Hemp Industry Gets Additional Federal Support As USDA Establishes Domestic Hemp Production Program

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On October 31, 2019, the United States Department of Agriculture (USDA) established the U.S. Domestic Hemp Production Program through the publication of an interim final rule, 7 CFR, Part 990 (“Hemp Rule”).  This rule represents much-needed guidance in a booming industry that has taken off with few regulatory parameters and it may make ancillary companies, such as banks and insurance companies, more comfortable doing business in the cannabis industry.

First, the much-anticipated Hemp Rule responds to the 2018 Farm Bill’s directive for the USDA to create a regulatory plan under which the USDA can approve plans submitted by states and Native American Tribes for the domestic production of hemp.  To date, 10 states have submitted state plans to the USDA – Pennsylvania, Kentucky, Texas, Oregon, Montana, Wyoming, Tennessee, Arizona, Georgia, and North Dakota – along with 10 Native American Tribes.  The USDA has indicated that it will complete its review of these submitted plans within 60 days of the effective date of the Hemp Rule, so states should have more guidance by January 2020.  Other states may elect to follow the federal plan for now and then submit a state plan later.

Second, the Hemp Rule establishes a federal plan for hemp producers in states or territories of Native American tribes that have not submitted their own USDA-approved plan.  It also prohibits states from preventing the interstate transportation or shipment of lawful hemp products – a response to some state authorities who recently have attempted to arrest and detain hemp transporters after conflating hemp with marijuana.

Below is a summary of the key highlights from the Hemp Rule:

• Hemp Definition: The Hemp Rule does not alter the 2018 Farm Bill’s definition that the delta-9 tetrahydrocannabinol content concentration level of hemp on a dry weight basis must be less than 0.3%, but it defines the “Acceptable hemp THC level” of a laboratory sample as the THC level on a dry weight basis along with the measurement of uncertainty.  This definition provides hemp producers with some flexibility in making sure their crops are plan compliant.  The Hemp Rule uses the following example: “if the reported delta-9 tetrahydrocannabinol content concentration level on a dry weight basis is 0.35% and the measurement of uncertainty is +/- 0.06%, the measured delta-9 tetrahydrocannabinol content concentration level on a dry weight basis for this sample ranges from 0.29% to 0.41%. Because 0.3% is within the distribution or range, the sample is within the acceptable hemp THC level for the purpose of plan compliance.”   7 C.F.R. § 990.1.
• Licensing: Any person producing or intending to produce hemp must have a valid license prior to producing, cultivating, or storing hemp. 7 C.F.R. § 990.21.   If a producer’s State or Tribe has an approved plan or is in the process of developing a plan, it must apply and be licensed or authorized under the state hemp program.  If a state does not have a plan nor intends to have a plan, a producer can apply for a license to become a producer under the USDA hemp production program.  Applicants may submit applications for a new license to the USDA between December 1, 2019 and October 31, 2020.  After that, there will be an annual application period of August 1 to October 31 each year.
• Crop Sampling: All hemp production must be sampled and tested for THC concentration levels before harvest.  Samples must be collected by a USDA-approved sampling agent, or a Federal, State, or local law enforcement agent authorized by USDA to collect samples.  7 C.F.R. § 990.24.  The sampling agent must have full access to all land, building, and structures used for cultivating, handling, or storing hemp.  The USDA posted specific sampling guidelines to its website.
• Laboratory Testing: Testing procedures must ensure the testing is completed by a DEA-registered laboratory using a reliable methodology for testing the THC level, which is defined as, at minimum, using post-decarboxylation. Testing methodologies meeting these requirements include, but are not limited to, gas or liquid chromatography with detection.  7 C.F.R. § 990.26.  Measurement of uncertainty (MU) must be estimated and reported with test results.   The USDA posted additional testing guidelines on its website.
• Harvesting after Testing: The USDA directs that hemp crops must be harvested within 15 days of the laboratory testing date in order to ensure the THC levels do not rise above compliant levels.  Failure to harvest within 15 days will require subsequent testing.  7 C.F.R. § 990.27. The USDA has specifically requested comments on this timeframe.
• Non-compliant hemp plants: Cannabis plants exceeding the acceptable hemp THC level constitute marijuana, and must be disposed of in accordance with the CSA and DEA regulations.  Producers must notify USDA of their intent to dispose of non-conforming plants and verify disposal by submitting required documentation.  7 C.F.R. § 990.28.  The producer must submit a disposal form to the USDA within 30 days after completion.   7 C.F.R. § 990.71.
• Negligent Violations: The Hemp Rule recognizes that even producers who take great care to grow hemp with an acceptable level of THC may produce hemp with higher than anticipated levels.  Therefore, the USDA will not find a producer negligent if the THC level is up to 0.5%, so long as the producer has made reasonable efforts to be compliant.  Negligent violations include: (1) failing to provide an accurate legal description of the hemp locations; (2) producing hemp without a license; and (3) producing hemp with THC levels above 0.5% (making it prohibited marijuana).  The USDA will issue Corrective Action Plans to producers with negligent violations, which will stay in place for two years.  The USDA also may suspend producer licenses.
• Producer Reporting: All hemp producers must report all addresses and locations where hemp will be grown, including indoor growing facilities, along with the acreage of that land. All producers must also submit an annual report by December 15 each year, which provides the USDA with producer information, land information, and test result reports.
• Record-Keeping: Records of all hemp plans acquired, produced, handled, or disposed of shall be maintained for a three-year period.
• Audits: Hemp producers are subject to USDA audits once every three years, which may include review of records and documentation as well as site inspection visits of farms, fields, or storage locations.

There is a 60 day comment period for companies to weigh in on this interim rule and the USDA has encourage companies to provide feedback to help ensure the growth and success of the hemp industry.

While companies now have significant federal guidance on the direction of the future of hemp,   it is important to still be aware of the intersection between this Hemp Rule and your state law, as well as with other federal guidance such as the FDA guidance on hemp-related products.  Companies should evaluate their current policies and procedures in light of this federal guidance and consult an attorney to discuss specific issues or questions that undoubtedly will arise as this industry moves forward.

For more information or should you have any questions, please contact any member of our Cannabis Law group.