DEA Introduces New Rule on Hemp Derivatives, Extracts, and Cannabinoids

Joseph Baldwin

Associate Editor

Loyola University Chicago School of Law, JD 2021

The Drug Enforcement Administration (DEA) recently published an interim rule on hemp and hemp derivatives to reflect the statutory amendments to the Controlled Substances Act (CSA) made by the Agriculture Improvement Act (2018 Farm Bill). This new rule modifies the DEA’s existing regulations in an attempt to conform with the 2018 Farm Bill’s purposeof legalizing and regulating the hemp industry.

DEA’s new rule clashes with the 2018 Farm Bill

When Congress passed the 2018 Farm Bill it legalized industrial hemp for commercial purposes. To achieve this, Congress removed hemp from the CSA. Specifically, it modified the definition of marihuana by explicitly excluding hemp therefrom and adding a new hemp definition to mean the plant Cannabis sativa L. and any part of that plant, including the seeds and all derivatives, extracts, cannabinoids with a delta-9 tetrahydrocannabinol concentration of not more than .03 percent on a dry weight basis.

By removing hemp from the CSA, the bill provided that State and Tribal governments may submit proposals to establish and regulate a prospective hemp market within their territories to the United States Department of Agriculture (USDA) for approval. Once submitted, the USDA evaluates the proposals under the regulatory guidelines set forth in the US Domestic Hemp Production Program. If approved, State and Tribal governments may legally permit growing hemp and extracting hemp derivatives therefrom to satisfy the growing demand for hemp-derived products.

Despite the 2018 Farm Bill permitting hemp derivatives, extracts, and cannabinoids, the DEA’s new rule appears to conflict with the permitted forms. This is a result of the DEA’s interpretation of these newly added definitions. It has interpreted these changes to mean that “any material previously controlled under the Controlled Substances Code Number 7360 (marihuana) or under Controlled Substance Code 7350 (marihuana extract), that contains 0.3% or less of delta9-THC on a dry weight basis – i.e., “hemp”… – is not controlled. Conversely, any such material that contains greater than 0.3% of delta9-THC on a dry weight basis remains controlled in schedule 1.”

While the DEA’s new rule attempts to conform its controlled substances regulations to the statutory amendments, it may exacerbate uncertainty within the industry. For example, in order to extract cannabinoids from hemp, harvested hemp material must go through an extraction process. During the extraction process, the hemp material will be decarboxylatedto activate the chemical properties in the plant. This decarboxylation may, albeit temporarily, cause the delta-9 tetrahydrocannabinol (THC) levels in the plant to rise thereby exceeding the 0.3% statutory threshold.

Additionally, THC levels can also vary during the plant’s growth due to environmental stresses. Because the DEA’s rule is not limited to a finished product’s final THC level, and instead covers “any material” pursuant to the pre-2018 Farm Bill definition of marihuana, any processor or producer engaged in extraction or growing hemp risks violating the CSA.

Adjusting the regulatory framework to mitigate risks within the hemp industry

Several inherent risks plague the hemp industry thereby increasing the barriers for entry. These include the aforementioned, tight rope legal distinction that separates hemp from cannabis under federal law, the omission of hemp processing from the 2018 Farm Bill, and the lack of crop insurance coverage resulting from the narrow legal distinction.

Hemp and cannabis plants both belong to the Cannabis Sativa family. The difference lies in the concentration of THC established by federal law. Complicating compliance therewith, the amount of THC in any given plant depends upon its seed’s genetics and environmental stresses. Moreover, THC levels are often not tested, nor definitive, until after time and capital has already been expended growing the plant to harvest. Thus, because the only difference separating hemp from cannabis under federal law is the level of THC tested, a hemp producer always walks a thin line between running a compliant business and violating the CSA.

A glaring defect within USDA’s regulatory framework is its lack of regulation over processing and extraction. Hemp is often manipulated in some form in order to be added into different products varying from skincare and cosmetics to cannabidiol (CBD) tinctures. To create these products, a hemp manufacturer needs to process the hemp material as discussed above. Although the USDA has approved state proposals that include language regulating processors, the DEA’s new rule looks only to the language of the statutory amendments at the expense of the legislative purpose. Without establishing a regulatory framework for the processing and extraction of hemp material, processing hemp may inevitably lead to litigation given the conflicting language between the DEA’s new rule and the 2018 Farm Bill.

Finally, hemp producers face another issue arising from this narrow legal distinction: the lack of insurance coverage for plants whose THC levels test above the 0.3% threshold. While the USDA recently introduced hemp crop insurance for producers, like other insurers, it too will not pay claims on crops that have been destroyed because they test too high for THC. Plants that do test above 0.3% THC must be disposed of. The disposal of noncompliant plants requires adherence to disposal and waste procedures established by each state’s hemp program. These procedures have themselves created a market for hemp disposal. Therefore, while each noncompliant plant is untapped earnings, each disposal is another expense to the producer that insurance will not cover.