Texas businesses file lawsuit against state for smokable hemp ban

(This story has been updated with clarification about contributions to the Texas Hemp Defense Fund and the court hearing date.)

Hemp manufacturers and retailers in Texas filed a lawsuit on Wednesday, challenging the Texas health department on its recently enacted ban on selling smokable hemp products.

Four businesses filed the lawsuit in a Travis County court against the Texas Department of State Health Services and its commissioner John Hellerstedt.

The lawsuit seeks a declaration that the department’s ban on processing and manufacturing hemp products for smoking in Texas is unconstitutional, and that the provision banning the distribution and retail sale of hemp products is invalid, according to Chelsie Spencer, principal of Ritter Spencer in Dallas, who is representing Crown Distributing, one of the lawsuit plaintiffs.

The ban on smokable hemp distribution and sales took effect Sunday.

The other business involved in the legal action are:

  • Hemp product manufacturer and distributor America Juice Co.
  • Hemp retailer Custom Botanical Dispensary
  • Hemp product manufacturer 1937 Apothecary

Attorney Matthew Zorn of Houston-based Yetter Coleman LLP filed the lawsuit on behalf of Crown Distributing and America Juice Co. Austin Attorney Susan Hays represents Custom Botanical Dispensary and 1937 Apothecary.

The lawsuit aims to prevent the Texas DSHS and its commissioner from enforcing the statewide bans on the manufacturing, processing, distribution and retail sale of smokable hemp products.

The hemp law signed by Gov. Greg Abbott last summer to establish a hemp program in the state included prohibitive language outlawing some aspects of smokable hemp.

But while the original legislation required DSHS to adopt rules prohibiting Texas hemp businesses from processing and manufacturing smokable hemp products, the lawsuit blames the state health department for “doubling down” by also banning distribution and retail of smokable hemp. That move, the plaintiffs claim, exceeds the authority of the DSHS and violates the state law.

The smokable hemp ban does not restrict consumers from using smokable hemp products, although it bars the state’s entrepreneurs from profiting from a lucrative aspect of the hemp industry, Texas hemp insiders say.

The lawsuit argues that the ban restricts the fledgling hemp industry in Texas from participating in “one of the fastest growing hemp sub-markets nationwide – growing at a rate of more than 500% between 2018 and 2019.”

Members of the Texas Hemp Growers raised $15,000 for the Texas Hemp Legal Defense Fund, which contributed to a fiscal impact report that analyzed the bans’ economic impact on Texas.

“This ban is a punitive kick in the teeth to Texas’ small businesses and enterprising farmers,” Zachary Maxwell, president of the Texas Hemp Growers, said in a statement.

“Texas will forfeit millions in tax revenue to more competitive states by denying the industry full access to this federally legal plant.”

The lawsuit argues the state’s ban on smokable hemp products will shutter businesses, resulting in a loss of jobs and tax revenue, and “pose an existential threat to Texas hemp manufacturers, farmers and retailers,” while driving business elsewhere.

“Based on projections by our economic expert, Crown stands to lose over $56.4 million dollars in revenue over the next five years if the ban remain in place. Texas stands to lose $2.9 million dollars in sales tax alone,” Spencer wrote on LinkedIn on Thursday.

The rule banning the retail sale and distribution of smokable hemp products was approved and went into effect despite thousands of industry members expressing opposition to the measure over the summer.

In June, the Texas Hemp Industries Association asked the state health department to change the proposed rule banning smokable hemp sales, saying it goes beyond state and federal statutes, is an unfunded mandate and is unenforceable.

Spencer told Hemp Industry Daily that after spending most of the week talking with clients and businesses across Texas, there is “no question” that the ban will have oppressive economic impacts on Texas businesses.

“The stories I am hearing are devastating: mom and pop companies who will be forced to shutter their shops within the month due to the revenue loss, smokable distributors who lost their entire business in a single day, companies with lost investments in smokable product development here in Texas and more,” Spencer wrote in an email.

“If Texas wants to be a leader in the hemp industry, and it should, it needs to support its growing hemp economy in lieu of smothering it.”

Spencer said a court setting has not been determined yet, but due to the coronavirus pandemic, the hearing will likely be conducted via Zoom. She anticipates a hearing date within the next two weeks.

The Texas lawsuit follows similar action from a group of Indiana hemp companies that challenged the state’s law banning smokable hemp products.

The Indiana hemp companies argued that federal law guarantees interstate commerce in hemp, making it impossible for Indiana to ban the possession of smokable hemp products potentially passing through the state. A federal judge in Indiana sided with the hemp companies last September, putting an injunction on the law.

But Indiana’s law came back to life last month, after a federal appeals court ruled that a lower judge went too far in blocking it.

Laura Drotleff can be reached at [email protected]

2 comments on “Texas businesses file lawsuit against state for smokable hemp ban
  1. Pat Jack on

    Filing in a Texas county level court to enjoin a state level regulatory body, when comparing their litigation strategy to that used in the ongoing Indiana injunction efforts might seem to be a weaker strategy than entering more boldly into federal district court as Vink and Swanson did with Bose law firm, but it is not entirely. They can appeal from that county court all the way up to the Texas Supreme Court. And each step in the appeals process might employ a “re-hearing” motion request which if honored maintains a lower Texas court’s decision, and if favorable in the lower court and the appellant is the State, that would suffice to protect Texas businesses selling flower and smokable through this coming harvest, an appeals re-hearing would preserve the enjoining action of the lower court as we see currently in the Indiana litigation.

    And if it fails to reach the Texas Supreme Court, or is denied at the County court level and denied through the appeals process, and then the Texas Supreme Court refuses to place it on the docket, they can then enter new litigation in the Federal District Courts if summarily defeated in the Texas court systems.

    That the regulatory body in Texas has overstepped it’s bounds within Texas State law, the same claim can be made in a new lawsuit in Federal District Court as well, and that the Texas State Legislature has overstepped in its attempt to interpret the intention of Congress, by basically making the hemp flower illegal in some form, which is of course clearly not the intent of Congress.

    I think this group in Texas is in it for the long term and has a good starting strategy. I hope Louisiana can do this same thing and employ some of the resources and strategies used by both the Texas group, and the group in Indiana. Jolly good show no matter how you look at it.

    Reply
  2. Pat Jack on

    “But Indiana’s law came back to life last month, after a federal appeals court ruled that a lower judge went too far in blocking it.”

    The 7th circuit federal appeals court’s decision included the scheduling of a date to rescind, or overturn the injunction, August 1st. Before that date arrived, Swanson, Vink and Moorehead and their hemp industry stakeholder plaintiffs filed a motion for a rehearing of the appeal based upon the appeals court’s significant procedural errors, including a basic violation of Black’s letter of law.

    The appeals court cannot carry out any of their decisions made in the matter, they must host a rehearing of the appeal. The date to rescind the injunction was dissolved as the appeals court must now “rehear” the appeal. The lower court’s decision to provide the order for injunction, (enjoining), that order stands. The injunction stands.

    Justin and I appeared on the HiLo Hemp Seed Webinar on July 23, the day after Justin and his team filed the motion for rehearing, thus, nullifying any actions by the appeals court until such time that a rehearing can be scheduled which will probably be in December or January. The injunction stands.

    Justin published the motion for the rehearing on the appeal in his linkedin posting history. I shared that post to promote the HiLo Hemp Seed Co.’s webinar in which Justin and I shared the panel, you can find it in my linkedin posting history as well. It’s a good read, a really well written motion and a very effective legal strategy which continues to protect the #SmokableHempFlower markets in Indiana. Iowa can do the same thing. Texas stakeholders could also employ the legal strategy that is being employed in Indiana. Georgia, Louisiana, Hawaii and other states facing the criminalization of smokable hemp can do the same thing.

    The legal strategy of the Texas group now suing the State of Texas in a related matter is more complex and will be very exciting to follow, and to write about. Keep an eye on my linkedin post history for analysis of the Texas group’s progression through both the Texas courts and potentially the federal courts.

    Reply

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