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.
