A Criminal Investigation Shows CBD, the Most Promising Part of Oregon’s Cannabis Industry, Still Faces Legal Threats. – Willamette Week

The packages smelled strongly of marijuana.

That’s what a UPS worker told Albany police and a Linn County sheriff’s deputy Jan. 18, when four parcels addressed to Key Compounds, a CBD processing company in Albany, arrived from Massachusetts.

That call sparked a monthslong criminal investigation of the company, which processes hemp to create cannabidiol oil, leading to the search and seizure of most of the business’s assets. Investigators even tried to obtain a search warrant for the office of the attorney who represents Key Compounds, a highly unusual move.

Alex Reyter, CEO of Key Compounds LLC, says he was trying to follow the rules when he received the four packages of CBD. Law enforcement disagrees.

„I still believe that what they had was marijuana and marijuana extract by definition,” Linn County prosecutor Coleen Cerda wrote in a May 30 email obtained by WW to one of Reyter’s attorneys.

The Linn County Sheriff’s Office declined to comment because its investigation is still open, but the case highlights one more aspect of the confusing nature of running a business in which state and federal laws do not align.

Congress opened up the industrial hemp industry when it passed the 2018 Farm Bill, which allows farmers to ship hemp products across state lines, so long as they contain no more than 0.3 percent THC. But that places the burden on local law enforcement, which may not have expertise in hemp, to recognize the difference between what’s legal and what’s not. Hemp is different from cannabis because it does not contain enough THC to give users a high.

The issue carries significance beyond the mid-Willamette Valley. Hemp producers and processors all over Oregon see a promising future for the industry in value-added products that have been extracted from the underlying agricultural product, much like Oregon’s wine producers turn common grapes into highly sought-after wines.

But, as the Linn County case shows, there’s still confusion, and sometimes hostility, around Oregon’s newest agricultural industry.

Key Compounds is an Oregon processor of CBD, one of the chemical compounds found in cannabis and industrial hemp plants, and has been in business for two years. The 10-employee firm processes hemp into CBD oil, removing the trace amount of THC found in hemp, and sells the oil to everyone from Walgreens to Walmart. Run by Reyter, his company had raised $7 million and aimed to establish an industrial hub for hemp production in Albany in two short years.

„Industrial hemp is the No. 1 growing industry in Oregon, by far. It’s generating significant jobs,” says Reyter. „[CBD oil] goes to shelves of CVS and Walgreens and other national chains.”

Reyter got in trouble because he sends his CBD oil to Phasex Corp., a North Andover, Mass., company that filters the oil, removing impurities and most THC, before shipping it back to Key Compounds in Oregon.

On Jan. 18, Phasex mailed back almost 63 pounds of oil to Key Compounds after removing the THC. One container in the bunch, however, contained the waste product generated by the process. And this waste product had a THC level that was illegal to ship across state lines.

Reyter’s Portland attorney, Bear Wilner-Nugent, says the waste was shipped by mistake and should have been destroyed in Massachusetts. Otherwise, Wilner-Nugent says, his client followed federal and state rules around producing CBD.

The CBD processor and his attorney see the investigation as the start of a battle against the hemp industry.

„Linn County has decided it doesn’t want any part of hemp,” Wilner-Nugent says. „This is the launch of their attack.”

Reyter says he has been open with law enforcement about his intent to destroy any THC extracted from his CBD oil. Still, he may face prosecution, and most of his business’s assets were seized as evidence in a March 15 drug raid.

„This is going to have a significant chilling effect on the industrial hemp industry, potentially not just in Linn County but in Oregon,” Reyter says. „Basically, law enforcement in Linn County is telling us we are manufacturing THC simply by separating molecules. If you are in manufacturing and you have a choice of counties, you should never go to Linn County. They have declared a war on a federally legal industry.”

Gregory Newman, a Linn County sheriff’s narcotics deputy who investigated the scent of cannabis wafting from Reyter’s packages, showed some skepticism of hemp, going so far as to call CBD products „questionable medicines” in a police report.

Newman tested the products in the packages with a field drug test, which changed color to indicate the presence of marijuana.

Wilner-Nugent says it doesn’t matter if the field test was accurate—CBD oil is legally allowed to contain up to 0.3 percent THC, and the test cannot determine how much of the psychoactive chemical is present in the oil.

Linn County District Attorney Doug Marteeny tells WW he cannot comment specifically about the investigation because the case is ongoing. However, Marteeny did discuss his views on charging cannabis and hemp businesses that run afoul of Oregon’s laws, either intentionally or accidentally.

„We are a nation of laws,” Marteeny says. „If some don’t like those laws, they must petition the legislative branch to change them. Businesses that are careful to follow all criminal laws and local codes don’t want to have to compete against businesses that are not careful to do so.”

Robert Bovett, who helped draft the 2018 Farm Bill as legal counsel for the Association of Oregon Counties, says Reyter’s company took a risk by shipping any of its product across state lines.

„Technically speaking, you can’t be shipping marijuana items out of state,” he says. „And that definition of 'marijuana items’ actually covers industrial hemp and hemp commodities that are over that 0.3 percentage of THC. It’s pretty darn clear.”

Hannah Chinn contributed reporting to this story.

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