Despite regulatory uncertainty and increased competition, we continue to see explosive growth in the amount of hemp production in the United States, with the amount of total acreage increasing by approximately 550% since the passage of the 2018 Farm Bill.
Oregon contributed to a substantial portion of that amount in 2019, with nearly 2,000 licensed farmers producing over 60,000 acres of hemp. Given the broad range of applications of hemp and the ever-evolving mania for hemp-derived cannabinoids (CBD, CBG, CBN), farmers across the country see hemp as an appealing alternative to traditional cash crops like corn and soybeans. Nevertheless, there still remain numerous regulatory issues that need to be ironed out as the hemp industry continues to mature.
On Oct. 31, 2019, the U.S. Department of Agriculture (USDA) issued its Interim Final Rule (IFR), which immediately went into effect and will sunset on Nov. 1, 2021. Under the 2018 Farm Bill and the IFR, there are currently three ways for farmers to lawfully grow hemp in the United States.
- In compliance with a state plan that continues to operate under the authority of the 2014 Farm Bill.
- Pursuant to a state plan that has been approved by the USDA.
- By submitting an application directly with the USDA.
States that lead the pack in terms of acres grown (like Oregon) have chosen to continue operating under the 2014 Farm Bill for the 2020 harvest seasons, providing farmers the benefit of avoiding the cumbersome requirements of the IFR (at least for this year). Below are some high-level issues with the IFR and thoughts on what we can expect in the future.
Involvement of the Drug Enforcement Administration (DEA)
One major issue with the IFR is that it requires farmers to ensure that a representative sample of the hemp produced is delivered to a DEA-registered laboratory for THC testing.
The good news is that the USDA recently issued guidance stating that it is delaying enforcement of this requirement until the USDA releases its final rule, or Oct. 31, 2021, whichever comes first. According to New Frontier Data, less than half of the states with active hemp programs have a DEA-registered testing lab located in their state. The involvement of the DEA in hemp testing would not only result in a major bottleneck, but farmers would be required to deliver hemp that could potentially be above the 0.3% THC threshold across state lines to be tested, in violation of federal law.
While the USDA’s recent guidance is a step in the right direction, hopefully the USDA’s final rule will leave out DEA involvement altogether.
Alternatives for “hot” hemp
The USDA’s IFR also imposes a draconian mandate that requires the destruction of all “hot” hemp (i.e., hemp that exceeds the 0.3% THC threshold). Although the USDA’s recent guidance provides that farmers can repurpose “hot” hemp on their own farm into “green manure” by various means like mulching/composting, farmers stand to lose any potential economic gain from “hot” hemp. Rather than requiring onsite destruction or disposal, the USDA should allow farmers to coordinate with labs that can strip out the THC so that farmers can walk away with some opportunity to make money off their crops.
Negligence threshold
The IFR provides that a producer will be deemed to have committed a “negligent violation” if their hemp samples have a THC concentration of more than 0.5% on a dry weight basis. Furthermore, farmers with three negligent violations are prohibited from producing hemp for a five-year period.
Similar to the 0.3% THC threshold for differentiating hemp versus marijuana, the 0.5% “negligent violation” threshold is completely arbitrary. Given the difficulty in obtaining genetics that will be able to meet the 0.3% standard of delta-9 THC plus THCA, the “negligent violation” threshold should be raised as much as possible to prevent the unfair punishment of farmers who strive to grow compliant hemp in good faith but accidentally exceed the THC threshold.
Representatives from the USDA have stated that we may see an updated rule in the fall of this year, but that seems unlikely given the pace of USDA rulemaking in the past. Nevertheless, I urge farmers and operators in the industry to continue sharing their concerns with the USDA so that we can see positive changes to the regulations that will allow farmers to take full advantage of the many opportunities hemp has to offer.
Contact Ferdinand or one of our other experienced attorneys if you have any questions about the issues raised above, or if you need general legal support for your cannabis industry business.
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