Ninth Circuit Holds That Products Containing Not More Than 0.3% of Delta-8 THC Are Permissible Under Federal Law

Ninth Circuit Holds That Products Containing Not More Than 0.3% of Delta-8 THC Are Permissible Under Federal Law

Case: AK Futures LLC v. Boyd Street Distro, LLC, No. 21-56133

Ninth Circuit Panel Composition: Kleinfeld (Bush); Fisher[1](Bush); and Bennett (Trump).

Result: Affirming the district court's order granting a preliminary injunction for trademark and copyright infringement against a distributor of counterfeit smoke products containing delta-8 THC.

Summary:

In a case that concerned an otherwise garden variety copyright and trademark infringement dispute, the Ninth Circuit recently explored the legality of delta-8 THC under federal law.

Appellee AK Futures LLC (“AK Futures”) owns a valid copyright and 6 pending trademark applications for its “Cake” brand of e-cigarettes and vaping products containing delta-8 THC. After conducting an investigation, AK Futures found that the Appellant, Boyd Street Distro, LLC (“Boyd Street”), sold counterfeit versions of AK Futures’s Cake-brand products. AK Futures brought suit for copyright infringement and trademark infringement in the district court and moved for a preliminary injunction to prevent Boyd Street’s sale, reproduction, distribution, and display of the counterfeit Cake-brand products. The district court granted the preliminary injunction, determining that AK Futures owned a valid copyright with respect to the Cake product and ruling that AK Futures was likely to succeed in showing that Boyd committed copyright and trademark infringement given that Boyd’s products were “almost identical” to AK Futures’s.

On appeal, Boyd did not dispute that it sold counterfeit products but contended that AK Futures could not have owned a valid trademark because the products contained delta-8 THC, which it argued is illegal under federal law. In support of its position, Boyd Street argued that congressional intent and DEA documentation demonstrate that delta-8 THC may not be classified as “hemp” under the 2018 Agricultural Improvement Act (“the Farm Act”) thus rendering it illegal under federal law. AK Futures countered and asserted that its products were in fact legal because the Farm Act legalized hemp and posited that delta-8 THC is merely a permissible hemp derivative.

The panel agreed with AK Futures’s position. Despite the fact that AK Futures owned six unregistered trademarks relating to the Cake brand, the Court, applying circuit precedent, concluded that AK Futures’s lawfully owned the marks and was the first to use the marks in commerce. The only question, then, was whether the possession and sale of products containing delta-8 THC—an ingredient in the Cake product—were illegal under federal law given that only lawful products qualify for trademark protection. The panel held that they were not.

The crux of the dispute focused on whether products containing delta-8 THC are lawful under the hemp category. Under the Controlled Substances Act, cannabis products have been classified as schedule-1 controlled substances under federal law since 1970. However, the Farm Act narrowed the scope of these longstanding cannabis restrictions by removing hemp from the definition of marijuana, thereby legalizing the possession and cultivation of hemp, and tetrahydrocannabinols in hemp, on a federal level.

Applying Supreme Court precedent, the panel held that the text of the Farm Act is unambiguous. Specifically, the Court concluded that the plain language of the Farm Act unequivocally supports the proposition that all downstream products sourced from a cannabis plant—including those not specifically enumerated in the Farm Act, like delta-8 THC—which contain no more than 0.3% delta-9 THC and can be called a “derivative, extract, cannabinoid, or one of the other enumerated terms” by the Act, qualify as hemp. Here, the Court observed that AK Futures’s delta-8 THC products fell below the 0.3% threshold and that the products thus “fit comfortably within the statutory definition of hemp.”

Despite the fact that an analysis of the DEA’s interpretation of synthetic cannabinoids was unnecessary—because the panel held that the text of the Farm Act is unambiguous—the Court resolved that the DEA’s interpretation aligned with the Court’s, reasoning that the source of the cannabis product in question, not the method of manufacture, is the dispositive factor in determining whether a product is synthetic.

The court ultimately affirmed the lower court’s ruling, concluding that the preliminary injunction was proper because AK Futures is likely to succeed in establishing that its products are not illegal under federal law, and thus its delta-8 THC products in question qualify for federal trademark protection.

 

[1] The Honorable D. Michael Fisher of the U.S. Court of Appeals for the Third Circuit sat by designation for this case.

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