Delta-8 THC is a controversial product stirring up a lot of news -- and earning bans in a growing number of adult-use and medical cannabis states. A lot of confusion swirls around Delta-8 (and to a lesser extent Delta-10) as consumers, operators and regulators seek clarity on what this compound is, whether it is legal (and whether it should be legal), and the potential risks and opportunities presented.
In this article, we will explain Delta-8 THC, discuss its current regulatory state, and offer guidance to cannabis operators and investors on how to proceed.
What is Delta-8? Delta-8 vs. THC
For the first several years of the cannabis market, regulations have revolved around two cannabinoids, “THC” and “CBD.” The former being the primary chemical responsible for the “high” sensation of cannabis, and the latter being the non-intoxicating compound with exceptional healing properties. As the parade of legalization marches on, and public knowledge of the plant expands, more and more patients and consumers (and regulators) are coming to understand what researchers have known for a long time: this two-compound view of cannabis is deeply simplistic. There are actually, at least, 113 known cannabinoids, each exhibiting varied effects.
When the cannabis industry, and its regulatory bodies, refer to “THC,” especially as a level of potency in products, they are specifically referring to “Delta-9 tetrahydrocannabinol.” In fact, the USDA definition of industrial hemp is: “any cannabis plant, or derivative thereof, that contains not more than 0.3 percent delta-9 tetrahydrocannabinol ("THC”) on a dry-weight basis.”
The USDA targets Delta-9 THC in this definition as a way to ensure that industrial hemp plants are grown and used for industrial purposes. But where it gets tricky is that Delta-9 THC is not the only cannabinoid with intoxicating effects. And that’s where Delta-8 tetrahydrocannabinol, and to a lesser extent, Delta-10 tetrahydrocannabinol come into play.
Chemically, Delta-8 is similar to Delta-9 in that it binds to the body’s endocannabinoid system, which when consumed creates the feeling of euphoria associated with being high.
The complications, from a regulatory standpoint, come from the fact that Delta-8 THC can be derived from industrial hemp. As knowledge of Delta-8 and its potential has spread, regulators are reacting, banning Delta-8 THC products because it is perceived as a “back-door” into producing intoxicating cannabis products.
NOTE: For the sake of simplicity, in this article we will refer to “Delta-9” as THC (the most common form of cannabis grown, produced, and sold in the cannabis industry) and Delta-8 will be referred to as “delta-8.” We will maintain that, since those are their common colloquial identifiers.
Is Delta-8 Legal Cannabis?
As mentioned, the legality of Delta-8 is a hot point of contention at this moment in time. The question and ruling on legality are affected by a few conflicting opinions and interpretations of Federal laws and the effects of these relatively new products.
1. The 2018 Farm Bill and Delta-8
The 2018 Farm Bill lays out that hemp (cannabis with low THC levels) can be legally grown and extracted in the United States. Hence, cultivators and advocates feel that from a technical and federal law standpoint, hemp-derived (CBD-based) delta-8 can be legally produced in every state, as long as cultivators and manufacturers follow USDA guidelines. Most importantly, this “should” apply in states where adult-use cannabis (THC/Delta-9) is illegal.
If we follow the rules laid out by the farm bill, Delta-8 production should fall under the umbrella of legally hemp-derived products, like CBD.
2. The DEA’s Attitude Toward Delta-8
The DEA laid out new regulations in regards to Delta-8 and other hemp derivatives in their Interim Final Rule (IFR) on the subject, back in August of 2020:
“[a]ll synthetically derived tetrahydrocannabinols remain schedule I controlled substances.”
However, this has been confusing to state regulators and cannabis operators alike, as the DEA did not make clear distinctions between hemp-derived Delta-8 and vs. THC-derived Delta-8 products. As Federal regulators have been slow to provide further clarification on the issue, individual states have stepped up and made the legality of Delta-8 a state-to-state regulatory issue.
3. The FDA on Delta-8
At this moment in time, it is not evident if Delta-8 is tested by the FDA as a new drug ingredient. Under the Drug Exclusion Rule, any substance that the FDA has approved of and/or investigated as a “new drug” cannot be marketed and sold as a “dietary supplement.” This is true, unless the substance or product was marketed and sold as such, before the FDA conducted their investigation.
Overview: Market Demand for Delta-8
The gradual, state-to-state legal adoption of adult-use cannabis (delta-9 THC) has left consumers and businesses patiently waiting for federal legalization to pass.
Delta-8 has been gaining attention from the media and traction with consumers as being a “less-potent, legal alternative to THC.” This has created a boom in the consumer demand for delta-8 products, specifically in the states where adult-use cannabis is illegal.
Notice the sharp increase in Google search interest over the last 12 months:
Also, the states with the highest level of interest largely, states where adult-use cannabis is illegal:
Why State Regulators are Banning Delta-8
At this point in time, the majority of states in the US have chosen to adopt the federal definition of “hemp”, which clearly delineates hemp derivatives and cannabinoids from cannabis and THC-derived products. There are still a handful of states that have delayed or presently opted out of making the official distinction between “hemp” and “marijuana.”
States that do consider Delta-8 products legal have chosen to structure-in their own state regulations that govern registration, labeling, and testing requirements for Delta-8 products.
Other states that are more wary or skeptical of the scheduling classification and FDA testing of Delta-8 have chosen to take a front-footed approach to banning it, at least for now.
States That Have Banned Delta-8
New York has been one of the most recent states to jump onboard with banning Delta-8 products.
The states that have completely banned these products include:
- Rhode Island
Does Delta-8 Get You “High?”
Oh yeah, there is no doubt about that. We, at GreenGrowth CPAs, are not in the business of testing or recommending products. But a quick search for first-person impressions makes it clear that there certainly is an intoxicating/psychoactive effect to Delta-8-rich products. The one seeming consensus is that the effect is nowhere near as “strong” as Delta-9 THC. Meaning, the effects are much more manageable, especially to new patients/consumers.
The unfortunate side-effect of the regulatory confusion and resultant banning of these products is that medical patients and cannabis consumers, who could really benefit from a much more beginner-friendly THC experience, are denied this opportunity.
Financial Viability for Cannabis Business Owners
In the long-run, Delta-8 products have tremendous growth potential. While much research must be completed to fully understand its effects, it is possible that an entire subset of medical cannabis patients and adult-use consumers may ultimately prefer Delta-8 to Delta-9.
This niche could be ideal for these folks seeking “micro-dose” experiences, where they can enjoy the benefits of THC consumption without seriously affecting their ability to do daily activities.
That said, the current state of the cannabis industry is such that we cannot recommend that ANY operator take ANY chance that could result in potentially wasting capital or resources for a product with an unclear regulatory status. It is already hard enough to win a license and try to turn a profit, putting these accomplishments at risk is just not advisable.
The consequences for regulatory non-compliance range from severe fines to the revocation of licenses. It is just not worth the risk in any market that does not have a “set in stone” policy toward these products.
For these reasons, it is critical for cannabis business owners and operators to have a complete understanding of the state laws and regulations affecting the production and sale of Delta-8 products.
At this moment in time, the future of Delta-8 is uncertain. For that reason, we recommend cannabis operators seek cannabis-specialized legal counsel to determine if it is a viable option for your cannabis operation.
If you have verified legality in your state and are interested in cultivating, distributing, manufacturing, or retailing Delta-8 products, the next step is finding the most financially-prudent way to integrate them into your cannabis businesses.
Our tax and finance team at GreenGrowth CPAs exclusively provides services to business owners and operators in the cannabis industry. Contact us today to learn more about our outsourced CFO services, as well as if, how, and if it makes business-sense to bring Delta-8 products into your business.