Lessons Learned from Recent Hemp and CBD Litigation: They Went to Court so You Can Stay Home

By Michelle Bodian, David Kramer

Jul 13, 2020

The past year has seen an uptick of hemp and CBD-related lawsuits across the country. While the rise in CBD class actions grabs headlines—due in part to courts deciding to stay litigation pending the outcome of the FDA’s rulemaking process—many equally important but lesser publicized hemp and CBD-related cases have been filed. This article explores valuable lessons for hemp and CBD businesses to learn from cases involving the vexing problem of intermediary hot hemp extract; the destruction of hemp fields in California; and a buyer that received hemp containing drastically different CBD content than what was initially reported (and paid for).


The Perils of Transporting and Receiving Intermediary Hot Hemp Extract

Key business takeaway: When entering into a new business relationship, start small and limit the amount of hemp or CBD products you order until you can sufficiently trust the supplier and confirm the THC content found in their extract or biomass.

On April 24, 2020, Key Compounds LLC (“Key Compounds”) filed a lawsuit against Phasex Corporation (“Phasex”), alleging that Phasex destroyed Key Compounds’ business and caused Key Compounds’ and Key Compounds’ CEO to be charged with felony indictments.  

By way of background, in January 2019, Key Compounds (an Oregon Company) contracted with Phasex (a Massachusetts Company) to further process Key Compounds’ hemp extract, such that Key Compounds’ hemp extract would be “remediated” to contain “non-detectable levels” of THC. Phasex apparently failed to perform as promised, and instead shipped extract containing between 2.5%-5% THC back to Key Compounds via United Parcel Service. 

Noticing a strong odor, local law enforcement seized the package and subsequently raided Key Compounds’ Oregon facility, seized Key Compounds’ equipment, and filed felony charges against Key Compounds and its CEO. Although the charges were ultimately resolved (nearly one year later) and the hemp extract was returned, the damage to Key Compounds was significant. Key Compounds alleges that it lost at least $11 million due to the closing of its Oregon facility and the destruction of Key Compounds’ business, plus more than $340,000 in legal expenses.

While it’s too soon to know how this case will ultimately be resolved, it serves as a strong reminder that until there are uniform federal standards governing hemp processing, there continues to be significant risk associated with shipping “hot” intermediary hemp extract across state lines.

The case is Key Compounds LLC et al. v. Phasex Corporation et al., case number 6:20-cv-00680, in the U.S. District Court for the District of Oregon.


California State and Local Officials Destroy 500 Acres of “Hemp” Plants

Key business takeaway: Make sure your understanding of the law is accurate and consistent with law enforcement’s and regulatory agencies’ understanding of the same.

On April 10, 2020, Apothio LLC (“Apothio”) filed a lawsuit alleging that California’s Kern County, Kern County Sherriff’s Office, and the California Department of Fish and Wildlife, among other parties (collectively the “Defendants”), improperly destroyed 500 acres of hemp plants in Kern County. More specifically, in late October 2019, the Defendants allegedly bulldozed and buried about 17 million legal hemp plants (or an estimated 150 million pounds of hemp biomass). Apothio’s complaint seeks damages resulting from the destruction of its property and the violation of civil and constitutional rights.   

According to the complaint, a search warrant was executed on October 25, 2019, to search 459 acres for cannabis. Apothio, which is an established agricultural research institution (“EARI”) (as that term is defined under California law) that researches and commercializes hemp, alleges that it was growing legal hemp (not illegal marijuana), and that, as an EARI, Apothio was expressly permitted under California law to grow plants with THC levels greater than 0.3%.  

In June 2020, the Defendants filed separate motions to dismiss, arguing that Apothio is in violation of federal and California law because, among other reasons, Apothio has no legal right to grow “hot” hemp and has no legally protected right in contraband (since, in Defendants’ view, the crop was “marijuana,” not lawful hemp). As of the date of this article, Apothio has yet to file an opposition to Defendants’ motions to dismiss.  

The case is Apothio LLC v. Kern County et al., No. 20-cv-00266 in the U.S. District Court for the Eastern District of California.


Not as Advertised: Lower-than-Promised CBD Content in Hemp Biomass

Key business takeaway: Ensure that the product you are purchasing contains the advertised cannabinoid content, and refrain from paying for the product until you have had the opportunity to reliably test it.   

Commodigy OG Vegas Holdings, LLC (“Plaintiff”) alleged that it paid defendants $540,000 for 13,500 pounds of industrial hemp, which, based on the defendants’ certificate of analysis, supposedly contained 10.32 % CBD. Once the Plaintiff received the biomass, however, it discovered that it contained less than 5% CBD.

Notably, the Plaintiff moved for a preliminary injunction, asking the Court to order the defendants to pay or freeze $540,000 pending the outcome of the case. The Court denied the request, but the case otherwise remains pending.

The case is Commodigy OG Vegas Holdings, LLC v. ADM Labs, No. 1:19-CV-01382, 2020 WL 999774 (N.D. Ohio Mar. 2, 2020)


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