Today, in a unanimous decision, the Texas Supreme Court held that the Texas Constitution does not protect an individual’s right to process and manufacture smokeable hemp products, and therefore upheld two 2019 laws that prohibits the processing and manufacture of smokeable hemp in Texas. Texas Dep’t of State Health Services and John Hellerstedt v. Crown Distribution LLC e. al, No. 21-1045; 25 Tex. Admin. Code § 300.104; Tex. Health & Safety Code § 443.204(4).
Importantly, the Decision does not ban the “distribution” or “retail sale” of smokeable hemp products, actions which had previously been banned by the Texas Department of State Health Services (DSHS). A trial court enjoined the provisions of the law related to distribution and retail sale, and the state declined to continue its defense of those provisions in its appeal to the Texas Supreme Court. Therefore today’s Texas Supreme Court decision leaves the trial courts injunction intact.
Overall, the decision is a significant blow to the hemp industry in Texas, and a glaring reality check as a new legislative session looms, and another Texas Supreme Court case on the legality of Delta-8 THC is expected any day.
The lawsuit decided today by the Texas Supreme Court stemmed from Texas’s first hemp legalization bill in 2019. When Texas established a hemp production program through HB 1325, the law specifically prohibited “the processing or manufacturing of a consumable hemp product for smoking.” Tex. Admin. Code Title 25, § 443.204(4) (emphasis added). “Smoking” was broadly defined to essentially prohibit the processing or manufacture of any sort of hemp vape devices or prerolls in Texas. Tex. Health & Safety Code § 443.001(11). The law also directed the Texas Department of State Health Services (“DSHS”) to promulgate rules to govern the consumable hemp industry. DSHS initially went two steps further than the Legislature’s smoking ban and further prohibited both the distribution and retail sale of smokeable hemp products in Texas—those provisions remain enjoined and unenforceable. § 300.104.
Hemp retailers, distributors, and manufacturers challenged the smokeable hemp prohibition in 2020 in Crown Distributing LLC et al. v. Texas Dep’t of State Health Services and John Hellerstedt. The hemp company plaintiffs submitted a petition on August 5, 2020 for a temporary restraining order, temporary injunction, and permanent injunction—the impact of which would effectively prohibit the State from enforcing the smokeable ban. A Travis County trial court issued a temporary injunction prohibiting the State from enforcing the smokeable hemp ban on September 18, 2020. The State appealed the injunction. The Court of Appeals affirmed the injunction in part, reversed in part, and remanded the case back to the trial court in Travis County.
Following a trial on the merits in Travis County, on November 16, 2021 the trial court declared the statutory smokeable ban unconstitutional and therefore the entire DSHS rule to be invalid. The court enjoined DSHS from enforcing the statute or rule that created the smokeable hemp prohibition. However, on December 3, 2021, the state again appealed the case, this time directly to the Texas Supreme Court, which can be done when a trial court issues a ruling on the constitutionality of a law, as was the case in Crown Distributing.
At the Supreme Court, the state stopped defending the portions of the law that dealt with “distribution” and “retail sale,” but continued to defend the prohibition on manufacturing and processing. The hemp companies asserted the law violated a section of the Texas Constitution which reads that “[n]o citizen of this State shall be deprived of life, liberty, property, privileges or immunities, or in any manner disenfranchised, except by the due course of the law of the land.” Tex. Const. art. I, § 19. The companies argued the smokeable hemp prohibition was a violation of the guarantees of art. I, § 19 of the Texas Constitution, but the court did not agree. The court ultimately found that the legislature’s decision to adopt a new framework of regulations for cannabis in the 2019 hemp bill does not transform the hemp companies’ desire to produce smokeable hemp products into a constitutionally protected interest.
While this decision will unlikely slow the growth of sales of smokeable hemp products in the state, it will guarantee that businesses who make such products in Texas will need to shut down their manufacturing operations, and out of state businesses looking to establish manufacturing operations in Texas will now look elsewhere. The decision and law also generally paint Texas as not-friendly to the hemp industry, which will likely stop an unknown number of companies from expanding or growing their operations in Texas, and therefore deprive Texas of the potential jobs and tax revenue those companies will provide.
The industry will likely have a knee jerk reaction against the Texas Supreme Court for this decision, but the decision is a legal analysis of a law passed by the legislature and DSHS. Delta-8 will likely be dealt a similar blow by the courts in the coming weeks. The industry’s frustration and efforts need to be directed toward the legislature and DSHS authorities that continue to pass rules that hamper rather than support the hemp industry.
Cameron Field is Senior Counsel and Co-Leader of the Cannabis Industry Group at the Law Firm of Michael Best & Friedrich LLP in Austin, TX.
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