Similarly to several other cannabis-related laws in Texas, the laws surrounding the business and operations of industrial hemp/CBD companies can oftentimes be mind-boggling and ridiculously convoluted depending on precisely which county you’re in along with the political ideologies of the respective police and district attorneys of the county.
However, those confused individuals currently operating in a legal grey area may have hope with the passing of House Bill 1325, which would effectively allow for the production of industrial hemp and CBD within the state and will hopefully result in more concrete and widely understood laws surrounding the products made from this plant.
The passing of House Bill 1325 could have the potential to wildly change the agricultural industries in Texas by adding a new crop and avenue to revenue for Texan farmers. Although, it’s important not to jump to wild assumptions and instead receive pinpoint accurate legal guidance about the upcoming cannabis and hemp-related bills being voted upon in 2019 Texas Legislative Session.
To receive the aforementioned guidance particularly on House Bill 1325, Texas Cannabis Collective spoke with the Forbes-featured business and intellectual property lawyer who specializes in representing medical cannabis and hemp companies through a sea of confusing regulations and compliance codes, Chelsie Spencer.
JK: Earlier this month, the Texas Department of State Health removed hemp from the state’s list of Schedule I drugs of the Controlled Substances. Has the removal of hemp become beneficial for your clients or instead caused further challenges?
CS: The removal has not been beneficial. In fact, it has led to more confusion and a proliferation of misinformation. The Texas Association of District and County Attorneys has announced an intention to continue prosecutions for cannabidiol and other hemp-derivative goods possession. The Association maintains that the Legislature must amend the penal code before hemp and hemp-derivatives become legalized. It is also important to note that hemp was not removed per se, only hemp as defined in section 297A(1) of the Agricultural Marketing Act of 1946 (as amended by the “2018 Farm Bill). After the April 5 descheduling, we continue to see local departments raid and seize manufacturers and retailers of hemp-derivative goods and to pursue individuals for possession.
JK: From a legal perspective, how would House Bill 63, which decriminalizes possession of small amounts of cannabis, change the criminal justice system and police procedures in Texas?
CS: HB 63 would certainly lead to substantive changes in our criminal justice system. It should reduce mass incarcerations for low-level possession and lead to less-congestion of our criminal dockets. We also know that possession offenses have a disparate racial impact and hopefully HB 63 will begin to rectify some of that disparate impact. Less people will have their lives ruined for possession of low-level amounts of a plant that has been used both medicinally and recreationally for over 2,000 years. It is important to note that it only in the past ninety years that the plant has been unfortunately subjected to stigmatization and a high-level propaganda campaign. We already see push-back for low-level possession enforcement from certain district attorneys, including John Creuzot in Dallas.
As far as actual procedural change, law enforcement would no longer have an arrestable offense for possession of one ounce or less of marijuana. Instead, that former offense would be converted to a civil penalty with fines not to exceed $250 under HB 63. Possession of one ounce or more will only be subject to criminal charges once the individual has been assessed the civil penalty three times.
JK: How exactly would the passing of House Bill 1325 impact the existing CBD/hemp businesses in Texas that currently operate in a confusing and oftentimes convoluted legal grey area?
CS: This is a bill I am incredibly passionate about, as are my clients, and I could do an entire discussion on this question alone. Frankly, the immediate effect of HB 1325 will not be as impactful as some in the industry hope that it will be and this is due to what needs to happen post-passage. It is certainly a law that the industry would like to see passed, as it would permit Texas to participate in an approved-growth plan under the 2018 Farm Bill.
The Bill grants regulatory authority to the Texas Department of Agriculture and the Department of Health Services. After the effective date of the legislation, these departments must then cooperate to (a) draft a state production plan for approval to the United States Department of Agriculture and (b) receive approval before anyone can grow here. That’s currently a problem in and of itself, because we do not have guidance yet from the USDA on how to even submit a growth plan under the 2018 Farm Bill.
No one is growing under the 2018 Bill. States currently growing are operating under a 2014 Farm Bill grant of approval. Not only that, we will have to wait on these Departments to announce regulatory rules “necessary to implement” this Bill. These are the regulations that will really clarify things for the hemp-derivative goods industry here in Texas. Until we see that guidance, we at least have a bit of clarity on legality and manufacturing requirements, but operations will continue in uncertainty.
Fortunately, the Bill at least provides that if there is a conflict between federal law and state law regarding interstate commerce, federal law controls. This should, in theory, alleviate some of the seizures of hemp coming into Texas that we have seen occur. I say in theory because currently, law enforcement has no field testing mechanism to differentiate hemp from marijuana and unfortunately, even with proper paperwork such as the crop certificate of analysis and other sourcing-documentation, law enforcement may choose to seize the shipment, test, and release. We are seeing how the interplay between the 2018 Farm Bill’s anti-interference with interstate commerce shipments of hemp and state law is playing out in several district courts across the nation right now. It is such an exciting time to be a hemp lawyer right now.
JK: What immediate legal changes would occur during the transition into a fully legal hemp industry in Texas and how could those aspiring to work in the hemp/CBD benefit from such a transition?
CS: Again, there will not really be immediate changes on the Bill’s effective date. We have to wait on program approval and rules and regulations from the Department of Agriculture and the Department of State Health Services to be promulgated. The best immediate clarification we will receive is that the Bill would clarify that it is legal to transport, possess, purchase, and sale “legally produced hemp products,” including out-of-state products subject to similar requirements for processing and cultivating hemp that Texas implements. Most products sourced properly under the 2014 Farm Bill and subject to laboratory testing will certainly meet this requirement.
The largest immediate change we will see is an amendment to the Texas Controlled Substances Act. Hemp and tetrahydrocannabinol derived from hemp sourced pursuant to the 2018 Farm Bill will be exempted. The Bill mirrors the 2018 Farm Bill’s changes to the federal Controlled Substances Act by exempting properly-sourced hemp from the definition of marijuana. Again, law enforcement has no field test to differentiate marijuana from hemp and that is likely going to lead to issues.
JK: Since intellectual property is a specialty of yours, how would the intellectual property laws and procedures surrounding CBD/hemp products be amended if the production of hemp becomes completely legal?
CS: This Bill will not change current intellectual property laws. Where we currently see issues with hemp-derivative goods is at the United States Patent and Trademark Office for federal registration of trademarks. The trademark office follows its “unlawful use rule,” which prohibits registration of goods that are unlawful in interstate commerce. For example, you cannot register a recreational cannabis good even if it is sold in a legal recreational state because cannabis remains a Schedule I substance federally.
For hemp and CBD, the FDA currently maintains that CBD is an article subject to substantial clinical investigations as a new drug and that THC is an approved-drug. Under the federal Food And Drug Cosmetics Act, it is unlawful to add CBD or THC to a food, beverage, cosmetic, or other product subject to the Food and Drugs Cosmetics Act or to market those substances as dietary supplements. Thus, the USPTO is currently refusing registrations for goods that fall under those prohibitions. The Office is still largely trying to figure out how to process CBD trademark applications post-passage of the 2018 Farm Bill.
To remedy the issues caused by the FDA’s stance, I largely expect that Congress will need to act. What is interesting is that many pending state bills, including HB1325, attempt to permit CBD as a food additive or dietary supplement. Unfortunately, those additions to these state bills are not going to supersede federal law on this issue. It is well settled that food and beverages are items subject to interstate commerce and thus permissible for regulation by the federal government. The FDA’s stance and federal law will certainly supersede any attempt by the states to legislate around it. Our blog at www.ritterspencer.com has a fairly in-depth analysis of the FDA’s interpretation and many articles concerning the issues with hemp trademarks and CBD trademarks.
JK: Would Ritter-Spencer as a firm represent industrial hemp companies along with your current clientele?
CS: Absolutely, we would love to add more hemp clients. We were on of the first hemp and cannabidiol law firms in the state of Texas. I personally have been working with hemp clients for many years. We currently represent the entire stream of commerce for the hemp industry: from research facilities, to growers, to processors and extractors, to product developers, manufacturers, distributors, retailers and more.
As hemp lawyers, we handle formation, licensing issues, compliance and transactional issues, intellectual property, commercial bankruptcy, litigation, and more. We aim to be a one-stop shop for our hemp and cannabidiol clients and if it is not clear already, I absolutely love my job. I love working in such an emergent, challenging, and ever-changing industry. People who know me joke that you should never get me started talking about hemp or cannabis laws because I probably won’t stop talking.
JK: Ten years down the road from right now, how prevalent do you believe hemp-based products will be? And which type of currently existing products to you think will benefit the most from industrial hemp production?
CS: Based on market growth projections, hemp and hemp-derivative goods will be quite prevalent ten years from now. The industry is projected for phenomenal annual growth rates in the next five years alone. Medical research continues to expound on our knowledge of the endocannabinoid system and the benefits of a myriad of cannabinoids. Consumers continue to receive education about what these products do, thus adding to the market base. I do worry that absent sound regulations at both the federal and state levels, we will see an oversaturation of the markets. We have already seen this trend in certain recreational and medicinal cannabis markets that often have an over-abundance of raw product. As far as products and based on current research, cannabidiol goods will benefit most from industrial hemp production. We see cyclical production shortfalls currently. Some of our large manufacturing clients often have demand for hemp extract that meets certain requirements that cannot be met and we face shortage issues with sourcing.