Agriculture Groups Sue FDA on Chlorpyrifos Ban

  • As previously reported, the Environmental Protection Agency (EPA) publishedfinal rule on August 30, 2021 that revoked all tolerances for the pesticide chemical chlorpyrifos on raw agricultural commodities; the rulemaking was driven by toxicity concerns, primarily concerning exposure in children. The tolerances are set to expire on February 28, 2022, effectively banning the use of chlorpyrifos on food crops. In light of the expiration, FDA published a guidance document to assist food producers and processors that handle foods which may contain chlorpyrifos restudies.
  • In October of 2021, agriculture stakeholders submitted formal written objections and a request to stay the tolerance revocations to EPA. More than 80 stakeholders signed the document, arguing that significant harms would result from banning chlorpyrifos and urging the agency to stay implementation of the rule until objections were formally addressed by EPA.
  • Agriculture stakeholder groups are now seeking a court injunction against EPA’s ban on chlorpyrifos. On February 10, 2022, agricultural trade groups representing thousands of members filed a lawsuit against EPA before the Eight Circuit Court of Appeals, alleging that the agency ignored its own scientific findings regarding 11 high-benefit and low-risk crop uses for chlorpyrifos and that the revocation will cause irreparable damage. It remains to be seen how EPA will respond to the lawsuit.
© 2022 Keller and Heckman LLP

Intellectual Property Consolidation in the Agriculture Industry

Ever since agencies around the world such as the USPTO, USDA, and Union for the Protection of New Varieties of Plants (UPOV) have started recognizing and enforcing intellectual property rights relating to plants, there has been a slow yet massive consolidation in global seed markets.  This article discusses a brief history of how intellectual property rights and lax antitrust enforcement in the seed industry created one of the largest industry consolidations and how the current Administration seems to be taking steps in the right direction.

Intellectual Property in the Agriculture Industry

In 1930, the United States began granting plant patents and the USPTO issued the first plant patent in 1931 for a rose.  The UPOV is an international organization that was founded in 1961 to acknowledge and make available exclusive property rights for breeders of new plant varieties in all member states to the UPOV Convention. The U.S. Plant Variety Protection Act (PVPA) was enacted by Congress in 1970 to encourage the development of new varieties and to make them available to the public.  The Plant Variety Protection Act established in the Department of Agriculture an office to be known as the Plant Variety Protection Office.  These regulations are all very important for the protection and continued innovation of certain varieties of crops and plants.  However, when genetically modified seeds were introduced in 1996, seed companies began to take advantage of these protections and began to invest heavily in amassing as many seed-related IP rights as they could.  As these companies have merged and acquired smaller businesses, they remove competition from the industry, harming farmers, families, and consumers.

There are many ways that companies protect intellectual property in the agricultural industry.  For example, companies file for utility patents to protect a wide variety of plant-related inventions, such as breeding methods, plant-based chemicals, plant parts, and plant products. Plant patents are unique to the United States and provide protection to any distinct and new variety of plant that has been asexually reproduced, other than a tuber-propagated plant or a plant found in an uncultivated state.  Plant Variety Protection certificates, which are similar to plant patents, provide certain exclusive rights to breeders of any new, distinct, uniform, and stable sexually or asexually reproduced or tuber-propagated plant varieties.  Other rights, known as Breeders’ Rights, exist in other countries outside the United States and are very similar to the Plant Variety Protection regulations.  These protections generally last for 20 years from the date of filing and, according to the World Intellectual Property Organization, the patent owner has the right to decide who may – or may not – use the patented invention for the period in which the invention is protected.

The Key Players in the Agriculture Industry

Monsanto was a multinational agricultural biotechnology corporation founded in 1901 and based in the United States.  In 1970, Monsanto scientist John Franz discovered that glyphosate was an herbicide and quickly patented it as such.  In 1974, Monsanto brought the patented glyphosate herbicide to the market using the tradename “Roundup.”  In 1996, Monsanto created the first genetically engineered (GE), glyphosate-resistant crop, causing Roundup-resistant soybeans to be planted commercially throughout the United States.  By 1998, glyphosate-resistant corn was available on the market, and Monsanto became the largest supplier of these new GE, “Roundup-Ready” seeds.  This was such a breakthrough in the agriculture industry that in 2003, Roundup-Ready seeds accounted for about 90% of the genetically modified seeds planted around the globe.

As with many industries, the agriculture industry has those companies that are at the top and those that are not.  The agriculture industry’s “Big Six” companies—Monsanto, DuPont, Syngenta, Dow, Bayer, and BASF—turned into the “Big Four”—ChemChina, Corteva, Bayer, and BASF— after a series of mergers and acquisitions that took place in the last decade with very little oversight from some of the antitrust authorities in the United States and around the world.  As a result of these mergers, the “Big Four” companies now control around 60% of the proprietary seed in the world market.

The Consolidation of the Seed Industry

Dr. Phil Howard from Michigan State University discussed the tremendous consolidation of the commercial seed industry in one of his first publications, 2009’s Visualizing Consolidation in the Global Seed Industry: 1996-2008.  Dr. Howard describes how the hybrid-seed corn industry of 1930, the enforcement of patent-like protections, and especially the commercialization of fully patent-protected transgenic, genetically engineered seeds in the mid-late 1990s triggered a wave of consolidation in the agricultural industry.  To make matters worse, when these companies consolidated and amassed massive intellectual property portfolios, it was not uncommon for seed rights to be bundled with other inputs to protect profits in other, agrochemical divisions.  For example, as Dr. Howard details in Visualizing Consolidation, in order to use Monsanto’s herbicide-tolerant transgenic seed, farmers are required to also use Monsanto’s proprietary glyphosate herbicide, rather than a generic herbicide.  Essentially, if you were buying Roundup-Ready seed, you were buying Roundup herbicide, and if you were using Roundup herbicide, it was probably a good idea to buy Roundup-Ready seed.  This type of competitive business practice is one that eventually creates a multitude of problems for smaller, independent businesses, breeders, and farmers.

Antitrust and Anti-Competition in America

Antitrust laws are not a new concept in American society.  Antitrust laws are statutes and regulations that are designed to promote the overall competition in the market by promoting free, open, and competitive markets.  Congress passed the first antitrust law in 1890 when it wrote the Sherman Act, which made it illegal for companies to enter into agreements to compete with one another, resulting in price fixing and monopoly power.  Several years later, in 1914, Congress passed the Clayton Act and Federal Trade Commission Act to protect American consumers by giving the Federal Trade Commission (FTC) and the Department of Justice (DOJ) the authority to oversee and review mergers and acquisitions that are likely to stifle competition.  Under the Hart-Scott-Rodino Act, the FTC and DOJ review most of the proposed transactions that affect commerce in the United States and either agency can take legal action to block deals that it believes would “substantially lessen competition.”

While these laws are all beneficial in theory, their implementation in the agricultural industry has been lacking to say the least.  According to a study in 2018, Bayer alone is estimated to control 35% of corn seed, 28% of soybean seed, and 70% of cottonseed in the global market!  Even more alarming may be the USDA’s 2014 report citing concerns that glyphosate-resistant crops have become ubiquitous with American agriculture with 93% of soybeans, 85% of corn, and 82% of cotton planted being genetically modified to be glyphosate-resistant.  The herbicides that are used to combat the weeds surrounding the crops, in many cases, are supplied by the same company that provides the seeds.

Promoting Competition in the Agriculture Industry

It has been almost a century since the first antitrust laws were enacted, and yet the problem of corporate consolidations remains in many industries across America.  On July 9, 2021, the Biden Administration signed an executive order aimed to promote competition within various industries in the United States.  The order includes 72 initiatives by more than a dozen federal agencies to promptly tackle some of the most pressing competition problems across our economy.  According to the Administration, this order is a “whole-of-government” approach to drive down prices for consumers, increase wages for workers, and facilitate innovation. This was a major step in the right direction to weaken the power that major businesses have obtained as a result of corporate consolidation in industries like healthcare, technology, transportation, and especially agriculture.

This Executive Order also established the White House Competition Council to drive forward the Administration’s whole-of-government effort to promote competition.  On September 10, 2021, the Competition Council held its inaugural meeting to discuss promoting pro-competitive policies and new ways of delivering concrete benefits to America’s consumers, workers, farmers, and small businesses.  During the meeting, the heads of the Department of Health and Human Services, the Department of Transportation, the Department of Justice, the United States Department of Agriculture, and the Federal Trade Commission briefed the council members on their efforts to implement the directives of the Executive Order.

The Challenge of Facing the Consolidated Agriculture Industry

According to an October 20, 2021 report by Thomson Reuters, Tom Vilsack, the U.S. Secretary of Agriculture, said that the Biden Administration plans to take a hard look at the consolidation of the seed industry and figure out “why it’s structured the way it’s structured” and “whether these long patents make sense.”  The White House Competition Council is certainly faced with a difficult challenge to parse through both anti-competition law and intellectual property law.  For centuries these bodies of law have caused great debate.  One body of law restricts monopolization wherein the later grants monopolistic opportunities.

There is no doubt that any changes to the current seed industry scene would shake things up.  But what exactly would that look like?  Are we going to see the “Big-4” morph into another, new identity?  Are changes to the patent law system likely?  Whatever happens, the agriculture industry will likely pay close attention to the actions of the White House Competition Council over the next couple months.

Copyright 2021 Summa PLLC All Rights Reserved

The Sesame Seed Scandal!

Back in September, Belgium informed French authorities, via the RASFF, that ethylene oxide had been found in imported sesame seeds. The amount of ethylene oxide surpassed the maximum amount allowed under regulations. Subsequent DGCCRF checks have shown that other products (like spices) may also be contaminated.

Investigations are ongoing, but French health authorities and EU member states have taken measures to withdraw or recall any contaminated substances, the list of which continues to grow…

Le scandale des grains de sésame prend de l’ampleur !

Ce qui – en septembre – semblait être limité aux « graines de sésames », prend aujourd’hui une toute autre dimension. En effet, il s’agit de signaler comme potentiellement dangereux tout ingrédient alimentaire ayant été traité à l’oxyde d’éthylène.

Et la liste s’allonge…..

© 2021 Keller and Heckman LLP


For more articles on food and drug law, visit the NLR Biotech, Food, Drug section.

Farm Lending Pitfalls For Urban Lawyers

OK, so you’re a sophisticated lending attorney in Metropolis who is comfortable with everything from aircraft financing to syndicated loans secured by casinos in Macau. Yet you feel a twinge of uncertainty when a business loan is to be secured by wine inventory made from grapes grown in both California and Washington. You know intuitively that anytime farmers, ranchers or food processors are in the mix, either as a borrower or a supplier to the borrower, the underwriting and documentation challenges are not uniform on a state-by-state basis, and are compounded by an overlay of federal laws designed to protect growers of perishable crops and providers of livestock. To get a reality check, you sometimes will secretly call your law school classmate who oddly returned to Smallville and now represents its one bank.

Your concerns are justified but can be reduced by understanding a handful of specific laws that should prompt discussion of documentation and collection risks. First and foremost, all 50 states have unique lien statutes designed to protect those who provide goods, services, land and labor to farmers, ranchers and food processors. Dealing with competing liens and quantifying risk is nothing new to lenders, but the problem posed by agricultural liens is that they often are not searchable (no public filing is required), yet they often are senior in lien priority to conventional Uniform Commercial Code (UCC) security interests. As a result, the number and size of such liens are unknowable except from reliance on the borrower’s own books and records, which hopefully are current and accurate.

To exemplify this risk, let’s return to the winery loan that made you uneasy. California law provides a Producers Lien (Cal. Food & Agric. Code 55631-55653) to unpaid grape producers in an unlimited amount without requiring any public or searchable filing. A Producer Lien’s priority is senior to all UCC security interests and other claims, except for UCC warehouse liens and laborers’ wage claims. Cal. Food & Agric. Code 55633; Frazier Nuts v. American AgCredit, 141 Cal. App. 4th 1263 (2006). The Producers Lien attaches not only to the wine sitting in the borrower’s inventory, but also to the accounts generated by the sale of wine. Frazier Nuts, supra, at 1270. Thus, the lender’s $10 million revolving line of credit, ostensibly well secured by wine inventory and accounts valued at $20 million, has a far different risk profile if the borrower did not fully disclose the amount of unpaid grower claims, an amount which varies during the winery’s business cycle. The full amount of these Producer Liens will prime the lender’s unpaid loan if collection remedies ever become necessary. Cal. Food & Agric. Code 55634.

Faced with this risk, a reasonable lender might attempt to identify likely holders of Producer Liens and obtain a waiver or subordination of the statutory liens. This solution is possible but not foolproof; waivers of Producer Liens laws have been overturned on grounds showing they were not knowingly and intentionally given. See, e.g., Silva Farms v. Wells Fargo Bank (In Re GVF Cannery, 202 B.R. 140 (N.D. Cal. 1996).

Before throwing in the towel, however, bear in mind that some statutory agricultural liens are searchable because of public filing requirements and are also governed by the UCC’s “first in time” priority rules. Seee.g., California’s Dairy Cattle Supply Lien, Food & Agric. Code 57401-57414; Agricultural Chemical and Seed Lien, Food & Agric. Code 57551-57595; and Poultry and Fish Supply Lien, Food & Agric. Code 57501-57545. These filing and priority rules resulted from efforts by the UCC’s Permanent Editorial Board to bring statutory liens within the UCC’s framework, but only with partial success. Thus, the lawyer’s analysis includes not only spotting the potential statutory lien, but knowing when its risk is manageable or mitigated by the specific lien’s UCC-like searchability and collection priority.

Moving beyond state lien laws, which by themselves are powerful tools in a priority dispute with a conventional UCC lender, federal laws sometimes provide an even more powerful tool. Growers of perishable fruits and vegetables, as well as providers of livestock and poultry, are afforded federal protections under the Perishable Agricultural Commodities Act (PACA), 7 U.S.C. 499, and the Packers and Stockyards Act (PASA), 7 U.S.C. 181. PACA and PASA do not simply create a lien that competes with a UCC security interest; they may actually impose a trust on the farm products, the inventory created from such products and all receivables and other proceeds generated by those perishable commodities and livestock. 7 U.S.C. 499e(c)(2). By placing these products and proceeds in a trust, any purported security interest in the same assets is limited to the residual value after the trust beneficiaries – the unpaid suppliers – are paid. And when assets are subject to a PACA or PASA trust, certain individuals are saddled with the legal duties of a trustee to pay those unpaid beneficiaries, creating strong incentives for the PACA or PASA trustee to do so to avoid personal liability.  Seee.g. Coosemans Specialties v. Gargiulo, 485 F. 3d 701 (2d Cir. 2007).

To quantify the risks posed by these federal statutory trusts, the limits of these statutes and common defenses to them must be understood. For example, the most common questions for the application and extent of the PACA trust include: (1) is the product a perishable agricultural commodity under 7 U.S.C. 499a(b)(4); (2) was the receiver of the produce licensed or otherwise subject to PACA under 7 U.S.C. 499a(b)(6); and (3) did the PACA claimant comply with, or waive the protections of, PACA? A common defense to a PACA claim is that the payment terms exceeded 30 days. 7 C.F.R. 46.46(e)(2). Other more technical disqualifying terms or deficiencies are numerous. But once the lender is aware of the possibility of a federal trust being imposed on the collateral in question, the lender cannot rely upon the prospect of the trust beneficiary’s mistakes to value its own collateral when making underwriting decisions.

In short, an agricultural loan backed by a UCC security interest must be underwritten, sized and subsequently monitored based on the risks posed both by these federal trust statutes and a host of non-uniform, state agricultural liens. A survey of state agricultural liens, PACA and PASA are the subject of entire treatises and beyond the scope of this overview.  (Excellent scholarly papers and 50 state surveys are available from the National Agricultural Law Center, https://nationalaglawcenter.org.) The key for the careful transactional lawyer is to identify the risks and ask the right questions. Because these statutory liens and federal trusts reflect strong public policies, most of these statutory liens and trust rights cannot easily be waived or avoided, but they can be understood and the associated risks managed. In few areas of commerce is this exercise more challenging than agricultural lending to farmers, ranchers and food processors of every type.

Copyright © 2020, Sheppard Mullin Richter & Hampton LLP

For more articles on the agriculture industry, visit the NLR  Environmental, Energy & Resources

Farm Lending Pitfalls For Urban Lawyers

OK, so you’re a sophisticated lending attorney in Metropolis who is comfortable with everything from aircraft financing to syndicated loans secured by casinos in Macau. Yet you feel a twinge of uncertainty when a business loan is to be secured by wine inventory made from grapes grown in both California and Washington. You know intuitively that anytime farmers, ranchers or food processors are in the mix, either as a borrower or a supplier to the borrower, the underwriting and documentation challenges are not uniform on a state-by-state basis, and are compounded by an overlay of federal laws designed to protect growers of perishable crops and providers of livestock. To get a reality check, you sometimes will secretly call your law school classmate who oddly returned to Smallville and now represents its one bank.

Your concerns are justified but can be reduced by understanding a handful of specific laws that should prompt discussion of documentation and collection risks. First and foremost, all 50 states have unique lien statutes designed to protect those who provide goods, services, land and labor to farmers, ranchers and food processors. Dealing with competing liens and quantifying risk is nothing new to lenders, but the problem posed by agricultural liens is that they often are not searchable (no public filing is required), yet they often are senior in lien priority to conventional Uniform Commercial Code (UCC) security interests. As a result, the number and size of such liens are unknowable except from reliance on the borrower’s own books and records, which hopefully are current and accurate.

To exemplify this risk, let’s return to the winery loan that made you uneasy. California law provides a Producers Lien (Cal. Food & Agric. Code 55631-55653) to unpaid grape producers in an unlimited amount without requiring any public or searchable filing. A Producer Lien’s priority is senior to all UCC security interests and other claims, except for UCC warehouse liens and laborers’ wage claims. Cal. Food & Agric. Code 55633; Frazier Nuts v. American AgCredit, 141 Cal. App. 4th 1263 (2006). The Producers Lien attaches not only to the wine sitting in the borrower’s inventory, but also to the accounts generated by the sale of wine. Frazier Nuts, supra, at 1270. Thus, the lender’s $10 million revolving line of credit, ostensibly well secured by wine inventory and accounts valued at $20 million, has a far different risk profile if the borrower did not fully disclose the amount of unpaid grower claims, an amount which varies during the winery’s business cycle. The full amount of these Producer Liens will prime the lender’s unpaid loan if collection remedies ever become necessary. Cal. Food & Agric. Code 55634.

Faced with this risk, a reasonable lender might attempt to identify likely holders of Producer Liens and obtain a waiver or subordination of the statutory liens. This solution is possible but not foolproof; waivers of Producer Liens laws have been overturned on grounds showing they were not knowingly and intentionally given. See, e.g., Silva Farms v. Wells Fargo Bank (In Re GVF Cannery, 202 B.R. 140 (N.D. Cal. 1996).

Before throwing in the towel, however, bear in mind that some statutory agricultural liens are searchable because of public filing requirements and are also governed by the UCC’s “first in time” priority rules. Seee.g., California’s Dairy Cattle Supply Lien, Food & Agric. Code 57401-57414; Agricultural Chemical and Seed Lien, Food & Agric. Code 57551-57595; and Poultry and Fish Supply Lien, Food & Agric. Code 57501-57545. These filing and priority rules resulted from efforts by the UCC’s Permanent Editorial Board to bring statutory liens within the UCC’s framework, but only with partial success. Thus, the lawyer’s analysis includes not only spotting the potential statutory lien, but knowing when its risk is manageable or mitigated by the specific lien’s UCC-like searchability and collection priority.

Moving beyond state lien laws, which by themselves are powerful tools in a priority dispute with a conventional UCC lender, federal laws sometimes provide an even more powerful tool. Growers of perishable fruits and vegetables, as well as providers of livestock and poultry, are afforded federal protections under the Perishable Agricultural Commodities Act (PACA), 7 U.S.C. 499, and the Packers and Stockyards Act (PASA), 7 U.S.C. 181. PACA and PASA do not simply create a lien that competes with a UCC security interest; they may actually impose a trust on the farm products, the inventory created from such products and all receivables and other proceeds generated by those perishable commodities and livestock. 7 U.S.C. 499e(c)(2). By placing these products and proceeds in a trust, any purported security interest in the same assets is limited to the residual value after the trust beneficiaries – the unpaid suppliers – are paid. And when assets are subject to a PACA or PASA trust, certain individuals are saddled with the legal duties of a trustee to pay those unpaid beneficiaries, creating strong incentives for the PACA or PASA trustee to do so to avoid personal liability.  Seee.g. Coosemans Specialties v. Gargiulo, 485 F. 3d 701 (2d Cir. 2007).

To quantify the risks posed by these federal statutory trusts, the limits of these statutes and common defenses to them must be understood. For example, the most common questions for the application and extent of the PACA trust include: (1) is the product a perishable agricultural commodity under 7 U.S.C. 499a(b)(4); (2) was the receiver of the produce licensed or otherwise subject to PACA under 7 U.S.C. 499a(b)(6); and (3) did the PACA claimant comply with, or waive the protections of, PACA? A common defense to a PACA claim is that the payment terms exceeded 30 days. 7 C.F.R. 46.46(e)(2). Other more technical disqualifying terms or deficiencies are numerous. But once the lender is aware of the possibility of a federal trust being imposed on the collateral in question, the lender cannot rely upon the prospect of the trust beneficiary’s mistakes to value its own collateral when making underwriting decisions.

In short, an agricultural loan backed by a UCC security interest must be underwritten, sized and subsequently monitored based on the risks posed both by these federal trust statutes and a host of non-uniform, state agricultural liens. A survey of state agricultural liens, PACA and PASA are the subject of entire treatises and beyond the scope of this overview.  (Excellent scholarly papers and 50 state surveys are available from the National Agricultural Law Center, https://nationalaglawcenter.org.) The key for the careful transactional lawyer is to identify the risks and ask the right questions. Because these statutory liens and federal trusts reflect strong public policies, most of these statutory liens and trust rights cannot easily be waived or avoided, but they can be understood and the associated risks managed. In few areas of commerce is this exercise more challenging than agricultural lending to farmers, ranchers and food processors of every type.

Copyright © 2020, Sheppard Mullin Richter & Hampton LLP.


Can the DOJ Really Prosecute State-Legal Marijuana Entities?

On Feb. 10, 2020, as West Virginia companies were finalizing applications for medical marijuana permits, President Donald J. Trump made statements that caused several companies to reconsider filing. President Trump said he is “empowered to ignore the congressionally approved medical cannabis rider [to the Omnibus Spending Bill], stating that the administration ‘will treat this provision consistent with the president’s constitutional responsibility to faithfully execute the laws of the United States.’”[1]

Both existing medical marijuana companies and those interested in applying for permits want to know whether this assertion of power would be justified and if it would affect their ability to do business going forward. That is: Has the executive branch been empowered to ignore the congressional spending power given to Congress in the Constitution? If so, from where does that power derive? Further, when two Congressional Acts conflict, what is the executive “empowered” to do, if anything?

Under Article II, Section 3, of the Constitution, “The executive power shall be vested in a president . . . [who] shall take care that the laws be faithfully executed.”[2] By assigning the executive power to see that laws be “faithfully executed” and assigning Congress with “all legislative powers” granted by the Constitution, the founders limited the executive to only enforce the laws promulgated by Congress.[3] Thus, the executive branch is given limited power, which “must stem either from an act of Congress or from the Constitution itself.”[4] Under the Controlled Substances Act (CSA), Congress has given the executive expressed power to enforce the laws identified under the CSA. This power, however, is limited to Congressional authority. Thus, the power can be suppressed or eradicated by Congress at will. When this occurs, the executive has little to no ability to enforce the law.[5]

In 1970, Congress enacted the CSA to regulate specific drugs deemed at risk of abuse and dependence.[6] Since then, cannabis has been declared by Congress to be a Schedule I drug, meaning there is no acceptable medical use, establishing its outright ban. To support the banning of cannabis, Congress asserted, “Controlled substances [like cannabis] have a substantial and detrimental effect on the health and general welfare of the American people.” Until 2014, Congress supported the full enforcement of the CSA through Omnibus Spending Bills.

However, in 2014, in public law No. 113-235, Section 38, in the Rohrabacher-Farr Amendment, Congress expressed its will to limit the DOJ’s (executive’s) power to enforce the CSA by restricting the DOJ’s use of congressionally approved funds therein. Specifically, the amendment prevented funds made available under the spending bill “to be used to prevent [32 States and the District of Columbia] from implementing their own state laws that authorize the use, distribution, possession, or cultivation of medical marijuana.” In so doing, Congress effectively removed the DOJ’s power to enforce the CSA against state legal entities.

In addition to the question of enforcement authority by the executive, there are also questions regarding whether Congress was endowed with the power to regulate the cultivation, processing, or sale of drugs generally. In our limited federal government model, in order for Congress to create a law, it must have been given the power to act by the Constitution.[7] There are two essential constitutional provisions typically relied upon to justify the vast majority of our laws, which are both found in Article I, Section 8 of the Constitution.[8] The first is the power to tax and spend for the “general welfare” of the people. The other is the power to regulate interstate commerce. The founders feared the power to tax and spend for the general welfare had the potential to be broadly construed, and they discussed at length how the General Welfare Clause should be interpreted narrowly.[9] 

In other words, absent an enumerated power listed in Article I, Section 8 or an amendment to the Constitution, Congress has no constitutional power to act. Some contemporary examples highlight the means by which Congress has been able to regulate such vices when there is no enumerated constitutional power to do so. For example, when Congress outlawed the sale of alcohol during the prohibition era, it could not do so based on the language of the Constitution. Rather, Congress had to amend the Constitution with the ratification of the 18th Amendment in 1919. Congress had no such constitutional authority to ban alcohol; it had to create a new power to enact prohibition. Likewise, when the federal government wanted to enact a federal minimum drinking age of 21, it knew it could not create a law mandating the restriction, because no such constitutional power exists. Rather, Congress used the General Welfare Clause by conditioning receipt of federal highway funds on a state’s adoption of the 21-year age limit.[10] Congress did not create a national drinking age; it just provided a carrot to trigger state compliance.[11] 

Despite this legislative history, the Supreme Court found Congress has the authority to enact the CSA pursuant to the Commerce Clause.[12] Specifically, in Raich, California’s Compassionate Use Act authorized limited marijuana use for medicinal purposes, and respondents Raich and Monson, who were California residents, both used doctor-recommended marijuana for serious medical conditions.[13] After federal Drug Enforcement Administration (DEA) agents seized and destroyed all six of Monson’s cannabis plants, respondents brought this action seeking injunctive and declaratory relief prohibiting the enforcement of the federal CSA to the extent it prevented them from possessing, obtaining, or manufacturing cannabis for their personal medical use.[14]  Respondents argued enforcing the CSA against them would violate the Commerce Clause and other constitutional provisions.[15] The district court denied the respondents’ motion for a preliminary injunction, but the Ninth Circuit reversed, finding they had “demonstrated a strong likelihood of success on the claim that the CSA is an unconstitutional exercise of Congress’ Commerce Clause authority” as applied to the intrastate, noncommercial cultivation and possession of cannabis for personal medical purposes.[16] On review, the Supreme Court vacated the Ninth Circuit and reinstated the district court’s ruling.[17] It held Congress was acting within its Commerce Clause power in enacting the CSA.[18] Whether that holding would be revisited is a question many are currently asking.


[1] Kyle Jaeger, Trump Budget Proposes Ending State Medical Marijuana Protections and Blocking DC From Legalizing, Marijuana Moment, (February 10, 2020) https://www.marijuanamoment.net/trump-budget-proposes-ending-state-medic….

[2] The Constitution enumerates few powers to the executive.  These include: power to veto bills passed by Congress—art. I, § 7, cls. 2 & 3; power to write checks pursuant appropriations made by law—art. I, § 9; military power as commander in chief—art. II, § 2, cl. 1; pardon power—Id.; power to make treaties, with advice and consent of the Senate—art. II, §2, cl. 2; power to nominate ambassadors, federal judges, and other public officers, with advice and consent of the senate—Id.; power to make recess appointments—art. II, § 2, cl. 3; and power to convene and adjourn both houses of Congress—art. II, § 3. The Constitution also imposes duties on the president, which the president has power to implement. These include: duty to preserve, protect and defend the Constitution—art. II, § 1; duty to advise Congress on the state of the union—art. II, § 3; duty to receive ambassadors and other public ministers—Id.; duty to faithfully execute the law passed by Congress—Id.; and duty to commission officers of the United States—id.

[3] See Youngstown Sheet & Tube Co. v. Sawyer, 343 U.S. 579, 587-588 (1952).

[4] Id. at 585. 

[5] See id., at 602 (Frankfurter, J. concurring) (stating that “[i]t cannot be contended that the president would have had power” when “Congress explicitly negated such authority in formal legislation.”  Thus, “Congress has expressed its will to withhold power from the president”).

[6] Joanna R. Lampe, Cong. Research Serv., R45948, The Controlled Substances Act (CSA): A Legal Overview for the 116th Congress Summary (2019).

[7] Andrew Nolan, et al., Cong. Research Serv., R45323, Federalism-Based Limitations on Congressional Power: An Overview 4 (2018).

[8] The specific provisions stated within U.S. Const. art. I. § 8 are: “The Congress shall have power To lay and collect taxes, duties, imposts and excises, to pay the debts and provide for the common defence and general welfare of the United States; but all duties, imposts and excises shall be uniform throughout the United States;” and “to regulate commerce with foreign nations, and among the several states, and with the Indian Tribes[.]” 

[9] Prior to the ratification of the Constitution, Alexander Hamilton, largely known as the leading advocate for a strong federal government, provided that “[t]his specification of particulars [the 18 enumerated powers of Article I, Section 8] evidently excludes all pretension to a general legislative authority, because an affirmative grant of special powers would be absurd as well as useless if a general authority was intended.”[9]The Federalist 83 (Alexander Hamilton) (emphasis added); later Hamilton would take a more expansive view on the clause. See Hamilton, Alexander, (5 December 1791) “Report on Manufactures” The Papers of Alexander Hamilton (ed. by H.C. Syrett et al.; New York and London: Columbia University Press, 1961–79).James Madison, another key Federalist, said if Congress could do anything it wanted to promote the general welfare, then it “would be a metamorphosis of the Constitution into a character which there is a host of proofs was not contemplated by its creators.”[9] Letter from James Madison to James Robertson, Jr., (20 April 1831), National Archives, Founders Online, https://founders.archives.gov/documents/Madison/99-02-02-2332 (last updated September 29, 2019).

[9] See South Dakota v. Dole, 483 U.S. 203, 211-12 (1987).

[10] See id.

[11] Something to consider today is Congress’ recent act to raise the federal age of tobacco use to 21. Rather than attempting to connect the minimum age to a constitutional authority like the prior examples, it appears Congress outright mandated it to the states. This demonstrates that, over time, Congress feels it has gotten stronger as constitutional protections have weakened.

[12] Gonzales v. Raich, 545 U.S. 1 (2005).

[13] Id. at 6-7.

[14] Id. at 7.

[15] Id. at 8.

[16] Id.

[17] Id. at 9.

[18] Id. at 22.


© 2020 Dinsmore & Shohl LLP. All rights reserved.

For more on marijuana businesses, see the National Law Review Biotech, Food  & Drug law section.

New Joint Website on Agricultural Biotechnology Products Launched by EPA, USDA, and FDA

On January 9, 2020, the U.S. Environmental Protection Agency’s (EPA) Office of Pesticide Programs (OPP) announced the launch of a new website created in coordination with the U.S. Department of Agriculture (USDA) and the Food and Drug Administration (FDA) that provides information about actions the federal government is taking to oversee the development of agricultural biotechnology products.  This “one-stop-shop” website was created under the direction of Executive Order (EO) “Modernizing the Regulatory Framework for Agricultural Biotechnology Products.”

EPA regulates biotechnology-based pesticides under the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA), and residues from such pesticides under the Federal Food, Drug and Cosmetic Act (FFDCA).  EPA also regulates under the Toxic Substances Control Act (TSCA) certain new microorganisms that are not subject to regulation under other statutes.  USDA regulates certain new biotechnology products under the Plant Protection Act (PPA), including agricultural crops that have been modified to be resistant to conventional pesticides.  FDA regulates the safety of human and animal foods produced using biotechnology, including genetically modified agricultural crops and animals, and the safety of drugs and human biologics produced with biotechnology, under the FFDCA.

The website, The Unified Website for Biotechnology Regulation, describes the federal review process for biotechnology products, outline’s each agency’s role in regulating biotechnology products, and allows users to submit questions to the three agencies.  EPA Administrator Andrew Wheeler states that the new website “will help provide regulatory certainty and clarity to our nation’s farmers and producers by bringing together information on the full suite of actions the Trump Administration is taking to safely reduce unnecessary regulations and break down barriers for these biotechnology products in the marketplace.”

Commentary

In recent years, a number of Non-Governmental Organizations (NGO) have raised concerns regarding the risks from products that have been genetically modified using biotechnology, including agricultural crops that have been genetically modified to improve pesticide or disease resistance, and agricultural animals that have been genetically modified to enhance food production.  In some instances, farmers have also expressed concern that crops with novel traits may exchange genetic information with other plant strains or species.  Implicit in all of this criticism is a presumption that the agencies with regulatory jurisdiction over these novel organisms have not adequately prevented or mitigated the risks associated with biotechnology.

In contrast, proponents of biotechnology have complained that regulatory requirements imposed by the responsible agencies have stifled useful innovation and have requested relief from regulatory requirements that they contend have impeded or slowed introduction of new products of agricultural biotechnology.  The Executive Order that underlies the new website seeks to streamline the administrative process for introducing novel agricultural products without increasing potential risks of biotechnology.

Additional information on how EPA regulates biotechnology products is available here.


©2020 Bergeson & Campbell, P.C.

For more on biotech, see the National Law Review Biotech, Food & Drug lawpage.

House Vote on Cannabis Industry-Related SAFE Banking Act Scheduled for September 2019

As early as September 23, 2019, the United States House of Representatives is expected to vote on the widely anticipated Secure and Fair Enforcement (SAFE) Banking Act. First introduced in both chambers of Congress in 2017, re-introduced in the House in March of 2019, and amended this past June, the SAFE Banking Act has garnered bipartisan support as a necessary solution to the dilemma created by conflicting federal and state cannabis law regimes, particularly as it relates to financial service providers.

According to a press release issued by the House Committee on Financial Services on March 26, 2019, committee chairwoman, Representative Maxine Waters (D-CA), remarked, the SAFE Banking Act “addresses an urgent public safety concern for legitimate businesses that currently have no recourse but to operate with just cash.” The Act joins the ranks of congressional efforts such as the Rohrabacher-Farr amendment to omnibus spending bills, Section 728 of the Consolidated Appropriations Act of 2019, the pending Blumenauer amendment, and proposed Strengthening the Tenth Amendment Through Entrusting States (STATES) Act—all of which seek to reconcile the federal government’s failure to enact comprehensive marijuana and, until recently, hemp policy despite widespread support on the state and local level. Status in the Senate is uncertain, as the chair of the Banking Committee has indicated an intent to poll those in Idaho, a state that has failed to legalize any form of cannabis, regarding the issue.

Today’s cannabis industry encompasses the growth, processing, distribution, and other ancillary services related to both hemp and marijuana. While hemp and marijuana are both derived from the plant Cannabis sativa L, they are legally distinguished on both a federal and state level by their THC content. As a result, marijuana remains a controlled substance under federal law, while hemp, boasting lower THC levels, is classified as an agricultural product within the purview of the United States Department of Agriculture (USDA). This federal distinction, however, has not prevented more than 40 states from legalizing marijuana for medical and/or recreational adult use. Unfortunately, the businesses that choose to take advantage of such progressive state marijuana laws must do so without the support of traditional financial institutions that businesses, particularly minority and women-owned, rely on to fund and protect their financial growth.

According to §4(a) of the bill’s text, the SAFE Banking Act will shield depository institutions that serve cannabis-related businesses from federal penalties in states and Indian country where “cultivation, production, manufacture, sale, transportation, display, dispensing, distribution, or purchase” of cannabis is legal. In particular, the Act will prohibit regulators from terminating or limiting deposit or share insurance of financial instruments because an institution’s client participates directly or indirectly in the cannabis industry. Regulators will also be prohibited from penalizing institutions for authorizing, processing, clearing, settling, billing, transferring, reconciling, or collecting payments for a legitimate cannabis-related business for payments made by any means, including a credit, debit, or other payment card, an account, check, or electronic funds transfer. Perhaps, most importantly, the Act will also require the Federal Financial Institutions Examination Council (FFIEC) to develop uniform guidance and examination procedures for depository institutions serving cannabis-related businesses.

For financial institutions and insurance providers operating in states where cannabis is legal, this creates an immense opportunity and incentive to assist industry participants as they strive to protect and invest their monetary assets without putting the institutions they rely on at risk of federal prosecution. However, because protections under the SAFE Banking Act only apply when legitimate cannabis-related businesses are involved, monitoring clients’ compliance with relevant state laws will be particularly important. In the absence of clear federal marijuana policy and official hemp regulations under the 2018 Farm Bill, in addition to constantly evolving state laws and regulations, this may prove especially challenging. As such, in anticipation of the Act’s passage, financial institutions should enlist the support of experienced legal counsel to ensure the necessary processes for monitoring clients’ compliance are in place. In addition, those seeking to benefit under the Act should still pay close attention to due diligence requirements promulgated by the Financial Crimes Enforcement Network (FinCEN), although many concerns should be alleviated by the Act’s prohibition on civil or criminal prosecution solely based on the provision of financial services or investing income derived from such services.

NOTE: Cannabis as defined under the Act only references marijuana. However, in practice, the bill’s passage should alleviate apprehension surrounding hemp, as many financial institutions and their affiliates have refrained from offering services to hemp businesses under the current financial legal framework, even in the wake of the 2018 Farm Bill and pending USDA regulations.

Read the bill’s text here.


© 2019 Dinsmore & Shohl LLP. All rights reserved.

This article was written by Jennifer K. MasonMichael G. Dailey and Ambur C. Smith of Dinsmore & Shohl LLP.
For more marijuana & cannabis legislation, see the National Law Review Biotech, Food & Drug law page.

A Win for Hemp in Court, and What it (Might) Mean for North Carolina

The hemp and cannabidiol (“CBD”) industries today face substantial uncertainty, and they lack clear Federal rules, regulations, and guidance within which governments and businesses can safely operate.

That dearth of guidance has, to some degree, left individual states to wrestle with how best to regulate and control the production and sale of hemp and hemp-derived products within their own borders.  At the epicenter of this struggle to address and regulate hemp in North Carolina is “smokable hemp.”

Where Do Things Stand in North Carolina?

When we last commented on the state of legislative efforts in North Carolina, the House of Representatives – along with local and state law enforcement agencies and county district attorneys – were fighting hard to kill the smokable hemp market in our state.  The proposal set forth in the current version of the NC Farm Act of 2019 (“SB 315”) seeks to immediately ban and reclassify smokable hemp as marijuana (the Senate version of the bill included a ban as well but on a much more delayed timeline), and to subject its cultivation, sale, possession, and consumption to the same criminal and civil penalties as those for marijuana.  The arguments and justifications for this ban have shifted over time, but generally include: that failing to ban smokable hemp will create “de facto” marijuana legalization in our state; that hemp and marijuana are indistinguishable in appearance and smell; that law enforcement will lose probable cause for drug-related searches and seizures; and that they will have to purchase expensive equipment to perform THC analysis in crime labs; that they will have to retire or retrain drug-sniffing canines (yes – this is apparently more important to House Republicans than the livelihood of our farmers and citizens’ civil liberties); that officers will have to be retrained and assigned to other jobs within their departments; and a general unwillingness to police and enforce marijuana laws differently in the future.

Since then, additional changes have been made to SB 315 – none of which are industry-friendly – and the bill was passed and approved by the House by a vote of 63 to 48.  Among other things, the revised House version of SB 315:

  • More broadly defines the technical definition of “smokable hemp” to mean all “harvested raw or dried hemp plant material, including hemp buds or hemp flowers, hemp cigars, and hemp cigarettes.” This overly broad, sweeping definition appears to cover and include the entire hemp plant once it is harvested.
  • Classifies smokable hemp as marijuana and criminalizes the manufacture, distribution, dispensing, delivery, sale, purchasing, or possession of smokable hemp in our state. Violations are punishable by civil and criminal penalties, including possible prosecution for a Class I felony.

Fortunately, SB 315 is not law.  The North Carolina Department of Agriculture and the North Carolina Senate – especially Senator Brent Jackson – have continued to showcase their support for the hemp and CBD industries.  Following its passage in the House, SB 315 was immediately referred to the Committee on Rules and Operations of the Senate, and there have been no indications so far that the bill will be considered for a concurrence vote this session – let alone be finalized, passed, and sent to Governor Cooper for signature or veto.

The Struggle is Real

North Carolina is not alone in its struggle.  Other states are also considering – and some have passed – legislative bans that, in effect, criminalize the production, sale, transportation, and possession of smokable hemp.  Indiana is one such state.  In response to the Agriculture Improvement Act of 2018 (the “2018 Farm Bill”), Indiana enacted and signed into law Senate Enrolled Act No. 516 (“SEA 516”) on May 2, 2019.

SEA 516 adopted the 2018 Farm Bill’s definition of hemp.  However, SEA 516 also criminalizes the manufacture, finance, delivery, and possession of smokable hemp, which it defines as “a product containing not more than three-tenths percent (0.3%) delta-9 tetrahydrocannabinol (THC), including precursors and derivatives of THC, in a form that allows THC to be introduced into the human body by inhalation of smoke.”  The definition of smokable hemp in SEA 516 specifically includes “hemp bud” and “hemp flower.”

On June 28, 2019, a group of hemp industry plaintiffs filed suit (the “Indiana Lawsuit”) in the United States District Court for the Southern District of Indiana (the “Federal Court”), challenging the constitutionality of SEA 516’s smokable hemp provisions on the basis that they are preempted by federal law.  Shortly thereafter, the plaintiffs moved for a preliminary injunction that would temporarily halt Indiana’s enforcement of the smokable hemp ban pending the outcome of the case.  The State opposed that request, and the parties briefed their positions and presented their arguments to the Federal Court for consideration.

On September 13, 2019, the Federal Court granted the plaintiffs’ request for a preliminary injunction (the “Preliminary Order”)[1].  In doing so, at least for the time being, the Federal Court has prohibited the State of Indiana from enforcing the portions of SEA 516 that criminalize the manufacture, financing, delivery, or possession of smokable hemp.  It is important to remember that the Preliminary Order is not a permanent or “final” injunction and the Indiana Lawsuit is still ongoing.  But, the Preliminary Order is strongly worded and seems to forecast an ultimate outcome that favors the hemp and CBD industries.

How Does the Indiana Lawsuit Affect Us?

Just like Indiana’s SEA 516, North Carolina’s SB 315 adopts a definition of “smokable hemp” that differs from the definition of “hemp” set forth in the 2018 Farm Bill.  SB 315 classifies smokable hemp as “marijuana,” and in doing so, attempts to criminalize the manufacture, distribution, dispensing, delivery, purchase, or possession of smokable hemp in North Carolina.  These actions appear to be expressly preempted by Federal law.  They also preclude the transportation of hemp or hemp products in or through North Carolina in direct contravention of the 2018 Farm Bill’s express prohibition on restricting the transportation of hemp and its derivatives in interstate commerce.

SB 315’s restrictions on smokable hemp also appear to violate conflict preemption principles.  In the Preliminary Order, the Federal Court states that “the plain language of the 2018 Farm Bill, as well as statements from its legislative sponsors, reflect Congress’s intent to de-stigmatize and legalize all low-THC hemp, including its derivatives and extracts, and to treat hemp as a regulated agricultural commodity in the United States.”  Provisions of law that seek to criminalize the manufacture, distribution, dispensing, delivery, purchasing, or possession of smokable hemp (including hemp bud and hemp flower) – “hemp derivatives of the kind specifically legalized under the 2018 Farm Bill – frustrates these congressional purposes and objectives.”

Further, the Preliminary Order indicates that the anti-preemption provision of the 2018 Farm Bill only applies to hemp production, which means that states can enforce laws “prohibiting the growing of hemp” within their borders.  As noted by the Federal Court in its Preliminary Order, states (like, North Carolina) are free to place limits on the acreage that can be used to grow hemp within their borders or to dictate the type of seeds that can be used or planted by growers.  But, states may not pass laws that interfere with the right to transport in interstate commerce hemp – including hemp derivatives like “hemp buds” and “hemp flower” – that has been lawfully produced.  SB 315’s smokable hemp provisions, as they stand today, do just that.

The Preliminary Order also discredits many of the arguments raised to date by opponents of smokable hemp in North Carolina, including:
  • That there is no evidence that Congress ever contemplated, let alone had the intention of, legalizing smokable hemp with passage of the 2018 Farm Bill.

The Federal Court dismissed this argument by stating that “[t]he 2018 Farm Bill’s expansion of the federal definition of hemp and removal of all low-THC hemp from the federal list of controlled substances evinces a clear congressional objective to legalize all forms of low-THC hemp, including” smokable hemp.  This analysis can be easily applied to arguments raised by House Republicans and law enforcement groups that, during the 2015 legislative session, our General Assembly never contemplated the legalization of smokable hemp when it passed the industrial hemp research pilot program authorizing legislation.

  • That legalization of smokable hemp (or a failure to re-criminalize smokable hemp) will create significant obstacles for law enforcement agencies to enforce and prosecute North Carolina’s laws against marijuana.

In response to nearly identical arguments and public policy considerations raised in the Indiana Lawsuit, the Federal Court recognized that “the fact that local law enforcement may need to adjust tactics and training in response to changes in federal law is not a sufficient basis for enacting unconstitutional legislation.”

So What Comes Next?

Industry advocates and opponents alike will continue to monitor the Indiana Lawsuit. With limited case law to rely upon, the Federal Court’s final decision, though non-binding, will likely have a ripple effect in North Carolina and other jurisdictions across the country. For now, our hope is that the North Carolina Senate will continue to refuse a concurrence vote on the House version of SB 315 – and, that the Preliminary Order will chill additional efforts (like those occurring in North Carolina) to classify “smokable hemp” as marijuana or to otherwise ban, restrict, or criminalize possession of the plant.


[1] C. Y. Wholesale, Inc. et al., v. Eric Holcomb, Governor, in his official capacity, et al., S.D. Ind., No. 1:19-cv-02659-SEB-TAB (Doc. 31) (September 13, 2019).


© 2019 Ward and Smith, P.A.. All Rights Reserved.

For more on marijuana, cannabis & hemp-derived product regulation, see the National Law Review Biotech, Food & Drug law page.

The Agricultural Guestworker Act Gaining Ground

In October, the Agricultural Guestworker Act of 2017 (House Resolution 4092), introduced by U.S. Rep. John Goodlatte (R-Va.), was passed by the House Judiciary Committee and sent to the full House. Michigan’s lone representative on the committee, Rep. John Conyers (D), voted against it.

John Kran, national lobbyist with Michigan Farm Bureau, commented that “any farmer who’s dealt with this issue will tell you that the availability of domestic workers continues to decrease. This bill not only deals with the seasonal workforce, but the need for year-round ag workers.” The need for such legislation is clear, at least to farmers. Currently, the only way farmers can have the peace of mind about a legal workforce is to go through the H-2A program, which is so notorious for burdensome paperwork, long lead times and woefully complicated processes that Michigan Farm Bureau established the Great Lakes Agricultural Labor Services (GLALS) to help farmers successfully navigate the process.

Goodlatte’s legislation would create a new H program, called H-2C, under which a new guest-worker program would be established, allowing farmers to hire workers for up to 18 months for seasonal labor and 36 months for year-round labor, such as are needed on dairy farms, other livestock operations, and food processing, including meat packing. “Michigan dairies have a huge need for the longer visa, and poultry and hog operations have trouble finding people too,” Kran said. “The bill isn’t perfect, but it’s a good place to start.” Among the things Farm Bureau would like to see changed in the bill is a mandatory limit on the number of workers allowed in. The bill proposes that the number be capped at 450,000 per year, with an ‘escalator’ for additional need.

 

© 2017 Varnum LLP
This post was written by Aaron M. Phelps of Varnum LLP.
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