Availability, Murky Legality of Delta-8-THC Confounds Cannabis Industry

With a feud raging over what’s deemed a regulated “intoxicant,” billions of cannabis dollars keep circling the drain.

Forming America's sixth largest crop yielding 48.8 million pounds of flower and projected to generate $33.5 billion in 2023 legal sales, cannabis’ plunging price-per-pound and the availability of cheaper, unregulated hemp-derived tetrahydrocannabinol (THC) products is thwarting the cannabis industry.

Whether cultivated indoors, outdoors or in a greenhouse, over the past two-and-a-half years cannabis wholesale price-per-pound has dropped 40% nationally, curtailing production and crashing businesses across the legalized cannabis supply chain. 

Further, mirroring legalized cannabis THC’s (delta-9-THC) effects, hemp-derived THC (delta-8-THC) requires no license, is readily available online and over-the-counter, and is cutting into legalized cannabis’ revenue despite growing state illegality, confusion over federal legality, and concerns regarding these untested and unregulated products’ safety and potency. 

Cannabis and delta-9-THC

Cannabis can be grown in the ground, water (i.e., hydroponically), or pots outdoors, indoors or in a “greenhouse,” a structure made of transparent material enabling natural sunlight and fresh air cultivation. Whether deemed “medical” (purchasable only with state-issued card to treat residents’ statutorily defined “covered medical condition”) or “adult-use” (purchasable by anyone over 21 from any state with a valid identification), cannabis takes four forms:

• Flower that is smoked
• Oils ingested by vaporizing
• Concentrates consumable after being heated to a high temperature
• Infused products ranging from eye drops to edibles  

Those cultivating, processing, infusing, transporting or dispensing cannabis are deemed to be “plant-touching” marijuana-related businesses (MRBs), and despite being legal in 38 American states, cannabis remains federally illegal.   

The Controlled Substance Act, 21 U.S.C. §§ 801, Et. Seq (1970) (CSA) currently lists marijuana next to heroin as a Schedule I controlled substance having “a high potential for abuse” and for which there’s “no currently accepted medical use in treatment” and “a lack of accepted safety for use” “under medical supervision”. 21 U.S.C. §812(b)(1). The CSA prohibits marijuana’s cultivation, distribution, dispensation and possession, and pursuant to the U.S. Constitution’s Supremacy Clause, state laws conflicting with federal law are generally preempted and void. U.S. Const., Art. VI, cl. 2; Wickard v. Filburn, 317 U.S. 111, 124 (1942)(”[N]o form of state activity can constitutionally thwart the regulatory power granted by the commerce clause to Congress”).  

Because the CSA prevents cannabis from being sold outside of each respective legalized-marijuana state, and thus no “interstate cannabis commerce” can occur, state regulators like California’s Department of Cannabis Control, and not federal agencies like the Food and Drug Administration, issue licenses and regulate MRBs.

Impact of cannabis' plunging price-per-pound

According to spot-market-index tracker Cannabis Benchmarks, cannabis’ wholesale price-per-pound has dropped 40% over the past two half years from $1,658 a pound to $955, with pricing currently at $1,284 a pound for indoor-grown flower, $688 a pound for greenhouse-cultivated cannabis, and $424 a pound for outdoor-grown cannabis.

Specifically, over the past year, Colorado’s average wholesale price dropped from $1,316 to is $658 per-pound; California’s price dropped 57% to $660 per-pound; Oregon’s volume-weighted average price dropped 39% to average $700 per-pound; and Oklahoma’s overall volume-weighted flower price is down 42% to $921 per-pound.  

According to Green Market Report, over the past year, Colorado’s medical and adult-use cannabis sales are down, respectively, 47% and 20%. Cannabis Benchmarks reports that, due to the price-per-pound depression, California is enduring production cutbacks ranging from 30% to not harvesting, resulting in a 24% (or over 40,000 pounds) shrinkage of wholesale flower entering California’s commercial market per quarter.

Because an MRB’s entire business model hinges on receiving a set price-per-pound, plummeting wholesale prices are causing havoc across the entire cannabis supply chain. For example, envision a recently licensed grower building its operation and raising funds using 2019 price-per-pound market price as the foundation for its projections to construct a $23 million indoor grow facility. Regardless of its markup, when the per-pound wholesale price drops 39%-57%, a grower’s ability to sell its product, subsidize its operations, service its debt, remunerate its investors and raise additional capital is severely impaired.  

The loss and reduced production gets passed along the cannabis supply chain, ranging from cannabis giant Canopy Growth slashing its workforce by 60% this year to nationwide multi-state grower, processor and dispensary Curaleaf laying off more than 100 employees in 2023.

Hemp and delta-8-THC

A fast-growing, sustainable and inexpensively produced plant, hemp is a variety of Cannabis sativa L. containing less than 0.3% plant chemical delta-9-THC. Agricultural Act of 2014, 7 U.S. Code §5940. Hemp yields more than 25,000 oil and fibrous products, including cannabidol (CBD), which offers broad health and wellness uses, serves as a food additive and is contained in many beauty items.  

The Agriculture Improvement Act of 2018 (2018 Farm Bill) both legalized hemp and its derivatives and removed plant Cannabis sativa L. containing no more than 0.3% delta-9-THC on a dry-weight basis from the CSA and Drug Enforcement Administration's (DEA) purview. 7 U.S.C. §1639o(1). The Farm Bill permits importing, exporting and transporting hemp and hemp-derived products like any other crop; tasks the United States Department of Agriculture (USDA) with promulgating hemp regulations; and charges states, territories and Indian tribes with submitting hemp-growing regulation plans to the USDA including "THC testing procedures.” Id.

A cannabinoid of the THC family of compounds commonly derived from the cannabis plant, delta-8-THC is a double bond isomer of delta-9-THC, the federally illegal psychotropic-effect-producing cannabinoid sourced from cannabis. An isomer is a type of chemical analog comprising one of two or more compounds containing the identical number of atoms of the same elements but differing in structural arrangement and properties. There are 30 known THC isomers, and delta-9-THC and delta-8-THC differ regarding the single double bond’s location.  Stated another way, while similar in molecular structure, delta-8-THC is a different molecule than delta-9-THC.

Delta-8-THC is derived either directly from the hemp plant or converted from the CBD isolate. Because hemp cultivars do not express delta-8-THC in sufficient concentrations or quantities to be economically viable to extract for commercial purposes, and CBD is cheap and abundant, deriving delta-8-THC by converting from CBD isolate is the faster, cheaper and more popular method.  

Because they are less regulated, cheaper and, unlike delta-9-THC, can be sold virtually anywhere (including online) and as consumables, delta-8-THC smokable flower, vape and edibles sales are exploding and severely cutting into the legalized cannabis market.

Research firm Whitney Economics reports 2022 hemp product sales in excess of $28 billion and  that the hemp industry employs 328,000 workers earning $13 billion in wages. 

Delta-8-THC's murky legality

Presently legal in the majority of the states, delta-8-THC products’ federal legality appears to hinge on whether derived directly from hemp or converted from CBD.  

At the state level, delta-8-THC products are as follows:

Legal: Alabama, Arkansas, Florida, Georgia, Illinois, Indiana, Kansas, Kentucky, Maine, Maryland. Massachusetts, Mississippi, Missouri, Nebraska, New Hampshire, New Jersey, New Mexico, Ohio, Oklahoma (explicitly excludes delta-8 from marijuana’s legal definition), Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Washington D.C., West Virginia, Wisconsin and Wyoming

Illegal: Alaska, Colorado, Delaware, Idaho, Iowa, Montana, Nevada, New York, North Carolina, North Dakota, Oregon, Utah, Vermont and Washington

Legal but restricted or regulated:

• Arizona
• California (products with more than 0.3% delta-8-THC are state regulated)
• Connecticut (only purchasable from a licensed cannabis retailer)
• Hawaii (except for edible/inhalable products, delta-8-THC is legal)
• Louisiana (while barring inhalables like flower and vapes, consumable delta-8 products like tinctures and gummies up to 8 mg THC per serving allowed)
• Michigan (only purchasable from licensed cannabis retailer)
• Minnesota (delta-8 plants may contain up to 0.3% of any THC type and consumables up to 5 mg THC per serving allowed)
•  Rhode Island
• Virginia (except for food/drink THC-containing product)

Whether delta-8-THC is federally legal depends on whether derived directly from hemp or converted from CBD. Because the 2018 Farm Bill’s “hemp” definition encompasses “cannabinoids” and “derivatives” of hemp, hemp-derived delta-8-THC is probably not prohibited by the CSA and delta-8-THC derived from CBD is probably also exempt (if not containing delta-9-THC concentrations exceeding “0.3% by dry weight” legal limit). 

First, because the Farm Bill’s hemp definition distinguishes it from illegal marijuana, hemp falls outside of the CSA, which, in turn, excludes “hemp, as defined in section 1639o of title 7”, from its “marihuana” definition. 7 U.S.C. § 1639o(1); 21 USC §802(16)(B). Further, because under the Farm Bill hemp-derived “cannabinoids”, “derivatives”, “extracts”, and “isomers” are themselves “hemp,” delta-8-THC comprises Farm Bill defined hemp beyond the CSA’s scope. Id. 

Second, while clear that delta-8-THC naturally expressed in the hemp plant is not a controlled substance, the legal status of delta-8-THC derived from CBD or other hemp-derived cannabinoid requires satisfying the Farm Bill’s broad “hemp derivative” definition. Stated another way, is a derivative of a derivative included in the Farm Bill’s hemp definition or is it a “synthetic” falling out of this CSA safe harbor?

A division of federal authority exists. The “Source Rule” (i.e., that the source of a cannabinoid determines its legal status) suggest the former. Conversely, the DEA’s internal "Scheduling Actions, Controlled Substances, Regulated Chemicals" document, the "Orange Book", flatly lists “Delta-8 THC” as a “Schedule 1 Tetrahydrocannabinol” without any distinction as to “source”. 

However, under the “Lex Specialis Doctrine” (i.e., that when two federal laws appear in conflict on an issue, and one is older and more general than the other, the more recent and specific law controls), the more recent and specific Farm Bill would take precedence over the older and more generalized CSA, encompass delta-8 hemp in its hemp definition, and remove it from the DEA’s purview. In Re Lazarus, 478 F.3d 12 (1st Cir.  January 9, 2007).

With the 2018 Farm Bill “extended” until Sept. 30, 2024 by the recently signed “Further Continuing Appropriations and Other Extensions Act”, until Congress, the DEA or the USDA take action, delta-8-THC’s federal legality remains unclear and proceeding hinges on the following.

First, is the delta-8-THC derived from cannabis (i.e., containing delta-9-THC concentrations exceeding “0.3% by dry weight” legal limit) or hemp? Producing or selling delta-8 products without a permit to produce or sell THC violates the CSA and risks criminal and civil sanctions from the DEA, USDA, Federal Trade Commission and state law enforcement and regulators.

Second, if not cannabis-sourced, is delta-8-THC derived directly from hemp or CBD, and what is the seller’s risk tolerance? While seemingly fairly settled that hemp-derived delta-8-THC falls outside of the CSA, questions remain whether CBD-derived delta-8-THC is allowable under the Farm Bill or impermissible as a “synthetic”. Further, unlike fly-by-night sellers, licensed cannabis and hemp growers, processers and sellers are subject to, and face the wrath of, their respective regulators.  

Third, in the state that the online or over-the-counter purchase and sale is occurring, has that state prohibited delta-8 THC, and how robust are these respective enforcement efforts?

Fourth, even if not illegal, what risk management concerns exist and what tools are available to manage them? Tremendous safety, potency, torts risks and exposure are imposed by selling an untested products in an unregulated market for which neither product certification nor insurance coverage is available.