Worst-Case Scenario Realized: Federal Lawsuit Against Hemp Companies

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For many years, those of us practicing in the areas of hemp and cannabis have been warning clients about the ever-present worst-case scenario – federal action against their company or person. It was like this dark cloud looming, threatening to rain on everyone’s parade. As the years went on and nothing “bad” happened, that rain cloud seemed far off.

History of the Hemp Industry

A little background – the 2018 Farm Bill removed hemp, defined as cannabis (Cannabis sativa L.) and derivatives of cannabis with extremely low concentrations of delta-9-tetrahydrocannabinol (THC) (no more than 0.3% THC on a dry weight basis), from the definition of marijuana in the Controlled Substances Act (CSA). Most states, including North Carolina, have adopted the same definition, and largely removed hemp from their criminal controlled substance statutes.


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The federal government has yet to regulate hemp products. States have done some regulation on their own but, without national standards, this remains a largely unrestricted market. The entire hemp industry seemed convinced that law enforcement at both the state and federal level was not interested in regulating these products. As that false sense of safety grew, the industry as a whole took more risks.

Between 2018 and 2024, the focus of the hemp industry shifted from wellness products like CBD to a focus on intoxicating cannabis products. The phrase “100% federally legal cannabis” is often displayed by hemp companies these days. This shift in focus, plus the aforementioned false sense of safety, and a lack of national standards has led to a commercial marketplace filled with a wide range of products made from an even wider range of hemp formulations many of which live in what I call a legal “grey” area. They may comply with the state and federal legal limits on paper but can fail to meet those limits when independently tested.

For years, I have urged my clients to set their own best practices and adopt practice standards higher than what is required by law in preparation for the day when things would change. However, as a business owner, its often hard to justify spending extra money on precautions and procedures you aren’t required to follow “just in-case.”


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Strategic Legal Partner in a Developing Industry

In February, a class action lawsuit was filed in Georgia alleging that several big names in cannabis and hemp illegally sold marijuana products that had been intentionally mislabeled as federally legal hemp goods and asks for a minimum of $150 million in damages. The suit charges the companies with negligent misrepresentation, fraud, unjust enrichment, and two counts of racketeering. The acts alleged in the suit are common occurrences for many operators in this space – THC levels above 0.3 delta-9 THC, contaminants found in the finished goods, and labels that don’t accurately reflect the products contents.

The entire industry will watch as this case unfolds, and while its outcome will certainly inform industry practice moving forward, the fact that it has been filed is a big wake-up call for the federally legal cannabis industry. Future regulation and enforcement should be anticipated.

Moving forward, if they haven’t already, hemp and cannabis industry operators must set a higher standard for themselves to protect themselves and their business. As an attorney practicing in this space, I will continue to advise my clients on what is required and consult with them on what “best practices” they can adopt to avoid what is now a very real “worst-case scenario.”


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Morgan Davis

Morgan Davis is the managing partner at Davis Legal, PLLC, a boutique corporate and cannabis law firm serving clients in North Carolina. For more information, contact Morgan Davis at [email protected] or 919-756-6437. For cannabis industry updates and more information about Davis Legal, visit morgandavislegal.com.

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