Potential supply chain savings for cannabis companies

Recent legal decisions have relaxed the drug paraphernalia ban and paved the way for direct imports.

A decades-long ban on imported drug paraphernalia has softened, positioning the cannabis industry for direct importation from foreign vendors.

As set forth in Title 21 U.S. Code Part 863(a) (Section 863), it is unlawful to sell, offer to sell, transport, import, or export drug paraphernalia. The same code defines the broad term “drug paraphernalia” as “equipment, product, or material of any kind which is primarily intended or designed for use in manufacturing, compounding, converting, concealing, producing, processing, preparing, injecting, ingesting, inhaling, or otherwise introducing into the human body a controlled substance.” Section 863 also notes that an exemption exists that allows the manufacture, possession, or distribution of such items when “authorized by local, state, or federal law.”

The cannabis industry has been long challenged with the broad legal definition of drug paraphernalia, especially with the procurement of materials, tools, equipment, and other supplies for its operations. Businesses have often relied on a discreet, complex, and expensive labyrinth of supply chain partners while also assuming the risk of seizure, penalties, and criminal prosecution.

While a growing number of local and state jurisdictions have moved toward the legalization of medical and recreational marijuana products during the last three decades, U.S. Customs and Border Protection (CBP) has remained steadfast in its enforcement of the nearly 40-year-old drug paraphernalia ban based on the Supremacy Clause of the U.S. Constitution.

However, an opinion issued in September 2022 by the Court of International Trade (CIT) in Eteros Technologies USA, Inc. v. United States rebuked CBP’s long-held position and is paving the way for potential supply chain changes in the cannabis industry. Eteros sought the importation of motor frame assemblies as component parts for an agricultural machine designed to separate the leaf from the flower of cannabis or other plant material. However, CBP excluded the component parts from entry into the U.S. because they were considered drug paraphernalia.

In its case, Eteros argued that the subject goods were exempt from the ban because in 2012 the state of Washington, where the motor frame assemblies were being imported, legalized adult recreational use of marijuana and excluded drug paraphernalia for marijuana use from existing statute. The CIT found the state of Washington’s changes in law served as “authorization” within the meaning of Section 863.

While the cannabis industry welcomed this ruling, it wasn’t clear until November 2023 how the agency planned to move forward administratively. CBP ruling number N335656, dated Nov. 9, 2023, helped define the tariff classification of marijuana smoking pipes proposed for importation through the Port of Seattle.

In the ruling, CBP identified the subject items as prohibited drug paraphernalia and acknowledged the CIT ruling in Eteros, holding that the subject goods are authorized for import through ports in the state of Washington. CBP cautioned the trade community in the ruling, stating that, “the products could still be considered prohibited merchandise and potentially seized if imported through a port of entry in a different state.”

While direct import brings numerous benefits to the cannabis industry – such as greater supply chain control, more competition, and reduced costs – it also exposes companies to trade compliance risk.

As the cannabis industry turns toward direct foreign relationships with suppliers for operations equipment and products to sell to its customers, it will be important to examine strategies to mitigate trade compliance risk and minimize duty liability.