Delta-8 legal dispute: Following attorney general’s guidance, industry files suit

Matt Wall estimates that he’s got a month left in business.

He owns Wall’s Organics, a retailer of delta-8 and other hemp-derived products that, until this year, had encountered “no problems” legally.

That was until Aug. 4, when Evansville Police Officer Nathan Hassler entered one of Wall’s four stores and told him to get such products off his shelves in 10 days—or face arrest on charges of selling marijuana.

And Hassler handed him a document: an advisory opinion from the state’s chief legal officer.

When Indiana Attorney General Todd Rokita issued the opinion in January this year finding that the products are illegal, law enforcement around the state took note—and some members of the industry promptly filed suit.

Wall is among them.

“It’s killing our business,” he told the Capital Chronicle.

Delta-8 and the other products accounted for 90% of sales, and since mid-August, he’s dropped from $2,000 days to $300 days. Now, he’s facing staff layoffs, store closures and angry customers—some of whom, he said, are returning to more dangerous substances.

Manufacturer and distributor 3Chi and the Midwest Hemp Council originally filed suit on June 26 against Rokita’s Office and the State of Indiana, in the U.S. District court for the Southern District of Indiana. Wall joined in an amended complaint filed August 16, which also added several local law enforcement defendants.

Opinion issued

Hemp-derived products have for years occupied a legal gray area, the 14-page stack of paper Hassler brought to Wall’s store reads. And it offers a definitive interpretation.

Rokita opined that Indiana law designates all natural and synthetic forms of tetrahydrocannabinol—the major psychoactive component in the cannabis plant—as Schedule I controlled substances. That designation means a substance has no accepted medical use but does have a high potential for abuse.

That’s although, on the federal level, such hemp-derived substances are generally considered legal and unregulated—as long as they are below 0.3% delta-9 THC. Above that, hemp or hemp products are considered banned marijuana.

Following 2018’s federal Farm Bill, which removed hemp from the definition of marijuana, Indiana legalized the industrial hemp industry. And the state used the same 0.3% delta-9 THC cutoff in legalizing “low THC hemp extract” products.

“Indiana law does make exceptions for hemp and hemp products, as well as low THC hemp extracts, but delta-8 THC does not appear to fall into any of these named exceptions, either,” Rokita’s office wrote. It said Indiana’s list of Schedule I substances “applies to all cannabis plants” and “clearly includes derivatives” with similar chemical structures and effects.

“The plain language of the statute and the legislative history indicate a clear intent to declassify hemp so it could be used for agricultural purposes, not ‘as a backdoor way to legalize THC,’” the office continued.

The opinion was a direct response to a request by Indiana State Police Superintendent Doug Carter and Indiana Prosecuting Attorneys Council Executive Director Chris Naylor.

The document explicitly says, “The OAG cannot opine on the charging or prosecution of individual cases and defers to the prosecuting attorneys and law enforcement officers for those decisions.”

Spokespeople for the entities didn’t provide comment. IPAC noted it hadn’t provided guidance to counties, but said each was aware of the opinion.

Some take action

Law enforcement and prosecutors were reading Rokita’s opinion—and acting on it.

“I am writing to inform you that if you continue to possess and/or sell these products, you … could be charged with dealing in a controlled substance,” reads a letter from Wayne County Prosecutor Michael Shipman to Low Bob’s Tobacco, in an exhibit for the lawsuit. Shipman’s office didn’t return a request for comment.

“We are aware of ongoing civil litigation regarding the legal status of certain THC products and look forward to more clarity in the future,” wrote Huntington Police Chief Cory R. Boxell. “For now, we are requesting that our local businesses cease all purchase, sale, and possession of any substance containing THC, with the exception of strictly delta-9 products with a concentration below 0.3%.”

The Huntington Police Department, Huntington County Prosecutor Jeremy Nix and the Evansville Police Department — named in the lawsuit alongside two individual law enforcement officers — did not return requests for comment.

They are among numerous law enforcement entities throughout the state that have mass-mailed letters to businesses selling products containing delta-8 THC and other variants.

Some businesses received surprise visits, like Wall’s. Some were even raided, the lawsuit alleges, and their products seized.

In the lawsuit, 3Chi alleges that its previous Indiana-based bank told it to either stop selling its products or switch banks, forcing a transition. The Midwest Hemp Council alleged that its members have been turned down for financing and other banking services, and that they’re at risk for criminal prosecution.

The plaintiffs argue that Rokita’s opinion violates the 2018 federal Farm Bill and provisions in Indiana law by “unilaterally reclassify(ing) low THC hemp extracts as Schedule I controlled substances.” They also request an injunction to halt enforcement.

Still, Rokita’s office stands by its opinion.

“We were asked by law enforcement for our legal advice on Indiana law as passed by the elected General Assembly. We are confident in that opinion, which notes the exception for Delta-9 THC under 0.3%,” Rokita said in a February statement. His office directed the Capital Chronicle to the statement when asked for comment.

“… Those concerned with the current law can contact their state legislators and senators,” he continued.

What lies ahead

Wall has little left to sell without delta-8: blue lotus flower vapes, mushrooms, products of less 0.3% delta-9 THC, and the like.

There are ripple effects.

The sale restrictions, Wall said, have forced him to halt orders from vendors, and the financial hit has led him to pull advertisements from billboards and radios. Lower revenue also means less in taxes — at one point, Wall said, he was paying over $20,000 a month in taxes, which fund public services.

Customers are also affected.

“People come into our stores mad,” Wall said. “You know, ‘You’ve got it in there somewhere!’ … No, we don’t, sorry. You’re going to have to complain to the state about that.”

“And all these people are going mad because nobody can get their delta-8 … or all the other stuff that would help them,” he said. “You know, (they’re) going back to using drugs again, or going back to the street. I mean, we’ve heard it firsthand.”

There are several thousand retailers of delta-8 and similar products across Indiana, estimated Midwest Hemp Council President Justin Swanson. But enforcement thus far, he noted, has been markedly county-by-county.

That’s something Rokita acknowledges.

“Businesses who sell synthetic products or products with a higher concentration of delta-9 THC could be in jeopardy at the discretion of their county prosecutor,” he said.

Wall, meanwhile, is pursing a move: to Henderson, Kentucky, which lies just across state lines from Evansville.

It’s close by, he said, requiring no staff relocations. And it’d remain accessible to much of his current customer base.

Walls wants to open in the next month—the same amount of time he estimates he can afford to run his Hoosier locations.