Industrial Hemp Litigation: U.S. Postal Service Loses CBD Delivery Case

In January 2018, the United States Postal Service (USPS) seized a package in Denver, Colorado sent by KAB, LLC, a registered, Colorado industrial hemp cultivator. The package contained 1170 grams of cannabidiol (CBD) powder, derived from industrial hemp. KAB appealed USPS’s decision, arguing that the powder was not a controlled substance and therefore should not have been withheld. Administrative Law Judge (ALJ) James G. Bilbert oversaw the appeal and wrote an opinion in favor of KAB.

In his opinion, the ALJ considered whether CBD grown and cultivated from industrial hemp, in line with Section 7606 of the Agriculture Act of 2014 (Farm Bill) was nonmailable as a Schedule I controlled substance. The ALJ observed that marijuana is classified as a Schedule I substance under the Controlled Substances Act (CSA) and that “CBD that is a derivative of the marijuana plant, as defined under the CSA, is non-mailable.” The ALJ quoted USPS, Publication 52, Hazardous, Restricted, and Perishable Mail § 453.31 (Aug. 2017) stating that “[i]f the distribution of a controlled substance is unlawful under [the CSA or related regulation] than the mailing of the substance is also unlawful under 18 USC § 1716.”

The ALJ’s analysis then turned to the Farm Bill, reciting well-known § 7606, which establishes the following:

• Notwithstanding the CSA, a state department of agriculture may cultivate industrial hemp if it is grown for the purpose of research conducted under an agricultural pilot program and is permitted by state law.
• Industrial hemp means the plant cannabis sativa L. and any part of such plant, whether growing or not, with less than .3% THC on a dry weight basis.

The ALJ identified that the Farm Bill and the CSA appear to be in conflict. The CSA broadly defines marijuana to include nearly all parts of the cannabis plant. In turn, the Farm Bill defines industrial hemp as all parts of the cannabis plant as well. The difference? The .3% threshold. The ALJ determined that that the Farm Bill “draw a clear and distinct difference by delineating that the plant with less than 0.3% THC concentration is industrial hemp.”

The ALJ considered the DEA’s much-maligned Statement of Principles on Industrial Hemp, which reiterated the DEA’s position that the sale and transport of industrial hemp across state lines was prohibited. The ALJ didn’t put much weight into the Statement, writing that based on an “amicus brief filed by members of Congress in a recent Ninth Circuit matter, and in correspondence from members of Congress to agency officials, the [Statement’s’ legitimacy as a valid interpretation of the Agriculture Act of 2014 was strongly criticized.”

In the end, the ALJ’s ruling turned on statutory interpretation, focusing on the use of “notwithstanding” in the Farm Bill:

By choosing to define industrial hemp based upon the concentration of THC in the plant Cannabis sativa L, Congress did not amend the CSA so much as carve out a clear exception for industrial hemp. The language “[n]otwithstanding the Controlled Substances Act” is particularly instructive in this regard. “The Supreme Court has indicated as a general proposition that statutory ‘notwithstanding’ clauses broadly sweep aside potentially conflicting laws.” United States v. Novak, 476 F.3d 1041, 1046 (9th Cir. 2007) (citing Cisneros v. Alpine Ridge Group, 508 U.S. 10, 18 (1993)) (“As we have noted previously in construing statutes, the use of such a ‘notwithstanding’ clause clearly signals the drafter’s intention that the provisions of the ‘notwithstanding’ section override conflicting provisions of any other section.”)[.]

The parties stipulated to the fact that KAB had a license to cultivate industrial hemp and used industrial hemp to create the CBD powder. KAB was registered with Colorado Department of Agriculture (CDA). Accompanying the package was “Industrial Hemp Inspection and Chain of Custody” paperwork from the CDA showing the powder was derived from a crop of industrial hemp with less than .3% THC. The CBD isolate also tested for low amounts of THC.

Given the evidence that the powder was made in compliance with the Farm Bill, the ALJ ruled it was mailable. In that sense, the ALJ came to the same determination as the Ninth Circuit earlier this year, when it opined that Congress intended to remove Farm Bill hemp from the strictures of the CSA.

The story of KAB, however, is a reminder that industrial hemp comes with risk. Even though the ALJ ultimately ruled in favor of KAB, the company still had to deal with the unwarranted seizure, business disruption and litigation. Let’s hope for a good Farm Bill soon!