CANADIAN COMPANY BATTLES U.S.

America’s war on drugs has turned into a trade battle between the U.S. government and a small Canadian company.

Industrial hemp-growing company Kenex Ltd., will take on the U.S. State Department tomorrow when it files a lawsuit under the North American Free Trade Agreement.

The company, based in Chatham, Ont., is seeking at least $20 million (U.S.) compensation because it says the U.S. Drug Enforcement Administration’s attempt to ban hemp-seed foods is financially devastating.

“Kenex’s business was going to be built around and focused on its access to the U.S. market,” says the company’s lawyer Todd Weiler. “They were ready to go to town and they have this come down on them.... It’s not just that they were exporting into the U.S., they had plans to do a heck of a lot more, and that got stymied.”

The company, which employs about 10 people, has grown and processed hemp oil, seed and fibre products since 1998 — when the Canadian government lifted a ban on hemp farming dating back to 1938. Kenex is now North America’s largest producer of hemp seed, with three-quarters of its business going to the United States where it’s illegal to grow and process hemp.

“The U.S. government has such an absurd practice of harassing and seizing shipments, that it’s put a real chill in the market,” says David Bronner, president of Dr. Bronner’s Magic Soap (which contains hemp oil) and chairman of the Hemp Industry Association’s food and oils committee. “Customers need on-time delivery and they can’t be worried about hold-ups, let alone seizures ... we want the marketplace to be more free so we don’t have to worry about DEA harassment.”

“The U.S. government has such an absurd practice of harassing and seizing shipments that it’s put a real chill in the market.”

– David Bronner, president of Dr. Bronner’s Magic Soap

Legal counsel for Kenex met with Washington officials in March in an attempt to prevent a long drawn-out trade dispute, but after the officials failed to recognize the legality of Kenex’s products, the company moved to seek compensation under Chapter 11 of NAFTA, which allows investors to sue governments.
“They haven’t played by the rules. And it’s crippled our investment ... we’re done if this stands,” Kenex president Jean Laprise told The Star in January when the company filed its notice of intent to sue.

Spokespersons for the DEA and the State Department refused to comment on the impending case until they reviewed the notice of arbitration.

Kenex is the fifth Canadian company to face the U.S. government in arbitration at a NAFTA tribunal. A three-member panel will listen to arguments and issue a decision — a process that can take two years.

Even though hemp seed and oil is highly nutritious — packed with Vitamin E and essential fatty acids — and is used in everything from bread to ice cream, the DEA wants it banned. That’s because hemp and marijuana come from the same cannabis plant containing the hallucinogen tetrahydrocannabinol (THC), which gives pot smokers their high.

Marijuana comes from the flowering tops of the plant and contains up to 15 per cent THC, while industrial hemp is made from plant stocks and has only trace amounts of the substance (less than 0.3 per cent).

“It’s inane logic, that because hemp and marijuana are from the same plant they must be the same thing,” says Weiler. “It’s akin to saying that a cat and cheetah are the same thing, so we should keep people from having cats.”

“It’s akin to saying that a cat and cheetah are the same thing, so we should keep people from having cats.”

– Lawyer Todd Weiler

While marijuana has long been considered a controlled substance, industrial hemp products, such as fibres and textiles, are exempt from control under U.S. legislation.
However, the 1970 Controlled Substances Act still lists THC as a controlled substance, giving the DEA grounds for its “zero THC policy” in products for human consumption.

The ruckus, which prompted Kenex to sue, started when a shipment of its sterilized hemp seed was confiscated at the border in 1999. After a four-month legal battle, Customs allowed the shipment to cross, but by that time the seed had spoiled and the company had lost major customers.

Kenex argued the DEA’s actions violated the 1970 Controlled Substances Act, which exempts sterilized hemp seed and oil from control. And six months after the seizure, the U.S. Department of Justice said the DEA lacked the authority to confiscate the goods.

In October, 2001, the DEA issued a ban on food products made with hemp seed and oil, giving manufacturers and retailers until February, 2002, to pull products from the shelves. That would have dealt a blow to the $5 million hemp food industry, but a counter-attack launched by the Hemp Industry Association blocked the move in a 9th Circuit Court of Appeals, where a decision is still pending. Kenex is a co-plaintiff in that case.

“There’s a lot of interpretation there,” says Charles Tremblay, market development adviser for horticulture and special crops at the Department of Agriculture and Agri-Food Canada.

“We want to expand the market for hemp products but we cannot assist (Kenex) in their case as the Government of Canada because it’s a private lawsuit.”

In Canada, where farmers are encouraged by the government to get into the business, hemp products must be labelled and cannot contain more than 0.3 per cent THC. Because the industry is so new, there are still no growth or sales figures available, but Tremblay calls hemp an “emerging market.”

“It’s important to reduce trade barriers that would prevent Canadian companies to succeed in other markets so we’d like them to succeed in their battle. We’d like it to be as legal in the U.S. as it is in Canada.”

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