5 business points to consider in Thursday’s high-stakes CBD court case

, 5 business points to consider in Thursday’s high-stakes CBD court case

The Hemp Industries Association and a handful of cannabis entrepreneurs are taking the U.S. Drug Enforcement Administration to court Thursday in a high-stakes case over the agency’s 2016 pronouncement that CBD is an illegal drug – the same as marijuana.

The case won’t be decided for months, but the outcome is important for the entire cannabis industry, not just entrepreneurs making or selling hemp-derived cannabidiol products.

Marijuana Business Daily spoke with entrepreneurs and attorneys to find out what they’ll be watching for as the two sides square off in the 9th District Court of Appeals in San Francisco.

Below are the Top 5 Things to Consider for the cannabis industry.

1. Pay attention to the questions

Three judges will grill both sides: the hemp businesses and the DEA, which is represented by a lawyer from its parent, the U.S. Department of Justice.

Both sides get just 15 minutes to make their cases, but the judges will no doubt interrupt with questions that can reveal a lot about their legal thinking.

The questions are important. Federal appeals judges – who hear lawsuits targeting U.S. agencies – look for material to support their decisions, which could take months to produce.

The judges have already read all the arguments and reviewed case law on the topic, so oral arguments are often just a listening session for judges wondering how to phrase their rulings.

It’s not unusual for the prevailing side to get the toughest grilling from the bench; many appeals attorneys consider it a bad sign when the appeals judges don’t ask tough follow-ups.

2. See where Congress fits in 

The judiciary interprets law set by Congress, so when judges try to resolve a dispute over a statute, they’ll gladly take direction from the folks who originally wrote it.

In this case, more than two dozen members of Congress wrote to the judges last month to do just that.

The lawmakers said they fully intended to legalize CBD when they authorized industrial hemp production in 2014.

That letter from Congress could be crucial to the case, so both sides will angle to turn the letter to their benefit.

The hemp businesses will say the letter resolves any doubt that the 2014 Farm Bill cleared the way for CBD.

The Justice Department will likely point out that 28 members of Congress do not speak for the entire branch of government, and the department will argue the DEA is simply following existing drug law with an update for modern manufacturing methods.

The case could hinge on which side is more convincing.

3. Listen to the science

Be prepared: The arguments could get pretty technical.

It’s worth remembering that hemp and marijuana are both the species Cannabis sativa.

The DEA contends that CBD can be profitably produced only from flowering parts of the Cannabis sativa plant – in other words, marijuana.

Cannabinoids are concentrated in a plant’s flower, however, so a hemp plant’s flower will contain more THC and CBD than the entire plant.

The hemp industry, however, will argue that it’s perfectly legal to extract CBD from Cannabis sativa flower, as long as the plant has a THC content below 0.3%.

In short, the hemp industry hopes the judges will OK products made from cannabis that meets the definition of hemp under the 2014 Farm Bill.

The hemp industry wants the DEA’s cannabidiol rule tossed because “it fails to distinguish industrial hemp from other forms of cannabis,” said Patrick Goggin, a lawyer who is helping to represent the hemp industry.

Meanwhile, will the DEA argue that if nonintoxicating cannabidiol could be derived from legal hemp flower, then the same flower could produce trace amounts of THC that could be concentrated into a potent intoxicant?

4. Confusion will end – once the case is decided

Businesses selling CBD will be looking for clear direction on whether the products are legal.

It’s no small question for business owners awaiting a green light on selling CBD nationwide.

, 5 business points to consider in Thursday’s high-stakes CBD court case

Lonna Brooks

For Lonna Brooks, who owns the Terry’s Health Products store in Bismarck, North Dakota, the confusion is infuriating.

Brooks asked local authorities for advice before carrying CBD products in 2014. She sold about 100 bottles of CBD supplements a month for three years with no complaints.

“I was assured that it was 100% legal. Then last May, a detective showed up and said, ‘This is illegal,’” Brooks told Marijuana Business Daily. “Now my small business is losing $100,000 a year in sales.”

Earlier this week, authorities padlocked 23 stores in Tennessee for selling CBD – even though the state allows CBD production and even licenses CBD extractors.

Customers are confused, too, leaving CBD retailers and producers looking for clarity. The judges’ decision should provide some clarity – at least more than there is now.

“A lot of customers are concerned. They don’t want to use something that’s not legal,” said Silvia Orizaba, founder of Sacred Mind & Body, a Chicago company that makes creams and lotions containing CBD.

5. The industry will survive either way

Not everyone agrees how the cannabis industry will be affected by the case – but they do agree it will survive.

The question is, will it be allowed to thrive?

Harold Jarboe, who raises hemp in Tennessee and once grew marijuana in Washington state, pointed out that CBD businesses are thriving despite federal confusion and will likely continue.

“I’m kind of liking the status quo,” he said. “Right now, each state gets to do what it wants to do, which is all right with me.”

But the Hemp Industry Association’s lawyers say the sector is being wrongly shackled by the DEA’s rule about CBD.

“It’s leading to confusion,” Goggin said. “It’s stigmatizing folks who are engaged in fully legal activities, and we need the courts to speak to this.”

Kristen Nichols can be reached at kristenn@mjbizdaily.com