Ninth Circuit Court of Appeals enters the fray around regulating hemp derived cannabinoids

For much of the 20th century, federal law did not differentiate hemp from other cannabis plants, all of which were effectively illegal as of 1937 under the Marihuana Tax Act and formally illegal as a Schedule I substance in 1970 under the Controlled Substances Act. The Agriculture Improvement Act of 2018 (the “2018 Farm Bill”) changed that, removing hemp, defined as “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,” from the Controlled Substances Act. On its face, it would appear that the 2018 Farm Bill renders any cannabinoid – a set of chemical compounds found in cannabis plants – derived from hemp legal, if the hemp is produced in a manner consistent with the 2018 Farm Bill.

While the plain language seems clear, nothing in the world of cannabis law is ever so simple. In the nearly four years since the 2018 Farm Bill’s passage, a wave of products containing hemp derived cannabinoids, such as CBD and delta-8 THC, have flooded the marketplace with varying degrees of legality and reliability in their sourcing, labeling and manufacturing processes. Meanwhile, a mix of stalled regulatory decision-making by the Food and Drug Administration (FDA) delayed access to conventional banking, an eagerness by the Drug Enforcement Administration (DEA) to remain involved in policing hemp, and limited access to intellectual property protections have hamstrung the fledgling hemp industry. Further complicating matters, states, awaiting clarity from the federal government, have adopted a patchwork of regulations legalizing the sale of certain hemp derived cannabinoid products and prohibiting others.

The tangle of federal regulations and enforcement priorities for hemp derived cannabinoids is on full display in the recent U.S. Court of Appeals for the Ninth Circuit’s ruling in AK Futures LLC v. Boyd Street Distro LLC, No. 21-56133, 2022 WL 1574222 (9th Cir. May 19, 2022) (Kleinfeld, Fisher, Bennett, JJ.). AK Futures is a vaping products manufacturer with a registered copyright on its delta-8 THC “Cake” logo and six pending trademark applications for use in connection with its products. AK Futures sued Boyd Street Distro for trademark and copyright infringement, alleging Boyd Street sold identical counterfeit vaping products containing delta-8 THC.

The district court granted AK Futures’ motion for preliminary injunction and Boyd Street appealed. On appeal, Boyd Street argued that AK Futures could not own a valid trademark in connection with the vaping products because the sale of delta-8 THC was federally illegal. AK Futures asserted that the 2018 Farm Bill legalized delta-8 THC and products containing the compound that were not otherwise unlawful. The Ninth Circuit agreed with AK Futures, holding that AK Futures’ use of marks in commerce was lawful and could give rise to trademark priority. In reaching that conclusion, the Ninth Circuit reasoned that vape products containing delta-8 THC are generally legal because they are hemp derived products and federal law defines hemp as “any part of” the cannabis plant, including “all derivatives, extracts, [and] cannabinoids,” containing less than 0.3% delta-9 THC by weight. The Court also noted that the delta-9 THC concentration level was the only statutory metric for distinguishing marijuana from hemp, and the terms “derivative, extract, or cannabinoid” were substantially broad to encompass delta-8 THC. Thus, the Court concluded AK Futures was likely to succeed in demonstrating its products were not illegal and could support a valid trademark. The Court affirmed the preliminary injunction in AK Futures’ favor and remanded the case for further proceedings.

The broader impact of the AK Futures ruling on the federal regulatory landscape remains hazy. Prior to the ruling, the United States Patent and Trademark Office (USPTO) consistently took the position that delta-8 THC is illegal under federal law. The USPTO has issued non-final office actions in response to at least eleven of the approximately 50 pending applications involving delta-8 THC. In each case, the USPTO refused to register those marks after concluding that the products are illegal under the Controlled Substances Act and FDA’s enforcement policies under the Food, Drug and Cosmetic Act.

Regarding the interpretation and application of the Controlled Substances Act, DEA contends that pursuant to its August 2020 Interim Final Rule it has authority to regulate “[a]ll synthetically derived tetrahydrocannabinols” such as hemp derived delta-8 THC as Schedule I controlled substances. It remains to be seen whether DEA will attempt to enforce the Interim Final Rule or if the federal government could prosecute those manufacturing or selling delta-8 THC products under the Federal Analogue Act, which authorizes any chemical “substantially similar” to a controlled substance listed on Schedule I of the Controlled Substances Act to be treated as if it were listed in Schedule I.

FDA has acknowledged the public’s desire for hemp derived cannabinoid products and even established a working group in 2019 to assess potential pathways for lawfully marketing the same under the Food, Drug and Cosmetic Act. Since 2019, FDA has issued 48 warning letters to manufacturers and sellers of food, beverages, and supplements containing hemp derived cannabinoids. In those warning letters, FDA asserts those hemp derived cannabinoid products are adulterated and misbranded under the Food, Drug and Cosmetic Act. Notably, a mere two weeks before the AK Futures opinion, FDA issued five warning letters focused specifically on delta-8 THC infused products. FDA has not provided a firm timeline on when further regulations on lawfully marketing hemp derived cannabinoid products will be released.

One thing is clear, however, the current state of affairs is untenable. Judicial action, such as the AK Futures opinion cannot fully resolve the broader policy tensions across federal agencies involved in regulating hemp. The hemp industry, states, and consumers desire and deserve a resolution of the ambiguities in the federal regulatory framework.

Sarah A. K. Blitz is an associate at Sheppard Mullin.