Is CBD Legal? Hemp Industry Case Ruling Due Soon

By John Mansfield
Source: cannalawblog.com

As noted before in this blog, Hemp Industries Assoc. v. DEA, pending in the U.S. Court of Appeals for the Ninth Circuit, appeals the DEA’s final administrative rule creating a new drug code number for “marihuana [sic] extract,” defined as “containing one or more cannabinoids that has been derived from any plant of the genus Cannabis.”  Petitioners, a cannabis industry trade group and other industry participants, argue that DEA’s rule effectively reschedules CBD as a Schedule 1 drug under the Controlled Substance Act (CSA), in violation of the Farm Act of 2014, which allows the states to set up pilot hemp programs. The DEA counters that this rule does not restrict substances that were not previously controlled, but simply adjusts DEA’s methods for tracking substances that Congress put in Schedule 1.

On February 15, 2018, a Ninth Circuit panel of three judges heard oral argument. You can watch the argument here. Because federal appellate courts never issue decisions at oral argument, we won’t know how the court decides for several months. But watching the argument gives some clues to how the judges are thinking about this case.

Before you watch, consider first that this case is a challenge to a rule made by the DEA, a federal administrative agency exercising rule-making power expressly delegated to it by Congress. Under established law, the court must defer to the DEA’s exercise of this power. The court may set aside DEA’s rule only if it is “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law.” The court’s review is narrow: it must simply determine whether the DEA articulated a rational connection between the facts found and the choice made. As long as the DEA’s decision was “based on a consideration of relevant factors and there is no clear error of judgment,” the agency’s action is not arbitrary and capricious.

Second, consider that there are many administrative procedures that must be followed before a petitioner can even ask for review of an agency rule. All rulemaking is open to public comment by any interested party. If you fail to weigh in at the rulemaking procedure, you may not get to complain in court. Also, the petitioner has to show particular identified harm that it will suffer because of the rule.

Third, keep in mind that lower appellate courts such as the Ninth Circuit will often (though not always) try to decide a case on the narrowest grounds possible. This means that these judges may choose to decide on a technicality or procedural issue, rather than reaching the merits of the claim. That could very well happen here.

Keeping these points in mind, observe that the judges ask the lawyers: isn’t this rule just a change in the numbering system used by DEA made in order to facilitate record-keeping and reporting activities? Of course, the DEA lawyer agrees, while the cannabis industry lawyer strongly disagrees. Also notice that the judges continue to press the cannabis lawyer about whether evidence supporting harm claimed to be suffered is found “in the record.” This is an important point, because courts of appeal are not allowed to refer to facts that were not brought up in the original proceeding– in this case, the rulemaking process. Finally, there is no discussion about whether de-scheduling CBDs is a good or a bad policy. That is not an issue raised by this case, and the panel will almost certainly not address this in its opinion.

It is also worth reading a brief filed not by the parties to this case, but by several members of Congress who are appearing as amici, that is, friends of the court, Their brief supports the cannabis industry group, broadly arguing that DEA had no authority to issue its rule. The amicus brief also broadly urges that the Farm Act of 2014 allows states to effectively legalize CBD sales. Although many of the amici were among those who voted for the Farm Act, this brief is unlikely to sway the judges, who will likely say nothing about what the Farm Act does or doesn’t cover.

Check back in a few months, when we will discuss the opinion of the panel. My guess is that the opinion will narrowly decide the case, perhaps on procedural grounds, but that there will be no controlling ruling on scheduling of CBDs, keeping this area of law as confusing as ever. Stay tuned.