Could the DEA Be A Threat to CBD? – Green Market Report

Editors note: This is a guest post by Robbert Dean.

In the middle of August, the US Drug Enforcement Administration (DEA) issued an interim rule which is a treat to the cannabinoid hemp market and could impact hemp pricing. Operators in this space including farmers, traders, and extractors are now racing to determine how this will impact their business and what they can do about it. Operators are facing risks and are not in a position to take the threat to their operations lightly. 

At issue is that some of the extracts that are produced can naturally exceed the legal level of hemp above 0.3%. As hemp flows through the process of becoming a final product, like CBD, is becomes compliant through dilution and blending. Despite this supply chain mechanism, there remain hundreds of thousands of kilos of crude CBD listed a schedule 1 narcotics in DEA possession. 

According to The Jacobsen, the destruction of a Willamette Valley Oregon business came at the hands of the DEA as they were forced to liquidate after spending hundreds of thousands of dollars in legal fees. The Oregon company Key Compounds used the extract from a Massachusetts company Phasex, which caught the attention of Albany police. The extraction facility was raided and charges were brought which cost the company 7-million dollars according to The Jacobsen. 

Are States Rights Federally Enforceable

The issue at hand is whether state rights enforceable. Can states forge their path with regards to CBD policy? The DEA appears to be willing to ignore how individual states are handling CBD laws and making their own interim decisions. If the DEA takes an antagonistic position, seeing hemp-derived or organic hemp cannabinoids as an illicit industry using health and wellness as a mask to distribute narcotics, they may see some political support erode due to an outdated, ideological, posture.  This could be the case as early as November if the White House and Senate flip.

The prospects for CBD for states may provide the backdrop for additional state legislation. Some might draw on other states which only have adult-use policies to protect the new industry. This leaves the issues to the DEA to determine enforcement priorities but also creates a fragmented hemp market. 

There are several ways to attack the current policy as in direct opposition to the intent of the 2018 Farm Bill, through nuanced positions on wet/dry content language in current hemp legislation.  If left in place though, the policy poses an existential threat to the cannabinoid segment, undoubtedly giving rise to the black market.  

Extractors are likely to prioritize remediation to mitigate risk.  Depending on the process, this can be costly and incredibly time-consuming, but dilution is another option. This would mean that extractors would attempt to mitigate the content they provide at the outset to comply with Federal law. Those with in-house remediation have a distinct advantage.  Biotech companies are working to produce proprietary hemp genetics, along the lines of their nicotine-free tobacco, maybe in the best position if the DEA’s strict interpretation stands.

The Bottom Line

The upshot is that the DEA and states across the US have a different interpretation of what is legal in the Hemp world. This scenario also plays out in the Marijuana industry where several states make weed recreationally legal, but it is not legal federally. The DEA is in a position to generate strife at the state level and politics will likely play a pivotal rose ahead of the 2020 election which could change the landscape for many farmers, traders, and extractors who are betting that the hemp industry has further upside and profitability in the years to come.

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