San Francisco Suspends Cannabis Business Tax Through December 2022, Citing Strength of Illicit Market

Texas hemp companies are fighting back against the state’s recent ban on delta-8 THC.

The ban stems back to a statement made by Texas Department of State Health Services (DSHS) in late October clarifying that delta-8 is a Schedule I controlled substance and is illegal under H.B.1325—legislation signed into law by Gov. Gregg Abbott in 2019 to legalize the cultivation of hemp in Texas, Hemp Grower previously reported. 

DSHS’ statement reads: “Texas Health and Safety Code Chapter 443 (HSC 443), established by House Bill 1325 (86th Legislature), allows Consumable Hemp Products in Texas that do not exceed 0.3% Delta-9 tetrahydrocannabinol (THC). All other forms of THC, including Delta-8 in any concentration and Delta-9 exceeding 0.3%, are considered Schedule I controlled substances.”

Companies have since filed lawsuits in attempt to reverse that ban, and they succeeded temporarily. But the state and attorney general have worked to reverse that, leaving the parties to work out the issue through lawsuits currently moving through courts.

The state’s tumultuous history with delta-8 is one that started even before the DSHS stepped in.

© Courtesy of Vicente Sederberg website

The Debate Over Delta-8’s Legality in Texas

Since H.B. 1325 does not address delta-8 specifically, many retailers and manufacturers assumed the substance was legal and continued selling such products until DSHS released its statement.

Shane Pennington, who serves as counsel at Vicente Sederberg LLP, a national cannabis law firm, says it’s unclear whether delta-8 wasn’t already illegal in Texas before DSHS released its statement for a “number of reasons.”

He says he’s heard of law enforcement arresting citizens for possession of delta-8 because of the Texas Health and Safety Code 481.103(1). Pennington says the measure includes synthetics, derivatives, extracts, isomers and more, and also includes a “such as” section, where it lists “delta-6 cis or trans tetrahydrocannabinol and their optical isomers.”

“That’s a bunch of organic chemistry that I can’t claim to be an expert in, but I do know that back in the day, delta-6 [trans] was another term or another way of saying that the chemical name of delta-8,” he says. “So, that I think is significant because, like I said, these other arrests have been under that” and not because of the DSHS’s new statement, Pennington says.

However, Jay Maguire, executive director at the Texas Hemp Federation, disagrees and says the statements surrounding Texas’ delta-8 ban are “asinine.”

“The notion that delta-8 has always been illegal is simply a lie,” Maguire says. “Hemp has been legal in Texas for the first time only since 2019. DSHS has made statements in public like delta-8 has been illegal for 40 years. They’re conflating two different kinds of delta-8. What they’re referring to there is marijuana-derived delta-8, not hemp-derived delta-8.” 

While delta-8’s legality in Texas before DSHS’s statement is in question, Shawn Hauser, partner and co-chair in the Hemp and Cannabinoids Department at law firm Vicente Sederberg, says she thinks DSHS released the statement in response to just that: industry confusion.

© Courtesy of Hauser

“The notice [from the] Department of State Health Services I think was really responding to stated confusion in the industry, and I think [confusion] amongst enforcement regulators in the state as to the legal status of delta-8, because there has been an increasing demand in the market, particularly in states where there are not robust regulated cannabis programs,” Hauser says.

However, in some ways, DSHS’s statement seemed to create more industry confusion and frustration—leading some to take legal action.

Fighting the Ban

Shortly after DSHS released its statement, Sky Marketing Corp., which does business as Hometown Hero, filed a lawsuit in the Travis County district court requesting a temporary restraining order to block the state’s ban on delta-8 THC.

Maguire, who works with Hometown Hero on the case, says the arguments in the lawsuit are specifically about how “DSHS violated the Administrative Procedures Act and other aspects of the Texas code, [and] deliberately concealed the decision that they were going to make.”

Specifically, the plaintiffs claim that DSHS failed to follow the proper procedures to make such alterations, like holding a proper public hearing, and did so inconspicuously instead.

“I think part of the claim of the plaintiffs is that it wasn’t clear,” Hauser says. “[The notice] was on an image instead of text, [making] it hard to find by the public. … But the state claims that there’s been a sufficient notice and comment period, including [a] hearing in October, and that this notice in the register wasn’t the only one at issue.”

“[DSHS is] required to post a notice of public hearing, and that notice of public hearing is supposed to be in plain English, describing exactly what action they’re going to consider,” Maguire said. “The law in Texas would have required [DSHS] to consider medical and scientific evidence, for example. So, not only did they fail to give public notice—we still don’t actually know where they posted their public notice if they ever did—they did not take any testimony or evidence. In fact, the state itself admits that nobody showed up for the 7-minute Zoom call that the commissioner held [in October].”

According to Hometown Hero CEO Lukas Gilkey, nearly 1,200 people tuned in to watch the district court hearing in November, compared to the zero who reportedly showed up to the public comment hearing in October.

“It was obvious that it was sort of a sham,” Gilkey says. “… DSHS essentially broke their own rules to do something against cannabis—that’s kind of the root of the story.”

Overall, Hauser says she thinks both sides have a legitimate case. 

“Given some of these hearings that the state had on this issue, the state does have a legitimate argument here as to following proper procedure. But, I think there are some compelling arguments as to [the state] following the Administrative Procedures Act,” Hauser said.

The Saga Continues

After Hometown Hero filed its lawsuit, State District Judge Gary Garger denied the retailer’s request to block the ban in late October, stating that the “plaintiff has not met the requirements of a temporary restraining order.”

Vape City, another Texas-based CBD retailer, filed a separate temporary restraining order against DSHS’s stance on delta-8 this year, which was also denied. 

Shortly after Garger denied Hometown Hero’s request, State District Judge Jan Soifer barred the state from listing delta-8 as a Schedule I drug, making the cannabis compound legal again under a temporary injunction.

However, the legality was short-lived, as the state quickly fired back and filed a notice of appeal Nov. 10, putting delta-8 and related hemp-derived isomers back on Texas’ list of controlled substances.

“The Texas law allows the attorney general’s office basically to suspend an injunction,” Hauser says. “So even though the court barred the rule, the attorney general’s office can temporarily suspend that bar.”

In response to the appeal, Hometown Hero “submitted an emergency motion to uphold its temporary injunction,” which was approved by the Third Court of Appeals of Texas Nov. 28, according to a press release.

The reinstating of the injunction means delta-8 products are once lawful again in Texas, Hauser says. “The temporary injunction will remain in place until there is a final trial on the merits, which is scheduled for Jan. 28, 2022,” she adds.

Looking Ahead

Gilkey says Hometown Hero will continue to fight and push for the legality of delta-8, especially for individuals who use such products as medical treatment.

“Something that I wasn’t really expecting with this case [is] the amount of outreach that we’ve had with people who are saying, ‘Look, these products are a lifesaver for me. I’m not trying to get high. I actually need these products to survive as a human being.’ I think, to me, that’s the most groundbreaking part of the case,” Gilkey says. “We all knew that was a component to this, but to actually have thousands of people tell us [that], … I don’t understand how you could fight against that. These are people that Jay [Maguire] and I feel like at this point, nobody else is fighting for, and we have to fight for them.”

Additionally, Maguire says Hometown Hero is willing to “embrace reasonable regulation” during the state’s next legislative session if it’s something the government is willing to have an honest conversation about. 

“We will be pushing for it. We’ll be proposing legislation that creates regulations to permit the use of delta-8 and other cannabinoids under reasonable conditions,” Maguire says. “So, we’re not looking for a free-for-all here. We’re not looking to ask for any kind of special treatment. But what you have to understand is Texas has been so anti-drug [and] the system here is so restricted that people here are having to turn to alternatives.”