The U.S. hemp/CBD industry reached another milestone at the end of 2019, as long-awaited federal rules were announced governing hemp production in the U.S. Still, many in the industry have expressed frustration at some of the new requirements making it more difficult than ever to grow, process and market hemp. And, there still remains a patchwork of state laws and regulation that must be navigated.

The Rule

On Oct. 31, 2019, the U.S. Department of Agriculture’s (USDA) Agricultural Marketing Service published its interim final rule outlining USDA’s much-anticipated plans for establishing a federal domestic hemp production program. Up until publication of the interim final rule, hemp production in the U.S. was primarily governed by a patchwork of state laws and pilot programs without the much-needed federal overlay of rules and benchmark standards to coordinate the legal production and transportation of hemp across state lines. USDA’s interim final rule is designed to help expand the legal production and sale of domestic hemp and hemp products, providing much-needed clarity to an already hazy legal cannabis market.

The USDA’s interim final rule—which is a precursor to a “final rule” set to be published by USDA within the next two calendar years after closure and analysis of a public commenting period—came in response to passage of the Federal Agricultural Improvement Act of 2018, commonly referred to as the Farm Bill, that was signed into law in December 2018. Among other things, the Farm Bill required USDA to promulgate regulations and guidelines to establish and administer a program for the domestic production of hemp in the United States.

USDA’s new guidelines in the interim final rule took effect immediately upon publication and outline the department’s framework for approving plans to be submitted by the states (and Indian Tribes). The guidelines also establish a federal plan for producers in states that do not have or ultimately choose not to submit their own USDA-approved hemp plan. Additionally, USDA’s new program includes minimum requirements for maintaining information on the land where hemp is produced, THC testing requirements, regulations for disposing of non-conforming hemp plants, licensing requirements and provisions to ensure compliance with the requirements of USDA’s new rule.

Under the newly announced interim final rule, any state desiring to have primary regulatory authority over the production of hemp within its jurisdiction must submit, for the approval of the USDA Secretary, a state-wide plan concerning the monitoring and regulation of hemp production within the state. The states’ plans must minimally conform to the requirements set forth in USDA’s interim final rule, which is in turn guided by the Farm Bill.

Slow and Mixed Response From States

Several states across the country have been busy since passage of the Farm Bill developing their own state hemp plans for submission and approval by USDA. Indeed, as of Feb. 15, 2020, at least 17 states (and numerous Indian Tribes) have submitted hemp plans for USDA approval. The USDA, in turn, has already approved plans submitted by Louisiana, Nebraska, New Jersey, Ohio and Texas, and is currently evaluating plans submitted by at least 12 other states—Alabama, Arizona, Georgia, Indiana, Iowa, Kansas, Montana, Pennsylvania, South Carolina, Washington, West Virginia and Wyoming.

Still, several other states are actively working on developing plans for submission to USDA, while some states (Alaska, Arkansas, Colorado, Hawaii, Illinois, Oregon, Utah, Vermont and Wisconsin) have decided not to submit and plans at this time and will instead operate pursuant to a 2014 pilot program. These states’ positions may change depending on the publication of a final rule by USDA. For states that do not develop or submit hemp plans for approval, the USDA’s program rules provide baseline federal requirements for hemp producers to follow.

The interim final rule provides that, upon receipt of a state’s plan, USDA will review and either approve or reject the plan within 60 days. If the plan is approved, USDA will issue the submitting state an approval letter and the approved state plan will remain in effect unless revoked by USDA. If a state’s plan is rejected, USDA will notify the state of the plan’s deficiencies and permit submission of an amended plan for USDA review.

Concerns About New Rule

While many have championed the interim final rule as a step in the right direction, others in the hemp and CBD industries have expressed frustration over its requirements. For example, commentators have cautioned that the interim final rule fails to recognize the difference between Delta-9 THC and THC-A and instead simply requires hemp to be tested for total THC percentage. Many have argued that this will result in significant amounts of hemp being “hot” (i.e., above 0.3 percent by dry weight) due to the measurement of total THC (including THC-A), and not just Delta-9 THC. Other industry participants have expressed frustration over the interim final rule’s requirement that testing laboratories be certified by the U.S. Drug Enforcement Agency (DEA) to conduct chemical analysis of controlled substances. Currently, there are estimated to be less than 60 laboratories certified by the DEA to support the more than 15,000 nationwide hemp farmers and cultivators.

Additional comments submitted to USDA as part of the interim final rule’s public comment period have criticized the requirement that hemp plants be tested within 15 days prior to the anticipated harvest, arguing that the 15-day period is far too short of a time frame for farms to get all their crops in. Others in the industry are concerned with the related requirement to not test the whole plant, but instead only the flower material, which critics argue is not contemplated in the Farm Bill and may result in faulty testing.

Overall, USDA’s interim final rule sets forth a critical first step toward building a national framework to aid the legal expansion, production, and sale of hemp and hemp products across state lines. While issues remain to be resolved between industry and the federal government—and will continue to be addressed between now and publication of USDA’s final rule through the public comment process—states are now well aligned with the baseline tools necessary to begin the process of submitting plans to USDA to obtain primary regulatory authority over the production of hemp within their jurisdiction. NIE

Kyle Diamantas is an associate in the Orlando office of Baker Donelson. He concentrates his practice in food and drug law, antitrust, commercial litigation, mass tort and general business matters. He can be reached at kdiamantas@bakerdonelson.com. Samuel Felker, managing shareholder in Baker Donelson’s Fort Lauderdale, FL office, is an experienced trial attorney who focuses his practice on complex litigation in state and federal courts. He can be reached at samfelker@bakerdonelson.com.