In another decision upholding the validity of state-enacted
restrictions over the sale of intoxicating hemp-derived products, a
Maryland Appellate Court in Governor Wes Moore, et al. v. Maryland Hemp
Coalition, et al. reversed a lower court's entry of an
injunction barring the Executive Branch from enforcing restrictions
over the sale of certain hemp-derived products by
non-cannabis-licensed businesses. This decision is important in
that not only did it uphold state regulation over hemp-derived
products, but also in upholding a licensing requirement for the
sale of hemp-derived products under a highly restrictive licensing
regime premised on both social equity requirements and/or lottery
licensing. Notably, the decision was largely predicated under
Maryland-specific constitutional principles, but the Appellate
Court's reasoning and rationale gave a thorough and robust
analysis as to the evolution of federal and state law governing
these products, including as it relates to the rights and
requirements of states and businesses applicable under the 2018
Farm Bill (the "Farm Bill").
Background
In that matter, the Maryland Hemp Coalition, along with several
hemp retailers, producers, farmers, and consumers (collectively the
"Hemp Coalition") challenged the constitutionality of the
Maryland Cannabis Reform Act ("CRA") solely under the
Maryland State Constitution. The Hemp Coalition challenged the
CRA's cannabis licensing requirement, which prohibits
businesses from selling certain cannabis products, including
hemp-derived psychoactive products, unless they obtain a cannabis
license. Maryland, following other recent legislative efforts by
states such as New Jersey, sought to permit the sale of hemp
products over a certain threshold (0.5 mg of THC per serving or 2.5
mg of THC per package) ("Intoxicating Hemp Products"),
but only permitted their sale through licensed cannabis businesses.
The Hemp Coalition moved to enjoin the enforcement of the CRA based
on its State constitutional claims. A prior circuit court had
enjoined Governor Wes Moore and several other named State officials
and agencies from enforcing this licensing requirement on people
selling only Intoxicating Hemp Products, but permitted the State to
continue to issue cannabis licenses. The State thereafter appealed
the entry of the preliminary injunction.
By way of background related to Maryland's regulation over
hemp-derived products, the Appellate Court noted that in 2022
Maryland had passed legislation to prohibit the sale of delta-8 and
delta-10 products to individuals under the age of 21, though
characterized this not as a step to legalize those products for
those over the age of 21, but rather constituted "a piecemeal
measure designed to protect those most vulnerable to hemp-derived
psychoactive products while the General Assembly developed a
comprehensive regulatory scheme." The Appellate Court also
noted that in 2022, Maryland voters approved a constitutional
amendment that legalized cannabis use by adults and ordered the
Maryland General Assembly to regulate the "use, distribution,
possession, regulation, and taxation of cannabis" within
Maryland. The General Assembly thereafter directed the Maryland
Medical Cannabis Commission ("MMCC") to conduct a
baseline study of cannabis use in the State and to draft a report
that recommended methods to prevent cannabis use by minors."
Also recognizing the significance of hemp-derived product market,
the General Assembly directed the MMCC to draft a report that
recommended policies for regulating those products. After receiving
these reports back from the MMCC, the General Assembly passed the
CRA, which contained several hemp-derived product based
restrictions, as well as a requirement that only licensed cannabis
businesses may sell edible or smokeable products containing
psychoactive levels of cannabis," i.e., those products
containing more than 0.5 mg of THC per serving or 2.5 mg of THC per
package.
Ruling
In reversing the injunction entered by the lower court, the
Appellate Court discussed several relevant aspects of the legal
challenge. First, with regard to preemption, it found that the
lower court erred by finding that the 2018 federal Farm Bill
preempted the CRA. The lower court had found that the Farm Bill
preempted the CRA's licensing scheme because Maryland had
failed to submit a regulatory plan to the USDA. However, the
Appellate Court found that this was a factual error, given that
Maryland had submitted a 2018 Farm Bill plan (the "Farm
Bill") in 2020. While the Court fails to squarely address
whether a previously approved state farm bill plan would have to be
updated and/or amended in light of subsequent product-based
restrictions, later discussion in the opinion suggests that the
Court believes that this would be unnecessary, given that the state
farm bill plans are only legislatively designed to address
cultivation of hemp, and not end products. Specifically, the
Appellate Court noted that the 2018 Farm Bill most expressly
authorizes "the commercial cultivation of hemp," and that
the Farm Bill "created regulatory uncertainty about the status
of hemp-derived psychoactive products," meaning, "[w]hile
it permitted hemp cultivation for industrial purposes, it failed to
define the legal status of hemp-derived psychoactive products . . .
and this may have contributed to businesses in Maryland and across
the country selling these products."
Second, the Appellate Court addressed whether the CRA created
"an unconstitutional monopoly under Article 41 of the Maryland
Declaration of Rights." However, the Appellate Court found
that the Hemp Coalition failed to articulate what the relevant
market was for antitrust purposes, which is fatal for the purposes
of supporting its claim for the injunction. The Appellate Court
found both that "the ability to sell cannabis and hemp-derived
psychoactive products has not been a matter of common right"
(as there has never been a common right to engage in the broader
cannabis market), and the CRA's "licensing requirement,
licensing limit, and social equity applicant designation are
reasonably required for public interest."
Importantly, the Appellate Court noted that while the hemp-derived
cannabinoid market may have been subject to lax enforcement since
2018, that did not transform it into a broadly legal market that
businesses had a "common right" to engage in. The
Appellate Court emphasized that federal law did not establish that
there was a common right to engage in the hemp-derived psychoactive
market, as federal law only permits cultivation and is in conflict
about whether hemp-derived psychoactive products are legal. It
noted that while the 2018 Farm Bill permits cultivation, a separate
provision, 7 U.S.C. 1639r(c) identifies the continued viability of
federal enforcement under the Food, Drug, and Cosmetic Act by the
FDA. The Appellate Court noted that the FDA has prohibited the sale
of unapproved hemp-derived food or dietary supplements, statements
by Deputy Commissioners of the FDA, and warning letters issued
against companies selling delta-8 products and their notation of
violations of the Food, Drug, and Cosmetic Act. "There cannot
be a common right to sell hemp-derived psychoactive products if
those products are illegal or even if their legality is
uncertain."
Finally, the Appellate Court found that regulating the cannabis
market, including Intoxicating Hemp Products, "is reasonably
required for the public interest." While the Hemp Coalition
argued that the CRA created a State-granted market for cannabis
products and that the public will not benefit from a licensing
requirement, the Appellate Court looked to the legislative history
and found that the "Maryland General Assembly considered how
cannabis products in general and hemp-derived psychoactive products
in particular could endanger public health," and developed the
licensing requirements under the CRA accordingly.
The Court noted that "[t]he public cannot enjoy a variety of
low-cost hemp products in a competitive market if those products
are dangerous and, absent the ability to regulate hemp under the
[CRA], the record establishes that they would be."
Key Takeaways
In short, this decision is another in a recent string of cases
increasingly upholding state regulation of hemp-derived cannabis
products, and this decision is notable given that the ability to
sell Intoxicating Hemp Products, which are set at a relatively low
THC threshold, is limited solely to those that already have
cannabis licenses and/or those that may only obtain a license from
a more complicated cannabis licensing process containing either
social equity requirements and/or lottery licensing. Whereas
hemp-only stores and/or smoke shops previously sold a significant
amount of these products, the Appellate Court in this instance
upheld, under Maryland law, the ability of the Legislature and
regulatory bodies to effectively upend that status quo. Businesses
should closely watch and monitor the effect that a decision like
this could have over other State Legislatures considering similar
hemp-related legislation, especially those in states with
well-established adult-use cannabis regimes.
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