Fallout from DEA’s Interim Final Rule Roils Rhetoric With Results TBD

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By William Sumner, Hemp Content Manager, New Frontier Data

Two weeks ago, the U.S. Drug Enforcement Administration (DEA) issued an interim final rule (IFR) regarding hemp regulations, per the 2018 Farm Bill. Though the IFR says that it “does not add additional requirements to the regulations,” keen-eyed industry observers could not help but notice a key paragraph portending a devastating impact on the industry.

“As a result, a cannabis derivative, extract, or product that exceeds the 0.3% Δ9-THC limit is a schedule I controlled substance, even if the plant from which it was derived contained 0.3% or less Δ9-THC on a dry weight basis,” the agency asserted.

On its face, that may seem like common sense: Of course, a hemp extract containing more than 0.3% THC would be considered cannabis. However, those familiar with the hemp extraction process point out that, during the natural course of the process, there are times when a hemp extract may exceed the THC limit, even if the finished product ultimately falls well within the legal guidelines.

Whether the IFR proves detrimental to the hemp industry remains to be determined. While the DEA’s stated position is to simply reaffirm and codify regulations set down in the Farm Bill, there are stakeholders in the hemp industry who are dubious about the agency’s intentions. Left to stand, the IFR could create an undue burden on hemp processors; given a dearth of them in the supply chain as it stands, discouraging others from entering may prove damning for a market still seeking maturity.

While the IFR has been almost universally condemned by the industry, the market itself seems largely undeterred. According to New Frontier Data’s real-time Equio platform providing intraday stock data covering U.S. publicly traded companies, the hemp sector was down by approximately 1.16%. at publication deadline.

Reviewing performances among some of the top publicly traded hemp companies, the Hemp Business Journal has found that, despite the strong reactions from industry insiders, news of the DEA IFR barely moved the needle in terms of stock prices.

Hemp stocks have been on a general decline for the past several months. To cite Charlotte’s Web Holdings Inc. (OTCMKTS: CWBHF), for example: The company’s stock price has been on the decline since January, and continues to slide lower. While the company’s price did dip the week of the DEA’s released IFR (August 20), its slide preceded the news by two days. Similarly, Neptune Wellness Solutions’ (NASDAQ: NEPT) stock has been in decline for the past month, but that similarly started sliding a full week before the announced IFR.

While the DEA IFR presents some real challenges to the hemp industry, the market response suggests, that they will be met further down the road. For now, the market actors seem more concerned with other issues pressing the hemp industry, such as oversupply and the processor shortage. Should the IFR become law, however, circumstances may yet turn.