Understanding USDA’s New Industrial Hemp Regulations · Hemp in history. . . • Cultivated and used for thousands of years − Ancient China & Mesopotamia − Rope, sail cloth,

Understanding USDA’s New Industrial Hemp Regulations: Tips and Analysis for the Hemp Business Owner

November 20, 2019

Mackenzie Schoonmaker, Chris Strunk, Kathy Szmuszkovicz, and Lucy Infeld

Agenda

• Historical hemp & overview of USDA interim regulations

• Major industry concerns: − Testing & sampling

− Omissions in regulations including seed certification

− Transportation

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• Key agency roles• Regulatory gaps• State/tribal plans• USDA guidance• Key takeaways &

guidance

A Brief History

Hemp in history. . .

• Cultivated and used for thousands of years− Ancient China & Mesopotamia− Rope, sail cloth, textiles

• Cultivated by Native Americans for thread, clothing, food• 1632: Virginia legislature encourages farmers to plant hemp.

New England follows. Hemp a routine export to England.• 1700’s and 1800’s: Hemp continues important role in all

facets of industry:− Paper (including maps) and artists canvas− Textiles − Paint− Inks & varnishes − Rope & cordage


Hemp’s Decline in the United States

• Marihuana Tax Act of 1937, Pub.L. 75–238, 50 Stat. 551− Does not ban hemp− BUT: Department of Revenue imposes

$100 transfer tax on sales that significantly hinders domestic growers

• World War II: Hemp makes a comeback; but after the war, the government quietly shuts down production

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Why does this matter?

• The USDA regulations state that “usage [of hemp] diminished in favor of alternatives” in the 1900’s to the present.

• Significant historical data suggests that it was the 1937 Tax Act that devastated the industry, compounded by the Controlled Substances Act. These statements do not appear in the interim rules.


Federal Hemp Regulation: A Brief History

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December 20, 2018: “Agricultural Improvement Act of 2018,” Pub. L. No. 115-334, 132 Stat. 4490 (“2018 Farm Bill”)

October 31, 2019:“Establishment of A Domestic Hemp Production Program, 7 CFR Part 990 (“Hemp Rule” or “Interim Final Hemp Regulations”)

(Image representing Controlled Substances Act)

October 27, 1970: The Comprehensive Drug Abuse Prevention and Control Act of 1970, Pub. L. No. 91-513 , 84 Stat. 1236 (“Controlled Substances Act”)

January 4, 2014: Agricultural Act of 2014, (Pub. L. No. 113-79, 128 Stat. 649 (“2014 Farm Bill”)

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October 31, 2019

1) Outlines requirements for states and tribal regulatory programs for the production of hemp

2) Establishes a USDA licensing program to monitor and regulate hemp in jurisdictions where hemp is legal but no local plan has been established

3) Legalizes the interstate transportation of “hemp”

Let’s break this down further . . .


USDA Issues Interim Final Regulations Governing the Domestic Production of Hemp

An Overview of the Hemp Interim Regulations

What the regulations do

• § 990.2: States are given primary regulatory authority for implementing their own hemp programs.

• However, regulations set Federal “minimum standards” that all state hemp programs must have:− Licensing− Records of land use− THC testing− Process for disposal of non-compliant plants− General compliance and violation handling



• Codify previous statements of policy and intent:− § 990.63: States may not prohibit the transport of

federally legal hemp, even if the state does not maintain a hemp program.

− § 990.25: Establishes “total THC” testing protocol− §§ 990.24 & 990.26: Establishes a sampling protocol

not later than 15 days prior to harvest.



• § 990.29: Outlines violations, which are:− Failing to adequately describe the land on which hemp crops

are grown. − Producing hemp without a license. − Producing cannabis in excess of an acceptable THC level.

• “Negligent” violations. Provides a safe harbor. • Violations involving “culpable mental state greater than

negligence.”



• § 990.29: − “Negligent” violations. Provides a safe harbor for farmers

producing hemp over the limit but less than .5% THC by dry weight.

◦ “A producer that negligently violates this part shall not, as a result of that violation, be subject to any criminal enforcement action by any Federal, State, Tribal or local government.”

− Notice of violation issued and corrective action plan implemented.



• § 990.29 (continued): − Violations involving “culpable mental state greater than

negligence” have their own protocol.

− If USDA determines that a licensee has violated the terms of the license with a “culpable mental state,” it is to “immediately” report to the US Attorney General and the chief law enforcement officer of the State or Indian territory. (See also § 990.6(d)).


What the regulations don’t do

• Fill in all gaps and ambiguities, instead reserving many items for state regulations.

Examples:◦ Specific licensing protocols and local permitting◦ Seed issues


What the regulations can’t do

• Act outside USDA’s jurisdiction (e.g., engage in rulemaking left to another agency, like FDA).

• Make a rule that “amends” (or contravenes) a statute (e.g., redefining hemp).

• Exert control over state or federal criminal laws or prosecutorial discretion.

• These will all be explored as we discuss these issues.


Major Industry Concerns

Testing Hemp: Total THC“Samples must be tested using postdecarboxylation or other similarly reliable analytical methods where the total THC concentration level reported accounts for the conversion of delta-9-tetrahydrocannabinolic acid (THCA) into THC.”

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Definitional inconsistencies Hemp Acceptable Hemp THC Level Marijuana

2018 Farm Bill & USDA Interim Final Rule: “The plant species Cannabis sativa L. and any part of that plant . . . with a delta-9 tetrahydrocannabinol concentration of not more than 0.3 percent on a dry weight basis.” 7 CFR § 990.1.

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“The acceptable hemp THC level for the purpose of compliance with the requirements of State, Tribal, or USDA hemp plans is when the application of the measurement of uncertainty to the reported delta-9 tetrahydrocannabinolcontent concentration level on a dry weight basis produces a distribution or range that includes 0.3% or less.” 7 CFR § 990.1

Controlled Substances Act: “[A]ll parts of the plant Cannabis sativa L., whether growing or not,” except “hemp as defined in section 16390o of Title 7.” 21 U.S.C. § 802(16).

USDA interim regulations: “As defined in the CSA, ‘‘marihuana’’ means all parts of the plant Cannabis sativa L., whether growing or not,” except “hemp as defined in section 297A of the Agricultural Marketing Act of 1946.”


“Acceptable hemp THC level”

If hemp has a THC concentration slightly above 0.3% (i.e., “margin of error”), it does not necessarily have to be destroyed.

At the same time, hemp crops that fall outside the margin of error provided by the distribution range must be destroyed.


Beyond the How of Testing, Where Can You Test?• Only DEA Registered Labs• Primarily states where

marijuana has been legalized• Potential problems

• Backlogs• Inconsistent application• Transporting across state

lines


State and Tribal Plans

• Ten states and ten tribes− Most received before the regulations were

in place• Requirements

− Procedural requirements◦ Collection, testing, and coordination for

samples from hemp plants− Enforcement requirements

◦ Disposal◦ Corrective actions◦ Producer violations◦ Felonies


Commonalities in State Plans

• Classes of licenses− Producer, grower, handler, etc.

• Reporting requirements− Phased reporting− Continual communication with state or tribal

authority• Pilot Programs


Availability of Drug Enforcement Administration-registered laboratories

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Time to Harvest

• The 15 days to Harvest timeframe is difficult for farmers.

• It leaves no room for unforeseen delays or harvesting abnormalities.

• Impacts profits and bottom line.

• Balancing test between obtaining adequate validation of THC levels and burden on farmers.


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Seed Certification

Omissions in USDA’s Regulations

• Seed certification is not addressed in the regulations• USDA’s reasoning for not including a certification

program:− The same seeds grown in different geographical locations

and growing conditions can react differently.− USDA noted that they have found that the technology necessary

to determine seed planting results in different locations is not advanced enough.

− USDA noted that they do not have accurate data at this time on the origin of most hemp seed planted in the U.S.


Implications of Not Including Seed Certification

• Seed certification and registration will be left up to individual states

• Individual cultivators remain liable to the 0.3% delta-9-THC standard


Seed Importation

• Remains covered under USDA Animal and Plant Health Inspection Service (APHIS) regulations.

• 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.


No Product Testing• Requirement is that hemp plants in

the field be sampled and tested for THC content.

• The testing and management of completed hemp products remain unregulated by USDA.

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Transportation

Transportation• § 990.63: Now provides that “[n]o state or

Indian Tribe may prohibit the transportation or shipment of hemp or hemp products lawfully produced . . . through the State or territory of the Indian Tribe, as applicable.”

Is this as simple as it seems?


Transportation

The argument for “Yes.”

• The doctrine of Federal preemption. US Constitution is the supreme law of the land and the Constitution precludes states from placing improper restrictions on interstate commerce.

• USDA’s regulation is consistent with a recent decision issued in the Southern District of West Virginia, United States v. Mallory, Case No. 18-CV-1289 (S.D. W. Va. Mar. 6, 2019), which permitted the transport of hemp grown under a 2014 Farm Bill pilot program across state lines.


Yes and no.

Transportation


Yes and no.

The argument for “No.”

• At best, the law is currently unsettled. This issue is on appeal to the 9th Circuit in Idaho in Big Sky Scientific LLC v. Idaho State Police, Case No. 19-CV-00040 (D. Idaho Feb. 2, 2019). Idaho takes the position that it has the right to interdict hemp passing through its territory.

And South Dakota just did the same.


Transportation


Yes and no.

The argument for “No.”

• The law only applies to industrial hemp. Because the testing protocol proposed by the USDA includes a “margin of error,” permitting the shipment of hemp that might exceed .3% THC by dry weight, if a police officer tests a sample that sample might exceed .3% by dry weight.

• This subjects all actors to possible criminal prosecution. The USDA “safe harbor” cannot change the definition of marijuana under the Farm Bill and cannot impose a national “safe harbor.” Congress must do so.

Transportation• Importantly, USDA’s regulation in § 990.29(c) that “[a]

producer that negligently violates this part shall not, as a result of that violation be subject to any criminal enforcement action by any Federal, State, Tribal or local government . . .” is likely regulatory overreach.

• And, in any event, that regulation cannot preempt state criminal law. Nor can it bind the Federal government enforcing drug trafficking statutes. It simply means USDA won’t issue a notice of violation or refer the negligent violator for prosecution.


Transportation - solutions• In the short term, carefully analyze the route that

the transporter will take. − Avoid states with hemp-hostile regimes whenever

possible, and know the laws in those states. • Target lower THC content in any hemp you plan to

send interstate, where feasible. • In the long term, Congress must act.


Criminal Issues

Criminal Concerns

• The “safe harbor” provided by USDA does not provide interstate safe harbor if any hemp tests above the .3% delta-9 THC by dry weight.

• This is because USDA (1) does not make prosecutorial determinations and (2) their rulemaking authority is subordinate to statutory law.


Criminal Concerns

• Businesses involved solely in intrastate business are protected by the safe harbor.

• Businesses must still be vigilant about the Federal definition of hemp, which is controlling. Those wishing to distribute nationally should target having all hemp test below .3%, without reliance upon the “margin for error.”


Civil Liability Under the Interim Regulations

Possible Civil Claims

• Nuisance: odor and other claims still remain viable against hemp growers. Regulations offer no protection.

• Civil RICO: Usually a concern for marijuana growers, but possible use by NIMBY neighbors against farmers that have grown a “hot” crop (especially more than once). Any referral of a grower for prosecution by USDA for “culpable mental state” violations under § 990.6(d) creates potential grounds for a Civil RICO claim.


Key Agencies & Roles


Reminder: USDA only covers production/processing• EPA – environmental protection and food safety as to

pesticides• CBP – hemp imports• FTC – consumer protection

− has recently focused on health-related advertising claims• DEA – enforcing Controlled Substances Act and running labs

testing THC content• OSHA – worker protection• FDA – food and drug safety, addresses consumption


FDA’s Authority

• FDA Drug Authority− Under the FFDCA, any product, including a cannabis product (hemp or

otherwise), that is marketed with a claim of therapeutic benefit, or with any other disease claim, is considered to be a drug and must be approved by FDA before it is introduced into interstate commerce.

• Four products approved, one of which contains CBD:− Marinol (dronabinol) (1985)− Cesamet (nabilone) (1985)− Syndros (dronabinol) (2016) − Epidiolex (CBD) (2018)


FDA’s Authority (cont.)

• CBD and THC cannot be added to foods under the FFDCA even if hemp-derived.

• FDA evaluated three GRAS notices related to the use of certain hemp seed-derived food ingredients in December 2018.− It agreed that the ingredients (hulled hemp seed, hemp seed protein

powder and hemp seed oil) can be legally marketed in human foods for specific uses without food additive approval, provided they comply with all other requirements and do not make disease claims.


FDA’s Authority (cont.)

• FDA has concluded that THC and CBD products are excluded from the dietary supplement definition under the FFDCA.

• No premarket approval is required from FDA for cosmetic products, though the products cannot be adulterated, misbranded, or contain drug claims.


Why is there a regulatory gap?

• USDA (and the other Federal agencies) intended to give wide latitude to the states to implement their own hemp regimes.

• States are rapidly implementing those regimes.


Key Takeaways

Key Takeaways

• Regulations were well intentioned and represent a step in the right direction on regulating the industry.

• Regulations will enable hemp farmers to obtain crop insurance and banking privileges.

• However . . .


Key Takeaways

• Understand that the USDA hemp interim rule still conflicts with various aspects of Federal and state law, including criminal law− Removal of all cannabis from the Controlled Substances Act is the only

“permanent fix” to many of these issues

• Some of the regulations are impractical and pose onerous burdens on farmers (15-day testing protocol)

• But what practical advice can business owners heed in the meantime?


Best Practices

• Aim to grow your hemp using the lowest practicable Delta-9 THC target you can. Unless all of your product tests below .3% Delta-9 THC by dry weight before shipping, there is a chance that a sample of your product will test above that number and you have sent marijuana over state lines.

• Absolutely, positively comply with the regulations, and ensure you have all appropriate licenses.

• Do not move your products through states hostile to hemp interests, such as Idaho.


Best Practices

• Understand the seed protocols in your states.

• Maintain good relationships with your neighbors to discourage litigation.

• Make your voice heard and submit comments to the regulation. NIHC is soliciting comments from its members for its own detailed submission.


Best Practices • Retain counsel with USDA, FDA, EPA agriculture and regulatory

experience to evaluate and advise you on practicalities for your specific situations, including: − Transportation (plotting routes and understanding the law in

each state of transit)− State agency compliance− Federal agency compliance− “Ambiguous” issues – including seed import/export− Business formation

• Do not rely on Google searches and blog posts for a compliance strategy!


Thank you! Questions?

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Mackenzie SchoonmakerPrincipal | New [email protected]

Chris StrunkOf Counsel | San [email protected]

Kathy SzmuszkoviczPrincipal | Washington, [email protected]


Lucy InfeldAssociate | [email protected]

mailto:[email protected]




Documents

Understanding USDA’s New Industrial Hemp Regulations · Hemp in history. . . • Cultivated and used for thousands of years − Ancient China & Mesopotamia − Rope, sail cloth,