LoneStar Does Not Own Trade Secrets Listed in Court Filings
CenTex CBD beat back a claim by LoneStar Farms LLC, better known as Sweet Sensi, and their lawyer, Lisa Pittman, of misappropriation of trade secrets and intellectual property and allegations of unethical conduct. This ruling of Constructive Fraud and other charges against Sweet Sensi will have significant implications for the rapidly growing and changing hemp industry in Texas.
During the case, Greg Autry of Sweet Sensi attacked Wyatt Larew of Wyatt Purp and the Texas Hemp Reporter in an advertisement published in The Austin Chronicle on October 25, 2024. The jury verdict completely vindicated Larew and the Texas Hemp Reporter for its initial coverage of the case.
“Sweet Sensi tried to cover up its bad behavior and questionable business practices by attacking me. I am grateful that the jury ruled in CenTex’s favor and vindicated me. I am disappointed in my former attorney, Lisa Pittman, who took a contradictory position after providing a legal opinion for me. Justice is the winner this week. Also, Hemp businesses in Texas won because bad actors need to be exposed, and ethical standards must be respected,” said Larew.
The conduct of Sweet Sensi’s lawyer, Pittman, has come into question. During the legal process, Pitman moved the case to District court from small claims court, which allowed Sweet Sensi to counter-sue for $250k-1 million in damages. While the trial was progressing, CenTex asked the judge to sanction Pittman. The judge agreed and sanctioned her. Additionally, the judge found it necessary to remind Pittman of her Fifth Amendment right against self-incrimination, raising the concern that her actions could be viewed as criminal, not just unethical.
“The Texas Hemp Reporter bases our reporting on court filings and public documents. Factual court reporting does not require commentary for the parties involved to “spin” us with their interpretation of court proceedings,” said Russell Dowden, Publisher of the Texas Hemp Reporter.
In this case, the jury ruled that Sweet Sensi did not own certain trade secrets, which contradicts what Autry of Sweet Sensi said in his paid advertisement.
“In my opinion, the jury did a good job seeing through the thinly veiled arguments presented by Sweet Sensi attempting to misuse trade secrets and the patent process. Hemp businesses must maintain their integrity so we can continue to supply products for the people who need them the most,” said David Sergi, Attorney for Wyatt Purp and other hemp-related businesses.
{What Does the Future of Hemp hold for the Lone Star State? Operators will be more accountable to retailers moving forward.}
In addition to finding Sweet Sensi committed constructive fraud, the jury returned unanimous verdicts, finding that Sweet Sensi engaged in false, misleading, deceptive, and unconscionable actions when the jury answered the following questions.
Did LoneStar engage in any false, misleading, or deceptive act or practice that CenTex relied on to its detriment and that was a producing cause of damages to CenTex? Jury said Yes.
Did LoneStar engage in any unconscionable action or course of action that was a producing cause of damages to CenTex? Jury said Yes.
Did CenTex and LoneStar agree that CenTex’s cherry limeade gumdrops ordered from LoneStar would come with red sugar and contain approximately 15 mg of Delta 8 per gumdrop? Jury said Yes.
Did CenTex and LoneStar agree that LoneStar would provide shelf-ready/consumer-ready gumdrops to CenTex? Jury said Yes.
Did LoneStar fail to comply with its agreement with CenTex, if any? Jury says Yes.
Did CenTex substantially rely to its detriment on LoneStar’s promises), if any, and, if so, was CenTex’s reliance foreseeable by LoneStar? Jury said Yes.
Did LoneStar obtain a benefit from CenTex by fraud or the taking of an undue advantage? Jury said Yes.
Did LoneStar fail to comply with the Manufacturing Service Agreement? Jury said Yes.
Did LoneStar own a trade secret in the formula, pattern, compilation, program, method, technique, process, or list of actual or potential customers listed below?
1. The rosin-based process used to design and manufacture LoneStar’s rosin-based products. Jury said No.
2. The process for designing and manufacturing LoneStar’s rosin base. Jury said No.
3. The process for designing and manufacturing LoneStar’s rosin-based products. Jury said No.
4. The process for designing and manufacturing LoneStar’s vape cartridges and gummy products. Jury said No.
In addition to these findings, LoneStar Farms LLC dba Sweet Sensi must pay monetary damages to CenTex CDB.
Additional steps related to the people and businesses involved in this case will be taken in the coming weeks. We will continue to inform the public about any developments.
For media interviews. Please contact Kevin Lampe at (312) 617-7280 or [email protected].
In a high-stakes legal battle that could shape the future of hemp innovation in Texas, CenTex
CBD, LLC and LoneStar Farms, LLC (operating as Sweet Sensi CBD) are locked in a dispute over
trade secrets, intellectual property, and allegations of unethical conduct. The lawsuit, which
centers on competing claims of misappropriation and breach of trust, has significant
implications for both companies and the rapidly evolving hemp industry in Texas.
How We Got Here?
The conflict between CenTex CBD and Sweet Sensi began after what initially seemed like a
routine business issue. After a year of working together and spending over $50,000 on
products, CenTex CBD received an order of gummies from Sweet Sensi that was not only the
wrong color but also had double the labeled potency. The labeling error, which was Sweet
Sensi’s responsibility, prompted CenTex to reach out about the discrepancy. Instead of
resolving the issue through dialogue, CenTex was met with a Cease and Desist letter sent by
Attorney Lisa Pittman from Pittman Legal the same day, which legally prevented any further
communication with Sweet Sensi directly and, for the first time, accused CenTex CBD of stealing
trade secrets. Cent Tex asserts that Ms. Pittman prevented any kind of reasonable, timely
resolution by not communicating any offers from CenTex CBD to Greg Autry of Sweet
Sensi or even responding to communications from CenTex CBD for multiple weeks. Instead, Ms.
Pittman informed CenTex CBD that she would not communicate with CenTex CBD directly.
Her actions forced CenTex CBD to hire an attorney and take legal action for any resolution at all.
Following this letter, CenTex’s attempts at communication were allegedly ignored by Pittman,
who failed to pass on offers for resolution to Greg Autry, Sweet Sensi’s founder. Following this
letter, CenTex’s attempts at communication were allegedly ignored by Pittman, who failed to
pass on offers for resolution to Greg Autry, Sweet Sensi’s founder. However, the Texas Hemp
Reporter spoke to Adam Gregg, from CenTex CBD, he has confirmed that “no offer was made.”
Pittman’s refusal to engage in meaningful discussions forced CenTex to hire legal counsel and
escalate the matter, transforming a simple business disagreement into a full-scale legal battle
over intellectual property and trade secrets.
Sweet Sensi’s Allegations: Protecting Proprietary Information
At the core of Sweet Sensi’s claims is the accusation that CenTex CBD misappropriated their
proprietary rosin-based production methods to create competing products, including delta-8vape cartridges and rosin-based gumdrops. According to Sweet Sensi, their patent-pending
technology for producing rosin products was shared with CenTex CBD under the terms of Non-
Disclosure Agreements (NDAs). These agreements were intended to protect Sweet Sensi’s
confidential business methods and trade secrets, ensuring that their proprietary knowledge
would not be used without their consent.
Sweet Sensi claims that CenTex CBD breached these agreements by using the confidential
information to develop and market its own rosin-based products. They argue that this
constitutes a clear violation of intellectual property law, as CenTex is now directly competing
with them using the very processes they pioneered. Sweet Sensi asserts that their rosin-based
products represent a significant investment in research and development, and they are seeking
to hold CenTex accountable for what they view as unfair competition.
From Sweet Sensi’s perspective, this case is about protecting the integrity of their business and
ensuring that other companies cannot profit from their innovation without facing legal
consequences. They see CenTex’s actions as a deliberate attempt to undermine their position in
the marketplace by using their proprietary technology without permission.
CenTex CBD’s Defense: Allegations of Overreach and Unfounded Claims
On the other side of the courtroom, CenTex CBD presents a very different narrative. CenTex
contends that Sweet Sensi’s accusations are exaggerated and unsupported by clear evidence.
According to CenTex, their company has always acted with integrity, developing its products
independently without relying on any proprietary information from Sweet Sensi. They view the
lawsuit as an attempt by Sweet Sensi to stifle competition, using intellectual property claims as
a tool to block CenTex from selling its own innovative products.
CenTex argues that Sweet Sensi’s claim to exclusive ownership of rosin-based production
methods is overly broad and legally questionable. They maintain that rosin production is a
widely known technique within the hemp industry, and the methods used by CenTex do not
infringe on any valid trade secrets or intellectual property owned by Sweet Sensi. From
CenTex’s perspective, Sweet Sensi is using the legal system to intimidate a competitor rather
than address a genuine legal dispute.
Moreover, CenTex has pushed back against discovery requests made by Sweet Sensi, which
they argue are excessive and invasive. Sweet Sensi has demanded access to sales figures,
financial records, and advertisements, which they claim are necessary to prove the extent of
the alleged misappropriation. CenTex, however, believes that Sweet Sensi is engaging in a
fishing expedition, asking for information that goes beyond what is relevant to the case and
placing an undue burden on CenTex’s operations.
Discovery Disputes and Allegations of Spoliation
One of the more contentious issues in the lawsuit involves discovery disputes between the two
companies. Sweet Sensi has accused CenTex of failing to provide key documents, including
profit and loss statements and advertisements, which they believe could help prove their claims
of trade secret theft. Furthermore, Sweet Sensi has alleged that CenTex deleted social media
pages and advertisements that could have served as critical evidence in the case, a charge that
has escalated into accusations of spoliation—the deliberate destruction of evidence.
CenTex, for its part, denies these allegations, arguing that any changes to their social media
presence were part of routine business operations and not an attempt to destroy evidence.
They insist that they have complied with discovery requirements to the best of their ability and
that Sweet Sensi’s accusations of spoliation are unfounded.
The Ethical Dispute: Lisa Pittman and Wyatt Larew
The legal battle between the two companies took an unexpected turn with the involvement of
Lisa Pittman, Sweet Sensi’s attorney, and Wyatt Larew, a key expert witness for CenTex CBD.
Larew had previously had an attorney-client relationship with Pittman and later testified that
Pittman made improper contact with him after learning that he had been retained as an expert
witness for CenTex.
According to Larew’s testimony, Pittman called him on June 10, 2024, and tried to dissuade him
from testifying on behalf of CenTex, citing her financial interest in the case and even suggesting
that Larew should prepare for potential legal consequences if he continued in his role as an
expert witness. Larew described the conversation as intimidating and felt that Pittman was
attempting to coerce him into stepping down.
CenTex seized on this testimony, filing a Motion for Sanctions against Pittman for allegedly
violating ethical standards. The court ultimately agreed, ruling that Pittman’s communication
with Larew was a violation of Texas Disciplinary Rule 4.02(b), which governs communication
with represented parties. As a result, the court imposed sanctions, barring Pittman from
deposing or cross-examining Larew during the trial.
Court Rulings and Sanctions – LETTER HERE: 24-080924 ORDER on Motion for Sanctions-1
The court’s decision to sanction Pittman was a significant victory for CenTex, bolstering their
claims that Sweet Sensi’s legal team had engaged in unethical conduct. However, the broader
dispute over the alleged misappropriation of trade secrets remains unresolved, with both sides
continuing to argue their positions as the trial approaches.
While CenTex celebrates the sanctions against Pittman as a validation of their stance, Sweet
Sensi continues to argue that the core issue—the protection of their proprietary
information—has not been fully addressed. Sweet Sensi maintains that CenTex has yet to
account for its alleged misappropriation of rosin-based production methods and that the case is
far from over.
The Stakes for the Hemp Industry
This legal battle between CenTex CBD and Sweet Sensi carries significant implications for the
hemp industry in Texas. Though CenTex may appear to be the David in this scenario—smaller in
size and resources compared to the industry giant Sweet Sensi, the Goliath—the outcome of
this case could set important precedents for how trade secrets and intellectual property are
protected in the rapidly evolving hemp space. As more companies invest in proprietary
production methods, the legal framework around innovation and intellectual property will be
critical in determining how businesses compete.
For CenTex, this case is about defending their right to innovate and compete freely in the
marketplace, without being crushed by unfounded allegations from larger competitors. They
argue that Sweet Sensi is using its size and influence to block CenTex from making a name for
itself in the market. On the other hand, Sweet Sensi sees the lawsuit as a necessary step to
protect their innovations and ensure that competitors do not misuse confidential information
or infringe on their proprietary methods.
As the trial date approaches, the confrontation between these two companies will likely shape
the future of intellectual property disputes in Texas burgeoning cannabis and hemp sector. The
court’s ruling will set a legal precedent, not just for CenTex and Sweet Sensi, but for how
intellectual property protections are enforced across the state’s growing hemp market.
2023 saw a number of consequential legal developments for the cannabis industry despite the failure of any law, pro or con, related to cannabis to pass during the Legislative Session, due to Leadership’s showdown over competing property tax proposals, despite the postponement of the new Farm Bill until next year, and despite the FDA’s punt on CBD. Most of the legal action this year occurred in the court system across the country, where the terrain of what part of the plant is legal in what state continuing to shift on a daily basis. Here is the latest as of December 2023 by topic:
Smokable Hemp
Though the smokable hemp case was decided last year, its chilling effects were felt in 2023. The Crown Distributing case challenged statutory language in the Texas Hemp Act that addressed manufacture and sale, where the manufacture of hemp for smoking was specifically forbidden. The chief impediment to the passage of Texas’ 2019 hemp law was the skepticism that cannabis would only be used for industrial and therapeutic CBD purposes; therefore, they did not want it to be smoked. They thought if they kept you from making it, then you couldn’t sell it, not thinking about the internet and interstate commerce. State Department of Health Services (DSHS) subsequently issued a rule that also explicitly forbade the sale of smokable hemp. Because the retail ban was not as specific in the statute, the court held DSHS did not have the authority to also ban the sale of smokable hemp. But the manufacture ban was clear and so we are stuck with that. Because the mere application of labels to a consumable product is “manufacturing,” this one element of the operation now has to be outsourced to another state, at significant economic disadvantage to Texans. In 2023, DSHS posted a notice on its website about the case and that the manufacture ban would be enforced, and formally adopted a rule banning the manufacture of hemp for smoking. DSHS also commenced inspections and has been citing local companies making their own pre-rolls. To remedy this absurdity, this Session, Rep. Briscoe Cain filed HB 4918 to eliminate the manufacture ban in the statute. Other Congressmen who in sessions past were vehemently against smoking were less preoccupied with the issue in 2023. This bill died with all the others. The next opportunity to modify the smokable hemp law will be in the 2025 Legislative Session.
Delta 8/THC Isomers/Intoxicating Cannabinoids
Intoxicating cannabinoids have been a controversial thorn in the Legislature’s side, as each session brings fresh drama between dueling prohibitionist hemp bills that threaten to wipe out the entire industry through vague and expansive language. At the same time, positive hemp bills are being introduced, which made for a rich session of intense lobbying, only for it to all collapse under the property tax showdown. Particularly worrisome was Sen. Perry’s SB 264 that prohibited the manufacture, sale, or purchase of a consumable hemp product that contains synthetically derived THCs, without defining what was meant by synthetically derived. The bill also forbade the sale or distribution of cannabinoids unless they were GRAS by the FDA, an impossibility, and created concerning beyond the law penalties. This bill did not pass. Recently, Rep. Stephanie Klick, the author of the Compassionate Use Program (CUP), wrote in the Fort Worth newspaper about the scourge of delta 8 and other THC isomer products and the necessity of preventing children from accessing these products. Rep. Klick is influential on these topics and was supportive of SB 264. The next time to address these issues legislatively will be in 2025.
In September 2023, the Third Court of Appeals heard procedural arguments in the lawsuit pending against DSHS over the manner in which its Health & Human Services Commissioner changed the definition of THCs in the Texas Controlled Substances Act (CSA) in January 2021. It is the Commissioner’s mandated duty to establish and modify the CSA schedules, and she does so periodically, through a required notice and comment process. The new THC definition makes all THCs illegal, with the exception of delta 9 from hemp under .3%, effectively making delta 8 and any other THC isomer an illegal controlled substances. DSHS testified in the 2021 Legislative Session at a hearing on a bill to outlaw delta 8 that it considered delta 8 to be illegal already anyway due to this definition. After a lawsuit was subsequently filed against DSHS by hemp companies, a temporary injunction was issued to suspend the effectiveness of the definition change until a later legal resolution. The court delayed an uncommonly long time in hearing arguments in this case, likely waiting out the Legislative Session so a ruling would not be rendered moot. The only effect of the September court ruling is that the injunction will continue to stay in place allowing business to continue as usual until a trial is held in the lawsuit which will finally determine the matter of whether the definition change was effective or not. This should occur in 2024.
Law enforcement intervention of hemp stores selling various types of intoxicating hemp products, including THCa flower, hit a fever pitch in 2023, along with DSHS inspections and enforcement. THCa brings its own legal conundrums and growers and sellers are subject to two distinct bodies of law that are not congruent with one another: civil/regulatory/administrative versus criminal law and the CSA. The Texas Crime Lab decarboxylates products, instantly converting THCa flower into marijuana, and tests other products under differing standards from hemp labs, resulting in stiff felony charges for products carrying a “compliant” hemp Certificate of Analysis. None of these criminal cases has made it through the system, so 2024 will likely bring a reckoning on the exploitation of perceived loopholes in the hemp laws. Note that the 2018 Farm Bill made falsification of a COA a felony – and we are seeing lots of modified COAs.
Hemp Laws and Lawsuits in Other States
States across the country are enacting legislation to severely curtail or completely eliminate hemp derived THCs and intoxicants, motivated by a mixture of governments seeking to ban intoxicating cannabinoids and marijuana industry players who have to spend considerably more on their regulated products than hemp companies do. Procedurally, as in Texas, in most of these cases, the current postures of the lawsuits are that an injunction is in place allowing the manufacture/sale of the to-be-banned cannabinoids until trials on the merits can be conducted to resolve the legal disputes. In March, DEA declared THC-O to be a controlled substance. In May, the DEA announced that a rule regarding synthetic cannabinoids would be forthcoming, but we have not seen it yet, and an official stated Delta 8 was considered illegal even when extracted from legal CBD.
So, we continue to piece together the agency crumbs and litigation across the country to determine what is likely legal or not. 2023’s notable laws and litigation included the following:
Kentucky,Florida, and Tennessee each enacted flaws to regulate hemp products to prevent the sale of products to those under 21 and to prohibit the sale and marketing of hemp products that appeal to children. Florida’s Department of Agriculture also inspected thousands of hemp companies and targeted 107,000 products marketed toward children. Florida has just been sued by a hemp company challenging the new regulations. As a result of a similar sequence of events in Kentucky last year, in 2023, Kentucky introduced regulations aimed at preventing sales to minors. This has just gone through the notice and comment process, and will be one to watch in 2024. Tennessee added age requirements and a special tax for hemp products.
In Alaska, a law was recently enacted banning any amount of THC in a hemp derived product, reserving the sale of those exclusively for marijuana licensees. A lawsuit was just filed by the Alaska Industrial Hemp Association and will be one to watch in 2024.
Minnesota birthed a burgeoning hemp product market when it made rules allowing for higher concentrations of THC in hemp products last year. But this year, Minnesota legalized cannabis for adult use, and it appears that hemp product makers will be held to registration and other requirements just as marijuana licensees, and synthetics and smokables will be banned. Note that you must now register with the State if you are selling hemp products into Minnesota. Another market to watch in 2024.
In New York, an injunction was just issued to prevent enforcement of emergency regulations that put extreme potency limits on the processing and retail sale of hemp products.
In Arkansas, an injunction was just issued to prevent the enforcement of a newly enacted law that criminalized all hemp synthetics and psychoactive substances.
In Maryland, an injunction was issued to prevent enforcement of a law that prohibited the sale of any intoxicating cannabinoids from hemp, reserving those products for marijuana licensees, which resulted in the closing of many stores.
In Virginia, an injunction was notissued to prevent enforcement of a law that banned delta 8 and enacted extreme potency limits on hemp products.
In Georgia, law enforcement was ordered to return seized hemp products after a court disagreed that the products were controlled substances. Separately, the DEA just stated that Georgia’s plan to use pharmacies for medical marijuana distribution violates the CSA.
New Hampshire,Vermont, Connecticut, and North Dakota banned the sale of all the THC isomers. At the beginning of the year, Louisiana issued regulations that made 100’s of hemp products illegal. Lawsuits resulted in a walking back. Note that you must have your product approved by the State to sell in Louisiana.
As for “Delta 9” products, a number of states have enacted regulations and restrictions on the potency of hemp products, such as Colorado, Connecticut, Louisiana, Oregon, among other states mentioned in this article.
Selling and distributing hemp requires you to be familiar with all of these states’ legal ping pong matches, as the status of whether a product is legal or illegal can change overnight. Not every state is mentioned in this article, which is meant for general informational purposes only, and not legal advice.
FDA Quits CBD Regulation
Things aren’t clear at the top, either. On the day the 2018 Farm Bill was signed, FDA issued a statement that CBD may not be placed in food or beverage in interstate commerce nor marketed as a dietary supplement because CBD was already an FDA approved drug for epilepsy. Subsequently, FDA held a number of public hearings and took reams of public comment on regulation. Its Commissioner frequently spoke pro-actively about regulating CBD. Then, in 2021, everything changed. No regulatory activity at all has occurred since with CBD.
Nevertheless, FDA had no hesitation in throwing down plenty of roadblocks in 2023. FDA (and sometimes FTC) sent hundreds of warning letters to CBD companies for making impermissible medical claims, and in 2023, FDA denied several investigational new drug applications, even though they contained the medical studies that FDA claimed it needed.
Further, at the end of 2023, the FDA punted everything altogether, issuing a statement saying Congress needed to develop a special regulatory pathway for CBD, leaving hemp companies in a precarious legal limbo situation, trying to operate responsibly in an environment that refuses to specify any uniform standards. The lack of legal clarity prevents CBD companies from fully accessing business services and capital they need to grow.
The Texas Compassionate Use Program
2023 was the biggest year that wasn’t for the CUP since 2017. Rep. Klick introduced HB 1805, which would have added chronic pain as a condition, would have created a 10 mg dose, and would have had a mechanism to add conditions between sessions. This bill had broad bi-partisan support, positive hearings, and positive progress. It really was going to make it, but for the property tax showdown. So, we ended up with no improvements to the CUP, but that wasn’t all that happened. In 2022, the Department of Public Safety (DPS), which oversees the CUP, began preparing for the inevitable expansion of the Program, and in January 2023, DPS opened CUP applications for the first time since 2017. Currently, there are only three licensees to serve the whole state, all 3 of which are around Austin, and only 2 of which are operational. DPS recognized that patients are not being effectively served across the state through essentially only one provider, so steps are being taken to expand the manner in which patient access is provided. DPS is conducting studies to determine how many licenses should be issued, where, when, and to whom. But, due to the lack of a change in the law, all the hype that saw 245 companies submit applications for a license, resulted in no judging yet of the applications that were due in April. 2024 should be active on the application and rulemaking front for the CUP, and 2025 will see a renewed effort to grant Texas a viable bona fide medical program. I am hopeful that changes in federal laws and leadership will provide political cover for Texas to finally relent and let us use cannabis therapeutically at least. Anyone that wants us to have an actual cannabis industry must begin lobbying your representatives and senators during 2024 – once they are in session, they will not be able to take your donations, so now is the time to make your voice and your interests heard.
Historic strides were also made in decriminalization and penalty reduction bills pertaining to marijuana possession this Session, but as all the bills, they died with the property tax showdown.
Federal Rescheduling?
A potentially significant move was made this year when the President asked Health and Human Services (HHS) and the DEA to re-evaluate and reschedule marijuana. Because marijuana is federally illegal for all purposes as a schedule one controlled substance, businesses cannot deduct expenses or use banks, among hundreds of other issues caused by the conflict between state and federal law. In December 2023, HHS released hundreds of pages of documents related to its recommendations to DEA for the rescheduling of marijuana to Schedule 3. HHS’ review focused on currently accepted scientific medical uses for marijuana, as well as its abuse potential. Those redacted records are posted on the On Drugs blog by Matt Zorn and Shane Pennington. Both pro and anti marijuana politicians have urged DEA acceptance/rejection of the recommendation. Schedule 3 would alleviate the business issues, but will create completely unknown new ones, considering the oversight the FDA has over the dispensing of drugs on the schedules. The hope is that the many federal agencies involved in the determination will come to an actionable consensus before the next presidential election, which would set the tone for a new era of legal cannabis in 2025, coinciding with, and potentially having positive effect on our own legislative session that year.
Rescheduling would also aid in ushering in comprehensive legalization laws to address the conflicts between the states. The legalization bill prepared by Nancy Mace is the most business friendly and sensible effort, and it also addresses CBD regulation. Several more states legalized in 2023 for a total of 24 adult use states, with more than 50% of the population now living in a legal state, and, a record of 70% of people supporting legalization according to Gallup, up from 12% in 1969. 2024 should be a yuge year for cannabis nationwide, unless it isn’t….
Contact me if you have any questions about the status of the ever-evolving laws here in Texas and beyond at [email protected].
Russell: Joining us here on The Texas Hemp Show podcast number 59 again is Lisa Pitman from Zuber Lawler Attorneys. And Ms. Pitman is a pioneering figure in the emerging legalized hemp cannabis industry here in Texas, and Ms. Pitman is an appointee to the Texas Department of Agricultural Industrial Hemp Advisory Council. She’s also a non-resident fellow of the Drug Policy Program at Rice University. Ms. Pittman presented the American Bar Association’s first Marijuana Law CLE at its annual meeting in New York in 2017, resulting in the creation of the American Bar Association’s Task Force on Cannabis Law and Policy, for which she is the chair in 2021-2022, award winning attorney and honors achievements. You are the woman of the hour, Lisa, telling us what’s going on with a lot of the questions that some of our not only retailers but farmers alike are probably have during this week with regards to the Delta-8 issue. And you have written numerous times for The Texas Reporter. My most memorable recent article, you guys did was the one regarding the DEA interim rule on the smokable hemp ban, maybe five or six months ago. But anyway, Lisa, welcome to the show. And how are you doing?
Lisa: Great. Thanks for having me.
Russell: Well, glad to get you back here on The Texas Henp Show. It’s been a good year, probably about a year, actually, since we had you on last. What do we know about the new decisions by DSHS? And they recently made this post on the website. Did the post make delta-8 illegal?
Lisa: Delta-8 was already illegal. We have known this stance of DSHS for a year now. They objected to the DEA interim final rule in August 2020, which was to conform the US Controlled Substances Act to the fact that the farm bill happened and the farm bill created an exception of the definition for marijuana for hemp. Now each state has its own Controlled Substances Act as well, and so the States can either fall in line with what the Feds do, or they can object to it. So in this case, the Health and Human Services Commissioner objected to it. Posted notice September, held a hearing in October. They later tweaked the definition of hemp in Texas and drastically changed the definition of Tetrahydrocannabinol in that they broadened it to include all THCs and analogs, et cetera. And they basically flipped the definition of hemp on its head. So where hemp, as we know the definition to be all of the derivatives and isomers and so forth. Everything deriving from hemp is legal on the definition of tetrahydrocannabinol. They changed it to where all THCs are illegal, even if they come from hemp unless it is the Delta-9 below .3%. And so that was finalized in January, and notice was placed in the Texas Register in March. But the unusual thing that they did was instead of posting it in text that you could search, they posted a picture of it. So that made it difficult for you to search it in the register, even if you knew about it and you were looking at it. So the question for the court now is was that sufficient notice or not, under the law? And then Additionally, you’re probably aware that DSHS testified in May the hearing on the Hemp bill to ban delta-8, stating once again their position that delta-8 is already illegal. And there’s been a few other memos. So it’s going to be interesting to see where the court comes down on this, because DSHS did really put out a lot of notices about it. You just had to really be paying close attention.
Russell: Lisa, is that common for them to put something out on a PDF format as the lawsuit or the motion for the TRO was put up, although denied by Judge Harger last Friday or Monday of this week. But is that an unusual procedure to post their position on something in the PDF format on a non-searchable way like that?
Lisa: It is kind of unusual. But I will point out that in the regulations governing testing of consumable hemp products, there’s a full microbial panel that you have to test for, and they just put that into a PDF and dumped that into all the other rules. So you would have had to know that, hey, there’s this little PDF file attached to the rules that you could search for online.
Jesse: So the Texas Hemp Federation, we know, filed a lawsuit based on this just last week and that the motion for the TRO was denied by this judge in the 261st district. Can you speak to that?
Lisa: Yes. So the denial of the TRO is no comment on the merits of the case. To get a temporary restraining order, you have to show an imminent emergency, right away harm. And that’s the most pressing thing. And so here DSHS argued. Well, this has been on the controlled substances list for 40 years. They might have been referring to THC delta-8 derived from marijuana. And as I mentioned, it’s been known for a year already, just positioned. So the fact that they just recently found out about it doesn’t create an emergency situation for which TRO is warranted. And a couple of other issues.
Lisa: To get a TRO, you also have to show that you cannot be compensated by money in any way. And because this case is about, well, my business is going to be impacted by this all that can be compensated by money. So that’s another reason why it didn’t qualify for TRO. So on November 5, they’ll have a full hearing on the merits where I expect the judge will consider these issues of law. It really is a matter of law it’s not something where there will be witnesses. Here’s what DSHS are required to do. Here’s what they did do. And what is that sufficient under the law or not?
What could we consider something that would be not compensable by financial means? Would arrest fit that description?
Lisa: It could I mean, then you’re dealing with the interplay of criminal law. The situation might be, let’s say you have an employee who is stealing all of your company secrets or holding something in your company hostage that prevents you from doing business or in a domestic situation, you’re fearing violence. It’s got to be like an actual emergency. But there’s nothing else that can be done other than to get what’s called injunctive relief, equitable relief. So it’s not something that can be compensated by money damages. It’s another picture.
Jesse: Thank you for clarifying that, Lisa,
Russell: The States that already have a cannabis program have been outlawing delta-8, I think as a fear or perhaps maybe a threatened fear of the emerging delta-8 market for the states that have prominent cannabis programs. We don’t have a recreational program in the Lone Star State, but do you feel like has that been a common thread with the other States that they quickly outlawed delta-8 for fear of infringing on their cannabis markets?
Lisa: That is the case in Colorado, for example, there’s a marijuana lobby, and they want dibs on what gets you high. And another issue is it undercuts their market, too, because if somebody can just go get this other thing and not go through and pay the marijuana prices and the marijuana taxes, then the marijuana business is losing out on all of that. In some other States where it’s commonly thought to be illegal, most of them is for a similar situation of Texas, it’s the definition of marijuana or the definition of THCs that makes it illegal. It’s only been in the past year. I guess that there’s several States that have specifically banned delta-8 on purpose. It wasn’t already illegal for that other reason,
Jesse: I want to ask with the bill we passed back in 2019 with that legislative session, is there any possibility that the language we put into law in Texas may have effect on this case with how we define THC from hemp?
Lisa: Well, there’s a little bit of a conflict there, and that’s where the confusion is. That’s why I said that how they change the definition of THC flips the definition of hemp in opposite ways. We’ll just have to see on that.
Jesse: Thank you.
Russell: Well, Texas has a very small medical program in the Lone Star State. Are there lawmakers applying pressure to DSHS to rule this way or kind of just if it was already stated? It’s just confusing that this has gotten into a bigger issue here recently because I don’t know that there’s anyone enforcing any of this, Lisa.
Lisa: Well, when hemp was legalized, it was under the impression that this was for grain, industrial uses, Cbd. No one at the time thought either at the federal level or at the state levels that chemists were going to figure out how to make psychoactive cannabinoids and come up with all of the things that they’ve come up with. And so there’s been a response to that, especially in the conservative anti-marijuana states. I think that Senator Perry made some comments in the hearing like, “Well, I’ll just take yank the whole hint program away. This isn’t what we intended.” There’s a little bit of that.
Russell: Lisa Pitman from Zuber Lawler, telling us what’s to make with everything going on with our delta-8 situation, delta-8 was always illegal, not recently illegal. It was always illegal. But what are retailers supposed to think, Lisa? I guess they just have to take this inventory off of their shelves now and stay the course. I guess that seems to be what I think a lot of I’m hearing is they’re just going to have to stop selling delta-8 for fear of enforcement.
Lisa: That’s a real risk. Honestly, though, it’s been a looming threat that’s been out there for a while. I already counsel my clients how to go about it very carefully and cautiously and how they source it, market it, present it and so forth.
Russell: Yeah, well, I wonder some of them are going to move on this and some aren’t. But I guess the real concern is the enforcement and that is in the responsibility of DPS. Have arrest been made that you know, of. Lisa, have you heard anything I heard maybe one in the state might have gotten one or two, but I don’t know if these are directly related to the DSHS. Recent posting.
Lisa: Yeah, there’s been a number of arrests made during the past year. Actually, most are headshops. And what happens there typically is a cop might come in undercover, take the products, test them, and then low and behold, these delta-8 products test hot over .3% THC or total THC. And so then that turns into a marijuana felony marijuana distribution charge. As far as folks just pull over on the side of the road, I get a lot of calls, obviously. And typically, once it’s shown that it’s hemp, they’re let go.
Russell: But they still spend a night in jail and get the charge. And ultimately, maybe the charges are dropped if they provide the proof that it’s a hemp product. But I always say that we need to create better laws for law enforcement officers. It really puts the law enforcement officers in a precarious state, don’t you think, Lisa? They’ve got enough things I think to deal with. And I don’t think prosecuting delta-8 possessions is really on the forefront of law enforcement right now.
Lisa: I don’t either. They’ve got to deal with fentanyl and meth coming across the border in record proportions and killing all of us. So that’s what they’re tasked with on the drug front. And as far as marijuana in the major Metropolitan cities, they’re not really arresting people for simple possession anymore. And it’s not really that they’ve softened on marijuana. It’s that a prosecutor can’t get a jury to put someone away anymore for a joint. And similarly, a prosecutor is not going to take a case you can’t win because they want to have a winning record. So with how complicated the law is here to try to explain that to a jury, get a jury to understand and improve that the retailer knew the law, too, and chose to disregard it and have that criminal intent to sell it anyway. That’s going to be really hard for a prosecutor to pull off. Dps is charged with public safety all over the entire state on a lot of matters, and I would think that if they just focused on this, there might be some backlash over it. Why are you wasting your time and money on that? When we have so much more important things?
Russell. Their role has been protecting the border to some degree in recent months, DPS as well. So that’s the thing. And that’s the weird part of all of this is that will they really enforce anything on this in the meantime?
Lisa: Yeah, it would be a headache for a cop to pursue and a headache to enforce. I’ve been doing this since 2015 and under the 2014 farm bills. So I’ve seen the evolution of the legalization of hemp in Texas and cops being confused about hemp and marijuana, especially rural. They can barely tell the difference there and know what to do there, let alone let’s get even more granular into the delta-8.
Jesse: So from our understanding, there’s going to be another hearing on November 5 that deals with a temporary injunction. What would you say happens next with that? How does that work?
Lisa: So that’s going to be more like a trial on the merits where the judge is going to consider what the plaintiff is alleging, what DSHS did, DSHS do what they were supposed to do or not, and the judge will make a decision there. And then a temporary injunction is also an extraordinary remedy for the judge to say okay, we’re not going to allow enforcement of the Controlled Substances Act. That’s going to be unusual. I’m looking forward to seeing what they do there.
Russell: Well, we’re all following this, and I know it’s a big concern for the retail side of the business that was already making these products available with impunity. They were making these products available anyway,
Lisa: I wanna follow up about something earlier about the enforcement, that’s another issue in the lawsuit is whether the right parties are in the lawsuit. Because DSHS made the rule but DSHS doesn’t enforce the Controlled Substances Act. So can the court enjoin DSHS? DSHS isn’t the one that enforces it. You know, it’s DPS that needs to be injured from enforcing it. So that’ll be another interesting, interesting question.
Crumbled weed in the shape of Texas and a joint. (series)
Jesse: I know that one of the DSHS statements says that they don’t create regulation. Who technically would we say created this rule then if it wasn’t DSHS, who claims because they put up that we don’t make these regulations, I guess who should it be pointed towards for the proper party
Lisa: As far as the drug schedules?
Jese: Correct.
Lisa: That’s done by the Health and Human Services Commissioner.
Russell: That’s right. The Commissioner can make that.
Lisa: Yeah. In fact, if you look at the pleadings, there’s a footnote by the state that takes you to the web page that shows all of the adjustments to the schedules that the health Commissioner has made. It’s very common. They are always putting things on, taking things off the schedule all the time.
Jesse: Thank you for that. Thank you for that input.
Russell: Well, any final thoughts, Lisa, as we close here on this segment with you, we had you scheduled months ago on this show just to have you on again. And then low and behold, all this kind of happens. And this has become a hot topic with delta-8 in the last week or so. Any final thoughts as we look towards November 5 and seeing the results of the hearing.
Lisa: Yeah. What’s really changed is the public awareness. Once a big fuss was made about this, in a way, I feel like it’s kind of sabotaging because before this, this product was flying under the radar quite nicely and without law enforcement, as we have said. And so now it has been brought to the forefront of everyone’s attention, including law enforcement, including DSHS who was flooded by phone calls, which is not the best way to go about things. Really. Now we’re in more uncertain times than we were before. Like I said, there’s always been that looming threat, but it was just kind of out there.
Russell: Well, all of us in the space, Lisa, within the hemp or CBD community, we’ve all kind of danced around the delta-8 issue, but all of a sudden now on 6:30 News, KXAN is talking about this, and you’re right. It’s a hot topic right now that the rest of the public that doesn’t follow this, traditionally, this is all being like you said, brought in (the light) and the media is really covering all of this now.
Lisa: Yes sadly, they certainly are, giving lots of interviews.
Russell: I bet you have. I think I saw you on KXAN last week one day.
Lisa: Yes you might have.
Jesse: Was it KVUE?
Russell:You were on on KVUE24, maybe even KXAN. But you are getting all of the calls. You are the Perry Mason of cannabis in Texas here, Lisa Pittman. How can folks get in touch with you, Lisa? Just to learn more about the good work that you do. And I know you’re fielding all these interviews with the media as this delta-8 thing gets going as a hot topic. But how can folks learn more about your work Lisa?
Lisa: You could email me at [email protected] or the best way is to follow me on LinkedIn.
Russell: That’s right.
Lisa: Very careful content on things that I think are kind of within a narrow scope of what’s of interest to us in Texas and the south on all things cannabis and psychedelics.
Rusell: Well, it’s an exciting time, I think, as we move into the next phase of Texas lawmakers, we got a whole year before the next session gets going. It’s an exciting time, Lisa, to see what the Lone Star State. A lot of people are watching what Texas does with regards to cannabis in the long run, and we’ve made some progress here, but I think we still got some work to chew, but it’s deciding time to be in this space here in Texas. Definitely.
Lisa: It sure is. I have high hopes for 2023 for a more full fledged medical program.
Russell: Well, thank you so much for your time. Lisa Pittman joining us here on the Texas Hemp Show and you can check her out. Follow Lisa on her LinkedIn page. You will get plenty of information. She’s always got something great she’s posting on there and keeping us informed and educated on cannabis here in the Lone Star State. Thank you so much, Lisa.
On August 21, 2020, the Drug Enforcement Administration (the “DEA”) published a rule regarding the scheduling of hemp and marijuana, effective immediately (the “Rule”). The cannabis community swiftly reacted with an interpretation that this Rule outlawed Delta-8 THC, the hemp industry’s new favorite cannabinoid. The impact is that if Delta-8 THC is, in fact, a Schedule I controlled substance, the threat of felonious criminal prosecution would thwart the commercial viability of this cannabinoid. We dug into the Rule and other materials, and we disagree with the “now illegal” conclusion. Instead, we theorize that so long as the Delta-8 is derived from cannabis that meets the definition of hemp, it does not appear to be illegal under the federal CSA and we don’t believe the DEA Rule alters this.
What Does the DEA Rule Say?
The DEA repeatedly stresses throughout the publication that the Rule’s purpose is to simply codify what was already changed via the 2018 Farm Bill: “This interim final rule merely conforms DEA’s regulations to the statutory amendments to the CSA that have already taken effect, and it does not add additional requirements to the regulations.” The Rule states there are only four conforming changes:
The definition of “Tetrahydrocannabinols” on Schedule I of the official “Schedule of Controlled Substances” (21 CFR 1308) is modified to carve out “any material, compound, mixture, or preparation that falls within the definition of hemp” (as defined in the 2018 Farm Bill). What does this mean?
Regardless of what any product label may say (i.e., “hemp” or otherwise), if a product has more than 0.3% Delta-9 THC, it is a controlled substance. Regardless of being hemp-derived, if the derivative, extract or product has more than 0.3% Delta-9 THC, it is a controlled substance. None of these changes, alters or affects the FDA’s jurisdiction over products containing cannabis and cannabis-derived compounds. Naturally occurring THCs in cannabis are not controlled substances so long as they are at or under the 0.3% Delta-9 THC threshold. Any of those that are above the 0.3% Delta-9 THC threshold are controlled substances. Synthetically derived THCs are all controlled substances, regardless of THC content.
Essentially removes Epidiolex (and any generics the FDA may subsequently approve) from control in schedule V (21 CFR 1308). Also removes the requirement for import and export permits for Epidiolex (and any future generics). The definition of “Marihuana Extract” on Schedule I is modified to be limited to extracts “containing greater than 0.3 percent delta-9-tetrahydrocannabinol on a dry weight basis.” What does this mean?
Regardless of whether the extract comes from hemp or marijuana, if it exceeds the 0.3% threshold, it is illegal. It is important to point out that this definition, even before the Rule, includes the following exception: “other than the separated resin (whether crude or purified) obtained from the plant.”
The Rule reiterates these changes were already mandated under the 2018 Farm Bill: “DEA’s regulatory authority over any plant with less than 0.3% THC content on a dry weight basis, and any of the plant’s derivatives under the 0.3% THC content limit, is removed as a result.”
What is Delta-8 THC and is it legal?
Our clients frequently ask us about the legality of Delta-8 THC and our view has been that the cannabinoid, if derived from hemp and the end product remains at or below Delta-9 THC, then the substance is likely legal, but to keep in mind that Delta-8 (when not derived from hemp) is on the controlled substances schedule and the government probably did not intend to create a pathway to legally get high from THC, so be prepared for the law to change at any moment. Delta-8 THC is one of hundreds of cannabinoids that are found in the cannabis plant. Delta-9 THC is the most widely known cannabinoid and causes a psychotropic reaction felt as an intoxicating “high.” Delta-8 THC, on the other hand, is nowhere near as well known and has been gaining in popularity over the last year, largely due to its alleged ability to have a substantially different and significantly less intoxicating but still mind-altering effect. There is also research dating back to 1975 regarding its potential for treating cancer and other studies exist showing various potential health benefits (see here, here and here).
As mentioned, the DEA does include Delta-8 THC on its list of controlled substances (updated August 2020) under “tetrahydrocannabinols,” but the 2018 Farm Bill expressly carved out “tetrahydrocannabinols in hemp” (See Section 12619(b) of the 2018 Farm Bill the very last provision of the entire bill). This carve out indicates any type of THC from a cannabis plant with Delta-9 THC at or below 0.3% is legal (at the federal level). It is important to note there may be states with more restrictive laws that do criminalize Delta-8 THC, even when derived from hemp. There may also be states where marijuana-derived Delta-8 THC is legal (but illegal at the federal level).
We don’t believe the USDA intended to create a mechanism for people to legally get high, but the focus on hemp has been the Delta-9 THC concentration, because of its known psychotropic effects. Delta-8 THC may have gone under the radar, but perhaps not. The DEA doesn’t schedule every substance that produces mind-altering effects, such as kratom.
Is hemp-derived Delta-8 THC synthetically derived? The DEA Rule published on Friday repeatedly states that it is merely conforming other statutes to comply with the 2018 Farm Bill so the laws are consistent. The language in the Rule causing uproar is this:
“The [2018 Farm Bill] does not impact the control status of synthetically derived tetrahydrocannabinols (for Controlled Substance Code Number 7370) because the statutory definition of “hemp” is limited to materials that are derived from the plant Cannabis sativa L. For synthetically derived tetrahydrocannabinols, the concentration of Δ9-THC is not a determining factor in whether the material is a controlled substance. All synthetically derived tetrahydrocannabinols remain schedule I controlled substances.” (emphasis added).
Where people are getting caught up is the term “synthetically derived.” Delta-8 is a phytocannabinoid naturally existing in the cannabis plant – it is organically derived. Its natural occurrence is too low to be extracted outright, but – and we do not claim to be chemists – it is our understanding there is an isomerization process that can take place to convert CBD to Delta- 8 THC. Isomerization is the transformation of one isomer into another, isomers being molecules with the same molecular formula, but having a different arrangement of the atoms in space. We don’t believe that isomerization converts a phytocannabinoid into a synthetic one in the manner “synthetic” is used by the DEA. The 2018 Farm Bill definition of hemp includes all “isomers” of hemp. Therefore, any isomer of a hemp plant is also hemp and, pursuant to the 2018 Farm Bill, does not fall under the Controlled Substances Act (the “CSA”).
We believe the reference to “synthetically derived” is referring to a man-made chemical, not a process by which someone at a lab isomerizes one organic molecule to another (i.e., CBD to Delta-8 THC). If the concept that any material formed from any sort of human controlled chemical action taking place means that material is “synthetically derived,” then that would mean all of the hemp-derived products that go through processing are synthetic, and that is simply not the case. This article does a good job explaining the differences between synthetically derived cannabinoids, biosynthesis, and plant-based extraction. The first two take place without the plant at all. It does not seem feasible to conclude that isomerization of a hemp-cannabinoid equates to material becoming “synthetically derived.”
Synthetic cannabinoids (“SCs”) that the DEA targets are products like Spice and K2 (recall several years ago when the market was proliferated with “fake weed”), which are synthesized in labs to mimic the biological effects of THC. This DEA Fact Sheet on K2/Spice says SCs “are not organic, but are chemical compounds created in a laboratory.” SCs are part of the designer drug market and are typically liquid agents applied on plant material to look like marijuana. They were initially developed by researchers decades ago to study effects on the endocannabinoid system (in the absence of being able to study real cannabis as it has been illegal), but began to enter the consumer market in the U.S. around 2008. The DEA has identified the chemical makeup of various SCs and added them to the list of controlled substances to try to thwart the illicit market, but some actors continue to modify chemical structures to create new unscheduled SCs as a loophole to the CSA. A history of SCs is laid out in a recent DEA temporary scheduling order. Understanding the background of SCs is important because of how the legislature intended the term as it used in the CSA and how the DEA has historically treated these inorganic, lab-created chemicals that attempt to mimic THC and skirt the CSA. We have also looked up several federal cases that discuss SCs and the bulk of those relate to products like Spice and K2, as mentioned above. We found no federal case law on Delta-8 THC.
What does the 2018 Farm Bill say?
In order to understand what the DEA is doing in this Rule, we need to first understand why they are doing it. That reasoning is found in the 2018 Farm Bill which, in part, defined “hemp” and carved it out of the definition of marijuana in the CSA. The 2018 Farm Bill defined hemp as follows: “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 tetrahydrocannabinol concentration of not more than 0.3 percent on a dry weight basis.”
As mentioned above, the very last section of 2018 Farm Bill amends the CSA and expressly removes tetrahydrocannabinols in hemp” from the list of controlled substances. The 2018 Farm Bill included hemp-derived Delta-8 THC in the definition of hemp as part of the hemp plant and it removed hemp-derived Delta-8 THC from the list of controlled substances as a tetrahydrocannabinol in hemp.
The DEA Rule now follows suit in that it modifies the listing of “tetrahydrocannabinols” on the Schedule of Controlled Substances by adding the following stipulation: “Tetrahydrocannabinols does not include any material, compound, mixture, or preparation that falls within the definition of hemp set forth in [the 2018 Farm Bill].”
This reiterates the notion that so long as the 0.3% Delta-9 THC threshold is met, then the material is hemp. It follows that any derivative THC within such material (so long as the Delta-9 THC concentration is at or below the 0.3% on a dry weight basis) is also hemp and therefore not a controlled substance. The Rule, in modifying this definition brings the Schedule of Controlled Substances in line with what the 2018 Farm Bill mandated.
Final Thoughts:
Delta-8 THC is THC – it is not a lab-created substance with a chemical structurally altered to mimic its own biological effects. Delta-8 THC is organically derived and is the substance it is intended to be. Delta-8 THC has a substantially different effect on the body than Delta-9 THC that has value in and of itself that has shown promise on many medical fronts. Nonetheless, consumers should be aware of any product being consumed, especially those that are not clearly regulated. There are many ways to process cannabis extracts, some of which use solvents that are dangerous if consumed, so it is crucial for end-products to be tested by a reliable third-party for harmful ingredients, including residual solvents, and have accurate certificates of analysis available.
In Hemp Indus. Ass’n v. DEA (357 F.3d 1012, 2004 U.S. App. LEXIS 1846), a well-known case from 2004 regarding DEA’s treatment of THC in hemp, the court concluded the DEA could not regulate unscheduled drugs without following proper procedures to do so (a great summary of that case can be found here). The DEA Rule from Friday repeatedly states it is not changing any laws, so even if it wants to come down on hemp-derived Delta-8 THC and re-schedule it, this Rule is not the appropriate avenue to do so.
It is for these reasons we do not believe the DEA Rule altered the legality of hemp-derived Delta-8 THC. However, that doesn’t mean the DEA isn’t trying wrangle it back in or isn’t looking for someone to make an example out of. Being the example, even if the end result is a win, would likely be a lengthy, expensive and potentially traumatizing experience. Proceed accordingly.
Despite the immediate effectiveness of the Rule, comments are being accepted through October 20, 2020. Providing comments during a government rule-making process is a great opportunity to make your voice heard and effect change, and the only way you would have standing to make a legal challenge to the Rule later. If you think the DEA should clarify its position on Delta-8 THC or the “work in progress hemp extract” issues that need to be addressed (another area of significant concern laid out in this article by attorney Rod Kight), make sure to send incomments. Details on how to do so can be found in the Rule, and our attorneys can assist your business with crafting them.
THE INFORMATION IN THIS ARTICLE IS NOT INTENDED TO BE LEGAL ADVICE, SHOULD NOT BE TAKEN AS LEGAL ADVICE AND SHOULD NOT BE RELIED UPON IN PLACE OF CONSULTING WITH A QUALIFIED ATTORNEY PRIOR TO TAKING ANY ACTION. NO ATTORNEY-CLIENT RELATIONSHIP IS CREATED BY ANY READING, USE OR REPUBLICATION OF THIS ARTICLE. THE THEORIES PUT FORTH HEREIN ARE STRICTLY NOVEL IN NATURE AND HAVE NOT BEEN TESTED IN A COURT OF LAW.
Smokable Hemp Ban in Texas, Temporary Injunction Granted – Win for Texas Manufacturers, Processors & Retailers and this weeks show we featured two of the States attorneys that are leading the charge to keep smokable Hemp here in Texas for retailers, growers,processors and of course consumers. Chelsie Spenceris a cannabis and hemp attorney. She is a founding member of Ritter Spencer PLLC. Chelsie practices in the areas of medical marijuana and hemp and represents clients across those industries for their business law and compliance needs.
Lisa Pittman – Lisa is Co-chair of the Cannabis Business Law practice. A leader and authority in the cannabis industry, which includes state legal marijuana and federally legal hemp, Lisa was recently appointed to be a Nonresident Fellow at Rice University’s Baker Institute for Public Policy as a member of the Drug Policy Program. Lisa also was appointed to the Texas Department of Agriculture Industrial Hemp Advisory Council, a role that provides her insight and influence on the regulations for the Texas hemp program, with the goal of propelling Texas to be the preeminent producer of hemp in the United States.
On September 17, 2020, Travis County Judge Lora Livingston ruled on a request for temporary injunction in a lawsuit filed by manufacturers and retailers of smokable hemp products in Texas. The injunction sought to prevent the State from enforcing its new regulations banning the manufacture, processing, distribution, and retail sale of hemp for smoking. The temporary injunction was partially granted, in that smokable hemp product businesses may carry on without facing penalties or fines under the status quo as it existed prior to the August 2nd effective date of the new rule – at least until the final trial on the merits set for February 1, 2021.Grinded weed shaped as Texas and a joint.(series)
Interview of Texas Agriculture Commissioner Sid Miller
By Lisa L. Pittman, Texas Hemp Advisory Council Member
THR: What impact does the first Texas hemp harvest have on future grow operations in the Lone Star State?
SM: Well, where we start is not necessarily where we are going to finish. We’ve got a lot of producers signed up, but it’s a lot slower start than we anticipated—one, there was a drop in price, which held a lot of the farmers back, then of course, the day we launched, on March 16th, is about simultaneously when COVID-19 took place; I think a lot of people were a little trepidatious about that, but we do have a lot of farmers signed up—Samplers, all the different licenses, we’ve got good action, whether it be lot permits or producers or processers, we are doing pretty good.
THR: How has the processing of those licenses and permits gone so far?
SM: The Legislature gave us a 60 day turnaround time to process the applications. I think we averaged about 10 days. Most of them went off without a hitch. There were just a few, a handful that didn’t quite fit our template for the application, like having 12 or 15 owners that wouldn’t fit on the application, so we had to hand-walk some of those through, a few other things, but for the most part I was very pleased with how smooth it went off.
THR: Especially with your employees working from home, right?
SM: Yeah, we changed and working from home, of course, we had zero staff and zero money to get the program up and running, which was a huge challenge. The Legislature didn’t give us any appropriations or any FTEs to start the program. Now we have some funds coming in from the sale of licenses, which we can use to back up our personnel and get some of that allotted time paid, but starting with nothing and doing everything is tough, but we managed.
THR: I bet, about what percentage would you say has been recovered or recouped so far?
SM: Well, probably zero. The Legislature allows us to raise $750,000, which we may do, but the Legislature gets the first quarter million—they get the first $250,000 and keep it. So, we are still working for free. What I am having to do is borrow from other programs and use personnel in hopes that we can pay that back once we get enough of the licenses sold, which we are getting pretty close to.
THR: Where do you see the opportunity for Texas growers headed compared to other states that started earlier?
SM: Well, we are behind a little bit. We are starting about four years late—a lot of the other states are operating on the 2014 Farm Bill—they don’t have to go through all the hoops and the sampling is different and a little less stringent and a little less oversight. Everyone has to be on the same page—the 2018 Farm Bill comes at the end of October. We are sort of blazing a trail. I think we are one of the first, if not the first, to actually implement the hemp program under the 2018 Farm Bill. We didn’t have any problem getting our plan and our Rules approved. They flew right through, so we are pretty proud of that, we are rocking and rolling and it’s running pretty smooth actually.
THR: Well, maybe in the long run we will be setup for success then under the 2018 Rules.
SM: I think so. We are going to be far ahead of the other states that haven’t switched to 2018. They will still have to rewrite their Rules and adapt and change, and all that. We don’t have to do that. We are up and running, so I feel good about that.
THR: Is there anything Texas can do to improve its laws to economically benefit retailers and growers during the next Session?
SM: You know, I’m not a big government guy, but right now, we’ve got zero field personnel and zero samplers. Since we don’t have any funding, I think the Legislature should address that. If we don’t do any inspections, if we get a complaint, I guess we will have to send someone out. I don’t have any personnel to do that, so the Legislature could probably improve the lack of oversight. We could probably do a better job if the Legislature would see fit to make those allocations.
THR: Do you have any comment on the ban on the manufacture and sale of smokable hemp?
SM:You know, I disagree with that. It’s a huge market. Banning Texas producers from selling and processing smokable hemp does nothing to curtail the sale of smokable hemp. Other states are going to be selling it and our people are going to be buying smokable hemp from out of state suppliers, so it really doesn’t slow it down any at all. It just puts our growers and processors at a disadvantage.
THR: Has the TDA noticed a decline in AG Markets/Commodities since COVID-19 started affecting our economy?
SM: We had some backlog in the meat industry where the virus broke out in the packing plants, and it shut down production which backed up a lot of the animals in the feedlots, and the poultry, the pork, but beef was the one that suffered the most. We have just about worked through all of that now—we are back up to 95 to 99% capacity, but we still have a lot of cattle that are backed up to feedlots that we’ve got to process. It’s still a depressed market there.
I sent a letter to President Trump and William Barr at the DOJ demanding a full investigation. Consumers are paying record high prices for beef and the farmers are receiving low record prices on their end. A farmer was losing $500.00 on a steer, and a packer was making $2500-$3000 on that same steer. They are looking into that. There is going to be a full investigation, which doesn’t affect the hemp business other than a lot of people that are growing hemp are also in the livestock business.
THR: How have President Trump’s recent direct payments to farmers impacted Texas so far, and how much has been sent?
SM: Well, we don’t have those numbers because it’s still ongoing. There’s still money left. They just recently extended the date on the application; I think until August 31st. So there will still be more funds going out. We don’t have a total on that. But it certainly helps. Farmers, you know, we really don’t want a handout. What we’d rather have are good markets and a free market system, but we are appreciative of that because we don’t want to go out of business and lose the family farm.
THR: Right. Have any official testing results been submitted yet on hemp crops and, if so, have any tested “hot”?
SM: Well, we’ve got a few samples, we’ve had 20 requests for sample manifests, and I think a dozen for transfer to actually move it off the farm [as of July 7, 2020]. I don’t believe any of those were “hot,” which is great news, but it’s still early—we have so far 921 producers, which is good. We only have 405 lot permits, so apparently these producers haven’t registered all their fields yet, planting is still going on, not all the fields are planted. But we will get there. We should have at least, if every farmer only has one field, we should have over 900 lot permits and many of them will have two, so we could have 1,500 to 10,000 lot permits, and we don’t right now—it’s a moving target—the permits are still coming in every day. I don’t have the acreage added up on that, but we will get that in the near future. We will have an acreage count.
THR:How much longer do the farmers have this summer to plant? When will be the next opportunity?
SM:We’ve got probably more acres in greenhouse operations than we do field operations, so those plant year-round—planting never stops—there’s not a season when you control the climate and the environment. This is a 90-day crop—a 60-day crop if you are just doing fiber. So we could still have the farmers planting, especially if they use transplants, or seedlings, which a lot of them do, actually planting up through the end of July, first of August… they’d still have time to make a crop.
THR: What can industry stakeholders do to better help the industry?
SM: Well, we just need to keep educating the public. You mentioned the smokable hemp, there’s really not any harm in that, but what people thought was “dope” or “weed” or the equivalent to, which it’s not, it doesn’t have the THC in it, so I think a public education program, we’ve still got some work to do there, but there’s been so many people helped by the CBD and CBG that the word is getting out that this is a very positive crop, it’s not a bunch of pot smokers bending the rules to grow marijuana, but it’s a legitimate crop that has many legitimate purposes, besides the oil, which is great, but the fiber has a lot of applications, too.
THR: Of those legitimate products, which products do you see Texas becoming a leader in? Is it fiber, or what about some other sustainable products as well?
SM: I think we’ll be all of the above…Texas is such a big state, a diverse state, we’ve got such a good growing climate, we’ve got a variety of soils, got a lot of good farmers here, basically have plenty of farmland, we’ve got a lot of greenhouses here, so I would say in five years, we’ll be if not the leader, one of the leaders, in the CBD CBG production and the fiber production.
THR: What needs to happen for the industrial supply chain to be built out in Texas?
SM: Well, we need more processors, we need buyers for that. The farmers, if you tell them they can grow a crop profitably, they will grow the world level with it—they will produce so much of it you can’t use it all, and that’s usually what drives the commodity prices down, so we need more processors for the fiber at this point.
THR: What can we do at the State to attract those businesses to come to Texas and invest and build those facilities and manufacturing plants?
SM: Basically, there’s not a lot left to do—we are already doing everything right already, that’s why so many other types of businesses now, including the hemp processors and distributors, will be coming to Texas. We have a very favorable business climate—no state income tax, low and predictable regulation, we are not a litigious state, we don’t just let the lawyers run crazy suing everybody, we’ve got a good labor force, everything you need for a successful business—that’s why so many people have moved here.
THR: What are some companion industries in Texas that people can apply their skills and resources toward hemp such as construction, technology, refining, medical?
SM: Well, that’s yet to be seen. We don’t really know what those industries are going to be or how they are going to take off. It depends upon the people conducting in those industries. It might be fiber for concrete, it may be fiber for cloth or material or paper or construction materials. At this point, we don’t know what we don’t know. But when we get up and running, we’ll find out.
THR:The hemp industry was soaring when the Farm Bill was signed, and Texas subsequently legalized hemp. Since then, wholesale prices have plummeted, and many are still trying to sell their 2019 crop. Now, 2020 crops from more states are coming online. Apart from having a buyer before you plant a seed, what advice do you have for people getting into this industry?
SM: Well, the first thing I would recommend to somebody that’s wanting to get into this industry, is go to the Texas Department of Agriculture’s website (texasagriculture.gov), I’ve got two very informative videos there—one is about getting into the hemp business, what you need to know, how you need to do it, what are the pitfalls, what are you up against. And then there’s a second video with a little more intel that we require farmers and processors to watch before they get a license. So at least watch the first one, if you’re thinking about getting into hemp, and then if you still want to get into hemp, watch the second one. If you still don’t have your questions answered, I have about 13 pages posted of frequently asked questions about the hemp industry and I think we have just about covered everything. All that information is available at your fingertips, 24 hours a day, seven days a week, 365 days a year.
Lisa Pittman for THR: Very good, thank you, Commissioner. Do you have any other last words?
SM: This is going to be a good industry. It’s been interesting to set up a new industry that we are on the ground floor of in Texas, and we’re helping to shape and mold that, and we just try to get as much input as we can—that’s why I have my own personal (it’s not state-mandated) Hemp Advisory Council, which I’m thankful that you serve on that, and you’ve been in on those meetings and I appreciate the direction and the input from all of the members of that which represents a big cross-section of the industry—whether it be grower, processor, or a testing lab, or transportation or law enforcement, we have someone from just about all of those areas that the hemp industry touches on that Council—we’ve got every aspect of the industry represented, so that’s been very helpful.
THR: Well I sure have appreciated serving on it, and I look forward to our next meeting.
Despite its stance on marijuana, Texas is not lagging behind on the hemp bandwagon. Hemp is rising even faster from the shadows of prohibition than marijuana. Products containing hemp extracts high in CBD, such as oils, topicals, and infused products, gained such mainstream popularity and acceptance under the 2014 Farm Bill, that on January 1, 2019, hemp became federally legal and removed from the definition of “marijuana” under the U.S. Controlled Substances Act (CSA). Under the 2018 Farm Bill, signed December 20, 2018 by President Trump, if Texas had not passed a hemp law during the 2019 Legislative Session, it would have been subject to the U.S. Department of Agriculture’s (USDA) default rules for growing hemp as a federally legal agricultural commodity.
On June 10, 2019, Gov. Abbot signed HB 1325, legalizing hemp in Texas, and directing the Texas Department of Agriculture (TDA) to devise rules from planting to harvest, and the Department of State Health Services (DSHS) to devise rules from testing to end consumable hemp product. The rules address licensing qualifications and procedures, testing and inspection requirements, reporting and record keeping requirements, distribution, manufacturing, and plans for disposal of “hot” crops (cannabis plants with >.3% THC), among other issues. The TDA rules provide slightly more leeway in that if your crop tests at .3% THC within the measure of uncertainty given by the laboratory, then the crop is OK to be harvested and shipped off the licensed property with a transport manifest. A transport manifest is also required to send in a sample for testing.
For a quick introduction to hemp, it is a type of cannabis plant comprised of many cannabinoid compounds, including CBD, CBG, CBN, and THC—the only compound that creates a “high.” In contrast to marijuana, which is tightly regulated from a law enforcement perspective because of its status on Schedule 1 of the CSA, hemp naturally contains low THC. By law, for cannabis to be considered hemp, the THC concentration must be ≤0.3% THC. Until recently, hemp has not been subject to much regulation – though regulation is coming from multiple agencies including the USDA and the Food and Drug Administration (FDA). The FDA retains regulatory authority over CBD, the compound of the cannabis plant that is now considered a drug rather than a dietary supplement because of FDA’s approval of a CBD formulation to treat epilepsy. It is still unknown when the FDA will develop rules to regulated hemp CBD products or whether they will be placed in a dietary supplement category. The FDA has already held public hearings, taken public comment on the regulation of hemp CBD, and issued a status report on their information gathering in their process of creating regulations.
The USDA released its “Interim Final Rule” (IFR) for farming hemp under the 2018 Farm Bill on October 31, 2019, with a lengthy notice and comment period. The USDA must approve each state’s plan, so even states that have already been producing hemp under the 2014 Farm Bill will have to adjust their programs to conform with the new USDA rules to receive a state plan approval by October 31, 2020. The USDA received over 4,600 comments that it must consider before adopting its “Final Rule” to govern hemp production. Some areas of extreme concern, including the requirements that testing laboratories be registered with the U.S. Drug Enforcement Agency (DEA) and that a reverse distributor licensed by DEA must destroy hot crops according to DEA guidelines, are not going to be enforced through October 31, 2021 or publication of the Final Rule, whichever comes first.
By way of background, under the 2014 Agricultural Improvement Act (the 2014 Farm Bill), hemp was still considered to be marijuana, and was only permitted to be grown in two limited situations: in conjunction with a state’s industrial hemp program or under a contract with a university’s research pilot program. In neither of these instances were hemp or extracts made from hemp allowed to leave those states’ lines. But they did, even on Amazon, and the word got out about CBD’s ability to relieve inflammation, pain, anxiousness, sleeplessness, and other common ailments, without the side effects of synthetic drugs and opiates, or the high of marijuana. The main states to take advantage of the 2014 Farm Bill were Kentucky, Colorado, Oregon, and Montana. After the 2018 Farm Bill, most states are activating hemp programs—and some did not wait on the USDA.
Our founding fathers grew hemp, and growing hemp was a requirement of some early Colonists. Before 1937, industrial hemp was legal and used for clothing, paper, rope, and fuel. But in 1937, Congress passed the Marihuana Tax Act, which made all species of the Cannabis sativa L. plant illegal, including hemp. While the purported purpose was to eliminate the use of cannabis as a drug, some theorists posit that the real intent of the Act was to eliminate the competition hemp posed to paper and steel manufacturers by referring to cannabis as “marijuana” in media as a scare tactic in relation to its use as a drug. But, the U.S. needed strong hemp fiber during World War II and it was briefly re-legalized. Since then, the U.S. has been importing hemp to use as fiber for the seats of BMW automobiles manufactured in Alabama, for example. Hemp powders and other goods have been imported for years, found mostly in health stores such as Whole Foods. But now hemp CBD has become mainstream, sold in most national retail chains, even located in the “impulse buy” areas near cash registers.
However, there is a lot of confusion about hemp and the nuanced new law. For example, state law enforcement often intervenes and is frequently unclear about the legality of the substance they may discover in a vehicle or a store shelf. The Department of Public Safety (DPS) raided People’s Pharmacy for it in 2017, and other seizures and arrests have been made. The latest issue surrounds hemp leaves that can be smoked, and there have been many seizures from smoke shops on the allegation that the leaves are marijuana. They look and smell the same, and neither drug dogs nor the state crime lab can tell them apart. It was disappointing that the USDA did not propose a uniform travel manifest or QR code requirement for law enforcement (and consumers) to readily identify whether a substance is hemp or marijuana. But, Texas and most states require a Certificate of Analysis (COA) demonstrating the THC concentration, the cannabinoid profile, the presence of pesticides, the presence of heavy metals, and any harmful pathogens. This COA may be carried with the product (raw or finished) and located via a website or QR Code on a product’s label. Raw hemp for distribution must be accompanied by a TDA transport manifest.
A controversial topic is the smoking of hemp. The original hemp act authored by Rep. Tracy King contained no overly zealous regulations or prohibitions—it was merely intended to promote the growth of hemp free from undue government interference. However, in my work during the 2019 Legislative Session to help get the hemp bill passed, the overarching concern to every legislator I talked to was that the hemp bill was just a subterfuge for marijuana—something our State’s leadership is still staunchly opposed to. Thus, the Senate version of the hemp bill was rewritten to involve the DPS, created crimes for certain activities, banned the manufacture of hemp for smoking, and made a definition for smoking. A promise was made on the Senate floor during the debate on this bill that hemp would not be smoked, to assuage the marijuana fears. Thus, the DSHS is now in a position of having to effectuate the intent of the hemp statute by creating a rule that effectively bans the smoking of hemp, which they have done in proposed rules published May 8, 2019, by prohibiting the manufacture, processing, distribution, and retail sale of smokable hemp. Smokable hemp can still be bought online or purchased from other states, and we still do not know what the final rule will be or how strictly this rule will be enforced, so the best bet to solve this issue is to work to change this aspect of the law in the 2021 Legislative Session.
From an agricultural, industrial, and medicinal standpoint, the hemp business—largely unbeleaguered by the crushing compliance and taxing obligations of marijuana businesses—is on an exponential rise in the United States and internationally. A word of caution, the rise has been volatile. But as a state that leads in agriculture, technology, refining, and medicine, Texas is poised to become the new leader in hemp production, whether for medicinal or industrial purposes. This is an incredibly exciting time to participate in the change of major laws in the dawn of a new industry.
Lisa L. Pittman is Co-Chair of Cannabis Business Law Group at Coats Rose, P.C., & Member of Texas Department of Agriculture Industrial Hemp Advisory Council
