Wendel Rosen Business & Legal Updates

USDA Rulemaking a Game Changer for the California Hemp Market

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The California hemp industry received welcome news this week when the U.S. Department of Agriculture released its much-anticipated interim final rule for hemp production, a critical step toward implementing the 2018 Federal Farm Bill and a key for states wanting to regulate their own hemp markets.

The USDA Hemp interim final rule (interim rule) is 160 pages and, in contrast to its singular name, includes scores of hemp rules, including  clarifying states’ required practices for record keeping, methods for testing hemp to ensure that it is below the legal THC limit, and plans for the proper disposal of non-compliant hemp. In addition, the interim rule makes it clear that states and Native American tribes may not prohibit the interstate transport of hemp that has been legally grown under federal and state law. The interim rule was expected to become effective this week upon publication in the Federal Register.

The Farm Bill removed industrial hemp (cannabis with trace amounts of THC) from the Controlled Substances Act more than a year ago, but the crop, its producers, states, and local governments have operated in a murky legal territory absent a federal framework. Based on the Farm Bill, states desiring to legalize hemp production and control their own regulatory schemes must submit a conformance plan to the U.S. Department of Agriculture (USDA).

Until the release of the interim rule, this created a Catch-22, because states struggled to draft federally-compliant plans not knowing exactly what the USDA wanted to see. In California, the absence of a state plan has meant that approximately half of the state’s counties have imposed temporary bans or restrictions on hemp cultivation while awaiting further direction from the state and federal government.

With the interim rule’s publication, states can now complete their hemp plans with confidence that the plans are federally compliant. While the final interim rule is not “final” (it actually will sunset in two years) and is subject to public comment in the coming months, it provides states with a degree of certainty. California is said to now be working on its hemp compliance plan and a bill recently signed by Governor Gavin Newsom (see our prior blog regarding SB 153) aids that effort by detailing state testing, enforcement, and other administrative provisions. Once submitted, the USDA will have 60 days to review and approve a state’s plan.

Some highlights of the interim rule are as follows:

  • Hemp crops must be tested within 15 days prior to harvest by a Drug Enforcement Administration-registered laboratory.
  • Hemp sampling and testing guidelines were drafted in separate documents attached to the interim rule, allowing the USDA to update the guidelines as new technologies emerge, rather than subjecting the guidelines to the constraints of formal rulemaking.
  • Cultivators will not commit a negligent violation of the law if they produce crops exceeding THC limits if they can show they used reasonable efforts to keep THC amounts within federal law (0.3% THC) and the crops do not test above 0.5% (dry).
  • Disposal of “hot crops” (those that exceed the 0.3% THC limit) must be collected and destroyed by an operation authorized to handle a controlled substance, such as a federal, state or local law enforcement officer or DEA-registered operation.
  • There are no restrictions on the transport of hemp that complies with federal and state law (as stated above), confirming that hemp producers have access to national markets.

Hemp farmers in a state like California – which has been awaiting the issuance of the interim rule – are now anticipating the submission and approval of their state’s hemp plan, which will then unlock all of the benefits bestowed by the 2018 Farm Bill. Those benefits include the availability of crop insurance, access to commercial banking and federal intellectual property protection, and a shield against crop seizure by states or Native American Tribes that have not legalized hemp within their borders.

In short, the issuance of the interim rule is a game-changer for California and other states that have decided to develop a legalized commercial hemp market.

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