High anxiety over federal weed loophole

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Paul ImOberstag’s small hemp farm in Banner, Ill., survived the bottoming out of prices in the CBD market and the pandemic.

Then, Delta-8 THC came along.

In the span of a few months, Banner Harvest went from selling about 15 pounds of CBD-rich hemp flower a month to “basically zero” pounds. The reason: All of the wholesale customers were now stocking Delta-8 THC, a close cousin of the chief psychoactive compound in marijuana, Delta-9 THC.

Delta-8’s meteoric rise is reminiscent of the early days of the CBD boom. Seemingly overnight, the products were on the shelves of gas stations, vape shops and numerous e-commerce outlets.

But there’s one big difference: Delta-8 products are being marketed as a “legal” way for people to get stoned.

The cannabinoid’s rise has deeply divided the hemp industry and its advocates. Some hemp producers are staying away, fearful that a crackdown is imminent. Others are hoping to exploit the regulatory gray area to rake in cash.

Entrepreneurs like Jeff Gray and Josh Wurzer of SC Labs, a cannabis testing facility in California, worry that the Delta-8 trend is another vaping crisis waiting to happen. Starting in 2019, nearly 3,000 people were hospitalized and 68 died due to lung illnesses that were largely connected to illegal marijuana vaping products.

“States are behind the eight ball on this one,” Wurzer said. “This is taking the CBD and synthesizing a new compound using other chemicals that can introduce contamination and byproducts that are harmful.”

What exactly is Delta-8?

Delta-8 THC is an isomer of Delta-9 THC, the compound responsible for marijuana’s intoxicating effects. That means the two are largely the same compound, with slight atomic differences. The vast majority of Delta-8 products aren’t extracted from cannabis. Instead, producers convert plant-derived CBD into Delta-8 THC using a chemical process called isomerization. The process combines CBD with a solvent, acid and heat to cause the reaction that turns CBD into THC.

“Cannabis is cleaner than the water you drink, it’s so heavily tested,” said Gray, referring to California’s regulated marijuana market. But Delta-8 is a “highly unregulated industry. There aren’t clear requirements.”

When Congress passed the 2018 farm bill legalizing hemp, it was eager to distinguish the crop from marijuana. Hemp and marijuana are the same species of plant, cannabis sativa L., but hemp can’t contain more than 0.3 percent THC. The distinction is legal, not scientific.

"It’s not clear whether [Delta-8 THC products] are illegal under the 2018 farm bill," said Jonathan Miller, general counsel for the U.S. Hemp Roundtable. "It is clear that it violates the spirit of the law."

Hemp proponents in Congress like Senate Minority Leader Mitch McConnell "support hemp but do not support intoxicating products," Miller said.

McConnell’s office did not respond to a request for comment.

The compound might run afoul of the DEA’s interim final rule on hemp, meant to address the 2018 farm bill removing the crop as a federally controlled substance. The rule emphasizes that "synthetically derived tetrahydrocannabinols" remain controlled substances. But there’s no agreed upon definition of what "synthetically derived" means.

The DEA declined to comment on the legality of Delta-8 until it finalizes its hemp interim final rule. "We are in the process of reviewing thousands of comments and do not speculate on what could happen as a result," a spokesperson for the DEA said.

Market expansion

The CBD boom of last year led to plummeting prices and a huge glut of CBD isolate in the hemp industry. The Delta-8 trend is giving “processors an outlet for large inventories of CBD isolate they built up,” said Ian Laird, chief financial officer at Hemp Benchmarks.

It’s attractive for processors and retailers alike as the compound is more profitable than CBD. In January, Delta-8 cost about $1,400 per kilogram, while CBD isolate was selling for about $550 per kilogram.

While it’s hard to determine the size of the market since much of Delta-8 sales occur online through untracked channels, Hemp Benchmarks estimates at least $10 million in sales during the last six months.

“It is the fastest growing segment,” Laird said.

While many industry observers posit that Delta-8’s rise can be attributed to consumers in states that haven’t legalized marijuana, hemp businesses see a lot of sales even in states that are home to adult-use marijuana markets.

The reasons are numerous: State-licensed marijuana businesses are highly regulated and subject to taxes. Delta-8 products do not have that same level of regulatory oversight or tax burden, reducing costs for consumers. People can order products online and get them shipped by mail — off limits for marijuana

While some hemp retailers are seeing minimal effects of the rise in Delta-8 on their CBD sales, small hemp farmers like ImOberstag and Heath Scott are taking much bigger hits. ImOberstag started making Delta-8 products after nearly all of his wholesale customers said they were only interested in purchasing them. Scott, who runs 7 Point Farm & Apothecary in Tennessee, said he’s seen a 50 percent drop in sales of CBD products.

Scott is staying away from the compound for now. He has struggled with bank account closures and payment processing issues, and fears that getting into Delta-8 will only exacerbate those challenges.

Then, there’s the regulatory uncertainty. The hemp industry must deal with ever-shifting regulations, and Scott is worried that a regulatory change is imminent.

“How do you invest in something that is so shaky?” he wondered. “It’s legal, until it’s not."

Still, he believes that Delta-8 is more than a passing fad.

“I think it has benefits,” he said. “Give us some rules that we can work with."

A challenge for regulators

The call for regulations is a familiar refrain in the CBD industry, which has been begging the FDA to offer regulatory clarity. But it’s not an easy task for regulators: There’s still much unknown about the chemical process of turning CBD into Delta-8.

“It isn’t just a clean one-to-one conversion,” said Steven Crowley, compliance specialist at the Oregon Liquor Control Commission. “Fifteen to 30 percent is unknown byproducts.”

And not only are there unknown byproducts, producers who cut corners or who simply don’t know better may introduce impurities from the solvents and acids used in the process.

Another issue is the addition of flavoring additives or diluents, said TJ Sheehy, director of data and analytics for the OLCC.

The agency issued new rules around additives in the wake of the vaping crisis, which take effect in April. “None of that affects corner store sales of Delta-8 products,” Sheehy explained. “It’s a black box that is being filled with anecdotal user experiences as opposed to actual science.”

Then, there is the issue of a lack of standardization of lab tests. "If I took [a hemp product] to 16 different labs, I’m probably going to get 16 different results," ImOberstag said.

Lab shopping occurs in both the hemp and state-regulated marijuana industries, industry officials say, with producers choosing labs that are more likely to give favorable results.

“If I got a [certificate of analysis] from Colorado, what happens if someone here [in Illinois] buys it and gets arrested… and the police test it?” he said.

ImOberstag recently found a DEA-licensed lab in Florida in hopes that the stringent requirements will result in the most accurate results for his Delta-8 products. "I’m trying to find some way to be as legit as I possibly can," he said.

What’s next?

The issue has regulators worried about not only consumer safety for adults, but also sales to minors. The OLCC initiated rulemaking for Delta-8 THC last week. The details are still up in the air, but regulators want to ensure at least some level of purity in these products.

Regulated marijuana producers are also expressing concerns about a product that competes with their industry, but lacks lab testing requirements. The Michigan Cannabis Manufacturers Association on Monday called for marijuana regulators to oversee Delta-8 products, describing their sales as "an immediate health threat to all Michiganders."

Delta-8 will likely prompt a “new iteration of the patchwork of state hemp laws,” said Shawn Hauser, chair of the hemp and cannabinoids practice at the law firm Vicente Sederberg.

Lawmakers in several states are starting to turn their attention to such products.

In Oklahoma, for example, there’s a bill that would include Delta-8 THC under the definition of “marijuana.” A Florida bill would regulate the sale of Delta-8 products and provide age limits and other restrictions. A California bill proposes taxes and labeling requirements on products that are psychoactive and not naturally extracted from the cannabis plant.

But if history serves as any lesson, restrictions on Delta-8 THC can only lead to one thing: a boom in producing its nearly identical cousin — Delta-10 THC.

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