3C, LLC d/b/a 3CHI v. ROKITA

District Court, S.D. Indiana·Decided September 29, 2024·No. 1:23-cv-01115·Unknown

Opinion

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF INDIANA INDIANAPOLIS DIVISION

3C, LLC d/b/a 3Chi, MIDWEST HEMP ) COUNCIL, INC., and WALL'S ORGANICS ) LLC, ) ) Plaintiffs, ) ) v. ) No. 1:23-cv-01115-JRS-MKK ) ATTORNEY GENERAL TODD ROKITA, in ) his official capacity, HUNTINGTON ) POLICE DEPARTMENT, DETECTIVE ) SERGEANT DARIUS HILLMAN, in his ) official capacity, HUNTINGTON COUNTY ) PROSECUTOR, JEREMY NIX, in his ) official capacity, EVANSVILLE POLICE ) DEPARTMENT, DETECTIVE SERGEANT ) NATHAN HASSLER, in his official ) capacity, and VANDERBURGH COUNTY ) PROSECUTOR DIANA MOERS, in her ) official capacity, ) ) Defendants. )

Order on Motion for Judgment on the Pleadings (ECF No. 65) and Motions to Dismiss (ECF Nos. 67, 81)

This is a case about federal preemption. 3C, LLC d/b/a 3Chi ("3Chi"), Midwest Hemp Council, and Wall's Organics (collectively, "Plaintiffs") sued Indiana Attorney General Todd Rokita, the Huntington Police Department ("HPD"), Detective Sergeant Darius Hillman ("Sergeant Hillman"), Huntington County Prosecutor Jeremy Nix, the Evansville Police Department ("EPD"), Detective Sergeant Nathan Hassler ("Sergeant Hassler"), and Vanderburgh County Prosecutor Diana Moers (collectively, "Defendants"). Plaintiffs challenge an Official Opinion issued by the Indiana Attorney General in January 2023 regarding whether certain variants of tetrahydrocannabinol ("THC") are considered controlled substances. Various Defendants have filed pleadings moving to dismiss the case, which the Court will now

address. First, EPD moved for judgment on the pleadings pursuant to Federal Rule of Civil Procedure 12(c). (ECF No. 65.) This motion is granted. Second, HPD and Detective Sergeant Hillman moved to dismiss pursuant to Rules 12(b)(1) and 12(b)(6). (ECF No. 67.) This motion is granted. Finally, Attorney General Rokita, Huntington County Prosecutor Nix, and Vanderburgh County Prosecutor Moers (the latter two collectively referred to as "the

County Prosecutors") moved to dismiss pursuant to Rules 12(b)(1) and 12(b)(6). (ECF No. 81.) This motion is granted as to Plaintiffs' federal claims against the County Prosecutors and Plaintiffs' state-law claims against all three Defendants and denied as to Plaintiffs' federal claims against Attorney General Rokita. I. Background A. Legal landscape

Marijuana is a controlled substance; hemp is not. The Agriculture Improvement Act of 2018 ("2018 Farm Bill"), signed into law by President Donald Trump, expanded the definition of "hemp" to include "all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with a delta-9 tetrahydrocannabinol concentration of not more than 0.3 percent on a dry weight basis." 7 U.S.C. § 1639o(1). Therefore, as long as the concentration of delta-9 is less than or equal to 0.3% on a dry weight basis, the substance is hemp; if it is more than 0.3%, the substance is marijuana. These substances with not more than 0.3% concentration are also known as low THC hemp extracts. Indiana followed

Congress's lead: in 2019, such that Senate-Enrolled Act 516 ("SEA 516"), signed into law by Governor Eric Holcomb, adopted the 2018 Farm Bill definition of hemp. This has the effect of exempting low THC hemp extracts from the definition of marijuana and other THCs, which are Schedule I controlled substances under both Indiana and federal law. Ind. Code § 35-48-2-4(d)(22), (32); 21 U.S.C. § 812(c)(c)(10), (17). On January 12, 2023, Indiana Attorney General Todd Rokita issued Official Opinion 2023-1 (the "Official Opinion") in response to the question of whether certain

THC variants are considered Schedule I controlled substances under Indiana law. The Attorney General wrote that the pertinent THC variants were "synthetic derivatives," which are Schedule I substances. (Official Opinion 1–2, ECF No. 31-5.) Delta-8 THC, the primary form of THC at issue in this case, is naturally present in the cannabis plant, but only in very small quantities, so to produce enough delta-8 for commercial sale, it must be synthesized artificially by converting other

cannabinoids naturally found in hemp into delta-8.1 Schedule I controlled substances under Indiana law include "synthetic equivalents" of THCs. Ind. Code § 35-48-2- 4(d)(31). Hemp, hemp products, and low THC hemp extracts are not specifically listed as scheduled drugs under state law. The Attorney General's position in the Official Opinion is that "delta-8 THC does not appear to fall into any" exception for

1 https://www.fda.gov/consumers/consumer-updates/5-things-know-about-delta-8- tetrahydrocannabinol-delta-8-thc. hemp or low THC hemp extracts, since it is a synthetic derivative of THC. (Official Opinion 11, ECF No. 31-5.) Therefore, as a "synthetic equivalent" of THC, it is a Schedule I controlled substance that is illegal under Indiana law.

B. Plaintiffs' Complaint Plaintiffs are various stakeholders in the hemp industry. 3Chi is a manufacturer and distributor of low THC hemp extract products. Midwest Hemp Council is a trade organization for farmers, manufacturers, retailers, and consumers of low THC hemp extract products. Wall's Organics is a hemp retailer located in Evansville, Indiana. Plaintiffs are suing under 42 U.S.C. § 1983, alleging that the Official Opinion has resulted in a deprivation of their rights due to its conflict with federal and state law.

Specifically, Plaintiffs allege the following. 3Chi and members of Midwest Hemp Council have lost financial and banking services because the Official Opinion has put the legal status of their products into doubt. (Am. Compl. ¶¶ 52–53, ECF No. 31.) 3Chi's bank "notified the company to either stop selling the products or find a different financial institution," ultimately forcing 3Chi to find another bank. (Id. ¶ 52.) One member of Midwest Hemp Council received a letter from the Wayne

County Prosecuting attorney "threatening the store owner to stop selling [delta-8] products or face legal action." (Id. ¶ 54.) Defendant Sergeant Hassler entered Plaintiff Wall's Organics' store and "informed Wall's Organics that it had to remove all low THC hemp extract products from its shelves, and he provided the owner with a copy of" the Official Opinion. (Id. ¶ 56.) Sergeant Hassler said "he would return to the store and that he did not want to see any Delta-8 THC or other low THC extract products on the shelves when he returned, or arrests would be made," also saying it did not matter that the products contained less than 0.3% delta-9 THC. (Id. ¶¶ 57– 58.) Putting aside whether an Official Opinion carries the weight of law, Plaintiffs

contend that the Official Opinion has harmed them "by placing them in jeopardy of criminal prosecution, depriving them of financing due to fear by lenders of criminal prosecution, and precluding them from selling products deemed legal by federal and state law." (Id. ¶ 109.) Defendants argue, in various combinations, that (1) they are not the correct defendant; (2) Plaintiffs do not have standing to bring a claim against them; and/or (3) sovereign immunity prevents Plaintiffs from bringing their claims. II. Legal Standard

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