A three-judge panel of the United States Court of Appeals for the Ninth Circuit upheld the United States District Court for the Central District of California’s ruling in AK Futures LLC v. Boyd Street Distro, LLC, finding that the 2018 Agricultural Improvement Act (the “Farm Bill”) legalized delta-8 THC. Delta-8, one of the 100-plus cannabinoids produced in the cannabis plant, has recently garnered heightened interest and attention for its ability to deliver psychoactive effects similar to (but milder than) those delivered by delta-9 THC, and because it can be sold in several states outside of the regulated cannabis marketplace in retail outlets like CBD shops. While legal controversy has swirled around delta-8, the Ninth Circuit has now ruled that it is federally legal.
Hemp is federally legal while cannabis is not. The 2018 Farm Bill removed hemp, defined as cannabis, including its derivatives, extracts, and cannabinoids (among other things), with a delta-9 THC concentration of no more than 0.3%, from the Controlled Substances Act (“CSA”). Though delta-8 THC naturally occurs in the cannabis plant in small amounts, it is commonly made through a conversion process using CBD. Despite delta-8’s intoxicating effects, many consider it a lawful hemp-derivative product. States have taken varying approaches to delta-8 — some have banned it outright, others have regulated it, and many have remained silent. In AK Futures, the court made the call for states in the Ninth Circuit and deemed it federally legal.
II. The Lawsuit
AK Futures LLC, an e-cigarette and vaping product producer and distributor, filed suit against Boyd Street Distro, LLC, a Los Angeles based retailer and wholesaler, for trademark infringement. AK Futures devised a Cake brand logo to market its popular delta-8 THC e-cigarette and vaping products, and later became aware that Boyd Street was selling counterfeit versions. In its defense, Boyd Street argued that AK Futures did not hold protectible trademarks for its Cake products because they are illegal under federal law, and thus, the trademarks cannot be infringed.
Currently under federal law, trademark protection generally does not extend to marks associated with federally illegal activity such as cannabis. Thus, to ascertain whether the mark held by AK Futures was protectible, the court had to determine whether the delta-8 products protected by the Cake mark constitute hemp, as defined under the Farm Bill, or cannabis, as controlled under the CSA.
The court looked to the text of the 2018 Farm Bill, where it found “plain and unambiguous” language that “compelled the conclusion” that delta-8 THC products are lawful, citing the Farm Bill’s definition of “hemp” as limiting only the concentration of delta-9 THC to 0.3% as opposed to delta-8 THC or total THC (i.e., a THC calculation that is inclusive of other forms of THC, such as THCA and delta-8 THC), and including the derivatives, extracts and cannabinoids therefrom. The court also considered Boyd Street’s counterarguments that (1) DEA has interpreted the 2018 Farm Bill as inapplicable to delta-8 THC due to its method of manufacture and (2) Congress never intended for the Act to legalize any psychoactive substance. Neither argument was successful.
Regarding DEA’s interpretation, Boyd Street asserted that delta-8 THC is synthetically derived, due in part to it being concentrated and flavored, and thus remains a Schedule I substance, like all other synthetically derived THCs. The court disagreed, reasoning that precedent requires clear statutory text to override a contrary agency interpretation, and that the Farm Bill’s definition of hemp “expressly applies to ‘all’ such downstream products so long as they do not cross the 0.3 percent delta-9 THC threshold.”
The court was similarly unpersuaded by Boyd Street’s assertion that Congress did not intend to legalize a psychoactive substance like delta-8 THC and that it intended to legalize only industrial hemp. Boyd Street submitted various statements in the Farm Bill’s legislative history referring to industrial hemp to support its argument, but the court did not find that Congressional intent was so limited. The Court further reasoned that since the Farm Bill does not include a separate definition of “industrial hemp” and a U.S. Code provision defining “industrial hemp” is even broader than the Farm Bill’s, Congress likely did not intend to impose a requirement that hemp be produced exclusively for industrial purposes. The court stated that it would not allow “ambiguous legislative history, nor speculation about congressional intent” to supersede clear statutory language and, “regardless of the wisdom of legalizing delta-8” would not “substitute its own policy judgment for that of Congress.” The court concluded that if Congress indeed did not intend to create a loop-hole for delta-8, it should legislate accordingly.
III. The Implications
The ruling clarifies that delta-8 products derived from hemp are considered federally legal within the Ninth Circuit, which includes Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon and Washington. The ruling also offers those seeking protection for their delta-8 brands a strong basis to assert the legality of delta-8 products, and thus their eligibility for trademark protection. However, as yet another unfortunate consequence of the incongruence between federal and state approaches to regulating cannabis, this ruling is unlikely to have significant influence on the stance of any federal agency, including the USPTO.
USPTO has long maintained the position that cannabis-related marks are ineligible for protection because of federal prohibition. Applicants for registration of delta-8 related marks have been rejected by the agency, because the agency has found it to be a synthetic THC product and therefore illegal.
The ruling also comes down as federal agencies have raised concerns about delta-8’s safety and efficacy. On September 14, 2021, the CDC issued a Health Alert Network (“HAN”) Health Advisory to alert public health departments, and the public, to the increased availability of cannabis products containing delta-8 THC and the potential for adverse events caused by the inaccurate labeling of products containing THC and CBD. The same day, the FDA released an informational bulletin entitled, “5 Things to Know about Delta-8 Tetrahydrocannabinol – Delta-8 THC,” detailing the potential health risks associated with delta-8 consumption. On May 4, 2020, FDA issued warning letters to businesses engaged in the sale of delta-8 products that it deems in violation of the Federal Food, Drug and Cosmetic Act for reasons including marketing unapproved, misbranded and/or CBD-containing drugs, making health claims, and selling adulterated foods. Notably, even the Ninth Circuit subtly expressed skepticism over the “wisdom” of delta-8’s legality in its ruling.
As the cannabis industry continues to evolve, there will be ongoing changes to the laws and regulations governing the manufacturing and sale of delta-8. We will continue to monitor these changes, so please contact a member of our Cannabis Practice for any of your cannabis, hemp and cannabinoid-related questions.