There’s a battle brewing in Oregon state court that may have a serious impact on Oregon’s industrial hemp industry. We’re writing to clarify the issues and provide additional context for this highly controversial case.

What’s happening?

Key Compounds (“Key”), an Oregon Department of Agriculture (“ODA”)-registered industrial hemp handler (i.e., processor) in Albany, Oregon, and its CEO, Alexander Reyter, were recently indicted on three counts of Unlawful Importation/Exportation of Marijuana and one count of Unlawful Manufacture of Marijuana.

It all began when Key allegedly shipped crude hemp-derived CBD oil to a facility in Massachusetts for further processing. When the resultant product was shipped back, the package’s “suspicious” odor evidently got the attention of local UPS workers, who alerted Linn County law enforcement. Some of the product which, according to the Massachusetts processor, was residual waste mistakenly included in the shipment, allegedly tested at 5% THC (above the 0.3% limit for hemp products). This prompted the Linn County Sheriff Department to raid Key’s processing facility in March. The raid revealed Key business records that, according to an investigator, indicated that over 900 pounds of Key’s hemp-derived extract had THC levels above 0.3%. The Linn County DA subsequently filed an indictment charging Key with the unlawful importation/exportation of marijuana (based on the Massachusetts shipments) and the illegal manufacture of marijuana (based on what the raid uncovered). The importation/exportation counts are at least understandable, given that the allegedly “hot” waste product was shipped across state lines.  The unlawful manufacture count is more troubling, however, because the alleged infraction took place wholly within the state, and, according to experts, resulted from a normal part of the hemp extraction process.

According to Reyter, the “hot” hemp products seized during the raid tested above 0.3% because they were a natural byproduct of the extraction process or because the products were “in progress” (presumably meaning the THC would be diluted or removed prior to finishing the process). However, the Linn County DA insists that the products qualify as “marijuana items” under criminal law, and therefore requires an OLCC recreational marijuana license to produce.

ODA staff has expressed support for Reyter’s explanation to the effect that, so long as the products test under 0.3% at two points in the manufacturing process—first, before the source hemp is harvested and second, before the finished products are sold to a consumer—ODA considers the product “hemp” throughout the process. However, Senate Bill 1544 (“SB 1544”), passed in 2018, defines “marijuana item” to include any industrial hemp-derived product that “contain[s] more than 0.3 percent [THC].” But, SB 1544 also states that “[a] person other than a marijuana retailer that holds a license issued [by OLCC] may not sell a marijuana item to a consumer” (emphasis added). When read together, ODA interprets those provisions to allow for a hemp product to exceed 0.3% THC so long as it is diluted back down below the 0.3% threshold prior to sale to consumers. But Linn County apparently takes a more restrictive approach: Any product that contains more than 0.3% THC, whether derived from psychoactive “marijuana” or hemp, is a “marijuana item,” which subjects its manufacturer to criminal sanctions (unless an OLCC-licensed processor).

What does this mean for the hemp industry?

The outcome of this case could have major ramifications for the Oregon hemp/CBD industry.  If the judge or jury sides with Linn County, any Oregon hemp handler whose process generates THC waste product (or includes a phase in which the hemp product temporarily contains THC in excess of 0.3%) could be targeted by local law enforcement for criminal marijuana violations.

Ideally, the Court will find in favor of the defendant and the Oregon Legislature will resolve this statutory discrepancy in favor of the industrial hemp industry before any other prosecutions occur. But the Legislature doesn’t convene again until February 2020.  In the meantime, however, if you are a hemp handler, hemp product seller, or otherwise deal in hemp products, you may want to bring this issue to the attention of your local legislator.

We’re also here to help with any questions you may have about this case or any other hemp-related issues.

Re-published with the permission of The Emerge Law Group