States across the country continue to grapple with how to regulate intoxicating hemp-derived cannabinoid products that are being innovated faster than state lawmakers can respond.

These products are now widely available online and have found their way into convenience stores, markets and other retail stores throughout the country. Robust debate over how to address public health concerns and access by adolescents to intoxicating hemp products is now taking place in many statehouses.

Although many states have not yet taken an express position on intoxicating hemp products, a small number, like Minnesota, affirmatively allow these products under state law. Several other states have implemented an express ban on these products, such as California's prohibition on hemp products that contain any THC or comparable cannabinoid.

A trend is developing, however, for a middle-ground regulatory strategy.

A growing number of states, led initially by Michigan in 2021, are choosing to require intoxicating hemp products to comply with the states' recreational marijuana laws. Connecticut, Maryland and Washington are three of the latest that have chosen this approach, resulting in hemp groups filing lawsuits and accusing cannabis regulators of creating illegal monopolies.

This all comes while negotiations are underway for the 2023 Farm Bill, which may dramatically change how intoxicating hemp products are regulated at both the state and federal levels.

Legal Loopholes in the 2018 Farm Bill
The 2018 Farm Bill — which excluded from the Controlled Substances Act any portion of the cannabis plant with a Delta-9 THC concentration of 0.3% or less on a dry-weight basis — unintentionally created significant legal loopholes for hemp products by (1) focusing only on the concentration of Delta-9 THC as the single metric of what constitutes federally legal "hemp" versus illegal "marijuana," and (2) defining hemp as including "all derivatives."

This so-called derivatives loophole has facilitated the explosion of intoxicating but federally legal Delta-8 THC, Delta-10 THC and other products that are chemically converted from CBD, as well as intoxicating products that contain Delta-9 THC extracted directly from the hemp plant.

The intoxicating hemp product market was further encouraged in 2022 by the U.S. Court of Appeals for the Ninth Circuit decision in the case of AK Futures v. Boyd Street Distro LLC, which affirmed that Delta-8 THC products fall within the Farm Bill's broad definition of legal hemp.

The Middle-Ground Approach Picks Up Steam
The recent decisions by Connecticut, Maryland and Washington requiring intoxicating hemp products to comply with the states' recreational marijuana laws, and the resulting increased conflict that is emerging between the cannabis and hemp industries are described below.

Connecticut
Connecticut's new regulations concerning hemp products went into effect on Oct. 1. Connecticut enacted H.B. 6699 and H.B. 6700 during this summer.

H.B. 6699 redefines what is considered cannabis in Connecticut to include "high-THC hemp products." For edible products, a high-THC hemp product is defined as any product that contains total THC of more than 1 milligram per serving or 5 mg per container.

For hemp tinctures, including but not limited to oil intended for ingestion via swallowing or sublingual, a high-THC hemp product is defined as any product that contains 1 mg per serving or 25 mg per container. For hemp concentrate or extract, such as those used in vape oil or wax, a high-THC hemp product is defined as any product containing 25 mg per container.

High-THC hemp products are now considered cannabis and, pursuant to H.B. 6700, may be sold only by licensed dispensary facilities, recreational cannabis retailers and hybrid retailers in Connecticut.

Applying for a cannabis license comes with significant added cost, many regulatory hurdles and additional requirements such as using the state's cannabis track-and-trace system.

The primary intent of Connecticut's new regulations is to remove high-THC hemp products from retailers like gas stations to protect anyone under the age of 21 from intoxication and to otherwise promote public safety. The new law has drastic consequences for Connecticut's hemp industry, however, and many hemp businesses will likely be forced to shutter.

Further, out-of-state online retailers that sell high-THC hemp products will no longer be able to legally sell these products in Connecticut.

Developments in Connecticut will continue to unfold and should be closely monitored. We anticipate that litigation may ensue, similar to the events in Maryland to which we now turn our attention.

Maryland
Maryland's new Cannabis Reform Act went into effect on July 1, creating a new adult-use marketplace and legalizing a "personal use amount" for adults 21 or older.

Following a 2022 ballot referendum approved by Maryland voters and legislation passed by the Maryland General Assembly, the CRA was signed by Gov. Wes Moore on May 3.

The CRA authorizes existing licensed dispensaries to convert their licenses for dual medical and recreational sales by July 1, creating a legal recreational marketplace as of that date. The CRA also empowers the Maryland Cannabis Administration to issue additional grower, processor and dispensary licenses, and new incubator licenses over two licensing rounds that will commence later in 2023.

The CRA also prohibits the manufacture or sale of intoxicating hemp-derived products unless they comply with the new regulations. Pursuant to the CRA, hemp-derived products containing more than 0.5 mg THC per serving or 2.5 mg THC per package may be sold only by licensed dispensaries if they have been manufactured, processed and tested in accordance with MCA regulations.

Under the new regulations, THC includes any THC isomers or derivatives, including Delta-8 THC and Delta-10 THC. These products may only be displayed or offered for sale in the restricted area of a dispensary.

A licensed processor may obtain hemp products from sources outside the Marijuana Enforcement Tracking Reporting Compliance seed-to-sale system, including from other states, if the hemp product complies with MCA testing requirements and if the hemp producer is properly licensed by the U.S. Department of Agriculture or by a state agency pursuant to an approved hemp production plan.

Notwithstanding these restrictions, a Maryland court issued an injunction on Oct. 12 that prohibits enforcement against any person who was lawfully in the business of selling hemp-derived products prior to July 1.

Shortly after the new regulations went into effect in July, a group called the Maryland Hemp Coalition and others filed a lawsuit in the Washington County Circuit Court, accusing the MCA of unfairly depriving its members of their rights by establishing a monopoly licensing scheme "thinly disguised" as being focused on social equity. The complaint acerbically states:

The social equity factors and geographical factors to be considered have no rational relationship to any public safety or health concerns, and the Plaintiffs submit they were designed to placate political criticism about the legalization of cannabis and poorer persons being shut out of the market, but hypocritically designed to restrict the market, keeping prices high and therefore maximizing the State's tax revenue from product sales. In other words, a classic prohibited monopoly, with the State as a willing profiteer in the system.

In issuing the injunction, the Maryland court noted that the plaintiffs were engaged in legal hemp business before enactment of the CRA, at which time "they were immediately shut out of the market."

The court determined that the CRA's licensing scheme created a monopoly under state law "that unfairly excludes many from their right to continue, or enter, a profession of their choosing, all to the detriment of the public."

The court could find no rational basis to support the CRA's exclusionary licensing scheme, and further noted that the scheme resulted in due process violations to the hemp industry plaintiffs without advancing the state's social equity goals.

Further developments in Maryland should be monitored as a bellwether for simmering disputes in other states that are grappling with how to regulate intoxicating hemp products.

Washington
Washington state's S.B. 5367, which went into effect on July 23, takes the most extreme middle-ground position by requiring all hemp products that contain any amount of THC to be regulated the same as marijuana.

Washington requires any cannabis product to comply with the state's recreational marijuana regulations, and defines a "cannabis product" as including "any detectable amount of THC," which includes any tetrahydrocannabinol content, not just Delta-9 THC.

The Washington State Liquor and Cannabis Board has publicly confirmed that "[t]he sale of any product(s) containing detectable amounts of THC without a valid cannabis license is prohibited by state law and is subject to criminal sanctions." Although the bill contains a definition for "hemp consumable," those products are limited to hemp products with no THC, such as CBD isolate products.

Therefore, since July 23, all manufacturers, distributors and retailers of hemp-derived products that contain any amount of THC are prohibited from selling those products within the state of Washington except by entities that hold a valid cannabis operating license issued by the LCB.

This includes all "full-spectrum" CBD products as well as all other hemp-derived products that contain any amount of Delta-8 THC, Delta-10 THC or any isomer of Delta-9 THC.

This aggressive strategy deprives consumers of CBD products, causes significant damage to the state's existing hemp product market and leaves several questions unanswered. Full-spectrum CBD products are among the most effective cannabidiol products used by people for a variety of health and wellness purposes.

Those non-intoxicating products are largely considered safe and effective when used in moderation, and they are not associated with the problem of adolescents accessing unregulated intoxicating hemp products. Also, prohibiting full-spectrum CBD products does not assist in achieving the state's primary policy goal of preventing access to unregulated intoxicating hemp products and makes little sense in this context.

Impact of the 2023 Farm Bill
Attempts to resolve the uncertain federal legal status of intoxicating hemp products are under way as Congress works on crafting new hemp legislation within the upcoming 2023 Farm Bill. Groups have submitted public statements that advocate for both sides of the widening rift between cannabis and hemp, such as the Cannabis Regulators Association and the U.S. Hemp Council.

Issues to be addressed include:

• Clarifying various definitions;
• Increasing and clarifying the 0.3% THC threshold
• Closing the so-called derivatives loophole and THCA loophole;
• Distinguishing between industrial hemp and cannabinoid hemp;
• Differentiating THC limits in plants and in finished products; and
• Naming a federal agency responsible for regulating consumer safety.

It is hoped that the 2023 Farm Bill will be completed by the end of the year, though it could be delayed into early 2024 due to the GOP's House Speaker race and general congressional dysfunction.

In the meantime, we should expect to see legal battles continue in states that decide to incorporate intoxicating hemp products within existing state cannabis regulations, further widening the discord between the regulated cannabis industry and the still largely unregulated hemp industry.

This article appeared in the October 24, 2023, posting of Law360.