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A federal judge on Monday dismissed a lawsuit that nine hemp companies filed against New York State cannabis regulators alleging that state officials violated their civil rights by issuing and enforcing strict rules on hemp products.
The case, which was filed in the Southern District of New York, was the latest civil action heard in the Empire State that questions New York’s Office of Cannabis Management and Cannabis Control Board’s authority to impose strict limits on intoxicating cannabinoids allowed in hemp products.
Judge Mary Kay Vyskocil dismissed the case largely on procedural grounds, and plaintiffs may re-file the same suit in the southern district court. However, a ruling on such a case in federal court – a strong possibility in the future, attorneys say – would have major implications on legal cannabis and hemp markets nationwide.
A ruling in the plaintiffs’ favor could limit states’ abilities to regulate intoxicating hemp-derived cannabinoids, while a ruling in favor of New York regulators would bolster all states’ authority to regulate or ban hemp products as they wish, notwithstanding the 2018 Farm Bill, which legalized hemp and extracts from the plant.
“A court case that does address the merits – particularly at a federal level – would certainly have huge repercussions,” said Jason Klimek, an attorney and co-leader of the cannabis team at law firm Barclay Damon, who pointed out that the cannabinoid hemp market is far less regulated than adult-use cannabis.
“You’d almost have to question why someone would get an adult-use license, at that point,” Klimek said.
The dismissed federal lawsuit partly stems from allegedly unconstitutional raids on two state-licensed hemp stores in New York City – The Green Room in Manhattan’s West Village, and Hidden Hemp in Brooklyn – both of which are plaintiffs in the case.
According to the plaintiffs’ petition filed in court, these licensed stores are located near illicit cannabis shops, which were raided for allegedly selling cannabis products without a license.
On multiple occasions, both these stores were caught in the dragnet, and officials confiscated products – collectively valued in the seven-digits – despite the fact that they were operating in compliance with cannabinoid hemp regulations at the time, said Joshua Bauchner, a partner at Mandelbaum Barrett who is representing the plaintiffs.
“We’re seeking both an injunction with respect to ongoing raids and the enforcement of the regulations, but also monetary damages,” said Bauchner, who chairs the firm’s Cannabis, Hemp and Psychedelics Practice Group. “We’re arguing that what the state is doing is further violating our clients’ constitutional rights.”
Bauchner argues that Judge Vyskocil was incorrect to dismiss the case on the grounds that it was improperly filed in the Southern District of New York, and said his clients also assert that the OCM and CCB’s regulations for hemp are arbitrary and capricious, and that regulators overstepped their authority by imposing them.
The argument resembles one made in an ongoing lawsuit in state court.
The regulations at issue were first passed as emergency regulations in October, and adopted as official rules the following month. They cap THC content allowable in legal cannabinoid hemp products to a 15-1 ratio of CBD to THC, and a limit of 1 mg of THC per serving – a limit that rendered large swaths of products on licensed hemp store shelves illegal.
In the state case, Albany County Supreme Court Judge Thomas Marcelle ruled that regulators failed to demonstrate a public health emergency to justify passing emergency rules limiting cannabinoid hemp products, and issued an injunction preventing them from enforcing the regulations. But the injunction only applied to emergency regulations, and the CCB approved the rules as official regulations days later, which essentially mooted the enjoinment.
In an interview with NY Cannabis Insider, Bauchner argued that the state judge’s decision went beyond asserting that regulators imposed regulations through an improper process.
“The regulations were enjoined as well, because … there’s no evidence or studies to support the hemp industry misleading or otherwise harming consumers,” Bauchner said. “In the absence of any basis for these regulations to shut down the industry, they were unjustified.”
Plaintiffs plan to re-file the lawsuit in the southern district, Bauchner said, and ruling in their favor could have far-reaching implications for hemp regulations across the country.
According to Bauchner’s argument, the federal 2018 Farm Bill legalized hemp and cannabinoids extracted from it, and multiple states – including New York – are currently engaging in regulatory overreach.
But Klimek, the Barclay Damon attorney, expressed some skepticism about chances that plaintiffs in the federal case will be successful. Klimek, who has been following the state and federal lawsuits, said that states are allowed to set rules for hemp products, even though they are federally legal via the Farm Bill.
“States have the powers reserved to them that are not specifically enumerated for the federal government, one of which is called the police powers,” Klimek said. “To the extent that a state like New York wants to implement regulations that curtail cannabinoid hemp … that seems to fit squarely within the police powers – they are allowed to regulate intoxicating substances.”
Klimek agrees that a ruling in the plaintiffs’ favor could invalidate hemp regulations across the country, which could undermine adult-use cannabis programs in states that have legalized. Hemp isn’t regulated as tightly as cannabis, Klimek said, so a judicial ruling that blocks states from setting restrictions on hemp could lead many to pursue hemp-derived business models, and avoid stricter cannabis regulations.
That’s a major reason why Klimek doubts federal judges would reach and uphold a decision that limits states’ ability to regulate hemp. Federal judges are often loath to make rulings that would upset the status quo, Klimek said, especially in this case, which cites the Farm Bill as the legislation which legalized cannabinoid hemp.
“My knowledge is there hasn’t been an actual determination of whether this is legal or this is not legal under federal law,” Klimek said. “This is clearly within the OCM’s powers to regulate cannabinoid hemp.”
Bauchner said he believes the case is strong on the merits, and believes a judge should rule in favor of his clients when they re-file the suit. If they are successful in obtaining a court injunction preventing New York regulators from enforcing hemp rules, Bauchner said he hopes it brings state officials to the table for a collaborative effort in regulating the hemp industry.
“Until the state’s willing to sit down with us, and address this, and allow us to educate them, they’re hopefully going to be at the losing end of this fight,” Bauchner said. “I think the answer is, let’s stop, let’s take a breath, and let’s work together.”