On October 12, hemp producers and retailers notched an early win in litigation challenging the legality of Maryland’s cannabis licensing program as it applies to hemp. By way of background, the Maryland General Assembly recently passed the Cannabis Reform Act (CRA), after voters gave their stamp of approval to recreational cannabis in the state via a 2022 referendum. Rather than create a separate licensing system for hemp products, the CRA requires anyone selling a “product intended for human consumption or inhalation that contains more than 0.5 milligrams of tetrahydrocannabinol per serving or 2.5 milligrams of tetrahydrocannabinol per package” to be licensed as a cannabis business. “Tetrahydrocannabinol” (THC) is defined to include delta-8, delta-9, and delta-10 THC. This lack of distinction between hemp- and marijuana-derived products results in the inclusion of existing producers and retailers of hemp-derived THC products into the new cannabis program.

In granting the plaintiffs’ request for a preliminary injunction, the court found that the hemp industry plaintiffs’ rights to “life, liberty, and property” were at stake, and that they were likely to prevail for three key reasons:

First, the court found that Maryland’s licensing program is preempted by federal law because the state has not submitted the CRA to the U.S. Department of Agriculture (USDA). Although federal law, as amended after the 2018 Farm Bill, allows states to create their own hemp licensing and regulatory systems, the state must first submit the plan to the USDA for approval, 7 USC § 1639p(a)(1). Maryland has had a USDA-approved hemp plan that licenses hemp cultivators since 2020, but the court took issue with the fact that Maryland did not submit the CRA for approval by USDA. Thus, the court held, “licensing [of plaintiff producers] remains with USDA.”

Second, the court found that the CRA’s cannabis licensing program created an impermissible monopoly under the Maryland Declaration of Rights by “unfairly exclud[ing] many from their right to continue, or enter, a profession of their choosing, all to the detriment of the public.” Here, the court observed that the program would initially permit only existing medical cannabis licensees, including certain social equity applicants, to participate in the commerce of THC products. Existing hemp producers and retailers are given no reprieve by the licensing program, the court found, because “[t]he geographic restrictions imposed under the new social equity requirements bar most Marylanders from applying for a license.” In all, the court observed that this program conferred “a significant benefit on those few who obtain a license while barring many, such as [the hemp producer] Plaintiffs, from engaging in their chosen field of occupation”— a field, the court notes, that is legal under federal law.

Third, the court opined that the social equity criteria were not rationally connected to the stated goal of rectifying the harms of the war on drugs. As is common in many social equity programs, the CRA confers social equity status on residents of communities, which have been disproportionately impacted by the war on drugs — in this case, communities in which the marijuana charge is 150% of the state average. The court observed, however, that it is irrelevant whether an applicant was actually impacted by the war on drugs, only that they lived in a designated zip code. Ultimately, the court found that the CRA discriminated against persons who do not live in designated zip codes in violation of the equal protection provisions in the Maryland Declaration of Rights.

Why This Matters

Hemp businesses in several states, including nearby Virginia, have launched challenges to state rules attempting to limit their activity. Other courts may, and likely will, consider this Maryland decision in their deliberations. As states seek to regulate and control the market for intoxicating hemp products, this case may set the precedent that states cannot go-it-alone in creating their own licensing programs for hemp without seeking the appropriate approval from USDA.

Also noteworthy, the order marks the most recent instance whereby a court has taken issue with social equity provisions included in a cannabis licensing program. As we’ve previously written, geographic limitations and state residency rules in licensing programs have been found to unconstitutionally discriminate against out-of-state commerce by a number of courts. This order makes clear that such requirements can also run afoul of state law by discriminating against applicants who do not meet certain social equity criteria. We expect restrictions like these in state licensing programs to continue to face scrutiny.

Our Cannabis Practice provides advice on issues related to applicable federal and state law. Marijuana remains an illegal controlled substance under federal law.