A group of dispensaries, manufacturers and distributors in California have filed a lawsuit against hemp companies including Binoid, 3Chi, Delta Extrax, Cookies, and Tre Wellness over their sale of delta-8 THC products in the state.
The lawsuit alleges that these “illegal designer drugs” are often marketed as “legal cannabis products” and that this classes as unfair competition under the law. So what’s happening? How does this fit with California hemp law? And what is the outcome likely to be?
Background: The Turf War Over Intoxicating Hemp
The 2018 Farm Bill passing alongside the liberalization of cannabis laws across the country has created a turf war. In states with legal cannabis and intoxicating hemp products like delta-8 THC, debates rage about whether these products should really get the relatively lax treatment usually given to hemp or whether they should have to meet the same standards as the regulated cannabis industry.
Arizona is the perfect example of this dispute. In 2023, legislators in the state had to decide between two bills: the cannabis industry-supported Senate Bill (SB) 1453 and the hemp industry-supported SB 1271. Unsurprisingly, the cannabis industry supported the bill which made intoxicating hemp part of the cannabis industry, and the hemp industry supported the bill which kept intoxicating hemp as hemp. Although the lawmaker who described this as a “turf war” was rude, according to reporting, he was right.
In Arizona, neither bill passed, but in California things are different. Assembly Bill (AB) 45 did basically what the cannabis-industry-backed Arizona bill did: made it so that the only way to legally sell delta-8 THC was as part of the cannabis industry. It specifies that hemp doesn’t include cannabinoids created through “chemical synthesis,” and includes delta-8 and other isomers as part of the 0.3% THC limit. It also bans inhalable hemp products until a tax is established.
RELATED: Delta-8 THC Is Legal in California, But It Isn’t Considered “Hemp”
In other words, the California cannabis industry is the only game in town to sell the vast majority of intoxicating cannabinoids. Well, kind of. As Leafly’s 2022 Opt-Out Report showed, California’s low number of stores per 100k residents (3, compared to 18 in Colorado, for example) has led to 55% of cannabis sales being made through the illegal market. People don’t want to have to drive 30 miles to the dispensary and 30 back home just to get some weed when there are still dealers on the corner.
Now, imagine you’re running a legitimate dispensary in this situation and – on top of everything – you notice that despite AB 45, people are still selling intoxicating hemp products in the state, and moreover, that they’re claiming they’re actually selling “legal cannabis.” Several dispensaries (many trading as March and Ash), a distributor and a manufacturer found themselves in just this situation.
The Lawsuit: Accusations of False Advertisement and Unfair Competition
So they sued them. Specifically, eight dispensaries trading as different branches of March and Ash, Pacabol dispensary, Kind House Distribution and CRFT Manufacturing have filed a complaint that includes many hemp companies:
- Savage Enterprises
- Cali Extrax
- Hazy Extrax
- Delta Extrax
- 3Chi
- Tre Wellness
- Cookies
- Binoid
- Cutleaf Stores
- Canably
The majority of which are registered in California, but all of which – at least, according to the complaint – have sold, manufactured or otherwise worked with products that use chemically synthesized cannabinoids, have over 0.3% THC and are inhalable. The complaint also says that “in most cases” they marketed them as “legal cannabis products.”
They point to Cookies as a “particularly flagrant” example, because they are licensed as a cannabis dispensary but use the same website to sell non-compliant hemp products. The complaint also goes into detail about which products are sold by all of the companies (mentioning delta-8, delta-9, THCP and HHC) and that they include THC levels up to 78.1%, well beyond the 0.3% legal limit.
There are two main legal claims made in the complaint:
- False advertising: The complaint was submitted alongside exhibits showing three products labeled as “legal cannabis,” which breaches the state’s false advertising law. In particular, it says “No person shall state, in an advertisement of his goods, that he is a producer, manufacturer, processor, wholesaler, or importer, or that he owns or controls a factory or other source of supply of goods, when such is not the fact, and no person shall in any other manner misrepresent the character, extent, volume, or type of his business.” In other words, hemp companies claiming to sell “legal cannabis” are misrepresenting the nature of their business.
- Unfair competition: The complaint claims that the hemp companies’ practices constitute unfair competition under California law. The core of their argument is that, “Defendants have brazenly flooded the California marketplace with these highly intoxicating and chemically synthesized [non-compliant hemp products] with the intention to evade and undermine California’s comprehensive system to control and regulate cannabis products. […] Businesses such as Plaintiffs acting in compliance with State and local laws and regulations cannot compete with these bad actors because it is neither legal nor safe to make or sell the products made and sold by Defendants.” Again, put more simply, by selling intoxicating products “under the radar” they create unfair competition for the regulated industry. As part of this they also point to declining cannabis sales in the state.
The Good: Their Case Seems Pretty Solid
Overall, it’s hard to see a way out of this for the hemp companies named. AB 45 clearly makes selling these products as hemp illegal, and with that in mind, it cannot be considered fair competition for the industry, any more than the dealer on the street corner is. The whole point is that cannabis should be sold by the regulated industry, with all the regulations and requirements that are involved.
Additionally, the “legal cannabis” label seems pretty clearly to be deceptive advertising. While it’s cannabis (in a sense) and cannabis is legal, it is not legal to sell the “cannabis” contained in those products as hemp. It misrepresents the nature of the business and that makes the consumer think – wrongly – that these products have gone through the regulatory process for cannabis.
While we haven’t seen the exhibits ourselves, if they contain what the complaint claims they do, the case seems basically impossible to refute. At the very least it’s obvious that the companies are breaking California law. In this case, the turf is clearly owned by the cannabis industry, the issue is basically settled.
The Bad: “Illegal Designer Drugs” and Other Claims
That said, there are a few things that jump out at you from reading the complaint. The first is the terminology used. After listing what the companies have done – sold products with more than 0.3% THC, sold chemically synthesized products and sold inhalable products – the document then decides to collectively refer to these three things as “illegal designer drugs.”
You may refer to delta-8 THC as a “designer drug,” but since it is naturally present in the cannabis plant and isn’t purely synthetic in the traditional sense, it is debatable (e.g. Britannica and Merriam-Webster both mention designer drugs being synthetic). But let’s just give them that. Now, is a natural product with more than 0.3% delta-9 THC a “designer drug”? No. Is a naturally-produced delta-9 vape a “designer drug”? Again no.
This isn’t relevant to the case as much as it’s relevant to this antagonistic attitude to hemp products from the cannabis industry, and these hints are littered throughout the complaint. The complaint lumps all of these things under the umbrella of “illegal designer drugs” because it creates a perception that these things are alien synthetic substances rather than basically the same thing that the dispensaries filing the suit are selling as well. Even worse, this terminology is established on page 5 of 20, and for the remainder of the document it makes it totally unclear whether we’re talking about (for example) someone manufacturing THC-O or just a product that comes in at 0.5% THC.
Just under this redefinition, they also write: “such synthesized chemicals have been demonstrated to pose serious health risks to the public (including death), especially when consumed by minors (including children) and uninformed adults who may already have underlying health risks.” (emphasis added)
The citation leads to a single point on the FDA’s page on delta-8, which states that out of 2,362 cases reported to poison control centers about accidental exposure to delta-8 THC products, one pediatric case ended in death. The details of this case aren’t clear (including what exactly was consumed), but it is misleading to say they pose risks to the public “including death” because of a single accidental exposure case. Death is not a common or even likely consequence of intended delta-8 THC use by adults.
This particular fact-check doesn’t matter, the key thing is what they choose to discuss. The FDA mentions vomiting, hallucinations, anxiety, confusion and even loss of consciousness as adverse events, and gives the full breakdown of the statistics. The suit says they “pose serious health risks to the public (including death).” The truth is more than enough cause for concern and for action, but there is a continuous effort to over-emphasize and stretch any data showing a risk from intoxicating hemp products.
Finally, despite the fact that illicit sellers provide the majority of California’s cannabis to consumers, the complaint strongly suggests that declining sales are due to these dangerous “illegal designer drugs,” rather than the long-standing problems and a well-known slowing down of the cannabis market after COVID.
And that’s when we’re back to the turf war. The truth is that when produced by reputable companies and especially in robust regulatory schemes (like that established in Tennessee) it’s unlikely that the risks of delta-8 THC are particularly different from the (limited) risks of delta-9 THC, which the companies themselves sell every day. But just like the hemp industry plays down comments about purity or safe manufacturing, the cannabis industry overplays them to suit their goals.
RELATED: A State-by-State Guide to Delta-8 THC’s Legality
Conclusion: The First of Many?
While we’ll need to wait some time to see what the outcome of this case is, it’s extremely likely that it will be successful. And that could well open the floodgates for future action. If California dispensaries are dealing with unfair competition because of illegal delta-8 THC sales, what about other states with legal cannabis sales and illegal hemp sales? Why should those dispensaries deal with this unfair competition?
They shouldn’t, and if this case concludes in the way you’d expect, this is likely to be the first of many suits targeting hemp companies trying to sneak by local laws. The turf war – complete with legitimate grievances and misinformation on both sides – could just be getting started.