On October 31, 2019 the U.S. Department of Agriculture (USDA) published an Interim Final Rule (84 FR 58522) establishing the U.S. Domestic Hemp Production Program and outlining a regulatory framework for monitoring hemp cultivation and production. This rule stems from the 2018 Farm Bill legalizing hemp. That Bill charged USDA with establishing rules to facilitate the growing of hemp under federally-approved plans.

The rule applies to producers of hemp and describes how the USDA will approve hemp production plans developed by states including: (1) requirements for maintaining information on the land where hemp is produced; (2) testing the levels of delta-9 tetrahydrocannabinol (THC); (3) disposing of plants not meeting necessary requirements; and (4) licensing requirements. Importantly, the rule also establishes a federal plan for hemp producers in states that do not have their own approved hemp production plan provided that hemp production is not prohibited in the state (or tribal territory) at issue.

What USDA’s New Rule Means For Hemp Producers & Distributors

The publication of the Interim Final Rule is welcome news to U.S. industrial hemp stakeholders who are eager to respond to an increase in demand for foods, dietary supplements and consumer and industrial products containing hemp derivatives, including cannabidiol (CBD).¹ Key takeaways from the rule applicable to hemp producers and ancillary businesses include:

• Testing Requirements. USDA is imposing strict sampling and testing requirements to confirm that THC levels in hemp do not exceed 0.3%.See concurrently issued USDA guidelines for sampling and testing procedures. Producers must dispose of plants containing 0.3%-0.5% THC and provide documentation of same to USDA.
• Interstate Transportation. Hemp may be transported across state lines even in cases where the state does not authorize hemp production. This assumes that the hemp was lawfully produced under a USDA-approved plan.
• States May Impose Stricter Hemp Production Laws. The rule expressly notes that “nothing preempts or limits” any state law that regulates hemp production or is more stringent than the 2018 Farm Bill. For example, South Dakota currently prohibits the growing of hemp. Therefore, the production of hemp in South Dakota continues to be prohibited unless or until the state legislates otherwise.
• Producing Hemp in State Without USDA Plan Allowed. In cases where a state does not have a USDA approved hemp production plan in place, hemp may be produced in that state under a USDA hemp producer license (which would cover production, cultivation or storage of the hemp)
• No Impact on Use of CBD or Other Hemp Derivatives in Food or Dietary Supplements.The new rules have no bearing on the separate, ongoing regulatory conversation at the U.S. Food & Drug Administration (FDA) regarding the use of hemp and its derivatives in food, beverage or dietary supplement products.

The roll-out of the Interim Final Rule will enable American hemp producers to embrace new economic opportunities without fear of criminal sanctions. At the same time, because the USDA Interim Final Rule does not preempt state law with specific regard to hemp production, many hemp producers will need to comply with a patchwork of state laws in addition to understanding the nuances of USDA’s new requirements.

Below we provide additional insight on key requirements that hemp producers and ancillary businesses should know before entering the hemp production market.

State and Tribal Plans

The 2018 Farm Bill requires States and Indian Tribes to submit hemp cultivation plans to the USDA. These plans must include a practice to collect, maintain, and report information on the key participants in the hemp production and information on the land where the hemp is produced. The plans must also include a procedure for testing hemp 15 days prior to the anticipated harvest to ensure that there is an “acceptable hemp THC level,” discussed more below. If the THC level is greater than 0.3%, then the hemp is deemed a “non-compliant cannabis plant” and must be disposed of in accordance with the Controlled Substances Act (“CSA”) and DEA, and reported to the USDA.

Once a State or Tribe formally submits its hemp production plan, the USDA will review it within 60 days of receipt. Plans must be approved by the USDA before they can be implemented. In cases where a State or Tribe chooses not to develop its own plan, the hemp producers within that State or Tribe may utilize the plan developed by USDA, unless otherwise prohibited by State or Tribal Law.

USDA Licensing

In areas where hemp production is legal, but is not covered by an approved State or Tribal plan, the USDA has provided an option for producers to become federally licensed to produce hemp. The requirements for a hemp producer license are similar to the requirements for State and Tribal plans.

For the 2020 harvest season, applicants can apply for a USDA hemp producer’s license beginning on November 30, 2019. The USDA will then accept applications between August 1 and October 31 each subsequent year in accordance with the harvest season.

Each location where hemp is grown must submit an application. In order to be licensed, the applicants must submit a criminal history report completed no more than 60 days before the submission of the application. If an applicant has a felony conviction, at either the state or federal level, that applicant is banned from participating in the hemp industry for 10 years.

Once an applicant has been granted a license, the license is valid until December 31^st three years after the year the license was issued. The license cannot be sold, assigned, transferred, pledged, or otherwise disposed of.

Similar to the State and Tribal plans, the USDA licensee must maintain information records, location of the land used for production, and submit representative samples for testing within 15 days before harvest to the USDA, state agency, federal agency, or other person approved by the USDA to accept tests. If the THC level is above 0.3%, then the plant is non-complaint and must be destroyed.

Total THC Testing

As stated above, under both USDA and State-and-Tribal licensing, hemp needs to be tested for THC levels. This is because hemp that has a THC concentration higher than 0.3% is considered marijuana, a Schedule I controlled substance, and must be properly disposed of. The Interim Final Rule states that State and Tribal plans must include a procedure for testing that accurately identifies whether the sample contains THC concentrations that exceeds the acceptable hemp level.

All tests involve some degree of uncertainty. Therefore, the plans must account for the uncertainty in test results in the treatment of cannabis, known here as the “measurement of uncertainty” or “MU.” The MU provides a range of concentration level of the THC on a dry weight basis. If 0.3% or less is within the distribution or range, then the sample will be considered to be hemp for the purpose of compliance with the requirements of State, Tribal, or USDA hemp plans.

The Interim Final Rule provides an example of the MU in practice: “if a laboratory reports a result as 0.35% with a measurement of uncertainty of ± 0.06, the distribution or range is 0.29% to 0.41%. Because 0.3% is within that distribution or range, the sample, and the lot it represents, is considered hemp for the purpose of compliance with the requirements of State, Tribal, or USDA hemp plans. But, if the measurement of uncertainty for that same sample was 0.02%, the distribution or range is 0.33% to 0.37%. Because 0.3% or less is not within that distribution or range, the sample is not considered hemp for the purpose of plan compliance, and the lot it represents will be subject to disposal.”²

The labs that test for THC levels in cannabis must be registered with the DEA. The USDA is considering a fee-for-service hemp laboratory approval process for labs that wish to offer THC testing services. These labs would likely need approval from the USDA, Agriculture Marketing Service, Laboratory Approval Service through their Laboratory Approval Program, and ISO 17025 accreditation.

Penalties

Under the State and Tribal plans, the State or Tribe will have flexibility in determining whether hemp producers have violated their approved plan and are free to determine whether or not a licensee under their applicable plan has taken reasonable steps to comply with plan requirements. Yet, the rule specifies that hemp producers do not commit a “negligent violation” if they produce plants that exceed 0.3% THC concentration if the grower used reasonable efforts to grow hemp and the plant does not have a THC concentration of more than 0.5%.

The rule provides that reasonable efforts include using a certified seed, using another seed that has reliably grown compliant plants in other parts of the country, or engaging in other best practices. This is one area where the agency is requesting comments on whether other reasonable efforts should be considered.

Additionally, under both USDA licensing and State-and-Tribal licensing, negligent violations are not subject to criminal enforcement. But, after determining that a violation was committed with a culpable mental state greater than negligence, the USDA, a state, or a Tribe will report the violation to the Attorney General and the chief law enforcement officer of the State or Tribe. USDA will also report the production of hemp without a license to the Attorney General.

For USDA licensing, the USDA retains the ability to suspend or revoke licenses if a producer has three negligent violations within a five year period, fails to comply with written orders, or pleads guilty to, or is convicted of, any felony related to a controlled substance.

Interstate Transport

The 2018 Farm Bill allows for the interstate transportation and shipment of hemp, which means that states cannot seize hemp produced under these rules as long as it is grown in compliance with state law or cultivated by an institution of higher education. This rule does not affect the exportation of hemp, but the USDA leaves open the idea of exporting hemp in the future.

Looking Ahead & Next Steps

The Interim Final Rule became effective today, October 31, 2019 and will sunset on November 1, 2021. A final rule will be issued thereafter incorporating stakeholder comments that the USDA will be accepting through December 30, 2019.

The diverse potential applications of hemp and its various derivatives to a range of consumer and industrial products combined with increasing consumer appetite for CBD – a key hemp derivative – means that industrial hemp production is set to take off around the country. Capitalizing on the new economic opportunities afforded by the USDA Interim Final Rule will require a keen understanding of the nuances of the USDA Interim Final Rule and the interplay with state law.

The authors gratefully acknowledge Kara Schoonover on her contributions to the article aforementioned.

¹ Establishment of a Domestic Hemp Production Program, 7 C.F.R. § 990.

² Establishment of a Domestic Hemp Production Program, 7 C.F.R. § 990.

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