Hemp Indus. Ass'n v. Drug Enforcement Admin.

• Decision Date: 10 June 2022
• Docket Number: 21-5111
• Parties: HEMP INDUSTRIES ASSOCIATION and RE Botanicals, Inc., Appellants v. DRUG ENFORCEMENT ADMINISTRATION and Anne Milgram, in her official capacity as Administrator of the United States Drug Enforcement Administration, Appellees
• Court: U.S. Court of Appeals — District of Columbia Circuit

36 F.4th 278

HEMP INDUSTRIES ASSOCIATION and RE Botanicals, Inc., Appellants

v.DRUG ENFORCEMENT ADMINISTRATION and Anne Milgram, in her official capacity as Administrator of the United States Drug Enforcement Administration, Appellees

No. 21-5111

United States Court of Appeals, District of Columbia Circuit.

Argued April 19, 2022

Decided June 10, 2022

Matthew C. Zorn argued the cause for appellants. With him on the briefs were Shane Pennington, Shawn Hauser, and David C. Kramer.

Sarah Carroll, Attorney, U.S. Department of Justice, argued the cause for appellees. With her on the brief were Brian M. Boynton, Acting Assistant Attorney General, and Mark B. Stern, Attorney.

Before: Henderson and Rogers, Circuit Judges, and Silberman, Senior Circuit Judge.

Karen LeCraft Henderson, Circuit Judge:

This appeal centers on recent statutory and regulatory changes to the legal status of hemp—a non-psychoactive variant of the Cannabis sativa L. (cannabis) plant that is related to but distinct from marijuana, the more well-known psychoactive variant. In August 2020, the United States Drug Enforcement Administration (DEA) issued a rule meant to conform its existing regulations to recent congressional amendments to the Controlled Substances Act (CSA or Act), 21 U.S.C. § 801 et seq ., in its treatment of hemp. Shortly thereafter, the Hemp Industries Association (Hemp Association), a trade association of the hemp industry, and RE Botanicals, Inc. (RE Botanicals), a manufacturer and seller of consumer products derived from hemp, (collectively, the Plaintiffs) filed suit against the DEA, seeking declaratory and injunctive relief preventing the agency from enforcing the CSA against two necessary byproducts of the hemp-extract production process. The district court dismissed for lack of subject matter jurisdiction, concluding that the Plaintiffs’ suit impermissibly challenged the DEA rule by failing to use the statutory review provision for rules promulgated under the CSA. See generally Hemp Indus. Ass'n v. DEA , 539 F. Supp. 3d 120 (D.D.C. 2021). As detailed infra , we affirm.

I. Background

At the motion-to-dismiss stage, we "assume the truth of all material factual allegations in the complaint and ‘construe the complaint liberally, granting plaintiff[s] the benefit of all inferences that can be derived from the facts alleged.’ " Am. Nat'l Ins. Co. v. FDIC , 642 F.3d 1137, 1139 (D.C. Cir. 2011) (quoting Thomas v. Principi, 394 F.3d 970, 972 (D.C. Cir. 2005) ).

A.

In 1970, the Congress passed the Controlled Substances Act,¹ "a comprehensive statute designed to rationalize federal control of dangerous drugs." Nat'l Org. for Reform of Marijuana Laws (NORML) v. DEA , 559 F.2d 735, 737 (D.C. Cir. 1977). Under the CSA, each "controlled substance," see 21 U.S.C. § 802(6) (defining the term), is placed on one of five "schedules"—designated as Schedules I through V—of descending regulatory severity based on the risks and benefits associated with the substance. See id. § 812(a)–(b) (establishing and defining each schedule). The controls imposed on the manufacture, acquisition and distribution of substances listed under the CSA and the penalties for violations of those controls vary according to the schedule in which a substance is listed. See id. §§ 821–32 (controls), 841–65 (offenses and penalties); see also Gonzales v. Raich , 545 U.S. 1, 13–14, 125 S.Ct. 2195, 162 L.Ed.2d 1 (2005). For example, Schedule I substances—which have "a high potential for abuse," "no currently accepted medical use in treatment" and "a lack of accepted safety for use ... under medical supervision"—are subject to the most stringent controls and penalties. See id. §§ 812(b)(1)(A)–(C), 841. The Attorney General has delegated his authority under the CSA, including his rulemaking and scheduling authority, to the DEA. See 28 C.F.R. § 0.100(b) ; see also 21 U.S.C. § 871(a) (permitting delegation). The court of appeals has exclusive jurisdiction of "[a]ll final determinations, findings, and conclusions" issued by the DEA pursuant to the CSA. 21 U.S.C. § 877 ; see John Doe, Inc. v. DEA , 484 F.3d 561, 568 (D.C. Cir. 2007).

The CSA lists marijuana as a Schedule I substance. See 21 U.S.C. § 812(c) (Schedule I (c)(10)). Before 2018, the statutory definition of marijuana excluded hemp from its purview by carving out the non-psychoactive parts of the cannabis plant:

The term "marihuana"² 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. Such term does not include the mature stalks of such plant, fiber produced from such stalks, oil or cake made from the seeds of such plant, any other compound, manufacture, salt, derivative, mixture, or preparation of such mature stalks (except the resin extracted therefrom), fiber, oil, or cake, or the sterilized seed of such plant which is incapable of germination .

Id. § 802(16) (emphasis added) (2012). The Congress also listed tetrahydrocannabinols (THC), the key psychoactive compound found in the cannabis plant, as a Schedule I controlled substance, see 21 U.S.C. § 812(c) (Schedule I (c)(17)), but it did not define the term, leaving the definition up to the DEA, see 21 C.F.R. § 1308.11(d)(31).

After what one can fairly characterize as a series of longstanding disputes among the hemp industry, the DEA, States and the Congress regarding the DEA's authority to regulate hemp, see Am. Compl. ¶¶ 40–61; see also Monson v. DEA , 589 F.3d 952, 957 (8th Cir. 2009) ; United States v. Mallory , 372 F. Supp. 3d 377, 382–83, 384–85 (S.D. W. Va. 2019), the Congress significantly altered the CSA regulation of hemp as part of the Agricultural Improvement Act of 2018, Pub. L. No. 115–334, 132 Stat. 4490 (2018 Farm Bill). Relevant here, the 2018 Farm Bill included a new definition of "hemp":

"[H]emp" means the plant Cannabis sativa L. and any part of that plant, including the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with a delta-9 tetrahydrocannabinol concentration of not more than 0.3 percent on a dry weight basis.

7 U.S.C. § 1639o (1).³ It also amended the CSA in two key respects. First, it clarified that "[t]he term ‘marihuana’ does not include ... hemp, as defined in section 1639o of Title 7." 21 U.S.C. § 802(16)(B)(i). Second, it removed "[THC] in hemp (as defined under section 1639o of Title 7 )" from the statutory listing of THC. Id. § 812(c) (Schedule I (c)(17)). The 2018 Farm Bill granted the Secretary of the United States Department of Agriculture (USDA)—subject to exceptions not pertinent here—"sole authority to promulgate Federal regulations and guidelines that relate to the production of hemp," 7 U.S.C. § 1639r(b) ; see also id. § 1639o (3), and directed the USDA Secretary to administer and implement hemp production plans,⁴ see id. §§ 1639q, 1639p.

In August 2020, the DEA published an interim final rule intended to "conform[ ] [its] regulations" to the 2018 Farm Bill's amendments to the CSA. See Implementation of the Agriculture Improvement Act of 2018, 85 Fed. Reg. 51,639, 51,639 (Aug. 21, 2020) (Interim Final Rule or IFR). The IFR noted that to be deemed marijuana under the CSA, "cannabis and cannabis-derived material must both fall within the pre- [2018 Farm Bill] CSA definition of marihuana"—the definition that excluded particular parts of the cannabis plant— "and contain more than 0.3 percent [delta-9]-THC on a dry weight basis." Id. at 51,640 –41. The rule accordingly limited the agency's definition of THC, a Schedule I controlled substance, to exclude "any material, compound, mixture, or preparation that falls within the [2018 Farm Bill's] definition of hemp set forth in 7 U.S.C. § 1639o ." Id. at 51,641 ; see also 21 C.F.R. § 1308.11(d)(31)(ii). Of note here, the DEA specifically addressed products derived from the hemp plant, stating that "the definition of hemp does not automatically exempt any product derived from a hemp plant, regardless of the [delta-9]-THC content of the derivative" and "[i]n order to meet the definition of ‘hemp,’ and thus qualify for the exemption from schedule I, the derivative must not exceed the 0.3% [delta-9]-THC limit." 85 Fed. Reg. at 51,641. The agency also declared that "entities no longer require a DEA registration or import and export permits to handle hemp extract that does not exceed the statutory 0.3% THC limit." Id. at 51,644.

B.

As an agricultural commodity, hemp has a wide variety of uses, including in the production of textiles, fabrics and paper. Hemp seeds are used in beverages and foods. Hemp extracts are used in a wide range of products like soaps, shampoo, lotions, bath gels and cosmetics. Hemp extracts can be particularly lucrative; according to the Plaintiffs, "[t]he U.S. wholesale market for hemp extracts currently stands at $2 billion" and "the wholesale market for products containing extracts exceeds $5 billion." Am. Compl. ¶ 29.

This appeal focuses on the hemp-extract production process. As the Plaintiffs see it, the process produces intermediate and waste byproducts that exceed the 0.3 per cent delta-9 THC concentration threshold, thereby raising understandable confusion regarding DEA regulation even after the 2018 Farm Bill. To briefly summarize the production process: After hemp plants are determined to be below the 0.3 per cent delta-9 THC threshold and cultivated, the milling process separates the hemp flowers, which are high in THC, from the remainder of the plant, which is comparatively low in THC. The milled hemp flower material is then mixed with an extraction solvent meant to extract the cannabinoids— compounds including THC and cannabidiol (CBD) found in the cannabis plant. The hemp flower material is discarded, leaving behind an oil comprised of the extracted cannabinoids and the extraction solvent....