Given the high stakes and the significant market at risk, it is no surprise that hemp advocates and operators have aggressively challenged state actions to rein in the production and sales of intoxicating hemp products. Invariably, when a new state seeks to restrict or ban intoxicating hemp products, stakeholders race to the courts seeking injunctive relief. Lawsuits in states like Virginia, Arkansas, and Missouri challenging the basis of state-mandated restrictions on intoxicating hemp products (whether in the form of new laws, regulations or executive orders) have stomped a well-trodden path for these defensive legal challenges. Against this backdrop, it shocked no one when the U.S. Hemp Roundtable and collection of hemp manufacturers and distributors sued the California Department of Public Health (“DPH”) shortly after its new emergency regulations governing hemp products took effect at the end of September.
As we discussed during a recent webinar, the new emergency regulations would disrupt the existing hemp market in California and effectively ban the production and sale of all intoxicating hemp products in the state. The articulated basis for these emergency regulations was to protect children and consumers, with Governor Newsom declaring during a press conference that coincided with the publication of the regulations:
We will not sit on our hands as drug peddlers target our children with dangerous and unregulated hemp products containing THC at our retail stores. We’re taking action to close loopholes and increase enforcement to prevent children from accessing these dangerous hemp and cannabis products.
To achieve that objectively laudable goal, the emergency regulations imposed a 21+ age restriction on purchasing hemp products and limited the number of servings of hemp products to five per package. Although there may well be consensus in the hemp industry that these common-sense guardrails are appropriate, the emergency regulations did not stop there.
Instead, they effectively banned all intoxicating hemp products from the California market by prohibiting hemp products from containing practically any amount of THC or similar intoxicating cannabinoids. Critically, the emergency regulations require that industrial hemp food, beverage, and dietary products intended for human consumption have no detectable THC or other intoxicating cannabinoids per serving. Under the emergency regulations, “detectable” means any amount of analyte, subject to the limit of detection, which means the “lowest quantity of a substance or an analyte that can be reliably distinguished from the absence of that substance within a specified confidence limit.” Notably, the emergency regulations aim not only at Delta-9 THC but also over 30 different intoxicating cannabinoids that are included within the new regulatory definition of THC – including Delta-5, 6, 7, 8, 10 and 11 and any “metabolites, derivatives, salts, isomers, and any salt or acid of an isomer” of those cannabinoids. The emergency regulations also require that manufacturers of hemp food products obtain a certificate of analysis from an independent testing lab to confirm that such products do not exceed the THC thresholds established by the regulations – that is, that such products do not have detectable amounts of THC. In other words, the emergency regulations are extremely broad in scope and effectively outlaw what has become the most popular variety of consumable hemp products in the state.
The U.S. Hemp Roundtable and 6 hemp operators in California (collectively, the “Hemp Plaintiffs”), including the eponymous Cheech and Chong Global Holdings, elected not to sit idly by and filed a lawsuit against the DPH in Superior Court for the County of Los Angeles. The 100+ page speaking complaint (“Complaint”) filed on September 24, 2024, just one day after the emergency regulations took effect, seeks both a declaration that the emergency regulations are invalid and an order prohibiting DPH from enforcing the ban on consumable hemp products containing THC and similar substances. At a high level, the Complaint is skeptical of DPH’s asserted basis for the emergency rulemaking. Also, it highlights the inconsistency between the emergency regulations and California Assembly Bill 45 (“AB 45,” now codified in various sections of the California Health and Safety Code), passed in 2021, which regulated hemp products and did not distinguish between intoxicating and nonintoxicating varieties of such products.
Indeed, the Complaint asserts that “at the core of the Department’s emergency regulations is a provision that goes far beyond the limits contemplated in AB 45 to ban all hemp products unless they contain no ‘detectable levels of THC’” which will devastate an emerging industry that consists largely of small business owners. According to the Hemp Plaintiffs, the emergency regulations are “akin to requiring candy to stop containing sugar … starting tomorrow.” As described more fully below, the Complaint frames three principal arguments as bases for the challenge: 1) DPH failed to comply with the rigid procedural requirements outlined in the California Administrative Procedure Act (“CA APA”) in promulgating the emergency regulations; 2) that the ban on THC-containing hemp products at the heart of the emergency regulations violates existing state law; and 3) that the aforementioned ban is likewise in conflict with and preempted by the Agricultural Improvement Act of 2018 (“Farm Bill”).
Emergency Regulations Violate the CA APA
As a threshold matter, the Complaint argues that the emergency regulations are legally infirm because of a host of procedural failures in DPH’s promulgation of the regulations. In particular, the Complaint alleges that DPH failed to describe in the required notice of emergency rulemaking the “specific facts demonstrating the existence of an emergency and the need for immediate action” and failed to demonstrate, by “substantial evidence,” the need for the proposed regulation to effectuate the statute being implemented, interpreted, or made specific and to address only the demonstrated emergency.
According to the Hemp Plaintiffs, DPH could never have satisfied these procedural requirements because there was no emergency to speak of. The Complaint characterizes the emergency rulemaking as a “backdoor” end around the traditional notice and comment rulemaking process that DPH failed to navigate over three years since the passage of AB 45. The Hemp Plaintiffs argue that DPH’s failure to comply with the standard CA APA rulemaking requirements cannot cause an “emergency” that would nullify those requirements – in other words, the exception should not be allowed to swallow the rule. The Complaint also argues that the articulated statutory authority for the emergency regulations – Health & Safety Code § 110065 – has effectively expired and, therefore, the emergency regulations are ultra vires. According to the Complaint, § 110065 did indeed permit DPH to implement initial emergency regulations under the CA APA’s emergency rulemaking process. However, the Hemp Plaintiffs argue that DPH already implemented those initial emergency regulations in 2021, and those regulations did not contain an age restriction or THC serving or package restrictions. Said differently, DPH does not get a second bite at the apple using the emergency fast track offered by § 110065.
Emergency Regulations Violate Existing State Law
The Complaint also argues that the emergency regulations are in direct conflict with AB 45, which does not distinguish between intoxicating cannabinoids and non-intoxicating cannabinoids. According to the Hemp Plaintiffs, the emergency regulations illegally distinguish between intoxicating hemp-derived cannabinoids and non-intoxicating hemp-derived cannabinoids by criminalizing food products that contain “any detectable amount of any THC” and, in turn, by expanding California law’s definition of “THC” to include “any metabolites, derivatives, salts, isomers, and any salt or acid of an isomer of” any of 30 additional substances. In contrast to the emergency regulations, AB 45 and Health & Safety Code § 11018.5(a) do not limit hemp products to a non-detectable level of THC. According to the Complaint, although DPH may cap THC levels in hemp products, it may not do so in a way that alters what is considered a hemp product. In this way, the Hemp Plaintiffs allege that DPH has illegally amended and modified the very definition of “hemp” in Health & Safety Code § 11018.5, which expressly permits 0.3% THC in hemp products.
Emergency Regulations are Preempted by the Farm Bill
Finally, the Complaint advances the now familiar argument that state laws/regulations that effectively ban intoxicating hemp products are in direct conflict with, and therefore preempted by, the Farm Bill. As readers of this blog are aware, the Farm Bill permanently removed hemp as a controlled substance under the federal Controlled Substances Act while simultaneously defining “hemp” as 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.” According to the Complaint, the definition of “THC” in the emergency regulations is an impermissible narrowing of the Farm Bill’s determination of what constitutes “hemp,” even though Congress has prohibited states from altering the definition of “hemp” and from impeding interstate commerce involving hemp or hemp products that contain 0.3 percent or less delta-9 THC on a dry weight basis.
This specific definitional argument has been raised before, including, most notably, in a 2023 lawsuit filed in the federal District Court for the Eastern District of Arkansas (Bio Gen LLC, et al. v. Sarah Huckabee Sanders, et al., 4:23-CV-00718-BRW (E.D. Ark. 2023)). In that case, the District Court agreed with the plaintiffs who sought an injunction to prevent the implementation of Arkansas’ new hemp cannabinoid law that effectively banned all intoxicating hemp products. Relevant to the Hemp Plaintiffs’ arguments in the present case, the District Court in Bio Gen noted that:
The [Arkansas] legislature seems to have tried to keep the parts of the program it likes (purely industrial uses) and eliminate the parts it doesn’t (human consumption). That may very well be an acceptable distinction as it applies to the state’s criminal code, but changing definitions in a federal program, which it has already fully joined, is not a constitutionally valid way to do it. (Emphasis added)
Faced with a similar question, it will be interesting to see whether the LA Superior Court is receptive to parallel arguments advanced by the Hemp Plaintiffs. We note that the Arkansas decision is currently on appeal at the 8th Circuit and was argued before a three-judge panel on September 24, 2024. No decision has yet been issued.
Although the Complaint principally relies on the three arguments described above, it also alleges that the emergency regulations constitute a regulatory taking, violate the due process clause of the 14th Amendment, and are void for vagueness. However, despite offering a laundry list of reasons why the new THC-containing product ban is legally infirm, the Hemp Plaintiffs were careful to clarify that they did not oppose common sense rules for the industry. On that score, the Complaint confirms that “Plaintiffs do not oppose fair and reasonable regulations for intoxicating hemp-derived THC products, including age restrictions, provided that such regulations comport with California’s regular rulemaking process” (emphasis added). Each Count in the Complaint makes clear that the Hemp Plaintiffs are not challenging the 21+ minimum age restriction imposed by the emergency regulations.
We will follow along as this lawsuit plays out in California state court. Stay tuned for updates.
