Hemp lawsuit

This ought to be interesting.

New rules prohibiting the retail sale and distribution of “smokable” hemp products are unconstitutional, companies argue in a lawsuit filed Wednesday in Travis County.

When Texas legalized hemp last year, the legislation explicitly outlawed manufacturing and processing hemp products meant to be smoked. But rules released Sunday defining the state’s hemp program also banned the sale of these products.

That cut off a major source of income for many small businesses that sell hemp in Texas.

[…]

The lawsuit argues the ban of manufacturing and processing smokable products enacted as part of the law is unconstitutional and that the ban on distributing and selling these products is not valid.

Jax Finkel, executive director of the Texas Chapter of the National Organization for the Reform of Marijuana Laws, said banning the sale of smokable products goes beyond the intent of the bill.

You can see a copy of the lawsuit here. There’s a more detailed story here.

In a lawsuit filed in Travis County District Court on Wednesday, the companies are asking a judge to declare the ban unconstitutional and allow hemp products intended for smoking or vaping to be produced and sold legally across the state.

“At a time when the Texas economy is reeling from the fiscal impact of COVID-19, it is unfortunate that the State chose to foreclose such a large economic opportunity for our state and instead chose to force long-standing Texas businesses and jobs across the border to neighboring states, such as Oklahoma,” said attorney Chelsie Spencer, counsel for lead plaintiff Crown Distributing LLC.

“Crown Distributing, which manufactures the popular Wild Hemp brand of smokable products, stands to lose $59.6 million in revenue over the next five years if the bans are upheld,” Spencer told Marijuana Moment in an email. “The state of Texas stands to lose $2.9 million in sales tax revenue alone.”

Texas legalized hemp in 2019, in large part to capture a piece of an industry that is booming following the federal legalization of the crop through the 2018 Farm Bill. Hemp, a category of cannabis that contains less than 0.3 percent THC, has a variety of uses: Its seeds are a nutritious food source, its fibrous stalks can be made into textiles or building materials and its flowers can produce a variety of cannabinoids, most notably cannabidiol (CBD).

Texas’s hemp law as passed by the legislature specifically prohibited the manufacture of hemp products intended for smoking or vaping, though it left open the door for selling products made out of state. But a year later, regulators at the Texas Department of State Health Services (DSHS) issued rules extending that ban to forbid the retail sale of any smokable hemp products. That restriction took effect on Sunday.

Plaintiffs in the lawsuit argue that both those provisions should be overturned. The state legislature’s ban on processing and manufacturing smokable products violated the state constitution’s protection of economic freedom, they say, while DSHS lacked the authority to extend lawmakers’ ban to include retail sales.

“DSHS characterizes banning distribution and retail as ‘a logical extension’ of banning manufacturing,” the lawsuit says. “But even if this were true (it is not), agencies have no authority to enact rules that they deem to be a ‘logical extension’ of law.”

[…]

“If allowed to move forward, these bans on smokable hemp products will shutter businesses across the state, resulting in a loss of jobs and tax revenue,” the companies said in their complaint. “They impede the economic liberty of Texas businesses, pose an existential threat to Texas hemp manufacturers, farmers, and retailers, and are sure to stifle growth of a budding Texas industry.”

As for the ban on producing and manufacturing smokable hemp products, the companies say it violates the state constitution’s protections against arbitrary economic restrictions.

“There is no plausible law enforcement benefit from banning the Texas manufacture and processing of smokable hemp products,” the lawsuit argues. “Imposing an arbitrary constraint here is particularly perverse because the law does not ban the use or consumption of smokable hemp products. As such, Texas consumers will simply buy smokable products made out-of-state.”

“Stated differently,” it continues, “if Texas had banned the processing and manufacture of cheese in Texas, Texans wouldn’t stop eating cheese.”

See here for more on the hemp legalization bill (HB1325), which has also had the effect of making it a lot harder to prosecute marijuana cases. I’d be very interested to hear what a lawyer thinks about this complaint. I’ll say that the bits quoted here sound a lot like political arguments, which were made during the discussion of the bill. Don’t get me wrong, I largely agree with those arguments, but that doesn’t mean they’ll have any purchase in a courtroom. Still, this could be interesting, and it may help push the broader legalization argument forward. Perhaps we’ll get another incremental bill this session; we are for sure not getting anything more ambitious than that as long as Dan Patrick is Lt. Governor. But there’s a lot of room for small steps, and who knows, maybe this will end up being a big one. I wouldn’t count on it, but you never know. Reform Austin and the Hemp Industry Daily have more.

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