January 21, 2020

On October 31, 2019 — yes, on Halloween and almost a year after the legalization of commercial hemp production — the USDA finally released its interim final rule (“IFR”) to establish the Domestic Hemp Production Program.

As you may recall, on December 20, 2018, the Agricultural Improvement Act of 2018 — better known as the 2018 Farm Bill — removed industrial hemp from the Schedule I list under the Controlled Substances Act, making it (once again) an ordinary agricultural commodity. Prior to the 2018 Farm Bill we had the 2014 Farm Bill which did not declassify hemp as a Schedule I substance but created a limited, research-based agricultural pilot program that allowed state departments of agriculture and institutions of higher education to cultivate hemp for research purposes. Four years later, the 2018 Farm Bill not only legalized the production of commercial hemp, it also granted the United States Department of Agriculture (“USDA”) with regulatory authority over its cultivation.

To that end, the 2018 Farm Bill directed the USDA to (1) develop a domestic production program to review and approve cultivation plans submitted by states and Native American tribunals that wish to maintain authority of hemp production in their jurisdiction; and (2) establish its own federal plan for producers in areas absent a state/tribe plan — so long as the production of hemp wasn’t prohibited all together in that jurisdiction. Cue the IFR.

The IFR was effective upon publication but was followed by a 60 day period for public comment to allow the USDA to receive input on the rule as enacted. When the public comment period ended on December 30th a total of 1671 comments had been submitted. The USDA will use the public comments as well as the 2020 growing season as a chance to “test drive” the IFR to guide any adjustments that are made in the final rule.

The IFR will sunset in two years (October 31, 2021), so we can expect an extension of the IFR or the final rule to be published sometime before that. In the meantime, here’s what you need to know about producing hemp crops under the 2018 Farm Bill and the IFR:

Licensing Under the USDA Interim Final Rules 

To produce hemp you first need to be licensed or authorized under a state/tribal or USDA hemp program.

Restrictions on eligibility

First, it should be mentioned that the IFR established a 10 year enrollment ban on any person who has been convicted of a state or federal felony related to a controlled substance. This applies to USDA and state/tribal plans. An exception applies if the person was lawfully growing hemp under the 2014 Farm Bill AND their conviction occurred before December 20, 2018 (the enactment of 2018 Farm Bill). In the opinion of many stakeholders, this runs afoul to the ever growing principles of social equity programs.

States/Tribes may regulate the production of hemp more strictly than the USDA so long as their plan is in accordance with the 2018 Farm Bill and the IFR. So it’s important to check your state/tribe’s plan for any additional restrictions it may have placed on license eligibility.

Which license should you apply for…

The program you are licensed under ultimately depends on the location of your hemp-growing facility. So, the first step is to contact your local state department of agriculture or tribal government to see if they have a hemp production plan that has been submitted to or approved by the USDA. The USDA also has a page on their Agricultural Marketing Services (“AMS”) website that lists which states/tribal territories are drafting or have already submitted plans and which plans have been approved.

If your state or tribal government has an approved plan or is in the process of developing a plan, you must apply to be licensed or authorized by that state/tribe. If your state/tribe is not developing a plan, you may apply to the USDA directly for a hemp production license.  If your jurisdiction has applied but their plan was rejected by the USDA, then you may still be able to apply for a USDA license.

As an example, California has a “Drafting a Plan for USDA Review” status on the USDA website. This means if your hemp crop is located in California state jurisdiction, you will need to wait until the state plan is submitted and approved (or rejected) before you are able to apply or receive licensing under the plan. But remember, hemp crops located in a tribal jurisdiction within California may be subject to an entirely separate plan and timeline.

Applying for a USDA license

If your state/tribal government has (a) not prohibited the production of hemp and (b) they have not and do not intend to submit a plan, then you can submit an application for a license directly to the USDA. Applications for USDA licenses opened on December 1, 2019. For the first year, the USDA is accepting applications at any time. Thereafter, the USDA application window will be between August 1st and October 31st of each year. USDA licenses are NOT transferable or subject to sale and they must be renewed every 3 years.

What about cultivation under the 2014 Farm Bill?

The IFR grandfathered in cultivators that are currently producing hemp under the 2014 Farm Bill. The 2014 agricultural program will remain in place until October 31, 2020, after which any further cultivation will need to be authorized either by the producer’s state/tribe or the USDA.

After Licensing: New Testing Standards

So you’ve applied for and obtained a state/tribe or USDA license, now what? After planting your crop, you will need to visit your local USDA farm service agency (“FSA”) office and provide them with (1) your state/tribal or USDA license, and (2) the geospatial location(s) of where you are growing hemp. The FSA will then give you a lot number(s), after which you will need to request an authorized agent to come sample each lot to ensure your crops comply with the USDA’s new testing standards (see below).

When declassifying hemp as a schedule I substance, the 2018 Farm Bill defined it as cannabis with a THC concentration of up to 0.3% — anything with a higher concentration is “marijuana” and is still federally illegal. However, whether a specific harvest falls below this threshold depends on when and how it is tested. At the time of its enactment, the 2018 Farm Bill failed to provide any specificifications or uniform standards on how and when to test crops. Thankfully, the IFR cleared up some of this uncertainty, however many in the industry are frustrated with some of the resolutions the USDA reached.

Testing For Total THC

One of the biggest disappointments to many industry players lies in the USDA’s interpretation that the language in the 2018 Farm Bill requires that both THCA and delta-9 THC concentrations (“Total THC”) be considered when deciding whether a particular cannabis sample meets the definition of “hemp”. So instead of using just the delta-9 THC concentration to make this determination, the IFR requires that the sum of both figures not exceed the 0.3% THC threshold.

This creates an additional hurdle for producers because the total THC method tends to increase THC concentration making it more difficult to produce crops that fall under the 0.3%THC threshold. Additionally, it limits the types of strains that farmers are allowed to use because most hemp genetics found on the market would not comply with these THC requirements.

While the IFR says that alternative sampling and testing protocols will be considered if they are comparable and similarly reliable, it’s unclear what will happen to previously harvested plant material that was tested under a different method (i.e., Delta-9). But, because IFR specifically extended the 2014 Farm Bill, and because there’s nothing in the IFR to indicate that the Total THC testing requirement applies retroactively, it seems like there’s some security for any hemp that has been previously grown and tested in compliance with the 2014 Farm Bill. At the very least, we doubt the USDA will require destruction of previous harvests still in storage.

Crop Sampling

A sample will need to be taken from each lot to test its Total THC levels. According to the IFR, states/tribes must ensure that a representative sample of the hemp production is physically collected from the flower material of the crop by a USDA-approved sampling agent, or a federal or state law enforcement agent. Moreover, sampling must be conducted within 15 days prior to the anticipated harvest. This will prove particularly challenging because THC concentration levels increase as you approach harvest, making it harder to meet the 0.3% Total THC requirements. A guidance document that includes specific steps for sampling including how to collect a statistically representative sample can be found on the AMS website here.

DEA Registration Required for Hemp Testing Labs

The IFR further challenges industry players by requiring all hemp testing to be completed by a DEA-registered lab. The USDA’s rationale for this requirement is that, during hemp testing, labs will inevitably be handing non-compliant crops that constitute the federally illegal marijuana. Under federal law, the only people that can handle this schedule I controlled substance are those registered with the DEA. Here’s the conundrum: under the DEA’s current guidelines (Form 225), a lab is only eligible to be registered with the DEA if they are located in a jurisdiction that has legalized marijuana. We have to conclude that there will be substantial issues in the (many) states that have not legalized marijuana, but have legalized (or are about to legalize) the cultivation of hemp as they won’t be able to test their hemp crops because their labs are disqualified from DEA registration. [A list of testing labs already registered with the DEA can be found here].

As the USDA and DEA’s website provide no clarification on this problem, we are left wondering what this means for producers in a state that can’t test hemp within their borders. Does this mean they have to ship their hemp to other states to be tested by DEA registered labs? If so, what happens if their hemp fails to meet the THC threshold? Will those hemp producers be subject to prosecution because they essentially shipped cannabis across state a lines? These are very problematic (potentially disastrous) rules that need to be clarified in the final rule.

While labs testing hemp under the 2014 Farm Bill will likely be able to continue testing, there is nothing in the rules about a grace period for testing labs to get DEA registered for hemp testing under the 2018 Farm Bill. This gives us additional concerns about a monopoly being created as only a few labs will be able to test hemp. There is also potential risk for a bottleneck situation similar to the early stages of regulated cannabis in California when there were only a few licensed cannabis testing labs.

After Licensing: Interstate Transportation

The 2018 Farm Bill expressly prohibited states/tribes from interfering with the interstate transportation and shipment of hemp and hemp products that would be cultivated under the 2018 Farm Act. The IFR additionally extended this prohibition to hemp lawfully produced under a state/tribal or USDA plan or the 2014 Farm Bill.

While theoretically, this is good news — especially in the wake of decisions by federal courts to abstain from forcing states to return otherwise legally grown hemp seized on account of conflicting state laws — hemp has continued to be seized after the release of the IFR. This is likely due to the fact that there aren’t any uniform testing protocols that have been adopted by law enforcement agencies yet. Law enforcement authorities from Texas to Florida have said they don’t have tests that can differentiate between legal hemp and illegal marijuana. This means agents are left staring at a plant that looks and smells exactly like cannabis.

Interestingly, the IFR does not require any type of paper (i.e., shipping manifests or COA’s) to accompany hemp shipments, leaving it up to individual carriers to put in place their own requirements. So far, only USPS has made rules for paperwork to accompany hemp shipments, but, going forward, it is best practice to attach a copy of your grower’s license, processor’s license (if applicable), and COA with all hemp shipments. It may also be prudent to contact the destination state to see if they have any documentation requirements for hemp shipments. This will help mitigate any risk of seizure.

What the Rule Does NOT Cover: CBD Products 

The 2018 Farm Bill and the USDA rules regulate the cultivation and production of hemp. This is distinct from things like hemp processing or the sale of hemp-derived products intended for human consumption (i.e., CBD supplements or tinctures) or industrial purposes (i.e., textiles or rope) which means these activities are not explicitly regulated under the 2018 Farm Bill or the IFR. So, we still find ourselves awaiting draft rules for hemp-derived CBD products from the Food and Drug Administration (“FDA”). Officials from the agency have indicated that there are complicating factors that make it difficult to develop regulations for the cannabis compound, and former FDA Commissioner Scott Gottlieb said it may take years for rules to be released without congressional action.

Some Key Takeaways:

  • If you want to produce hemp under an approved 2018 Farm Bill plan, find out which jurisdiction your hemp-growing facility is in and keep yourself informed about what your state/tribal government is doing by contacting your local Department of Agriculture or Tribal government and visiting the USDA AMS website — links provided above.
  • If your state/tribe already has a USDA-approved plan in place, check their plan to see if there are additional restrictions on your eligibility for licensure.
  • Whether you enroll in a state/tribe or USDA plan, always submit all the required documents and information required under that program.
  • If you are participating in an agricultural program under the 2014 Farm Bill program, while you should continue to comply with that program, keep in mind that it does expire in October of this year, so plan accordingly.
  • In theory, interstate transportation of hemp should become less risky but note that there is still so much ambiguity about these THC testing rules so even though you may now have a better legal argument that you can transport across state lines, you still don’t want your drivers arrested or your crops seized. Bring paperwork with shipments!

Disclaimer: This article has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice.