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Cannabis Litigation Update - October 2022

October 17, 2022
Business Litigation Reports

Ninth Circuit Declares Delta-8 THC Vape Products Are Legal Under The Farm Bill

In recent years, interest in delta-8 THC (“delta-8”) has increased exponentially, and companies are now offering a cornucopia of delta-8 infused products, including e-cigarettes and vape products. Eric C. Leas, et al., Public Interest in ∆8-Tetrahydrocannabinol (Delta-8-THC) Increased in US States That Restricted ∆9-Tetrahydrocannabinol (delta-9-THC) Use, 101 INT'L J.DRUG POL'Y 103557 (2022); CENTERS FOR DIESEASE CONTROL AND PREVENTION, INCREASES IN AVAILABILITY OF CANNABIS PRODUCTS CONTAINING DELTA-8 THC AND REPORTED CASES OF ADVERSE EVENTS (Sep. 14, 2021). However, despite the widespread availability of delta-8 products, there was significant disagreement over the federal legality of these products—until recently. In May of this year, the Ninth Circuit settled this dispute with its decision in AK Futures v . Boyd Street Distro, LLC, holding that vape products containing delta-8 are legal “hemp” under the 2018 Farm Bill. 35 F.4th 682 (2022). Further, the court went as far as to note that legal “hemp” also includes all “derivative[s], extract[s], or cannabinoid[s] originating from the cannabis plant” so long as they do not contain more than 0.3% delta-9 THC.

What Is Delta-8 THC?

Delta-8 is one of the approximately 100 cannabinoids present in the cannabis plant and is similar to delta-9 THC, the compound primarily responsible for cannabis’s psychoactive effects. ALCOHOL AND DRUG FOUNDATION, WHAT ARE CANNABINOIDS?, (last visited Aug. 4, 2022). Compared to delta-9 THC, delta-8 has less potent psychoactive effects, likely due to delta-8’s lesser ability to bind to human cannabinoid receptors. Michael Tagen & Linda E. Klumpers, Review of delta-8-tetrahydrocannabinol (Δ8-THC): Comparative pharmacology with Δ9-THC, 179 BRIT. J. PHARMACOLOGY 15, 3915, 3915 (2022). In terms of manufacturing process, the majority of delta-8 sold to consumers is not extracted directly from the cannabis plant and instead is obtained by converting CBD via chemical reactions into delta-8, which is then added to added to vape products. Id. at 3916.

So, in sum, delta-8 is one of the substances derived from the cannabis plant that has psychoactive effects other than delta-9 THC.

The Dispute Underlying AK Futures v. Boyd Street Distro, LLC and the District Court’s Holding

With this background on delta-8 in mind, we can now turn to AK Futures v . Boyd Street Distro, LLC, the dispute that instigated the Ninth Circuit’s decision to hold delta-8 is legal “hemp.” In AK Futures, a manufacturer of e-cigarette products devised the brand name “Cake” in October 2020 and commenced selling delta-8 products under the brand. 35 F.4th at 686. However, in the summer of 2021, the manufacturer learned a wholesaler was selling counterfeit Cake products in packaging “virtually identical” to the manufacturer’s products. Id. at 686-87.

Accordingly, the manufacturer sued the wholesaler for, inter alia, trademark infringement of its unregistered Cake mark and sought a preliminary injunction to prevent the wholesaler from selling counterfeit Cake goods Id. at 687. The district court granted the preliminary injunction, holding the manufacturer was likely to prevail on its trademark infringement claim because, among other things, the manufacturer owned a valid trademark. Id.

The Wholesaler Appeals and Ninth Circuit Holding That Delta-8 Is Legal “Hemp” Under the Farm Bill

Unsatisfied with the district court’s ruling, the wholesaler appealed. Id. On appeal, the wholesaler argued the manufacturer’s trademark was invalid because “[o]nly lawful use in commerce can give rise to trademark priority,” and the manufacturer’s mark was used to sell delta-8 products, which the wholesaler contended were illegal. Id. at 688-89.

The Ninth Circuit addressed and rejected the wholesaler’s illegality argument. The court explained that although marijuana and THC are schedule I controlled substances that would otherwise be illegal, the 2018 Farm Bill legalized “hemp” by removing it “from the definition of marijuana in the Controlled Substances Act.” Id. at 690. “Hemp,” in turn, is defined by the Farm Bill as follows:

The term “hemp” means the plant Cannabis sativa L. and any part of that plant, including the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with a delta-9 [THC] concentration of not more than 0.3 percent on a dry weight basis.

Id. Taking a plain meaning approach to this language, the Ninth Circuit interpreted it to mean that legal “hemp” includes “all products that are sourced from the cannabis plant, contain no more than 0.3 percent delta-9 THC, and can be called a derivative, extract, cannabinoid, or one of the other enumerated terms.” Id. Emphasizing this definition’s expansiveness, the court clarified that “the only statutory metric for distinguishing controlled marijuana from legal hemp is the delta-9 THC concentration level,” and this definition “extends to downstream products and substances, so long as their delta-9 THC concentration does not exceed the statutory threshold.” Id. at 690-91.

With the statutory definition clarified, the Ninth Circuit held the manufacturer’s delta-8 e-cigarette products fit within the definition of legal “hemp.” Id. at 691. The undisputed evidence showed (1) the manufacturer’s delta-8 e-cigarette liquid contained less than “0.3 percent” delta-9 THC and (2) the delta-8 in question was “hemp derived” and a cannabinoid. Id. As a result, the e-cigarette liquid fit the definition of legal “hemp” under the Farm Bill because “the delta-8 THC in the e-cigarette liquid is properly understood as a derivative, extract, or cannabinoid originating from the cannabis plant and containing ‘not more than 0.3 percent’ delta-9 THC.” Id.

Ninth Circuit Rejection Of DEA Interpretations to the Contrary and Arguments Based on Congressional Intent

In holding that delta-8 is legal under the Farm Bill, the Ninth Circuit also addressed and refuted two potentially contrary positions advanced by the Drug Enforcement Agency (“DEA”) and an argument based on congressional intent.

Specifically, in support of the wholesaler’s argument that delta-8 was illegal, the wholesaler pointed out that the DEA had stated “[a]ll synthetically derived [THCs] remain schedule I controlled substances.” Id. at 692. Thus, argued the wholesaler, because the delta-8 THC in question was “extracted from the cannabis plant and refined through a manufacturing process,” it was “synthetically derived” and illegal under the DEA’s interpretation. Id. at 692. The court, however, rejected this argument, holding the DEA’s interpretation could not override the Farm Bill’s “unambiguous” language, which “does not limit its application according to the manner by which ‘derivatives, extracts, [and] cannabinoids’ [such as delta-8] are produced.” Id. Further, the court rejected the wholesaler’s separate argument that delta-8 was illegal because the DEA’s website listed delta-8 as a schedule I controlled substance. Id. at 693. The court held such a position was contrary to both the Farm Bill’s language and the DEA’s own regulations. Id. at 693.

Finally, the court was also unpersuaded by the wholesaler’s argument that “Congress intended the Farm Act to legalize only industrial hemp, not a potentially psychoactive substance like delta-8 THC.” Id. In addressing this argument, the court stated it would “allow neither ambiguous legislative history, nor speculation about congressional intent to ‘muddy’ clear statutory language.” Id.

Accordingly, not only did the Ninth Circuit in AK Futures hold delta-8 was legal, but it also refuted key arguments to the contrary and stated certain interpretations proffered by the DEA, which otherwise might deter companies from entering the delta-8 market, were contrary to law.

Where This Leaves Delta-8 and Other Cannabinoids

Given the holding in AK Futures v . Boyd Street Distro, it seems settled within the Ninth Circuit that delta-8 is legal under the Farm Bill as long as it is sourced from the cannabis plant (i.e. not “produced ‘from non-cannabis materials’”). Id. at 692. Further, the court’s holding, which gave effect to the expansive definition of “hemp,” expressly opens the door for other cannabinoids, such as delta-10 THC or THC-O, to be legally sold under the Farm Bill as long as they are sourced from the cannabis plant.