As many of you by now know, the DEA issued a final rule on December 16, 2016, “Establishment of a New Drug Code for Marihuana Extract.” 21 C.F.R. § 1308.11(d)(58); 81 Fed. Reg. 90194 (Dec. 14, 2016), which creates a category, separate from marijuana or tetrahydrocannabinol (“THC”), for marijuana extracts. DEA’s new rule creates a “separate code number for marihuana extract,” which the agency defines as “an extract containing one or more cannabinoids that has been derived from any plant of the genus Cannabis, other than the separated resin obtained from the plant.” In other words, the DEA seeks to control all naturally occurring cannabinoids from the cannabis plant. Under the new rule, all cannabis extract companies must update their registrations with the DEA by January 13, 2017, to add this new drug code for extracts to their registration.
There is a strong argument that the new rule is beyond the scope of the DEA’s rulemaking authority with regard to the agency’s regulation of cannabinoids naturally occurring as THC, and there is a body of case law to support this argument. See, e.g., Hemp Indus. Ass’n v. DEA, 357 F.3d 1012, 1014 (9th Cir. 2004) (the DEA “cannot regulate naturally occurring THC not contained within or derived from marijuana, i.e., non-psychoactive hemp products, because non-psychoactive hemp from the stalks and fibers of such a plant is not included in Schedule I”).
Holding the agency accountable for acting beyond its authority most likely requires litigation, which necessitates both time and money. Our firm is happy to discuss the possibility of challenging the DEA’s authority to regulate cannabis extracts, but this post addresses the short-term concerns of those companies working with cannabis extracts.
DEA’s new rule does not create new obligations for state-law compliant cannabis entities if those entities were never registered with the agency.
Under the Controlled Substances Act (the “CSA”), all cannabis resins and extracts, including cannabidiol (“CBD”), are prohibited. The DEA even states in its new rule that “extracts of marihuana will continue to be treated as Schedule I controlled substances.” Thus, while creating a separate designation, or code, for cannabis extracts, the new rule does not effectively change the DEA’s position with regard to their illegality. However, the CSA exempts “the mature stalks of [Cannabis Sativa L.], fiber produced from such stalks, oil or cake made from the seeds of such plant, any other compound, manufacture, salt, derivative, mixture, or preparation of such mature stalks,” 21 U.S.C. § 802(16) (2015). Under the new rule, extracts produced from these exempted parts of the plant now fall under the DEA’s jurisdiction and enforcement authority.
Thus, in order to be fully compliant with the new rule, cannabis businesses working with extracts will have to modify their registrations with the DEA. However, cannabis businesses operating under state law do not hold a current license from the DEA, which would authorize them under the CSA to cultivate, produce, manufacture, and distribute cannabis. In other words, cannabis businesses legally operating under state law are already violating the CSA if they do not possess DEA certification, and the new DEA rule does not create additional obligations for them under state law. It merely creates a separate registration procedure for marijuana extracts for those entities licensed to work with Schedule I controlled substances under federal law.
The new rule will put at risk those businesses that deal with cannabis extracts – including those derived from the parts of the plant exempted under the CSA – and that ship cannabis extracts around the United States. However, many businesses shipping or transporting CBD were already operating without a DEA license. These businesses can continue to do so, but risk seizure of property and potential prosecution (a risk they faced even before passage of DEA’s new rule), or they can choose to register their operation with the DEA. However, in light of its new rule, the DEA will almost certainly not grant a license to a company shipping CBD or other extracts around the country. Businesses engaged in this conduct are most at risk under the new rule and should consider challenging the new rule.
Under the CSA, cannabis extracts, including CBD, are Schedule I controlled substances.
Cannabis extracts have always been Schedule I controlled substances, and a as a result state-law compliant cannabis businesses are most likely in violation of the CSA, but the Department of Justice (“DOJ”) has maintained a hands-off approach to cannabis enforcement in these states. DOJ issued guidance regarding cannabis enforcement priorities in its Cole and Wilkinson memoranda of 2009, 2013 and 2014, which articulated this hands-off approach in states where cannabis is well regulated under state law. Additionally, cannabis businesses operating in states where medical cannabis is authorized have a safeguard against federal interference. A congressional appropriations bill passed in 2014, and renewed each year since, prevents federal authorities from spending funds to interfere with the implementation of state medical cannabis laws. DOJ’s memoranda, in conjunction with the appropriations bill, provide safeguards (albeit shaky given the DOJ’s position that they it may continue to enforce the CSA) for those cannabis businesses operating in compliance with state law. However, the federal government’s position with regard to marijuana enforcement could change with the incoming administration. Additionally, Congress could choose not to renew the appropriations bill, which currently expires on April 28, 2017.
While DEA’s new rule does not effectively alter cannabis business activities that are state-law compliant, or create additional obligations for these entities (if they are currently operating without DEA registration and certification), the federal government could buck the trend and choose to enforce the CSA against state-law compliant cannabis entities. MLO believes this change is unlikely, however, at least in the short-term, because of the aforementioned safeguards and the broad, bipartisan support of legal cannabis in a majority of states.