Recently, Vermont Edition devoted an episode to “The Business Of Cannabis In Vermont Today,” discussing the rapid growth of the hemp industry in Vermont. Since hemp was first legalized in Vermont in 2013, the number of registered growers has expanded at an exponential rate. This rapid growth has been driven in part by CBD, also known as cannabidiol or CBD oil, an increasingly popular hemp extract marketed for its supposed healing properties, as both a standalone product and as a food and drink additive. CBD is now available at many retailers in Vermont.
Since hemp and marijuana are the same plant, there is a great deal of confusion about the legality of hemp and CBD. Despite claims to the contrary on the internet, both hemp and CBD remain Schedule I drugs under federal law, meaning that growers and retailers are subject to hefty federal criminal penalties. In recent years, the Drug Enforcement Administration (“DEA”) and Department of Justice have largely withheld from enforcing federal drug laws in states like Vermont that have legalized hemp. But farmers, investors, and retailers involved in hemp and CBD should have a clear understanding of the laws—and risks—under which this growing industry operates. To assist in bringing clarity to this complicated legal area, presented below are three legal considerations concerning cannabis in Vermont.
Our intention is presenting these facts is not to suggest that the businesspeople incubating this new agricultural sector should shut down their operations. However, this sector is subject to an unusual degree of risk, about which there is much disinformation. Any businessperson should be aware of all of the risks peculiar to their trade and business, so that they can plan accordingly.
1. Both CBD and cannabis in any form—including hemp—are Schedule I drugs.
Hemp and marijuana are both names for the Cannabis sativa (“cannabis”) plant. The main difference between them is the concentration of delta-9 tetrahydrocannabinol (“THC”) they contain: hemp is generally defined as cannabis with a THC concentration of 0.3 percent or less by dry weight. THC is the psychoactive chemical that causes the high associated with marijuana. Hemp is generally considered to have too little THC to induce a high if smoked. CBD itself is not generally considered intoxicating. Due to legal restrictions, it is challenging to study the health effects of CBD. However, some vendors claim that CBD has anti-inflammatory and other healing properties. Any health benefit claims concerning CBD raise additional legal questions.
While hemp cannabis and CBD are legal in Vermont, they are both controlled substances under federal law. Under the federal Controlled Substances Act (“CSA”), “controlled substance” is a drug or other substance that is included on the schedules maintained by the Department of Justice Drug Enforcement Administration (“DEA”). The CSA makes it a crime for any person “to knowingly or intentionally to possess a controlled substance,” to “manufacture, distribute, or dispense, or possess with intent to manufacture, distribute, or dispense, a controlled substance,” to “open, lease, rent, use, or maintain any place, whether permanently or temporarily, for the purpose of manufacturing, distributing, or using any controlled substance,” or to attempt or conspire to commit these acts. 21 U.S.C. §§ 841(a)(1), 844(a), 846, 856.
Cannabis is a Schedule I drug—the most severely restricted category under the CSA. 21 C.F.R. § 1308.11(d)(23). The definition of marijuana under the CSA “means all parts of the plant Cannabis sativa L., whether growing or not; the seeds thereof; the resin extracted from any part of such plant; and every compound, manufacture, salt, derivative, mixture, or preparation of such plant, its seeds or resin.” 21 U.S.C. § 802(16). Since there is no THC concentration threshold in the CSA’s definition, all cannabis—including both high-THC marijuana plants and low-THC hemp plants—fall within the prohibition.
CBD is also a Schedule I drug. In 2016, a few years after Vermont legalized hemp, the DEA added “marijuana extract” to the Schedule I list of controlled substances. It defined marijuana extract as “an extract containing one or more cannabinoids that has been derived from any plant of the genus Cannabis, other than the separated resin (whether crude or purified) obtained from the plant.” When it added CBD to Schedule I, the DEA specifically indicated that CBD falls under the new definition, “even if it were possible to produce from the cannabis plant an extract that contained only CBD and no other cannabinoids.” Drug Enforcement Administration; Establishment of a New Drug Code for Marijuana Extract, 81 Fed. Reg. 90,194 (Dec. 14, 2016) (codified at 21 C.F.R. § 1308.11(d)(58)).
2. The 2014 Farm Bill included an exemption from federal drug laws for hemp, but it unfortunately is unlikely to apply to Vermont’s hemp programs.
There is a narrow exception to the federal cannabis prohibition known as Section 7606 of the Agricultural Act of 2014 (“Section 7606”), permitting “industrial hemp” to be produced under certain circumstances… However, this exemption is very narrow: it only allows institutions of higher learning or State departments of agriculture to grow hemp, and only for research purposes. Section 7606 does allow States to create “agricultural pilot programs” to “study the growth, cultivation, or marketing of industrial hemp.” But such pilot programs have stringent requirements to be valid. In particular, States must ensure that “only institutions of higher education and State departments of agriculture are used” to grow the hemp, and some research must actually “occur.” 7 U.S.C. § 5940.
Vermont’s hemp program does not appear to meet these requirements. The 2013 Vermont legislation that legalized hemp, known as Act 84, allows anyone to grow hemp. Growers are simply required to register with Vermont’s department of agriculture, known as the Agency of Agriculture, Food and Markets (“AAFM”).
First, Act 84 does not limit hemp growth to institutions of higher learning or AAFM. Rather, anyone may grow, produce, possess, and trade hemp. 6 V.S.A. §§ 561–66. While Section 7606 requires departments of agriculture to certify and register sites used for growing and cultivating hemp, this language does not authorize them to certify or register or issue licenses to any other entities to grow hemp. The intent appears to be to require State departments of agriculture to maintain a registry of all sites used by their own agents or by institutions of higher learning for growing hemp. It is not immediately clear what it means for institutions of higher learning or State departments of agriculture to be “used to grow or cultivate” hemp: at a minimum, it would seem to call for some kind of statutory delegation or contractual relationship with one of those entities.
Second, there does not appear to be any research purpose underlying Act 84’s legalization of hemp. Act 84 does not mention any research purpose; rather, its stated intent is “to establish policy and procedures for growing hemp in Vermont so that farmers and other businesses in the Vermont agricultural industry can take advantage of this market opportunity.” AAFM’s hemp registry website does not indicate that any research is occurring.
Act 84 and AAFM guidance appear to agree with this assessment. Act 84 explicitly requires AAFM to notify registrants that “until current federal law is amended to provide otherwise… cultivation and possession of hemp in Vermont is a violation of the federal Controlled Substances Act.” 6 V.S.A. § 564. AAFM’s Frequently Asked Questions page about the Hemp Registry Program states that “Federal controlled substances laws and regulations are unaffected by the Vermont program. Hemp growers are advised they may face legal challenges at the Federal level.”
While no federal court appears to have considered whether a State hemp program satisfied the requirements of Section 7606, the Attorneys General of California and South Carolina reviewed their States’ policies and found that they fell outside of Section 7606 for reasons similar to those discussed above.
It is conceivable that the “marketing of industrial hemp” could extend to commercial sales, if all of the requirements discussed above were satisfied. However, that is far from clear. Section 7606 only permits institutions of higher education and departments of agriculture to “grow or cultivate industrial hemp”—not to sell or market it. The authorization to grow and cultivate hemp extends to agricultural pilot programs designed to “study the growth, cultivation, or marketing” of hemp. The authorization in Section 7606 appears to be limited to the acts of growing and cultivating hemp. A court could easily find that in allowing pilot programs to study the marketing of hemp, Congress did not intend to extend that authorization.
3. While federal law enforcement agencies have largely withheld from strictly enforcing drug laws in recent years, priorities could change rapidly.
Federal enforcement may pose more of a risk going forward than it has in the past due to the change in presidential administrations. The Justice Department under the Obama administration had a policy encouraging U.S. Attorneys not to use their resources enforcing federal marijuana laws in states that legalized marijuana and had effective regulatory and enforcement policies in place. The Trump administration has signaled that it intends to enforce federal marijuana laws when they conflict with state laws. As of this writing, President Trump has not nominated a new DEA Administrator to head the agency. There have been a number of state prosecutions in connection with CBD, including for simple possession. Finally, the DEA’s decision to add CBD to the list of Schedule I drugs is itself a powerful signal that the federal government considers hemp production unlawful.
Again, none of this is intended to suggest that hemp businesspeople should shut down operations. However, many of these new and innovative businesses may be subject to an unusual degree of risk. Any businessperson should take reasonable precautions and become aware of the material risks peculiar to their business, so that they can plan accordingly.