Alerts and Updates

Final 2018 Farm Bill Proposes Hemp to Be Removed from Controlled Substances Act; CBD Derived from Hemp to Be Regulated by States

December 11, 2018

The passage of the 2018 Farm Bill is expected to result in a quick proliferation of the already expanding CBD product market.

Note: The Senate passed this bill on December 11, 2018; the House of Representatives passed it on December 12, 2018. It was signed into law on December 20, 2018. Duane Morris will be following further developments and issuing updates.

Key Points

  • The 2018 Farm Bill removes hemp from the Controlled Substances Act;
  • The 2018 Farm Bill confers on the Department of Agriculture (DOA) authority over hemp, including CBD derived from hemp;
  • States desiring to have primary regulatory authority over hemp must submit a plan to DOA pursuant to which the state will establish hemp regulations to provide for the growth and use of hemp, including CBD derived from hemp;
  • No laws will be erected to prohibit the interstate transportation of hemp or CBD derived from hemp;
  • The Food and Drug Administration may intensify its involvement with CBD as more products for human consumption hit the market;
  • Banking and insurance for hemp-derived CBD products should become increasingly available as those products are no longer “unlawful”; and
  • CBD derived from unlawful marijuana is still unlawful.

Analysis

Earlier this year, the U.S. Drug Enforcement Administration (DEA) affirmed that cannabidiol (CBD), the nonpsychoactive chemical produced by strains of the cannabis plant credited with providing therapeutic health benefits, is unlawful if it is extracted from the parts of the cannabis plant that fall within the definition of marijuana. This pronouncement added another layer of confusion to a regulatory structure many had trouble understanding. CBD can also be extracted from industrial hemp and industrial hemp has been lawful since the enactment of the 2014 Farm Bill, provided it is grown pursuant to a state industrial hemp agricultural program. The 2014 Farm Bill did not include explicit provisions pertaining to the commercialization of CBD derived from industrial hemp or the interstate transportation of industrial hemp. The former was left to the states that established industrial hemp programs, and the latter was later passed on by the DEA, which permitted the interstate transport of industrial hemp finished products. Consequently, the distinction between CBD derived from industrial hemp and CBD derived from unlawful marijuana was narrow enough to impede the development of industrial hemp-derived CBD products because of a concern that federal prosecution could follow.

Enter the 2018 Farm Bill, known as the “Agriculture Improvement Act of 2018,” set forth in final form in a Conference Report December 10, 2018, and which will be voted on as early as the same week and could be signed into law the following week. The 2018 Farm Bill defines hemp as follows: “The term ‘hemp’ means the plant 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.” (Emphasis added.) It goes on to explicitly remove hemp from the Controlled Substances Act, as follows:

SEC. 12619. CONFORMING CHANGES TO CONTROLLED SUBSTANCES ACT.
(a) IN GENERAL.—Section 102(16) of the Controlled Substances Act (21 U.S.C. 802(16)) is amended—
(1) by striking “(16) The” and inserting “(16)(A) Subject to subparagraph (B), the”; and
(2) by striking “Such term does not include the” and inserting the following:
“(B) The term ‘marihuana’ does not include—
“(i) hemp, as defined in section 297A of the Agricultural Marketing Act of 1946; or
“(ii) the”.
(b) TETRAHYDROCANNABINOL.—Schedule I, as set forth in section 202(c) of the Controlled Substances Act (21 U.S.C. 812(c)), is amended in subsection (c)(17) by inserting after “Tetrahydrocannabinols” the following: “, except for tetrahydrocannabinols in hemp (as defined under section 297A of the Agricultural Marketing Act of 1946)”.

The 2018 Farm Bill confers on the DOA the regulation of hemp and contemplates federal regulations that would allow states to become the “primary regulator” of hemp. Importantly, the 2018 Farm Bill explicitly provides for the interstate transportation of hemp and prohibits states from restricting the interstate transportation of hemp, stating “nothing in this title or an amendment made by this title prohibits the interstate commerce of hemp (as defined in section 297A of the Agricultural Marketing Act of 1946 (as added by section 10113)) or hemp products… No State or Indian Tribe shall prohibit the transportation or shipment of hemp or hemp products produced in accordance with subtitle G of the Agricultural Marketing Act of 1946 (as added by section 10113) through the State or the territory of the Indian Tribe, as applicable.”

The passage of the 2018 Farm Bill is expected to result in a quick proliferation of the already expanding CBD product market, as companies that have been developing and marketing CBD products should now feel less constrained by risk to deepen their investment, and companies that have been “waiting to see” may now jump in. Because many of these products are for consumption in food-related products and/or claim to have therapeutic benefit, the FDA is likely to intensify its involvement with CBD regulation.

Significantly, the 2018 Farm Bill did not remove CBD derived from THC-containing marijuana from the Controlled Substances Act. Consequently, the DEA’s pronouncement as described above is still in effect: CBD derived from unlawful marijuana is still unlawful. However, there is now clarity. CBD derived from “hemp,” as defined in the 2018 Farm Bill, and grown pursuant to state regulations established pursuant to the 2018 Farm Bill, is lawful and may not be the subject of federal prosecution.

Banking

It should be underscored that banks and other financial institutions, such as investment firms and insurance companies, that have been cautious or reluctant about CBD products because of their connection to unlawful marijuana may view the 2018 Farm Bill as a green light for banking, investing and insuring hemp-derived CBD products, as hemp and CBD derived from hemp are no longer “unlawful.”

Conclusion

Most importantly, the 2018 Farm Bill does not eliminate the regulation of hemp or CBD derived from hemp. Rather, it envisions the promulgation of additional federal regulations and state regulations intended to promote its growth and use, and federal agencies like the FDA may increase their involvement with CBD. Those interested in participating in the hemp and hemp-derived CBD markets should retain counsel well-versed in the pertinent state and federal regulations to provide guidance that will allow for the achievement of business objectives.

One last point, there is currently pending in Congress bipartisan legislation that would confer on states the authority to regulate marijuana. The 2018 Farm Bill, which confers on states the authority to regulate hemp, could be a precursor and a good model for such states' rights marijuana legislation.

For Further Information

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

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.