That Ninth Circuit Delta-8 Opinion and What’s Followed – It’s Not a Green Light for Intoxicating Hemp, Part 3 | JD Supra | Turn 420
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That Ninth Circuit Delta-8 Opinion and What’s Followed – It’s Not a Green Light for Intoxicating Hemp, Part 3 | JD Supra

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This is the final post in the blog series. Read part 1 and part 2.

While AK Futures LLC v. Boyd St. Distro, LLC (9th Cir. May 19, 2022) may seem like a golden opportunity for companies in the intoxicating hemp market, it is unlikely to be much of a windfall beyond the near future. Those relying on this decision to provide legitimacy to their business should proceed with extreme caution based on previous responses to loopholes and governmental eagerness to regulate intoxicants such as delta-8. To believe that these products will be held to a lesser standard than state-regulated (and soon enough, federally-regulated) marijuana products would be short-sighted and naïve.

Individual states responding thus far have trended toward banning all isomers of THC or restricting the manufacture and sale of intoxicating hemp to state-licensed businesses. Colorado, which laid the blueprint for many other cannabis legalization regimes, was one of the first states to pass laws clarifying the difference between industrial hemp products and chemically altered cannabinoids. The result is that if you wish to produce and sell intoxicating cannabinoids in Colorado, you need a marijuana business license. Others across the political spectrum are quickly following suit, including Arkansas, Alaska, and Arizona.

This is not to say there is no future for intoxicating hemp products. These products will be more heavily regulated, but they are not off limits for responsible operators. The clear short-term trend in policy at both the state and federal levels is that intoxicating products if allowed at all, will need to be manufactured, distributed, and sold in a manner that sufficiently protects public health and safety.

On longer time scales, industry participants should anticipate that the regulatory burden for any particular cannabinoid will be determined according to its intended use and effect rather than its source. On this front, there are two primary tracks that cannabis is likely to follow: medicinal use – which, at a mature state, is likely to be governed by the regulatory requirements of developing, manufacturing, and selling any other prescription drug; and adult-use – which is likely to be treated similarly to “vice” products. Regulators have shown tolerance for some risks associated with vices, so long as they are (1) minimized, (2) known, (3) predictable, and (4) generate taxes (but they sure like to play that last part down right).

For example, retailers can sell consumers liquor without running afoul of regulators because safety standards prevent selling contaminated products. Consumers would be less willing to drink if each glass came with the possibility of blindness.

Still, tolerance for vices among regulators has its limits. The FDA’s highest priority is consumer health and safety. To prevent unnecessary injury and harm, the FDA will err on the side of caution and is beginning to show less restraint in its enforcement efforts with regard to vice products. FDA’s recent actions against Juul products are a prime example. Although nicotine and vaping are federally legal, the FDA recently stepped in to ban Juul products from the market after it was determined such products accelerated underage vaporizer use. It does not take much imagination to see the same logic applied to unregulated intoxicating hemp products (which are extremely attractive to minors unable to purchase marijuana in regulated markets).

Finally, at both a company and industry-wide level, securing public trust is key to the long-term health of the cannabis industry. Companies who try to skirt regulations or exploit loopholes are disfavored in the long term not only by regulators but also by consumers. Companies that seek short-term gains will invite unnecessary trouble for themselves and risk setting the entire cannabis industry back years. The good actors in the cannabis space will not rely on the bad apples to self-police. These long-term players will continue to work together to accelerate smart regulation to, at the very least, hold intoxicating hemp products to the same standards and regulatory requirements as state-licensed marijuana businesses.

AK Futures and other recent hemp decisions are inspiring many intoxicating hemp operators, but there is much change to come. Companies producing and selling these products are often taking outsized risks. To come out ahead, these companies will need to guess (correctly) how states, FDA, DEA, and future federal law will treat these products. The key to guessing correctly is having the right advisors.

Written by Braden O’Brien, a summer associate in the Husch Blackwell LLP Denver, Colorado office, with assistance from Marshall Custer.

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