On Friday, the USDA published a long, long awaited Final Rule regulating the production of hemp in the United States. The Final Rule, which arrives more than two years after Congress first allowed for the widespread cultivation, processing, distribution, sale, and use of hemp, establishes a comprehensive regime governing all aspects of this nascent industry.

The hemp industry has been operating under an interim final rule since October 2019, which our team wrote about at the time. The interim final rule’s key provisions included licensing requirements; recordkeeping requirements for maintaining information about the land where hemp is produced; procedures for testing the THC concentration levels for hemp; procedures for disposing of non-compliant plants; compliance provisions; and procedures for handling violations.

Last September, we wrote that following sustained criticism from many aspects of the hemp industry, the USDA announced that it was reopening the comment period for the interim final rule for an additional 30 days. The Final Rule, which will be effective on March 22, 2021, incorporates modifications to the interim final rule based on those public comments, the most important of which are industry-friendly changes to (1) the threshold for “negligent” violations; (2) the date after which all testing must be done by DEA-approved laboratories; (3) the disposal and remediation procedures for “hot” hemp; (4) the window between testing and harvest; and (5) the parts of a plant from which samples for testing may be taken. 

Background 

On October 31, 2019, the USDA published the interim final rule that provided specific details on the process and criteria for review of plans the USDA receives from states and Indian tribes regarding the production of hemp, and established a plan to monitor and regulate the production of hemp in those states or Indian tribes that do not have an approved state or tribal plan.

The interim final rule was effective immediately after publication in the Federal Register and provided a 60-day public comment period. On December 17, 2019, the USDA extended the comment period until January 29, 2020, to allow stakeholders additional time to provide feedback. The USDA re-opened the comment period for 30 days, from September 8 to October 8, 2020, seeking additional comments from all stakeholders, especially those who were subject to the regulatory requirements of the interim final rule during the 2020 production cycle. In all, the USDA received about 5,900 comments.

On February 27, 2020, the USDA announced the delay of enforcement of the requirement for labs to be registered by the Drug Enforcement Administration (DEA) and the requirement that producers use a DEA-registered reverse distributor or law enforcement to dispose of non-compliant plants under certain circumstances until October 31, 2021, or a final rule was published, whichever came first. This delay has been further extended in the final rule to December 2022.

More information about the provisions of the final rule is available on the Hemp Production web page on the Agricultural Marketing Service (AMS) website.

The USDA has specifically identified the following key provisions of the Final Rule:

• Negligent violation– Producers must dispose of plants that exceed the acceptable hemp THC level. However, if the plant tests at or below the negligent threshold stated in the rule, the producer will not have committed a negligent violation. The Final Rule raises the negligence threshold from .5%to 1% and limits the maximum number of negligent violations that a producer can receive in a growing season (calendar year) to one.
• Disposal and remediation of non-compliant plants– The Final Rule allows for alternative disposal methods for non-compliant plants that do not require using a DEA reverse distributor or law enforcement and expands the disposal and remediation measures available to producers. AMS will provide acceptable remediation techniques in a separate guidance document.
• Testing using DEA-registered laboratories– There are an insufficient number of DEA-registered laboratories to test all the anticipated hemp that will be produced in 2020 and possibly 2021. DEA has agreed to extend the enforcement flexibility allowing non-DEA registered labs to test hemp until January 1, 2022, and is processing lab registration applications quickly to get more labs testing hemp DEA-registered.
• Timing of sample collection– The interim final rule stated a 15-day window to collect samples before harvest. The FR extends this requirement to 30 days before harvest.
• Sampling method – Stakeholders requested that samples may be taken from a greater part of the plant or the entire plant. They also requested sampling from a smaller number of plants. The Final Rule allow states and tribes to adopt a performance-based approach to sampling in their plans. The plan must be submitted to the USDA for approval. It may take into consideration state seed certification programs, history of producer compliance and other factors determined by the state or tribe.
• Extent of Tribal Regulatory Authority over the Territory of the Indian Tribe– The interim final rule did not specifically address whether a tribe with an approved USDA plan could exercise primary regulatory authority over the production of hemp across all its territory or only lands over which it has inherent jurisdiction. The final rule provides that a tribe may exercise jurisdiction and therefore regulatory authority over the production of hemp throughout its territory regardless of the extent of its inherent regulatory authority.

While the Rule provides much-needed guidance to the burgeoning hemp industry, it contains some complex requirements and harsh penalties for negligent violations of those requirements. It is worth emphasizing that the Final Rule governs the production of a crop that was considered a Schedule I narcotic just a short time ago. And it is certainly possible that the incoming Biden administration will take a different approach to the regulation of hemp and hemp-derived products. It seems unlikely, however, that the new administration will do so quickly. Absent an express and public shift in regulatory policy, hemp producers should thus take great care to develop robust policies and procedures to ensure their compliance with the USDA, state, or tribal plan that governs their operations.