The regulatory void created by the absence of federal hemp rules resulted in a state-by-state patchwork hemp industry that confused and frustrated hemp producers and distributors.

Enactment of the 2018 Farm Bill in December of last year marked a sharp change in the treatment of cannabis in the United States. In addition to removing hemp from the definition of “marihuana” under the Controlled Substances Act, the law provided for the commercial production of hemp pursuant to state and tribal programs approved by the federal government, or pursuant to approval by the federal government in the absence of a state or tribal program. However, the issuance of regulations was necessary to fully implement the 2018 Farm Bill, leaving actual and potential hemp industry participants unclear as to the true scope of hemp legalization. Over the past 10 months, the regulatory void created by the absence of federal hemp rules resulted in a state-by-state patchwork hemp industry that confused and frustrated hemp producers and distributors whose objective was interstate hemp business.

On October 29, 2019, the USDA released its draft version of the interim final rule. Although the rule is not yet final (and won’t be until it is published in the Federal Register), the content of the draft issued by the USDA contains a number of noteworthy components, some of which we have highlighted below:

• Sampling requirements: The draft rules provide that, within 15 days of the planned harvest of a cannabis plant, federal, state or local law enforcement officials, or designated persons, shall collect samples from the flower material from the cannabis plants for THC testing, and the sampling method must be sufficient at a confidence level of 95 percent that no more than 1 percent of the plants in that particular lot would exceed the acceptable level of THC. (§ 990.3(a)(2))
• Strict testing requirements: State plans “must include a procedure for testing that is able to accurately identify whether the sample contains a [THC] content concentration level that exceeds the acceptable hemp THC level.” The rules explain that acceptable testing methodologies include gas or liquid chromatography with detection. (§ 990.3(a)(3))
• Reporting requirements: States with hemp plans approved by the USDA must submit to the USDA, by the first of each month, a report including the contact information and the status of license or other authorization issued for each producer covered by the individual state plan. (§ 990.70(a)) In addition, by the first of the month, states must submit a report notifying the USDA of the occurrence of nonconforming plants and providing a record of how the nonconforming plants or materials were disposed of; the report must identify the producer of the nonconforming plants. (§ 990.70(b))
• Interstate transportation: States may not prohibit the transportation of hemp or hemp products lawfully produced under a state plan approved by the USDA or under the USDA plan mentioned above. (§ 990.63)
• Data retention and maintenance practices: Among other required criteria, state plans submitted for approval to the USDA must include a practice to collect, maintain and report to the USDA, in real time: (i) contact information for authorized or licensed hemp producers; (ii) legal descriptions of the land on which hemp producers will produce hemp pursuant to the state’s plans; and (iii) the number of authorized or licensed hemp products. (§ 990.3(a)(1))
• Corrective action: USDA-approved state hemp plans must contain regulations allowing a hemp grower who has committed a “negligent violation” to correct the violation. (§ 990.6(c))
• Hemp production under federal law: Even where a state has not obtained USDA approval for a hemp program, production in that state may be conducted pursuant to a USDA hemp producer license, required for the production, cultivation or storage of hemp. (§ 990.8; § 990.21)
• States may enact more stringent requirements: States laws regulating the production of hemp may impose requirements that are more stringent than those set forth in the 2018 Farm Bill or the USDA rules, and neither the USDA rules nor the 2018 Farm Bill will preempt those state laws. (§ 990.3(b)(1))

Given the near-ubiquitous interest in the manufacture and distribution of hemp-derived consumable products, one of the most noteworthy aspects of the USDA’s draft rules is what is not included: mention of hemp-derived CBD in food, dietary supplements or other similar items. Although the USDA explains in the preamble that “Hemp is a commodity that can be used for numerous industrial and horticultural purposes including fabric, paper, construction materials, food products, cosmetics, production of cannabinoids (such as cannabidiol or CBD), and other products… [t]he 2018 Farm Bill explicitly preserved the authority of the U.S. Food and Drug Administration (FDA) to regulate hemp products.” While the USDA’s draft rules and preamble defer to the FDA on issues of hemp products, the USDA does mention that “the FDA has authority to issue a regulation allowing the use of [certain cannabis-derived compounds] in food and dietary supplements.”

Concerning what the USDA draft rules do contain, the importance of adherence to state laws and regulations governing the production of hemp is evident from the draft rules, just as it was from the 2018 Farm Bill itself. Seeking counsel to thoroughly understand all applicable laws and regulations is therefore critical, because interstate producers and distributors are not subject to just one (the federal) set of rules; rather, they may potentially have to comply with different rules in the various states in which they seek to transact hemp because compliance with federal law itself is, in this space as in others, necessary but not necessarily sufficient. (As both the 2018 Farm Bill and the draft rules make clear, states may promulgate regulations more “stringent” than those developed by the federal government.)

On the whole, the fact that hemp has been decriminalized at the federal level and that the USDA has finally moved closer to approving state hemp plans under its to-be-published rules clearly eliminates a primary source of confusion for those in the hemp industry. But what is just as evident is that despite enhanced clarity on the federal level, whether industry participants will thrive or falter will hinge in part on navigating the complex network of fluctuating, often inconsistent state laws and regulations.

For Further Information

If you have any questions about this Alert, please contact Seth A. Goldberg, Justin M. L. Stern, any of the attorneys in our Cannabis Industry Group or the attorney in the firm with whom you are regularly in contact.

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