Just a few days ago the Texas Court of Appeals published an opinion concerning smokable hemp. Before getting into the ruling, let’s review what happened in Texas after enactment of the 2018 Farm Bill.
In 2019, the Texas Legislature enacted statutory provisions regulating certain hemp products. Among the statutes was a law prohibiting any state agency from authorizing a person to manufacture a product containing hemp for smoking. The legislature also directed the Department of Health Services (the “Department”) to adopt rules and procedures to administer and enforce these statutory provisions, including the one concerning the manufacture of products containing hemp for smoking.
In 2020, the Department adopted rule 300.104, which provides “The manufacture, processing, distribution, or retail sale of consumable hemp products for smoking is prohibited.” So Rule 300.104 operates as a ban on smokable hemp products in Texas.
Several hemp companies (“Hemp Companies”) filed suit against the Department alleging two claims for declaratory relief. (See here, here, and here for background on claims for declaratory relief). In the first claim, the Hemp Companies asked the court to declare that the statute banning the processing and manufacture of hemp products is unconstitutional. In the second claim, the Hemp Companies asked the court to declare that rule 300.104, which bans the distribution and retail sale of hemp products for smoking, is invalid under Texas law. The Hemp Companies also asked the court for an injunction preventing the Department from enforcing the statewide bans on the manufacturing, processing, distribution, and retail sale of smokable hemp products.
The Hemp Companies then applied for a temporary restraining order (“TRO”) against the Department. After an evidentiary hearing, the court granted the TRO in part and directed the parties to prepare a proposed order. But the parties could not agree on the wording and raised concerns to the court. The court entered a TRO that enjoined the Department from enforcing rule 300.104 in its entirety.
The Department appealed. The Department first argued the scope of the TRO was too broad. The Department contended that the Hemp Companies never asked the court to enjoin the Department from enforcing rule 300.104 as it applies to manufacturing and processing hemp products for smoking, but only asked the court to enjoin the Department from enforcing rule 300.104 as it relates to bans on the distribution and retail sale of smokable hemp products. The court of appeals agreed and reversed the TRO insofar as it prevented the Department from enforcing rules against the manufacture and processing of smokable hemp products. (The first lesson here is that parties seeking a TRO must be very careful to identify the precise relief requested.)
The Department next argued that the Texas Legislature gave it authority to issue a rule prohibiting the distribution and sale of smokable hemp products. Consequently, it argued, the trial court went to far in enjoining the enforcement of this part of 300.104.
The court of appeals did not agree with the Department for two principal reasons. The first was that the legislature clearly spelled out a statutory ban on the manufacture and processing of products containing hemp for smoking. But the legislature did not plainly include a ban on the distribution or retail sale of smokable hemp products. And it could have, said the court of appeals, and this meant that the Department was not clearly acting within its rulemaking authority when it adopted a rule that also prohibited the distribution and retail sale of smokable hemp products. This analysis drove the other reason: which is that in looking at the statute giving the Department authority to make rules, the legislature did not give the Department broad, sweeping authority. Rather, the court of appeals found, the Texas Legislature narrowly circumscribed the Department’s authority to make rules enforcing the various statutes concerning hemp.
These reasons together led the court of appeals to hold that the trial court did not err in enjoining the Department from enforcing the prohibition on the distribution and retail sale of smokable hemp.
This is great news for distributors and retail sellers of smokable hemp, though to be sure the case is not over. The ruling means that the TRO likely remains in force through the litigation in the trial court. And of course, the case is not good news for companies in Texas that desire to process or manufacture smokable hemp products.
As we have written before, the issues surrounding smokable hemp are ongoing and far from decided – in Texas and elsewhere. For more, see: