Delta 8 was considered illegal even when extracted from legal CBD.

So, we continue to piece together the agency crumbs and litigation across the country to determine what is likely legal or not. The notable laws and litigation of 2023 included the following:

Kentucky, Florida, and Tennessee each enacted flaws to regulate hemp products to prevent the sale of products to those under 21 and to prohibit the sale and marketing of hemp products that appeal to children. Florida’s Department of Agriculture also inspected thousands of hemp companies and targeted 107,000 products marketed toward children. Florida has just been sued by a hemp company challenging the new regulations. As a result of a similar sequence of events in Kentucky last year, in 2023, Kentucky introduced regulations aimed at preventing sales to minors. This has just gone through the notice and comment process and will be one to watch in 2024. Tennessee added age requirements and a special tax for hemp products.

In Alaska, a law was recently enacted banning any amount of THC in a hemp-derived product, reserving the sale of those exclusively for marijuana licensees. A lawsuit was just filed by the Alaska Industrial Hemp Association and will be one to watch in 2024.

Minnesota birthed a burgeoning hemp product market when it made rules allowing for higher concentrations of THC in hemp products last year. But this year, Minnesota legalized cannabis for adult use, and it appears that hemp product makers will be held to registration and other requirements just as marijuana licensees, and synthetics and smokables will be banned. Note that you must now register with the state if you are selling hemp products in Minnesota. Another market to watch in 2024.

In New York, an injunction was just issued to prevent enforcement of emergency regulations that put extreme potency limits on the processing and retail sale of hemp products.

In Arkansas, an injunction was just issued to prevent the enforcement of a newly enacted law that criminalized all hemp synthetics and psychoactive substances.

In Maryland, an injunction was issued to prevent enforcement of a law that prohibited the sale of any intoxicating cannabinoids from hemp, reserving those products for marijuana licensees, which resulted in the closing of many stores.

In Virginia, an injunction was not issued to prevent enforcement of a law that banned Delta 8 and enacted extreme potency limits on hemp products.

In Georgia, law enforcement was ordered to return seized hemp products after a court disagreed that the products were controlled substances. Separately, the DEA just stated that Georgia’s plan to use pharmacies for medical marijuana distribution violates the CSA.

New Hampshire, Vermont, Connecticut, and North Dakota banned the sale of all THC isomers. At the beginning of the year, Louisiana issued regulations that made 100’s of hemp products illegal. Lawsuits resulted in a walking back. Note that you must have your product approved by the state to sell in Louisiana.

As for “Delta 9” products, a number of states have enacted regulations and restrictions on the potency of hemp products, such as Colorado, Connecticut, Louisiana, and Oregon, among other states mentioned in this article.

Selling and distributing hemp requires you to be familiar with all of these states’ legal ping-pong matches, as the status of whether a product is legal or illegal can change overnight. Not every state is mentioned in this article, which is meant for general informational purposes only, and not legal advice.

FDA Quits CBD Regulation

Things aren’t clear at the top, either. On the day the 2018 Farm Bill was signed, the FDA issued a statement that CBD may not be placed in food or beverage in interstate commerce nor marketed as a dietary supplement because CBD was already an FDA-approved drug for epilepsy. Subsequently, the FDA held several public hearings and took reams of public comment on the regulation. Its Commissioner frequently spoke proactively about regulating CBD. Then, in 2021, everything changed. No regulatory activity at all has occurred since with CBD.

Nevertheless, the FDA had no hesitation in throwing down plenty of roadblocks in 2023. FDA (and sometimes FTC) sent hundreds of warning letters to CBD companies for making impermissible medical claims, and in 2023, the FDA denied several investigational new drug applications, even though they contained the medical studies that the FDA claimed it needed.

Further, at the end of 2023, the FDA punted everything altogether, issuing a statement saying Congress needed to develop a special regulatory pathway for CBD, leaving hemp companies in a precarious legal limbo situation, trying to operate responsibly in an environment that refuses to specify any uniform standards. The lack of legal clarity prevents CBD companies from fully accessing the business services and capital they need to grow.

The Texas Compassionate Use Program

2023 was the biggest year that wasn’t for the CUP since 2017. Rep. Klick introduced HB 1805, which would have added chronic pain as a condition, would have created a 10 mg dose, and would have had a mechanism to add conditions between sessions. This bill had broad bipartisan support, positive hearings, and positive progress. It would have been approved but for the property tax showdown. So, it ended with no improvements to the CUP, but that wasn’t all that happened. In 2022, the Department of Public Safety (DPS), which oversees the CUP, began preparing for the inevitable expansion of the program, and in January 2023, DPS opened CUP applications for the first time since 2017. Currently, there are only three licensees to serve the whole state, all three of which are around Austin, and only two of which are operational. DPS recognized that patients are not being effectively served across the state through essentially only one provider, so steps are being taken to expand how patient access is provided. DPS is conducting studies to determine how many licenses should be issued, where, when, and to whom. But, due to the lack of a change in the law, all the hype that saw 245 companies submit applications for a license, resulted in no judging yet of the applications that were due in April. 2024 should be active on the application and rulemaking front for the CUP, and 2025 will see a renewed effort to grant Texas a viable bona fide medical program. I am hopeful that changes in federal laws and leadership will provide political cover for Texas to finally relent and let us use cannabis therapeutically at least. Anyone who supports an actual cannabis industry must begin lobbying your representatives and senators during 2024 – once they are in session, they will not be able to take your donations, so now is the time to make your voice and your interests heard.

Historic strides were also made in decriminalization and penalty reduction bills pertaining to marijuana possession this Session, but as with all the bills, they died with the property tax showdown.

Federal Rescheduling?

A potentially significant move was made this year when the President asked Health and Human Services (HHS) and the DEA to re-evaluate and reschedule marijuana. Because marijuana is federally illegal for all purposes as a Schedule One controlled substance, businesses cannot deduct expenses or use banks, among hundreds of other issues caused by the conflict between state and federal law. In December 2023, HHS released hundreds of pages of documents related to its recommendations to the DEA for the rescheduling of marijuana to Schedule 3. HHS’s review focused on currently accepted scientific medical uses for marijuana, as well as its abuse potential. Those redacted records are posted on the On Drugs blog by Matt Zorn and Shane Pennington. Both pro- and anti-marijuana politicians have urged DEA acceptance and rejection of the recommendation. Schedule 3 would alleviate the business issues but will create completely unknown new ones, considering the oversight the FDA has over the dispensing of drugs on the schedules. The hope is that the many federal agencies involved in the determination will come to an actionable consensus before the next presidential election, which would set the tone for a new era of legal cannabis in 2025, coinciding with, and potentially having a positive effect on our legislative session that year.

Rescheduling would also aid in ushering in comprehensive legalization laws to address the conflicts between the states. The legalization bill prepared by Nancy Mace is the most business-friendly and sensible effort, and it also addresses CBD regulation. Several more states legalized in 2023 for a total of 24 adult use states, with more than 50 percent of the population now living in a legal state, and a record of 70 percent of people supporting legalization according to Gallup. 2024 should be a huge year for cannabis nationwide unless it isn’t….

Contact me if you have any questions about the status of the ever-evolving laws here in Texas and beyond at [email protected].

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Lisa L. Pittman

Pittman Legal

Lisa L. Pittman is Chair of TIPS Cannabis Law & Policy Committee and a Founder at Pittman Legal in Austin, Texas.