Cannabis Musings - October 17, 2023

Sibling rivalry over hemp-derived THC.

{Note: the original version of this article used the word “unregulated” in the second sentence of the fifth paragraph when referring to hemp products. That’s incorrect, as was pointed out to me by a reader, and so I’ve removed that from the text.}

Friends, it’s now fairly easy to buy psychoactive, hemp-based products outside of a licensed cannabis dispensary, a dynamic we've discussed fairly recently. To recap, the 2018 Farm Bill did a poor job of defining “hemp” when excluding it from the broader definition of “cannabis” (thus legalizing it), leading to some creative and aggressive interpretations concluding that, generally, certain amounts of THC derived from hemp are legal under federal law.  The United States Court of Appeals for the Ninth Circuit didn’t help matters when it effectively endorsed this position in early 2022 in a trademark case (although I still think the court got it wrong), opening up the floodgates for hemp-derived THC beverages and flower.

All of this confusion will go away if Congress changes the definition of “hemp” in the 2023 Farm Bill.  Indeed, there’s a fair amount of lobbying being done to see that the loophole inadvertently created by Congress in 2018 gets closed.  It was a topic of discussion at a recent Congressional oversight committee hearing, and groups like the Cannabis Regulators Association have been pressing for the change.

The 2018 Farm Bill expired by law a few weeks ago, and as you may have noticed, Congress kind of has its hands full (or, some might argue, currently has no hands) these days, and the new Farm Bill hasn’t been introduced yet.  Some of the delay is reportedly related to the use of funds allocated in the Inflation Reduction Act.  Nonetheless, it caught my eye that one of the bargaining chips reportedly offered by Rep. Jim Jordan (R-OH) in his bid for House Speaker was to “prioritize expedient passage of the farm bill.”  Even if Jordan doesn’t get the gavel, the news story makes it clear that getting the 2023 Farm Bill done is top-of-mind for many. 

I note all of this not only because it portends that we may soon see some movement on the 2023 Farm Bill, but because it frames a small battle that’s brewing between hemp and non-hemp cannabis (as a reminder, hemp is a form of cannabis, so to avoid even more confusion, I’ll use those terms throughout this article) over hemp-derived THC products.  On the one hand, you’ve got the state-licensed non-hemp cannabis industry that’s had a rough go of it lately, constrained by a tightly-wound state regulatory process that only allows its psychoactive products to be sold in licensed dispensaries.  On the other hand, you’ve got hemp (and a few non-hemp) companies that are manufacturing and selling psychoactive products based on hemp-derived THC in many states through regular retail and online channels. 

Needless to say, non-hemp cannabis companies are not happy about this state of affairs.  At heart, they’re frustrated that hemp companies are taking away precious market share by selling competitive products without being subjected to the testing rigor, onerous taxes, supply chain and payments limitations, etc., burdening non-hemp cannabis products.  Ainem’s mazel iz an anderen’s shlimazel. (“One’s good luck is another’s misfortune.”)

You can see the storm looming on the horizon without looking too hard.  For example, take the lawsuit recently filed by a number of California-based non-hemp cannabis companies alleging unfair competition and false advertising by hemp products companies in the state.  On the other hand, note the sheer level of vitriol by supporters of the hemp industry aimed at the Cannabis Regulators Association and its Executive Director for advocating to close the Farm Bill’s hemp loophole.

After the 2018 Farm Bill passed, I observed a divergence between hemp and non-hemp cannabis.  Hemp went its own way as a then-newly-legal product, hoping to gain a foothold as a mainstream consumer healthcare product (much more of the focus than the industrial uses of hemp).  As you likely know, those efforts fizzled out as the industry waited and waited for the FDA to issue hemp-derived CBD product regulations, to no avail.  (Someday, my CBD knishes will be a thing!)  Hemp pivoted, first to producing delta-8 THC products, and then, once the Ninth Circuit case was issued, going full-bore into hemp-derived THC and THCA products.

I still suspect this goes away in the 2023 Farm Bill because the loophole will be closed (not legal or investment advice), but if it doesn’t, I would expect one of two things to happen – the non-hemp cannabis industry will accelerate efforts to have these products banned at the state level, or they’ll all pivot to join the party.

We’re now seeing what happens when you cross the streams.

Be seeing you!

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Hauser Advisory provides advice and strategy on business lifecycle events and cannabis industry navigation, tapping into a deep, national network and twenty-five years of dealmaking and capital markets experience.

© 2023 Marc Hauser and Hauser Advisory.  None of the foregoing is legal, investment, or any other sort of advice, and it may not be relied upon in any manner, shape, or form.