USDA Interim Hemp Regulations Provide Welcome Guidance But Need Refinement

Beveridge & Diamond PC

The United States Department of Agriculture (USDA) published its interim regulations establishing the U.S. Domestic Hemp Production Program on Thursday, October 31. The interim regulations became effective upon publication and will remain in effect through November 1, 2021. 

USDA’s decision to make the interim regulations effective immediately responds to the fact that hemp[1] production has seen a resurgence in the last five years, driven not only by the potential for high returns from sales of hemp processed into CBD oil, but by myriad other uses, including textiles, bioplastics, and paper. The USDA anticipates that the interim regulations will help expand production and sales of domestic hemp, benefiting both U.S. producers and consumers. Under the interim regulations, states and Indian tribes may have primary authority over hemp production within their borders with a USDA-approved plan. Ten states and ten tribes submitted plans for hemp production to USDA before publication, a number that is now anticipated to grow rapidly. USDA previously indicated it would not review any plans submitted until the interim regulations were published. For those that desire to grow hemp in states without approved plans, USDA will issue licenses to producers through its own program (provided that the producer is in a state which has not banned hemp production). 

The interim regulations provide much-needed guidance to the industry in the wake of the passage of the 2018 Farm Bill. However, stakeholders in the industry have already identified concerns, with some of the most significant being that:

  • Seed certification is not addressed. The USDA chose not to address this issue at the federal level for several reasons, including that hemp seeds can react differently based on location, terroir, and cultivation conditions.
  • In lieu of delta-9 tetrahydrocannabinol (THC) testing, the interim regulations require “total THC” testing, potentially driving up total THC content and creating a greater risk for artificially “hot crops” which would need to be destroyed instead of harvested. To date, states and tribal jurisdictions have taken different approaches regarding whether both THC and THCA concentrations must be taken into consideration to determine whether a particular cannabis sample meets the definition of “hemp” set forth in the 2018 Farm Bill.[2] 
  • Only Drug Enforcement Administration (DEA) registered labs may be used to conduct testing of the THC content of hemp crops. This raises the possibility that if hemp is sent out of a state or jurisdiction for testing, and it fails to meet the THC standards, the sender has potentially subjected themselves to criminal prosecution for sending marijuana across state lines. 

State Plan Requirements

To have primary regulation over the production of hemp within their borders, states and tribes must submit a plan to USDA indicating how they propose to monitor and regulate hemp production. The interim final rule defines the requirements for state and tribal hemp production programs. Since the 2018 Farm Bill’s passage, all but four states began allowing the production of industrial hemp in varying capacities. Although ten states and ten tribes submitted plans to USDA for local regulation of industrial hemp production in advance of the interim regulations’ publication, the majority have been waiting for this rule to finalize and submit their own plans. In the days immediately following the rule’s publication, two additional jurisdictions have submitted plans to USDA.

USDA’s interim regulations prescribe four key requirements for state plans to facilitate nationwide tracking of industrial hemp production and to ensure that industrial hemp producers comply with the 2018 Farm Bill. These include:

  • Information Collection and Sharing: State plans must include procedures for the state to collect and maintain information on hemp producers and hemp production sites. Specifically, state plans must establish a process for collecting and sharing with USDA information, including hemp producer contact information, hemp production site location, and hemp crop volume. Plans also must require that licensed hemp producers report their hemp crop acreage to the USDA Farm Service Agency.
  • Sampling and Testing: The interim regulations require that state plans outline procedures for the effective and accurate sampling and testing of hemp for THC concentration levels. Samples must be collected within fifteen days of the anticipated date of harvest by a federal, state, local, or tribal law enforcement agency or other designated person. The person collecting samples must use a method that ensures the sample is representative of a homogenous composition of the lot (defined as a contiguous growing area containing the same variety or strain of cannabis). State plans must prohibit industrial hemp producers from harvesting their hemp crop until samples have been taken. All testing that occurs pursuant to a state plan must be completed by a DEA-registered laboratory using a reliable methodology for testing for delta-9 tetrahydrocannabinol. 
  • Disposal of Non-Compliant Crops: The interim regulations require that states establish procedures for laboratories and hemp producers to dispose of hemp crops with excessive concentrations of THC. Non-compliant hemp must be collected for destruction by a person authorized under the Controlled Substances Act, 21 U.S.C. § 801, et seq., to handle marijuana, such as a DEA-registered reverse distributor or a duly authorized federal, state, or local law enforcement officer.
    • Criminal Liabilities of Individuals Sending Non-Compliant Samples? The purpose of a testing regime is to allow the grower and the government to ascertain the THC content of the hemp in question. But the consequence of inadvertently growing a “hot” crop means that any hemp sent across state lines for testing that exceeds the .3 percent THC by dry weight definition is marijuana. And while the regulations require that states establish procedures for laboratories and/or hemp producers to dispose of non-compliant crops, there are no protections in place protecting the sender of that “hot” sample from criminal liability. This forces farmers in states without a DEA-registered testing lab into making an unacceptable choice: mail or transport a sample across state lines to a DEA lab that – if the sample is noncompliant – could subject him or her to jail time on interstate drug trafficking charges, or choose to not test, violating both state and Federal law and subjecting that farmer to further criminal liability.
  • Enforcement: States must define mechanisms to ensure that hemp is being produced in accordance with the interim regulations, including periodic inspections and procedures for handling and correcting violations.

When submitting their plan to USDA, states, and tribes must also certify that they have adequate resources and personnel to carry out their proposed regime for hemp regulation. 

Once a state or tribal plan has been formally submitted to USDA (for plans submitted before the rule’s publication, October 31, 2019, is considered the submission date), USDA has sixty days to review and issue a decision on whether to approve a state plan. USDA will approve plans that comply with the 2018 Farm Bill and the interim regulations’ requirements. If USDA rejects a state plan, the agency will give the state or tribal government an opportunity to submit an amended plan for further review. 

USDA Hemp Producer Licenses

If a state or tribal government does not have an approved production plan, then a producer may still be able to produce hemp under USDA’s hemp production plan. This will only be the case if the state or tribal government has not criminalized hemp production within its boundaries. Under the USDA licensing scheme, producers must apply for and be issued a USDA license. USDA will begin accepting applications for these licenses on December 1, 2019, and will continue accepting them for one full year. After this initial one-year period, applications will be accepted only between August 1 and October 31 for all subsequent years. Licenses will remain active until December 31 of the third year after the year in which the license was issued and must be renewed every three years to stay valid.

The application procedures outlined in the interim regulations are comprehensive and any potential hemp producer should review them carefully and consult an attorney. The applications will require contact information and a criminal history report for each key participant. A key participant is defined as “a person or persons who have a direct or indirect financial interest in the entity producing hemp, such as an owner or partner in a partnership.” Key participants include CEOs, COOs, CFOs, but exclude management positions (such as “farm, field or shift managers”). Those convicted of a State or Federal felony involving controlled substances – within 10 years of the completed criminal report – are ineligible.

The applicant will receive a license approval or denial by mail or email. If the application is denied, the reason will be detailed and the applicant may resubmit the application (if incompleteness was the reason for rejection) or appeal the decision. Upon application approval, a production license will be issued. Only once the license is received will the applicant be considered a licensed producer. After a license is obtained, specific information must be shared with FSA such as hemp crop acreage, and explicit location of the production operation. USDA must be immediately notified if any original application information changes.

Even after this lengthy procedure, licenses are not guaranteed. Licenses can be suspended if the licensee has engaged in conduct violation of provisions of the interim regulations or has failed to comply with a written order from the AMS Administrator related to a negligent violation. During the suspension period, a suspended licensee is prohibited from removing, handling, or producing hemp. Licenses may be reinstated after one year and USDA has the discretion to require producers with suspended licenses to participate in a corrective action plan. Licenses will be revoked immediately for certain violations such as felony related to a controlled substance or having grown hemp above the acceptable THC level with a certain level of intentionality.

Clarifying Key Issues; Others Remain Unresolved

USDA’s interim regulations resolve a number of issues that have plagued the industry since the 2018 Farm Bill’s passage. Perhaps most critically for the industry, consistent with the Farm Bill, the interim regulations ban states and tribes from prohibiting the transportation or shipment of hemp produced in accordance with the rule through its borders. This is true even in states that prohibit the production of hemp entirely. 

Whether operating under a state plan or USDA’s licensing program, the interim regulations clarify when sampling must occur (within 15 days of the anticipated date of harvest) and how samples must be taken (by a federal, state, local, or tribal law enforcement agency or other designated person using a method that ensures the sample is representative of the hemp lot). Similarly, the interim regulations indicate where sampling must occur (a DEA-registered lab) and what samples must be tested for (delta-9 tetrahydracannabinol concentration using a methodology that considers the potential conversion of delta-9 tetrahydracannabinolic acid in hemp into THC and that measures the total available THC derived from the sum of the THC and THC-acid content).

While hemp is defined as the plant species Cannabis sativa L. and any part plants or derivatives containing no more than 0.3 percent THC, hemp legally produced pursuant to the interim regulations can contain THC concentrations slightly greater than 0.3 percent. The interim regulations define the Hemp “acceptable hemp THC level” as “the application of measurement of uncertainty to the reported delta-9 tetrahydrocannabinol content concentration level on a dry weight basis produce a distribution or range that includes 0.3% or less.” Accordingly, if hemp has a THC content slightly over 0.3 percent, it does not necessarily have to be destroyed pursuant to the interim regulations.[3] 

While providing answers to a number of longstanding questions, the interim regulations simultaneously leave a number of questions outstanding. The interim regulations only require that the hemp plants in the field be sampled and tested for THC content. Accordingly, the testing and management of completed hemp products remain unregulated by USDA. As noted above, the interim regulations take a “Total THC” approach, an issue that has divided state regulatory programs. 

In addition, the interim regulations do not address seed certification requirements. The importation of seed remains covered under USDA Animal and Plant Health Inspection Service (APHIS) regulations. The interim regulations do not account for regional factors that can influence THC content in hemp crops, leaving it up to farmers to carefully select hemp seed varieties that will not result in excess THC concentrations in certain geographic regions. Likewise, the interim regulations do not impact APHIS’s jurisdiction to address pest-related issues related to imports of hemp plant material. The interim regulations also do not affect the exportation of hemp, although USDA notes that if there is sufficient interest in exporting hemp in the future, USDA will work with industry and other Federal agencies to help facilitate this process. 

The interim regulations also do not address CBD, which is within the jurisdiction of the U.S. Food and Drug Administration (FDA).

Mounting Concerns

USDA provided a great service to the industry in promulgating these interim regulations as expeditiously as possible. However, the above discussion makes clear that the regulations create new questions and concerns that must be addressed as the regulations become final. For example:

  • The rules have been criticized because the sampling time is too soon before harvest. Many farmers have suggested that testing is more appropriate 30 to 45 days before harvest.
  • Only 22 of the 45-plus states with state-level hemp regulations comply with the new industrial hemp testing standards. Eighteen state programs do not currently test for total THC, and the unusual (and unfortunate) impact of making these interim regulations immediately effective is the failure to provide farmers preparing for an imminent harvest little time to comply, putting millions of pounds of crop at risk.
  • Crops that test “hot” still face destruction, there is no means for a hemp farmer to salvage their crop in such an instance, and difficult-to-obtain crop insurance provides no protection for most farmers. 
  • There are new, unanswered questions about criminal liability for individuals sending hemp samples interstate that may turn out to exceed the .3% THC by dry weight standard.
  • The interim regulations only regulate matters under USDA’s jurisdiction; other items of intense interest to the industry, such as the ability to infuse CBD into consumable food or dietary supplements, await further regulation by the Food and Drug Administration. Other agencies, including US EPA and the Federal Trade Commission, may yet weigh in with hemp regulations of their own.

Next Steps

As noted above, USDA is currently accepting plans from states and tribes planning to craft their own hemp production programs. For producers seeking to apply for a USDA license, USDA will begin accepting applications on November 30, 2019. 

USDA is accepting comments on the interim regulations through December 30, 2019. 

USDA is particularly interested in comments on the following issues:

  • For the first year after USDA begins to accept applications for USDA licenses, applications can be accepted at any time. For all subsequent years, license renewal applications must be submitted between August 1 and October 31, a period close to or after the harvest season when producers are preparing for the next growing season. USDA is seeking comments on whether this application period is sufficient.
  • USDA requests input on its information and collection-sharing requirements.
  • USDA requests public comment on the estimated impacts of the rule, specifically whether there is information or data that may inform whether or not the market will experience a significant shift, either positive or negative, in the developing hemp market and on consumers. In addition, USDA seeks comments and requests any data or information on what impacts the regulation may have on current and future innovation in the areas of industrial hemp usages and how much such impacts on innovation may affect rural communities.
  • USDA would like further data on the annual receipts of industrial hemp producers. USDA evaluated State acreage data and an estimate of gross revenue per acre received by producers calculated using the 2018 Processor/Handler Production Reports to the Kentucky Department of Agriculture. USDA seeks comments on other reliable data sources that may be available.

Although not specifically requested, it is expected USDA will receive several comments on its decision not to address seed certification, to employ a “Total THC” approach, and limit testing to DEA approved laboratories.

After reviewing and evaluating the comments, USDA will draft and publish a final rule within two years of the date of publication, or by November 1, 2021.

[1] As defined in the 2018 Farm Bill, the term “hemp” means the plant species Cannabis sativa L. and any part of that plant, including the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with a delta-9 tetrahydrocannabinol concentration of not more than 0.3 percent on a dry weight basis. Delta-9 tetrahydrocannabinol, or THC, is the primary intoxicating component of cannabis. Cannabis with a THC level exceeding 0.3 percent is considered marijuana, which remains classified as a Schedule I controlled substance regulated by the Drug Enforcement Administration (DEA) under the CSA.

[2] THC and THCA are two compounds commonly found in the cannabis plant. As its name indicates, THCA is an acidic cannabinoid, whereas THC is a neutral cannabinoid, meaning it possesses active (psychoactive) proprieties. 

[3] However, hemp crops that fall outside of the margin of error provided by the distribution or range must still be destroyed. And this creates another potential quandary: if law enforcement seizes a shipment of hemp, and the portion of the hemp they test falls within the margin but is greater than .3% THC by dry weight, there remains the possibility that the jurisdiction could still levy a marijuana possession or drug trafficking charge simply because the sample tested tests above the .3%, and there is no corresponding “margin of error” giving the shipper relief under either the definition of hemp or under any state or federal criminal statutes. 

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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