A federal appeals court dealt a blow this week to makers of CBD-rich cannabis extracts who were trying to stop the DEA from considering their products as dangerous drugs.

A panel of judges for the 9th U.S. Circuit Court of Appeals shot down the hemp industry’s challenge of a U.S. Drug Enforcement Administration rule that established a drug code for “marihuana extracts.”

DEA officials had said the code was intended to track cannabis derivatives used in research and to meet treaty obligations, adding that these extracts and byproducts remain Schedule I substances that the government says have no accepted medical use in the U.S., such as heroin, LSD, peyote and ecstasy.

Hemp industry leaders pushed back on that Schedule I assertion and the rule itself.

Represented by Denver-based cannabis law firm Hoban Law Group, the Hemp Industries Association and other hemp businesses challenged the DEA’s rule and alleged the agency overstepped its bounds by essentially scheduling substances — notably cannabinoids — that were not classified as illicit in the Controlled Substances Act. Additionally, the hemp-derived extracts rich in CBD, or cannabinol, are protected under state laws and Farm Bill provisions, they argued.

The rule could be misinterpreted by other federal and local agencies, lead to unlawful product seizures and chill a booming multibillion-dollar hemp products industry, Hoban attorneys had alleged.

In the opinion issued Monday, the 9th Circuit judges said Hoban Law Group’s clients had an opportunity to comment during the DEA’s rulemaking process, but failed to do so. As a result, the bulk of their challenge was moot.

Separately, the judges said the DEA’s final rule did not violate the Agricultural Act of 2014 (Farm Bill), which contained provisions allowing for industrial hemp, defined as cannabis sativa L. plants with less than 0.3 percent concentration of psychoactive tetrahydrocannabinols.

“The Agricultural Act contemplates potential conflict between the Controlled Substances Act and preempts it,” the judges wrote.

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That’s the silver lining for hemp businesses, said Garrett O. Graff, an attorney with Hoban Law Group.

“The sky is not falling, based upon this decision,” he said.

The court’s view of the Farm Bill coupled with statements out of the DEA last year indicating there was no intent to regulate cannabinoids should give the hemp industry some solace, he said.

“These are all positives that the industry can take as yet another arrow in the quiver of legitimacy,” he said.

But there remain broader concerns about the safety and security of those who make and sell hemp extracts, he said.

In a statement issued Wednesday, attorney Bob Hoban said his clients are weighing whether to request a re-hearing.

“Though we appreciate the court’s finding in favor of the legitimacy of the Farm Bill’s hemp amendment, we are still disappointed with the court’s findings that the final rule does not interfere with lawful, hemp-related business activities, as even 29 members of Congress confirmed in their Amicus Brief to the Court,” Hoban wrote. “Given the pervasive confusion and irreconcilable conflicts of the law that have led to product seizures, arrests and criminal charges against those involved in the lawful hemp industry, the petitioners believe that the final rule must be invalidated, absent the court clarifying and further resolving these conflicts and their severe consequences.”

More robust hemp protections have been floated at both the federal and state levels.

Federally, Senate Majority Leader Mitch McConnell introduced the Hemp Farming Act of 2018, which would remove hemp from regulation as a controlled substance, treat the crop as an agricultural commodity, protect state regimes and bolster research. McConnell has indicated the provisions may be included in the coming 2018 Farm Bill.

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