Purely Intrastate: Local Cannabis and Entheogenic Plant Operations
Purely Intrastate: Local Cannabis and Entheogenic Plant Operations
A year ago, in January 2021, Molson Coors and Canadian cannabis company HEXO announced a joint venture to release of the very first cannabidiol (CBD)-infused beverage into the U.S. market with a unique distribution plan: “exclusively available in Colorado.”
That got me noodling. “It is currently illegal to market CBD by adding it to a food or labeling it as a dietary supplement,” of course. That’s because, as FDA has stated many, many times, under the Food Drug and Cosmetic Act (FDCA), it is illegal to introduce into interstate commerce any human or animal food to which certain drug ingredients, such as CBD, have been added. But what about intrastate commerce, like “exclusively in Colorado”?
That is the subject of this essay. First, where does FDA’s jurisdiction begin and end? And second, is it possible to structure a commercial cannabis or plant-based enterprise outside of the FDA’s grasp? Maybe so.
FDA’s Jurisdiction
While the Controlled Substances Act (CSA) and FDCA overlap considerably, they are not concomitant. As the First Circuit recognized in Grinspoon v. DEA, the FDCA does not apply to drugs manufactured and marketed wholly intrastate. Thus, it is theoretically possible for drugs to be manufactured and marketed wholly intrastate. And therefore, it is also possible for states to create insular intrastate markets or services for drugs or products that have not been approved by the FDA.
Under the Constitution’s Commerce Clause, Congress has broad power “[t]o regulate commerce with foreign nations, and among the several States, and with the Indian tribes.” Since the 1940s, the Supreme Court has construed the Commerce Clause broadly. Notably, in 2005, it explained in Raich that Congress has the power under the Commerce Clause and Necessary and Proper Clause to regulate purely intrastate economic activities that in the aggregate, substantially affect interstate commerce.
Although Congress has the constitutional power to reach purely intrastate economic activities, with the FDCA, it didn’t quite do that. In 1938, when Congress enacted the FDCA, the prevailing wisdom of Congress’s ability to reach intrastate economic activities was more limited. Based on this more limited understanding, Congress only granted FDA authority over interstate commerce in the FDCA. Unlike the statute at issue in Raich, the FDCA’s prohibitions expressly contain an interstate commerce “jurisdictional” element. For example, most “Prohibited Acts” under the FDCA relating to the manufacture or sale of covered products each contain a jurisdictional nexus to “interstate commerce.” Compare 21 U.S.C. § 841(a) of the CSA with 21 U.S.C. § 331(a)-(d), (k), (o), (v), (w) of the FDCA.
By expressly requiring a nexus with interstate commerce, Congress stopped short of extending FDA’s jurisdiction under the FDCA to the maximum constitutionally permissible bounds. And that leaves a small gap: purely intrastate activity. But what does “purely intrastate” mean?
FDCA’s Expansive Regulatory Reach
Since 1938, four principles have emerged that, taken together, demonstrates an expansive reach into intrastate commerce, despite the gap.
First, if any link on the supply chain implicates interstate commerce, the FDCA is in play. In United States v. Sullivan, the Supreme Court held that the FDCA reached an intrastate sale and shipment of a product, because the seller had bought the product from a wholesaler who had received it as the direct consignee of an interstate shipment. The broad language used by Congress “unqualifiedly prohibits misbranding articles held for sale after shipment in interstate commerce, without regard to how long after the shipment the misbranding occurred, how many intrastate sales had intervened, or who had received the articles at the end of the interstate shipment.” In so holding, the Court reviewed the legislative history, and concluded that the FDCA’s purpose was “to safeguard the consumer by applying the Act to articles from the moment of their introduction into interstate commerce all the way to the moment of their delivery to the ultimate consumer.”
Second, for FDA to have jurisdiction, the entire finished product need not move in interstate commerce; it is enough if one component or ingredient of the finished product moved in interstate product. This policy is found at CPG Sec. 100.200 entitled “FDA Jurisdiction Over Products Composed of Interstate Ingredients.” The policy explains that FDA “has jurisdiction over all products made from interstate components regardless of the amount present, even though the finished product has not moved in interstate commerce” and enforcement “[a]ction may be taken against the product or the responsible firm when violative finished products are encountered, or when conditions of manufacture result in nonviolative interstate ingredients becoming adulterated or misbranded.”
For example, in United States v. An Article of Food (which is a great name for a case), the appellant Coco Rico, Inc., manufactured in Puerto Rico a coconut concentrate called Coco Rico for use as an ingredient in soft drinks. The concentrate sold to bottlers in Puerto Rico contained potassium nitrate as an additive. Neither the soft drinks nor the concentrate had been shipped outside Puerto Rico. Nonetheless, the court held the jurisdictional nexus had been satisfied, because the potassium nitrate added to the seized beverages was shipped in interstate commerce. Similarly, in Baker v. United States, the Ninth Circuit held that FDCA’s “shipment in interstate commerce” requirement was satisfied even when only an ingredient of the unapproved drug was shipped in interstate commerce.
Third, after the FDA Modernization Act of 1997, FDA has a rebuttable presumption of jurisdiction in any enforcement action. Under 21 U.S.C. § 379a, “[i]n any action to enforce the requirements of this chapter respecting a device, tobacco product, food, drug, or cosmetic the connection with interstate commerce required for jurisdiction in such action shall be presumed to exist.” Thus, § 379a shifts the burden of proof on the interstate commerce element from regulator to regulated. That is significant. In an enforcement action, the FDA need not prove that products moved in interstate commerce. Rather, the company defending against the action will have to overcome a presumption of interstate commerce. Implicit in this presumption, however, is that it may be overcome and that the connection with interstate commerce required for jurisdiction does not always exist.
Fourth, special purpose statutes can extend FDA’s reach further into intrastate commerce beyond the default FDCA. For example, the Egg Products Inspection Act, discussed below, is one such example. It gives FDA authority to reach “commerce,” whether intra- or interstate. See, e.g., 21 U.S.C. § 1037 (“No person shall buy, sell, or transport, or offer to buy or sell, or offer or receive for transportation, in any business in commerce any restricted eggs….”).
In sum, as FDA explains in the cosmetics guidance, “[i]nterstate commerce” applies to all steps in a product's manufacture, packaging, and distribution. So, “[i]t is very rare that a cosmetic product on the market is not in ‘interstate commerce’ under the law.”
Finding the Jurisdictional Limits of FDCA
But rare does not equal impossible. And while FDA’s reach into intrastate commerce is expansive, it is not unlimited. Selling locally grown tomatoes from a tomato stand, for example, probably (but not necessarily) falls short of interstate commerce. Or take the dairy farmer that offers tours of her farm and sells unpasteurized milk to visitors to be consumed on premises. These intrastate manufacture and sales of foods ought to be beyond the reach regulatory reach of the FDCA.
FDA’s treatment of raw milk, as described in the Pub. Citizen v. Heckler, 653 F. Supp. 1229, is instructive. FDA began regulating raw milk in October 1973 requiring that all products labeled “milk” in interstate commerce be pasteurized. After milk producer associations objected, FDA stayed the regulation and from 1974 to 1982, collected and evaluated information if the consumption of certified raw milk presented a public safety risk. FDA concluded that consumption of raw milk products was linked to the outbreak of disease. Public interest organizations then again petitioned FDA to ban the sale of raw milk.
After some judicial proceedings, HHS rejected FDA’s recommendation and instructed FDA to deny the petition. The letter denying the petition acknowledged the dangers of raw milk products, but considered a federal ban on raw milk unjustified because most raw milk products were marketed exclusively in intrastate commerce. FDA concluded that it did “not have adequate legal authority, based on the facts available at this time, to prohibit the intrastate marketing of unpasteurized milk and milk product.”
Even considering these findings about the interstate transmission of disease tied to intrastate sales, the court declined to order the promulgation of a rule banning intrastate sales of raw milk opining that it was “up to the individual states to decide on such matters of purely local concern.” But if, after such a prohibition, the sale of raw milk continued, the court concluded it would be within HHS's authority at that time to institute an intrastate ban as well. Following Heckler, FDA issued its final rule prohibiting raw milk, codified at 21 C.F.R. § 1240.61:
No person shall cause to be delivered into interstate commerce or shall sell, otherwise distribute, or hold for sale or other distribution after shipment in interstate commerce any milk or milk product in final package form for direct human consumption unless the product has been pasteurized or is made from dairy ingredients (milk or milk products) that have all been pasteurized.
The district court’s holding in Heckler demonstrates not only the expansive reach of FDA’s jurisdiction, but its limitations. After all, FDA concluded that it did not have adequate legal authority to prohibit the intrastate marketing of unpasteurized milk.
Other cases since Heckler further suggest that while FDA’s regulatory reach is expansive, it stops short of purely intrastate activities. In United States v. Allgyer, for example, the court concluded that the Pennsylvania defendant’s cow-share arrangement with out-of-state buyers was simply a sham method for continuing his interstate sales—“merely a subterfuge to create a transaction disguised as a sale of raw milk to consumers.” In the cow-share arrangements, out-of-state consumers paid the defendant money to receive raw milk, which was transported across state lines and left at a “drop point.” The court distinguished that arrangement from an intrastate transaction, as “the regulation of intrastate sale of raw milk is a matter of state law and Pennsylvania permits such sales.” And in a footnote, the opinion notes that the government did not seek to enjoin sales of milk products to consumers in Pennsylvania.
FDA itself has recognized these jurisdictional limits in passing. For example, in FDA’s regulatory procedure manual, FDA discusses its authority to detain meat, poultry, and egg products. In discussing FDA’s authority to regulate meat and poultry products under the FDCA, FDA notes that detentions must meet the jurisdictional requirement of interstate commerce in 21 U.S.C. § 334 regarding seizure. As to over egg and egg products, however, the agency notes that “Interstate Commerce is not a requirement for FDA jurisdiction over eggs and egg products because authority is based on violation of the Egg Products Inspection Act rather than the Federal Food, Drug, and Cosmetic Act (the Act).”
Intrastate Cannabis and Entheogenic Plants/Fungi
It is, of course, very rare that a contemporary food, drug, or cosmetic product has no nexus to interstate commerce because of the modern economy where product ingredients are sourced from different localities. But cannabis, plants, and fungi aren’t like these products insofar as every aspect of the operation—from seed or spore to sale—can feasibly occur in the same locality, even at some scale. And therefore, with some intentionality, it might be possible to design schemes or enterprises that operate outside FDA’s orbit. A product (i) whose ingredients are all sourced intrastate, (ii) is manufactured intrastate, and (iii) is transported and distributed solely to intrastate consumers, would be “purely intrastate.”
With these principles in mind, several intrastate models for cannabis and other entheogenic plants outside the ambit of FDA appear possible and come to mind:
A direct-to-consumer sales venture where a product is made, shipped, and sold purely intrastate from intrastate ingredients.
A dispensary or clinic could grow their own customized cannabis from seed to product and sell the product to the end-consumer at a store front, without introducing the product in interstate commerce.
A café could sell intrastate cannabis and provide for on-site cannabis consumption.
These same intrastate concepts could be modified or extended to other contexts. For example, instead of a cannabis café, a psilocybin mushroom clinic where all psilocybin would have to be locally cultivated, processed, marketed, and consumed in-state and out of the channels of interstate commerce. States looking to develop psilocybin programs may want to keep these intrastate principles in mind.
A Few Concluding Remarks About Federalism
As a final thought, one might wonder whether this is a good idea. That is, are intrastate cannabis or psilocybin programs developing outside the legal purview of the FDCA a good or bad thing?
On balance, I’d say it is good if the federal government also provides some guidance or oversight. I have a lot of issues with the contemporary FDA and FDCA, how the two have evolved, and regulatory capture—a fertile idea to explore in a future publication. (Did you know that around 45% of FDA’s budget comes from user fees paid by pharmaceutical industry?) But even I would concede that the FDA, like DEA, has an important role to play at the federal level.
My issue with FDA isn’t so much as its existence and mission, but mission creep and interference with state-level programs. Among other things, FDA’s job is to be a consumer protection agency and determine if drugs are safe and effective for interstate marketing. It is not to regulate the practice of medicine. As stated by FDA in a 1972 Federal Register publication at page 16503:
The major objective of the drug provisions of the Federal Food, Drug, and Cosmetic Act is to assure that drugs will be safe and effective for use under the conditions of use prescribed, recommended, or suggested in the labeling thereof. …
If an approved new drug is shipped in interstate commerce with the approved package insert, and neither the shipper nor the recipient intends that it be used for an unapproved purpose, the requirements of section 505 of the Act are satisfied. Once the new drug is in a local pharmacy after interstate shipment, the physician may as part of the practice of medicine, lawfully prescribe a different dosage for his patient, or may otherwise vary the conditions of use from those approved in the package insert, without informing or obtaining the approval of the Food and Drug Administration.
This interpretation of the Act is consistent with congressional intent as indicated in the legislative history of the 1938 Act and the drug amendments of 1962. Throughout the debate leading to enactment, there were repeated statements that Congress did not intend the Food and Drug Administration to interfere with medical practice and references to the understanding that the bill did not purport to regulate the practice of medicine as between the physician and the patient….
It’s a delicate balance. But states, not the federal government, should regulate the practice of medicine and set standards of medical practice. That’s one of the benefits of having a federalized system.
This core idea—federalism—is part of what makes our country innovative and great. Time and time again, the Supreme Court has “recognized the role of the States as laboratories for devising solutions to difficult legal problems.” Oregon v. Ice, 555 U.S. 160, 171 (2009). Justice Brandeis famously stated:
It is one of the happy incidents of the federal system that a single courageous State may, if its citizens choose, serve as a laboratory; and try novel social and economic experiments without risk to the rest of the country.
The federal government thus has a responsibility to regulate interstate commerce. Lab explosions shouldn’t be able to damage neighboring labs. But the federal government should not interfere with experiments that are local or self-contained (i.e., don’t “risk the rest of the country”).
Indeed, the federal government should encourage these types of novel programs, such as the Oregon Psilocybin Services Act and others. Maybe they work, maybe they don’t. But at least we will know what works and what doesn’t. Federalism, at its best, works a bit like natural selection. Different states take up different solutions to different problems. They innovate. Good solutions survive; bad ones don’t. Law evolves. When we abandon this idea in favor of central planning, however, we stop innovating and evolving. It is like monopoly power or putting all of the eggs in one basket. The law becomes static, not dynamic. And that’s not good. The law loses its fitness.
This is arguably one of the greatest failures of modern drug policy and a fundamental principle of what I would change going forward. Rather than a true cooperative federalist regime that permits states to focus on local problems and the federal government to focus on national problems—so that states can try on novel solutions to difficult problems with their citizenry—modern drug policy under the FDCA and CSA has been a largely top-down exercise in central planning. And as a result, for more than fifty years, the important dynamic that states play in our system of devising solutions for different legal problems has been absent.
Many have an opinion on what would be a better system for the United States is going forward. Certainly, I do. But I very well may be wrong. What I know is that if states are given some latitude to do self-contained state-level experiments—from decriminalization initiatives to psilocybin therapy to religious freedom—we’ll have a better idea of what works and what doesn’t.