Maryland hemp industry sues state over new cannabis rules

"A group of hemp processors and retailers whose businesses heavily relied on delta-8 products sued Maryland regulators on Monday, claiming that the state is boxing them out of the new recreational cannabis industry.

Earlier this year, the General Assembly passed a law establishing rules for the new recreational cannabis industry that began July 1. That law also contained language that alarmed sellers of CBD and delta-8 products. It set a cap on any products that contain even small amounts of THC — a cap that is significantly smaller than what is currently allowed under federal law.

During the legislative session, these business owners unsuccessfully lobbied lawmakers to amend the bill, saying this provision would put them out of business. Now, some of them are suing, calling the new recreational cannabis industry “a classic prohibited monopoly, with the state as a willing profiteer in the system.”

Under the new law, anyone who sells a product with THC above that cap will need to get a Maryland cannabis license, but the state restricts the number of cannabis business licenses and new licenses are not expected to be issued until Jan. 1 or later.

In order to launch the recreational cannabis program, the state allowed every existing medical cannabis business to pay a fee and join the recreational cannabis industry.

State regulators are expected to roll out a new application process later this year for additional licenses that will roughly triple the number of existing licenses. Many of those licenses are reserved for “social equity” applicants, a designation based largely on whether an individual has lived in an area disproportionately impacted by the criminalization of cannabis

According to the lawsuit filed by the hemp businesses, these rules may appear designed to diversify the industry but actually will create relatively small changes. That’s because the current industry already is dominated by existing cannabis companies, the lawsuit said.

Applying for a new cannabis business license will be costly and take months or longer, the lawsuit said. The odds of being awarded a license are slim and many stores that sell delta-8 and hemp-derived products will go out of business in the meantime, harming both the owners and the consumers who prefer their products, the lawsuit said.

The lawsuit’s plaintiffs include a Hagerstown smoke shop, a Boonsboro hemp grower and processor, and other hemp-related businesses as well as the Maryland Hemp Coalition, an industry group. The lawsuit was filed in Washington County where two of the plaintiffs operate. The plaintiffs’ attorneys are Nevin Young and Ira Cooke.

The complaints names several employees of the Maryland Cannabis Administration and Gov. Wes Moore as defendants. Moore previously served on the board of Green Thumb Industries, a Chicago-based cannabis company with operations in a dozen states, including four dispensaries and a cultivation site in Maryland. Moore stepped down from that role in 2022. Earlier this year, he created a blind trust to manage his investment portfolio which at the time included 170,730 shares of Green Thumb Industries which were valued at about $1.2 million.

When asked for comment on the lawsuit, Moore issued a statement via a spokesman that did not mention hemp, CBD or delta-8, or the businesses that process and sell these products.

“The governor is proud of the state’s continued commitment to create a flourishing economy, establish necessary guardrails, and to create opportunity with a focus on equity and restoration,” Moore said.

The delta-8 and CBD industry took off after 2018, when federal lawmakers passed a farm bill that legalized the production of hemp nationwide.

The difference between hemp and cannabis is that hemp generally has very low amounts of intoxicating compounds and the plant also has industrial uses. While cannabis remains illegal federally, hemp can be grown and processed as long as the plant and any hemp-derived products are less than 0.3% delta-9 THC by weight.

While many people are familiar with the main psychoactive compound in cannabis — delta-9 THC — there are more than 100 other cannabinoids found within the cannabis and hemp plant, some of which have therapeutic and intoxicating effects.

Through chemical treatments, processors can extract and synthesize some cannabinoids from hemp while removing others, allowing stores to sell products with a variety of different cannabinoids, like delta-8, delta-10, CBD and CBG. Stores featuring these products have popped up nationwide, and some states have since banned or regulated some of these hemp-derived products.

The sale of these products in Maryland was almost entirely unregulated until this year, even as state and federal watchdogs grew increasingly concerned about the public health risks. Some retailers and hemp processors wanted regulation, hoping that it would legitimize the industry and ensure product safety.

The state’s new THC regulations limit its presence in other hemp-derived products to 0.5 milligrams per product — like a gummy — or 2.5 milligrams per package.

The businesses who filed suit this week say those regulations and Maryland’s cap on licenses have created an industry that is intentionally restrictive.

“It is designed to be unfair and to limit the number of applicants for highly coveted licenses worth millions of dollars so long as the monopoly remains intact,” the lawsuit said."