As the once simmering conflict between the hemp and cannabis industries develops into a conflagration of litigation and legislation in courtrooms and state houses around the nation, Texas looks as though it could become a flashpoint in the internecine war that has cleaved the same plant in two as far as federal law and state regulations are concerned. In its own unique way, the Lone Star State finds itself in a pickle of a dilemma. Despite having developed a hemp industry that in 2023 surpassed $8 billion in revenue, the legal status of hemp businesses in the state currently hangs by a thread thanks to a temporary injunction granted three years ago in a lawsuit brought by an Austin-based company appropriately named Hometown Hero after the state regulator tries to outlaw the products it produces and distributes in Texas and elsewhere.
The regulator, despite losing on appeal, appears as determined as ever to prevail before the Texas Supreme Court, where this case would seem destined to be heard, but its opponents insist they are equally resolute in what they consider to be an existential fight for survival in a war being prosecuted against them by cannabis companies that want to have the entire space to themselves.
The Texas legislature legalized hemp in 2019 without realizing that they had just unleashed a multi-billion-dollar industry with few of the guardrails that they had so scrupulously placed on medical cannabis. Things came to a head in 2020, when “the commissioner of the DSHS, acting under her authority pursuant to the Texas Controlled Substances Act (TCSA), filed an objection to the Drug Enforcement Administration’s Interim Final Rule (IFR), which codified the 2018 Farm Bill changes,” explained Texas Civil Justice League.
Cynthia Cabrera“The commissioner based her objections to the IFR on its definitions of ‘tetrahydrocannabinols’ and ‘marihuana extract,’ which she argues ‘allow for the presence or addition of tetrahydrocannabinols aside from the presence of [delta-9 THC],’ specifically ‘delta-8 THC derived or extracted from hemp or CBD,’” continued the analysis. “After a brief public hearing, the commissioner published her decision rejecting the DEAs definitions. In March 2021, she published the 2021 Schedule of Controlled Substances using the Texas Agriculture Code definitions of those terms, not those contained in the federal statute. The upshot is that all forms of THC, including Delta-8 in any concentration and Delta-9 exceeding 0.3% remain listed as Schedule I controlled substances.”
Hometown Hero parent Sky Marketing immediately filed a lawsuit – Sky Marketing v. Texas Department of State Health Services – alleging several improprieties by the regulator and seeking a temporary injunction, which was granted by the district court. The state appealed, and in September 2023, the Texas Court of Appeals for the Third Circuit upheld the lower court ruling, keeping the injunction in place. The agency appealed that ruling as well, and as a result, the Supreme Court of Texas (SCOTX) recently requested that the Texas Dept. of Health Services (TDHS) submit its petition brief by July 22, 2024. TDHS instead asked the court for a month’s extension, but even with that slight reprieve, the case appears headed for adjudication one way or the other. According to Hometown Hero, the fate of the entire $8 billion Texas hemp market is in jeopardy, but other states may follow.
To get more clarity about the stakes and strategies at play, Cannabis Business Executive spoke with Hometown Hero Chief Strategy Officer Cynthia Cabrera, who also is a founding board member of the Texas Hemp Business Council. She explained that TDHS has been trying to get the injunction overturned ever since it was awarded.
“In 2021, Sky Marketing/Hometown Hero was granted an injunction based on the way that the Department of Health Services attempted to ban a cannabinoid, and we have been operating under that injunction ever since,” she explained. “In 2021, the state went to the Supreme Court to get the injunction thrown out, and the Supreme Court said they have to go through the appeals process, so they didn’t hear it. We were in the appeals court defending the injunction right after Labor Day in 2023, when a three-judge panel upheld our injunction, so the state went back to the Supreme Court and said, ‘You need to throw this case out and make them start all over again.’”
The state, she added, uses a tried-and-true tactic to draw out the case. “They’ve been through several attorneys, and every time they get a new one they have to come up-to-speed. So, they’re having yet another attorney leave, and they want to give the replacement time to get caught up.”
I wondered why they are so hellbent on getting the injunction reversed. “They say that they were within their rights to ban any cannabinoid, and that the way that they did it was correct, but the judge sided with us and said, ‘No, the way you did it was incorrect.’”
Indeed, Texas put prohibitions into place that went far beyond anything found at the federal level or in the Farm Bill, but Cabrera explained that it was the way they did it that rankles the law. “Basically, the DEA carved out hemp, and obviously Delta-8, from the Controlled Substances Act, and Texas decided, or the commissioner decided, that she didn’t like that, and rather than publicly noticing a meeting the way that they always did, they instead put up an unsearchable image.”
It made the upcoming public hearing all but invisible to the public. “People generate searches so that they can keep track of their industry, and if a keyword comes up they can go and they can look at it,” said Cabrera. “But because they used a non-searchable image for the first time ever, nobody was aware that this meeting regarding Delta-8 and hemp products was coming up, and so no one showed up, and the commissioner moved forward with banning the products.”
Was this an organized effort in the state legislature to reinstate the prohibition, or was it regulator-driven? “There are a handful of legislators who would like to just eliminate the industry entirely,” said Cabrera.
What had inspired the lawmakers to become so hostile to hemp? Had bad actors forced their hand by putting tainted products on the market? Not so, insisted Cabrera. “I think you could say that every industry suffers from some bad actors,” she said, “but in 2021, when the state moved to ban these products, it wasn’t because of a public health emergency or because of bad actors. It was just somebody who decided that they didn’t like the USDA language that basically freed hemp to be grown and turned into commercial products. Back in 2021, nothing was happening that would have compelled the state to do that other than that they just didn’t like the product. Fast forward to today, and we have a thriving multi-billion dollar industry in the state.”
Whatever the hostilities might be, didn’t the existence of such a huge multi-billion market put pressure on lawmakers to not rock the lucrative boat? “The role of the legislature is to reflect the will of their constituents, and the sheer size of the industry shows that constituents want these products,” agreed Cabrera. “It’s not like somebody introduced the product and then nobody bought it. Sales are very robust. We’re doing very well, and a legislature’s job is to reflect what its constituents want. You can put in guardrails or regulations, and I have to commend Texas, because they issued regulations for consumable hemp products in 2019, so they were ahead of pretty much every other state. What we’re looking at right now is a handful of people who are just unhappy with this particular industry for their own reasons.”
Still, it seems to be a legal stalemate. The injunction is in place, but it also could be lifted, so for Hometown Hero, what is the preferred outcome? “Well, the holy grail would be to tighten up the existing regulations, add in the couple of things that are missing to make them perfect, and then that would be it,” said Cabrera. “There would be legislative stability, and the industry could just continue to thrive and keep moving forward.”
What kind of things would make the program perfect? “Well, there’s no age gate in Texas,” she replied. “In fact, Hometown Hero introduced a bill last year to implement a minimum age requirement for purchase and use, and it didn’t get enough traction in the legislature to pass. The next thing is child-resistant packaging, which we’ve always used, and is just kind of a no-brainer. And then the third thing is a setback from schools. You obviously grandfather in whoever has got a location, but going forward, you would have to be a minimum distance away from a school.”
I asked about the other wrenches that have been thrown into the mix, the removal of the Chevron deference, the fact that the Farm Bill is not going anywhere and will likely be extended another year. “Doing away with Chevron deference, if it does anything, will only help,” said Cabrera. “Chevron deference speaks directly to agency – whether it’s a state or federal agency – overstep and overreach, which is what happened here. In terms of the Farm Bill not moving, I tell people all the time that our problem is not with legislators. Most of them understand the business case and understand that it’s an industry that’s created tens of thousands of jobs and billions of dollars in revenue.
“Most legislators get that,” he reiterated, “but at the same time, we have the marijuana side that is very unhappy with the hemp side, and they’re using their regulatory connections and what they’ve learned over the past 50 or 60 years trying to legalize marijuana to shut down the hemp industry in favor of the marijuana industry. For example, here in Texas, what we have is a state-sanctioned, medical marijuana monopoly.
The tension between hemp and cannabis has become a nationwide phenomenon. “Well, here’s the thing,” said Cabrera. “I say this about the companies in Texas, as well as companies in every other state that has legalized marijuana at the state level. The operators complain that it’s so expensive and they can’t make any money and all that. But they got into that space knowing what the restrictions and the regulatory burdens were, and they advocate for more of them as a means of trying to lock up a market. Regulatory capture is not the way to free the plant.
“My thing is that I don’t understand anybody who labors and loses money and sweat from the marijuana industry rather than just moving over to the hemp side,” she added pointedly. “When I talk to marijuana people who get all worked up about this situation, I’m like, ‘Why are you trying to make it harder for us? Let’s make it easier for you. Why don’t you just move over to the hemp side?’ I talked to somebody in Vegas last year who said that he had paid $30 million in taxes last year. For what? To not be able to operate freely?”
Something is rotten at the core, she suggested. “What strikes me as remarkable is that legislators will do something or take a position because somebody said something,” she added. “I’ve lost track of the number of meetings I’ve had where there’s been no education, but somebody came in asking for regulatory capture, or somebody else said, ‘You should make it so that they can only sell 10 milligrams, because I don’t like the idea of higher.’ None of this is grounded in any kind of logic or reason.”
Given that, it’s difficult to imagine something rational and enduring coming from this or any other case, but I did wonder if the impact of this case could extend beyond Texas. “If there’s a favorable outcome where Texas attempted to ban a cannabinoid that is legal according to the USDA,” agreed Cabrera, adding, “To be clear, the USDA definition of hemp does not say in what quantities a cannabinoid has to occur, only that it is naturally occurring. It doesn’t talk about the method of conversion, or how you make it, or anything. All it talks about is that it that has to be naturally occurring.
“But this lawsuit will determine what happens in Texas,” she added. “and it could go either way. We have two different things going on. We have the legislative session, and we have the court case, and they could be running concurrently. And a lot of people have hypothesized that the legislature was waiting to see what the court would do, and the court was waiting to see what the legislature would do. But if we have a win here – when we have a win here – that will open up this entire market, provide regulatory stability, and give an example to other states. Louisiana, for example, just passed terrible regulations, because again, Louisiana has a handful of moralistic legislators who don’t like the hemp side and are beholden to the medical marijuana side. There’s one license holder in Louisiana right now.
“But there is no guarantee,” she repeated. “We have a strong case, and the court is supposed to look at the merits of the case, and that’s what we’re trying to get to, the merits of the case. Delta-8 and other cannabinoids are legal according to the USDA, and in the absence of a change to the Farm Bill, what leg do they have to stand on that they were banning it because it’s illegal?”
As pivotal a state as Texas may be, Hometown Hero is actively fighting for the hemp industry in other states as well. “There is a case that is still ongoing in Arkansas that we are a plaintiff on,” said Cabrera. “We sued because the Arkansas legislature, despite having a medical marijuana program – and the people making the most money in the medical marijuana program in Arkansas are the same people who have the single license in Louisiana now – passed a 200-page bill that essentially crushed the industry. Language was in there that said that if-slash-when we get sued these super burdensome regulations will take over, so we sued in Arkansas’ Eighth District. We were told that it would be several months before we heard anything, but the injunction came back in less than three weeks because it was such a clear case of state overregulation and overreach.
“There was also a win in Alabama a couple of weeks ago,” she said. “The Department of Health tried to shut down somebody who had legally registered with the state, who was doing business, who had gotten all the approvals and the permits, and they decided to arbitrarily shut them down.
There have been other court cases, they’re not all exactly the same, and we’ve had some good wins, but I will tell you that while the marijuana side of the cannabis plant cheers every time a lawsuit is lost, they’re very quiet any time we win an injunction or something like that, and it should be the other way around. If they’re interested in cannabis being widely available, and descheduled, not rescheduled, then every win should be celebrated”
They want what Hometown Hero has, the ability to sell and ship your products to every state. “Every state where it’s legal,” Cabrera corrected me, “and that’s what marijuana companies could be doing if they switched over to hemp. They could become national brands as opposed to having to set up regional or state companies everywhere.”
I noted that Curaleaf has just opened a hemp line. “I started listening to an interview with Boris Jordan, but I didn’t get a chance to finish it,” said Cabrera of the Curaleaf Chairman. “I paused it because I got so irritated when he said, “We got into hemp and we’re going to do it right.’”
She paused before continuing. “You know what, we’ve been doing it right for years, and the idea that a marijuana company thinks that they know how to do the hemp space better,” she noted. “We’re not even saying don’t come into our market. We’re saying, come on in, but this idea that marijuana companies are somehow inherently better than hemp companies is just full-on egotism and hubris. Why are you qualifying it? Just get into the space and do your thing. But there’s this built-in amount of hubris, and they just will never back off of it.
“I was talking about the cannabis civil war with somebody,” she added, “and they were like, ‘There is no war,” and I was like, ‘Oh, there is absolutely a war.” Because every time one of these marijuana companies goes after the hemp industry and they’re successful, the smaller marijuana companies cheer, but they’re next, and that’s what they fail to recognize. It’s not enough to eliminate some of your competitors; you have to eliminate all of them.”
Following the extension, what is the next step in the lawsuit? “They will submit their comments, then we submit comments, they get a chance to review our comments, and then they’re allowed to submit additional comments based on our comments,” replied Cabrera. “Then the court will take everything into consideration and decide whether to throw the case out or move on to trial. Live arguments will not be heard at this stage.”
If the ruling doesn’t go Hometown Hero’s way, what then? “We file for another injunction, and we’ll get it,” said Cabrera.
Cabrera had two things to add before we ended our call. “We had a hearing on May 29, and the title of the hearing was, ‘A Discussion on Banning Delta-8 and Delta-9 Products,’ but half if not more of that hearing was devoted to expanding the medical marijuana program, and the experts that were lined up were all talking about the medical marijuana program,” she said. “So, my question is, if you wanted to have a hearing about expanding medical marijuana, why didn’t you just do that? Why did hemp get dragged into it. Why were these two things conflated? Because, according to the US government, they are two different industries. Texas has knowingly agreed to sell federally illegal marijuana, and then they set up a hearing to come after the federally legal hemp side of it. So, you have to wonder about that.
“And then the other thing with regard to this case is that I don’t think it’s an overstatement to say that the future of cannabis – and by cannabis, I mean the whole thing, marijuana-slash-hemp, the future of cannabis in Texas – rests on this lawsuit,” she added.
And what about the significance of the Miller amendment? If that makes it into law, how will that impact you guys? “Well, remember, [Congressperson Miller is] from Illinois, a state that has recreational marijuana, so that’s already a problem for the hemp side, because anywhere recreational marijuana has been state-legalized, they go after hemp,” said Cabrera. “Her amendment would pretty much decimate the industry. It would shut it down entirely, and that amendment was put up by Miller as an assist to the marijuana folks. It’s not even, ‘Hey, let’s figure out where this all fits in together.’ It’s, ‘No we need to eliminate the entire industry, because the marijuana industry can’t take competition.’”
Did that mean Hometown Hero’s lobbying efforts have to be 100 percent at both the state and federal level? “That is correct,” she said, “and all the other states where we are in.”
For an in-depth discussion of the Hometown Hero lawsuit, check out this video by Cabrera and cofounder/CEO Lukas Gilkey, whose takeaway claim against the state actions against them is simply, “They’re using an argument for something we don’t do to say what we do is illegal.”
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