From Celeste Wheeler, the lawyer representing the Hemp Industries Association, May 2, 2018

In January 2017, the Hemp Industries Association petitioned the Ninth Circuit to review the DEA’s recent effort to regulate cannabinoids such as CBD as controlled substances. Hemp Industries et al. v. DEA, No. 17-70162 (9th Cir.). This week, the Ninth Circuit issued a “memorandum” denying the Hemp Industries Association’s petition for review of the new DEA scheduling code for marijuana extracts (Final Rule). The three-judge panel rejected the argument that the Final Rule scheduled a new substance on the procedural grounds and rejected arguments alleging violations of the Agricultural Act of 2014 (Farm Bill) and the Consolidated Appropriations Act of 2016 on the merits.

The “memorandum” concludes that if a party fails to make an argument before an administrative agency in comments on a proposed rule (and no other party has raised the argument), the party is barred from raising the argument on judicial review. Here, the Hemp Industries Association did not participate in the notice in comment period for the proposed rule and no other comments raised “with sufficient clarity the Association’s current argument that the Final Rule scheduled a new substance.” Additionally, no comments raised the arguments that the Final Rule and its promulgation violated other statues cited by the Association – the Information Quality Act, Regulatory Flexibility Act, or Congressional Review Act. Those arguments were therefore also waived.

Finally, without much discussion, the memorandum notes that the Farm Bill contemplates a potential conflict between the Controlled Substance Act and preempts it:

“The Agricultural Act [Farm Bill] provides that ‘[n]otwithstanding the Controlled Substances Act . . . or any other Federal law, an institution of higher education . . . or a State department of agriculture may grow or cultivate industrial hemp,’ provided it is done ‘for purposes of research conducted under an agricultural pilot
program or other agricultural or academic research’ and those activities are licit under the relevant State’s laws. 7 U.S.C. § 5940(a). The Agricultural Act contemplates potential conflict between the Controlled Substances Act and preempts it. The Final Rule therefore does not violate the Agricultural Act.”

Likewise, the Ninth Circuit did not find that the rule conflicts with the Consolidated Appropriations Act. The Hemp Industries Association did not challenge the use of federal funds, but rather the validity of the Final Rule. The argument that “promulgation of the Final Rule likely required use of extensive DEA resources,” was not a sufficient basis for invalidating it.

The outcome in this case highlights the importance of filing regulatory comments on proposed rules. If a party to fails to raise an issue during the notice-and-comment period, and the agency does not otherwise consider the issue, then judicial review of that issue may be waived.

By, Celeste D. Wheeler, Associate, Kleinfeld, Kaplan & Beker, LLP

From the Ninth Circuit Court of Appeals April 30, 2018

Memorandum on Petition for Review of a Final Rule of the Drug Enforcement Administration

A party may petition a Court of Appeal for review of a final DEA decision, 21 U.S.C. § 877, but if the party fails “to make an argument before the administrative agency in comments on a proposed rule,” they are barred “from raising that argument on judicial review.” Universal Health Servs., Inc. v. Thompson, 363 F.3d 1013, 1019 (9th Cir. 2004) (citing Exxon Mobil Corp. v. EPA, 217 F.3d 1246, 1249 (9th Cir. 2000)).

Petitioners did not participate in notice and comment, but insist that a comment submitted by a private citizen adequately raised the concerns that now comprise their petition. See Portland Gen. Elec. Co. v. Bonneville Power Admin., 501 F.3d 1009, 1024–25. (9th Cir. 2007). The comment focused on the original phrasing of the Proposed Rule, which defined extracts as containing “cannabinols and cannabidiols.” The commenter inquired whether this would cover “100% pure Cannabidiol by itself with nothing else?” The Final Rule put this question to rest when it rephrased the definition to apply to an “extract containing one or more cannabinoids[.]” 81 Fed. Reg. 90195 (Dec. 14, 2016).

Neither this comment nor any other raised with sufficient clarity Petitioners’ current argument that the Final Rule scheduled a new substance. See Glacier Fish Co. LLC v. Pritzker, 832 F.3d 1113, 1120 n.6 (9th Cir. 2016). Nor did any comment raise Petitioners’ additional arguments that the Final Rule and its promulgation violated the Information Quality Act, Regulatory Flexibility Act, or Congressional Review Act. Petitioners have therefore waived their arguments relating to the scheduling of a new substance and those Acts. There are no exceptional circumstances to excuse the waiver. See Exxon Mobil, 217 F.3d at 1249.

Petitioners also claim the Final Rule conflicts with a portion of the Agricultural Act of 2014 (now codified at 7 U.S.C. § 5940) and the Consolidated Appropriations Act of 2016, Pub. L. No. 114-113, § 763, 129 Stat. 2242, 2285 (2015). Because the notice-and-comment period predated the Act, Petitioners’ arguments relating to those Acts are not waived, but fail nonetheless on the merits.

The Agricultural Act provides that “[n]otwithstanding the Controlled Substances Act . . . or any other Federal law, an institution of higher education . . . or a State department of agriculture may grow or cultivate industrial hemp,” provided it is done “for purposes of research conducted under an agricultural pilot program or other agricultural or academic research” and those activities are licit under the relevant State’s laws. 7 U.S.C. § 5940(a). The Agricultural Act contemplates potential conflict between the Controlled Substances Act and preempts it. The Final Rule therefore does not violate the Agricultural Act.

The Consolidated Appropriations Act forbids the use of federal funds from being used “in contravention of . . . the Agricultural Act” or “to prohibit the transportation, processing, sale, or use of industrial hemp that is grown or cultivated in accordance with subsection section 7606 of the Agricultural Act of 2014.” Consolidated Appropriations Act, 2016, Pub. L. No. 114-113, § 763, 129 Stat. 2242, 2285 (2015). Petitioners are not challenging the use of federal funds, but rather the validity of an agency rule. Their suggestion that the “promulgation of the Final Rule likely required use of extensive DEA resources,” is not sufficient grounds to invalidate the Final Rule.

The Petition for Review is DENIED.