Criminal History and Hemp Licensing Under the USDA Interim Hemp Rules

On October 31, the U.S. Department of Agriculture (USDA) published its interim final rules for the production of hemp under the 2018 Farm Bill. Our firm has provided a broad overview of the rules and written about the potential impact of the testing rules on the hemp industry. Today we address disqualifying criminal history for the purpose of participating in the hemp industry.

The interim rules outline the requirements for States and Indiana Tribes hemp production plans, which must be approved by the USDA. Among these requirements is that if the producer is a business entity, the State or Tribe must collect and submit information that includes:

  • The full name of the business,
  • Address of the principal business,
  • The location, full name and title of the “key participants”,
  • An email address if available, and
  • The EIN number of the business entity

Applications for a producer license – whether submitted to the USDA, a State, or a Tribe – must be accompanied by a completed criminal history report for each key participant. This is because the 2018 Farm Bill prohibits persons convicted of a felony related to a controlled substance under State or Federal law from producing hemp for 10-years following the date of conviction. An exception applies to persons who were lawfully growing hemp under the 2014 Farm Bill before December 20, 2018 (the date that the 2018 Farm Bill was signed into law), and whose conviction occurred before that date.

Who is a key participant? A key participant is:

  1. A person or persons who have a direct or indirect financial interest in the entity producing hemp, such as an owner or partner in a partnership;
  2. Persons in a corporate entity at executive levels, including chief executive officer, chief operating officer and chief financial officer.

The rules expressly state that “key participants” do not include other management positions like farm, field or shift managers.

USDA is requiring a criminal history records report for key participants because those persons are likely to have control over hemp production, whether production is owned by an individual, partnership, or a corporation. What does this mean? It means that the USDA considers those persons as responsible for ensuring compliance with the regulatory requirements. For a corporation, if a key participant has a disqualifying felony conviction, the corporation may remove that person from a key participant provision – failure to do so will result in a denied application or license revocation.

What is unclear from the interim rules is how far into a web of corporate relationships the requirement of identifying and providing criminal history reports for key participants’ extends. Consider a scenario in which Company X is applying for a hemp production license. Company X is owned in equal parts by two individuals and Company Y. Company Y’s ownership is comprised of three individuals and a trust. Read broadly, the requirement to identify key participants and submit criminal history reports would apply to C-level employees of Company X, five individuals and the beneficiaries of the trust and may include the trustee. This is a basic example of the kinds of corporate structures that we often see and which can create burdensome headaches when it comes to identifying “key participants.”

Those of us operating in states that have legalized recreational marijuana are used to reading the identification as extending through the entire corporate family. For example, here is a recent post on this issue California. And here is a post about considerations for foreign companies when investing in US cannabis. As these articles explain, financial interest disclosure requirements can be incredibly difficult to comply with and it may not always be clear who has an “indirect” interest. The goal of such regulations is to ensure that the government knows the identity of every person who may profit from the recreational marijuana business.

It appears that may also be the case for hemp and there is much more to say on this and other topics. So stay tuned as we delve further into the interim rules governing hemp production in the coming weeks and please register for our webinar this afternoon at 12:00 PM.

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Free Webinar on USDA Interim Hemp Rules Tomorrow!

Tomorrow is our free webinar discussing the USDA’s interim hemp rules released on October 29th and published in the Federal Register on Halloween. The new rules may seem intimidating (spooky even given the publishing date), but a thorough understanding is crucial for anyone with a vested interest in the hemp and CBD industries for the foreseeable future. The rules provide clarity regarding hemp cultivation and production, but ambiguities remain. To understand the meaning, impact, and consequences of these changes, join attorneys Daniel Shortt and Nathalie Bougenies tomorrow, Thursday, November 14, at 12:00 PM PST.

The agenda for tomorrow will include:

  1. THC Testing
  2. Interstate Transport
  3. State and federal licensing
  4. Immediate legal impacts on hemp farmers
  5. Ambiguities in the regulations and areas of concern
  6. Steps for hemp farmers to take now to best prepare for compliance with the interim rules once they’re finalized
  7. The effect of the USDA regulations on hemp-CBD and hemp-derived products

We encourage you to register here prior to the webinar if interested. Those who are not able to attend live, but still sign up, will receive a copy of the webinar following the presentation.

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Hemp-CBD Across State Lines: Massachusetts

The Agriculture Improvement Act of 2018 (“2018 Farm Bill”) legalized hemp by removing the crop and its derivatives from the definition of marijuana under the Controlled Substances Act (“CSA”) and by providing a detailed framework for the cultivation of hemp. The 2018 Farm Bill gives the US Department of Agriculture (“USDA”) regulatory authority over hemp cultivation at the federal level. In turn, states have the option to maintain primary regulatory authority over the crop cultivated within their borders by submitting a plan to the USDA.

This federal and state interplay has resulted in many legislative and regulatory changes at the state level. Indeed, most states have introduced (and adopted) bills that would authorize the commercial production of hemp within their borders. A smaller but growing number of states also regulate the sale of products derived from hemp.

In light of these legislative changes, we are presenting a 50-state series analyzing how each jurisdiction treats hemp-derived cannabidiol (“Hemp CBD”). Each Sunday, we summarize a new state in alphabetical order. Today we turn to Massachusetts.

The Massachusetts Department of Agricultural Resources (“MDAR”) oversees the state’s “Hemp Program.” The Hemp Program offers the following services:

  • Licensing for Growers and Processors through an application process
  • Inspection of growing sites and processing facilities
  • Education and outreach to interested parties and hemp program participants
  • Certification of Industrial Hemp through regulatory testing to ensure THC levels < 0.3%

MDAR test the THC percentage in hemp using high-performance liquid chromatography (“HPLC”) to test for total THC, including both delta-9 THC and THCa. This appears to be required pursuant to the recently issued interim hemp rules but is going to likely create problems for hemp growers nationwide.

An MDAR license is required to plant, grow, harvest, process or sell industrial hemp in Massachusetts. MDAR issues three different license types for growers, processors, and for those engaged in both growing and processing. A grower is a person who cultivates Industrial Hemp, and a processor converts Industrial Hemp into a marketable form through extraction or manufacturing. A processor is only allowed to process hemp that was grown in Massachusetts as part of the Hemp Program. However, according to MDAR’s Frequently Asked Questions on hemp, there is an exception to this general prohibition:

The only exception to this is if such hemp to be processed was obtained lawfully under federal law from an approved source. We are still waiting on guidance from USDA as to how domestically grown, unprocessed hemp may be transported over state lines and as such no unprocessed hemp grown in the United States may be brought into Massachusetts for processing at this time.

MDAR’s FAQs also state that Massachusetts was “waiting for additional guidance from USDA before developing a plan to ensure compliance with the 2018 Farm Bill[.]” Now that the USDA has provided guidance through its interim hemp rules, it appears to be only a matter of time before Massachusetts submits a hemp production plan to the USDA pursuant to the 2018 Farm Bill.

When it comes to the sale of hemp-derived products, the MDAR states that it does not regulate the retail market and is limited to the wholesale market. According to the MDAR, the wholesale market includes the following transactions:

  • Wholesale of industrial hemp from Massachusetts Grower to Massachusetts Grower
  • Wholesale of industrial hemp from Massachusetts Grower to Massachusetts Processor
  • Wholesale of industrial hemp from Massachusetts Processor to Massachusetts Retailer
MDAR does not require a license for the retail sale of hemp-derived products.
MDAR states that the following hemp-derived products can and cannot be wholesaled in Massachusetts:
Allowed Not Allowed
Hemp seed and hemp seed oil Any food product containing CBD
Hulled hemp seed Any non-food product containing CBD derived from hemp that makes therapeutic and/or medicinal claims on the label, unless it has already been approved by the FDA
Hemp seed powder Any product containing CBD that is being marketed as a dietary supplement, unless already approved by the FDA
Hemp protein Animal feed that contains any hemp products, including CBD
Clothing Unprocessed or raw plan hemp, including flower that is meant for end use by a consumer.
Building material
Items made from hemp fiber
Non-food CBD products for human consumption that DO NOT make any medicinal/therapeutic claims on the label and are not marketed as a dietary supplement, unless the product has already been approved by the FDA.
Flower/plant from a Massachusetts licensed Grower to a Massachusetts licensed Grower or Processor

The Massachusetts Department of Public Health (“MDPH”) has also posted FAQs on CBD and hemp in food. Unlike MDAR, the MDPH does have the ability to regulate retail sellers of food. Therefore, the sale of Hemp-CBD food and dietary supplement products is not allowed in Massachusetts. In addition, Massachusetts issued a temporary ban on “all non-flavored and flavored vaping products, including mint and menthol, including tetrahydrocannabinol (THC) and any other cannabinoid.”

In summary, Massachusetts allows for the cultivation and processing of hemp and appears to be working on a plan in light of the 2018 Farm Bill and USDA’s interim hemp rules. Massachusetts currently bans the sale of Hemp-CBD in food, dietary supplements, and unapproved drugs, following the FDA’s state position on these products. Massachusetts also prohibits the sale of hemp flowers and has a temporary ban on vaping products, essentially eliminating the smokable hemp market as well.

For previous coverage in this series, check out the links below:

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Cannabis Topicals and Cosmetics: Join Us November 20th in Marina Del Rey!

On November 20th, our own Alison Malsbury will lead a presentation on CBD & Cosmetics at the 2019 Emerging Issues Conference in Marina del Rey, California. Her presentation will focus on the contentious landscape of hemp and CBD topical products, which she has most recently written about here and here.

As CBD continues to impact markets from textiles to beverages to wellness, we can only anticipate the laws around manufacturing, branding, distribution, and consumption (to name a few) will grow more complex as we enter 2020. Alison has been a leading voice on cannabis and help-derived intellectual property developments, both domestically and abroad, and she regularly helps companies navigate the complex and ever-changing IP issues related to CBD products.

You can register for the 2019 Emerging Issues Conference here! We hope to see you there!

In the meantime, please check out Alison’s writings on industrial hemp/CBD and cannabis intellectual property in the global market:

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Hemp-CBD Across State Lines: Special Update on USDA Hemp Rules

The Agriculture Improvement Act of 2018 (“2018 Farm Bill”) legalized hemp by removing the crop and its derivatives from the definition of marijuana under the Controlled Substances Act (“CSA”) and by providing a detailed framework for the cultivation of hemp. The 2018 Farm Bill gives the US Department of Agriculture (“USDA”) regulatory authority over hemp cultivation at the federal level. In turn, states have the option to maintain primary regulatory authority over the crop cultivated within their borders by submitting a plan to the USDA.

This federal and state interplay has resulted in many legislative and regulatory changes at the state level. Indeed, most states have introduced (and adopted) bills that would authorize the commercial production of hemp within their borders. A smaller but growing number of states also regulate the sale of products derived from hemp.

In light of these legislative changes, we are presenting a 50-state series analyzing how each jurisdiction treats hemp-derived cannabidiol (“Hemp CBD”). Each Sunday, we summarize a new state in alphabetical order. Today we deviate from our regularly scheduled program to discuss the USDA’s recently announced interim hemp rules.

As mentioned above, a tenet of the 2018 Farm Bill is the fact that states and Indian Tribes can regulate hemp cultivation plans to the USDA in order to establish jurisdiction over hemp cultivation. Since releasing the interim hemp rules, the USDA has provided guidance specifically for these plans. The USDA has outlined the requirements for state departments of agriculture and tribal governments here, which covers the following:

  1. Plans to maintain relevant producer and land information;
  2. Plans for accurate and effective sampling testing using post decarboxylation or similar reliable methods;
  3. Plan for disposal procedures;
  4. Plan for inspection procedures;
  5. Plan for collection of information;
  6. Plan to comply with enforcement procedures; and
  7. Certification that the state or tribal government (whichever applicable) has
    resources and personnel to carry out required Farm Bill practices and procedures.

The USDA has also provided additional insights for hemp producers. In order for a producer to cultivate hemp, it must either have a license or other authorization from a state hemp program, Tribal hemp program, or USDA hemp program. The USDA will issue licenses to producers who are operating in jurisdictions that have not submitted a plan or in jurisdictions where a plan has not been approved.

No plans have yet been approved by the USDA, which creates some uncertainty. The USDA has provided some clarity on its “Information for Producers” page:

If your State or Tribe has an approved plan or is in the process of developing a plan, you must apply to and be licensed or authorized under its hemp program.

If your State or Tribe does not have a pending or approved hemp production plan, you may apply for a USDA hemp production license. Applications to obtain a license to produce hemp under the USDA production program may not be submitted until November 30, 2019.

The USDA lists the Status of Submitted Plans on its website as well. This indicates which states have already submitted plans. However, how can producers determine whether a state is developing a plan?

Many states have passed legislation that allows their departments of agriculture to submit 2018 Farm Bill plans to the USDA. For example, my home state of Washington law requires the Washington State Department of Agriculture to develop a plan in compliance with the 2018 Farm Bill. RCW 15.140.040. This type of language is likely enough to indicate that Washington is developing a plan. Therefore, Washington producers would need to obtain a license from state regulators, not the USDA, because Washington is planning to submit a hemp plan to the USDA. In addition to checking state or Tribal law, would-be producers can also contact their local authorities to inquire about a state plan.

Next week, we’ll get back to our series and cover Massachusettes. You can also expect to read much more about the USDA as hemp cultivation regulations are implemented.

For previous coverage in this series, check out the links below:

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Join Us on November 14th for a FREE Webinar on the USDA Hemp Interim Regulations

Big changes are finally on the horizon for hemp in the United States. On Tuesday, October 29th the United States Department of Agriculture (“USDA”) dropped its interim hemp rules pursuant to the Agriculture Improvement Act of 2018 (commonly known as the 2018 Farm Bill). The 161 pages of interim rules set up a regulatory system for federal government oversight and licensing of hemp farmers across the country. Importantly though, state and tribal law remains hugely relevant in that states and Indian tribes need to submit cultivation plans to the USDA for the agency’s approval, and those plans will also govern the regulatory conduct of hemp farmers. What does this mean? It means that hemp farmers are going to face a bevy of regulations and compliance issues and protocol on the state, tribal, and federal levels in a way they haven’t had to before even under 2014 Farm Bill pilot programs.

To better inform and educate our clients, readers of this blog, and those interested in hemp cultivation and/or production of hemp products, including hemp-CBD, we’ll be hosting a free webinar on Thursday, November 14, 2019 from noon PT to 1 p.m. PT. Join Nathalie Bougenies and Daniel Shortt, who will discuss and analyze the following topics:

  1. Highlights of the USDA interim hemp regulations including testing, interstate transport, and federal licensing;
  2. Immediate legal impacts on hemp farmers;
  3. Ambiguities in the regulations and areas of concern;
  4. Steps for hemp farmers to take now to best prepare for compliance with the interim rules once they’re finalized; and
  5. The effect of the USDA regulations on hemp-CBD and hemp-derived products.

Nathalie and Daniel will also take audience questions throughout the presentation.

If you’re interested in this webinar, please register your attendance here.

Even though the interim rules are not yet final, it’s hugely important for stakeholders to get a firm grasp on their meaning and consequence now in order to be better prepared for the future of what the USDA and states and tribes will impose upon hemp farmers and producers. We sincerely hope you can join us on November 14th!

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Join Us on a November 14th for a Webinar Analysis of the USDA Hemp Interim Regulations

Big changes are finally on the horizon for hemp in the United States. On Tuesday, October 29th the United States Department of Agriculture (“USDA”) dropped its interim hemp rules pursuant to the Agriculture Improvement Act of 2018 (commonly known as the 2018 Farm Bill). The 161 pages of interim rules set up a regulatory system for federal government oversight and licensing of hemp farmers across the country. Importantly though, state and tribal law remains hugely relevant in that states and Indian tribes need to submit cultivation plans to the USDA for the agency’s approval, and those plans will also govern the regulatory conduct of hemp farmers. What does this mean? It means that hemp farmers are going to face a bevy of regulations and compliance issues and protocol on the state, tribal, and federal levels in a way they haven’t had to before even under 2014 Farm Bill pilot programs.

To better inform and educate our clients, readers of this blog, and those interested in hemp cultivation and/or production of hemp products, including hemp-CBD, we’ll be hosting a free webinar on Thursday, November 14, 2019 from noon PT to 1 p.m. PT. Join Nathalie Bougenies and Daniel Shortt, who will discuss and analyze the following topics:

  1. Highlights of the USDA interim hemp regulations including testing, interstate transport, and federal licensing;
  2. Immediate legal impacts on hemp farmers;
  3. Ambiguities in the regulations and areas of concern;
  4. Steps for hemp farmers to take now to best prepare for compliance with the interim rules once they’re finalized; and
  5. The effect of the USDA regulations on hemp-CBD and hemp-derived products.

Nathalie and Daniel will also take audience questions throughout the presentation.

If you’re interested in this webinar, please register your attendance here.

Even though the interim rules are not yet final, it’s hugely important for stakeholders to get a firm grasp on their meaning and consequence now in order to be better prepared for the future of what the USDA and states and tribes will impose upon hemp farmers and producers. We sincerely hope you can join us on November 14th!

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CBD Topicals are Not Immune from FDA Scrutiny, as Recent Warning Letters Show

We’ve written extensively on this blog about industrial hemp-derived CBD products, including CBD comestibles, CBD pet products, CBD in alcohol, and CBD topicals. Of all these categories of goods, the CBD industry seems to have reached a consensus that CBD topical products present the lowest level of risk for businesses, hence companies like CVS, Walgreens, and Sephora opting to offer the products for sale.

But a number of warning letters from the FDA, including one issued on October 10, 2019 to Rooted Apothecary LLC, make it very clear that sellers of CBD topical products do not have an unfettered pass from the FDA to sell these products.

As we’ve analyzed before, cosmetics are treated differently under federal law than food products. Cosmetics are “articles intended to be rubbed poured, sprinkled or sprayed on . . . or otherwise applied to the human body . . . for cleansing, beautifying, promoting attractiveness, or altering appearance,” except for soap which is classified separately. 21 USC 321(i). Cosmetics and ingredients in cosmetics are not subject to pre-market approval, unlike food and drugs. The FDA relies on consumer complaints to monitor the cosmetics industry. However, this does not mean that the FDA does not have regulatory authority over cosmetics and their ingredients. Some ingredients cannot be used in cosmetics (i.e. chloroform), and will lead a product to be deemed “adulterated.” The FDA has been clear that “certain cosmetic ingredients are prohibited or restricted by regulation, but currently that is not the case for any cannabis or cannabis-derived ingredients.

However, the FDA also makes clear that “[i]ngredients not specifically addressed by regulation must nonetheless comply with all applicable requirements, and no ingredient – including a cannabis or cannabis-derived ingredient – can be used in a cosmetic if it causes the product to be adulterated or misbranded in any way.” And to add another layer of complexity to the analysis, it is possible for topical products to be deemed both a cosmetic and a “drug” by the FDA, and we know that CBD and CBD products cannot be marketed as drugs without having undergone the FDA’s drug approval process.

This takes us back to the October 10th letter that the FDA issued to Rooted Apothecary. In that letter, the FDA laid out its determination that certain products sold by Rooted Apothecary, including a “Hemp Infused Body Butter,” are “unapproved new drugs sold in violation of sections 505(a) and 301(d) of the Federal Food, Drug, and Cosmetic Act (the FD&C Act), 21 U.S.C. 355(a) and 331(d).” The FDA also determined that these products were “misbranded drugs” under section 502(f)(1) of the FD&C Act, 21 U.S.C. 352(f)(1) and that introduction of these products into interstate commerce violates the FD&C Act.

The FDA reiterated its position that CBD products cannot be marketed for therapeutic or medical uses without having been reviewed for safety and effectiveness by the FDA – this requirement applies to all CBD products, including topical and cosmetic products. The FDA also seemed particularly concerned by the medical claims made by Rooted Apothecary because many of its products were being marketed for use in infants and children. Some of the problematic claims made by Rooted Apothecary for its “EARS – Essential Oil + CBD Infusion” topical roller product include the following:

  • “No matter what age, ear aches are a terrible, no good way to live each day! Our main priority was safety, effectiveness . . . as we formulated this for the entire family including our precious little ones. When the pain is bad, this roller goes to work for soothing pain, inflammation, and to battle against the bacterial/viral critters to blame.”
  • “Lavender . . . Analgesic, Antibacterial, Sedative . . .”
  • “Melaleuca . . . Anti-parasitic, Antiviral . . . Decongestant . . ..”

Based on claims like the foregoing, the FDA determined that many of Rooted Apothecary’s products were drugs under section 210(g)(1) of the FD&C Act because they “are intended for use in the diagnosis, cure, mitigation, treatment, or prevention of disease and/or intended to affect the structure or function of the body.”

The letter also scrutinized Rooted Apothecary for selling “misbranded drugs” and making “unsubstantiated advertising claims,” and should serve as a cautionary tale to manufacturers and sellers of CBD topical products. CBD topical products may often be less problematic than edible products as far as the FDA is concerned, but making claims about your products that place them within the definition of a “drug” is certain to land you in the agency’s crosshairs. Thoroughly reviewing packaging, marketing copy, and websites for these types of claims will be crucial for every company offering topical CBD products for sale.

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Why the USDA Testing Rules Will Hurt the Hemp Industry

On Tuesday, the U.S. Department of Agriculture (“USDA”) released its interim final rule for the production of hemp under the 2018 Farm Bill. Although these rules are not final, they will go into effect once published in the Federal Register, at which point a 60-day public comment period will begin.

Upon the publication of the rules, our firm provided a broad overview of the provisions found in the rules. Today, we further discuss the THC testing requirements proposed in the rules and how they will impact the hemp industry.

TOTAL THC TESTING PROTOCOL

To the disappointment of many in the hemp industry, the USDA adopted a total THC testing requirement. As we previously explained, total THC is the molar sum of delta-9 THC (“THC”) and delta-9 tetrahydrocannabinolic acid (“THCA”). Using a total THC testing protocol will create additional hurdles for hemp farmers who are already engaged in a precarious industry. Not only does this testing method tend to increase the THC concentration in the hemp sample, and thus, pushes it over the 0.3 percent limit, it also limits the type of strains farmers can work with. This is because few hemp genetics currently on the market would comply with a total THC testing method. Consequently, this rule will force hemp farmers to carefully select the types of seeds they buy.

To make things worse, the USDA rules also require that hemp be sampled and tested for total THC within 15 days of anticipated harvest. Given that the concentration of THC increases as harvest approaches, the rule will create additional challenges to get at or under the 0.3 percent limit. Although the USDA stated in its rules that it was “requesting comments and information regarding the 15-day sampling and harvest timeline,” the agency also explained that the rule “will yield the truest measurement of THC level at the point of harvest.” In light of these statements, it will be interesting to see whether stakeholders’ input on the matter will convince the USDA to revise this requirement.

DEA REGISTRATION

The USDA testing rules further require that the testing labs be registered with the Drug and Enforcement Administration (“DEA”). The rationale for this rule is that labs could potentially handle hemp that tests above the THC testing limit, and thus, would constitute “marijuana”, a Schedule I drug under the Controlled Substances Act. Because it is unlawful to possess marijuana without a DEA registration, all labs must be registered with the DEA in order to conduct hemp THC testing. However, the current DEA rules limit registration to labs located in jurisdictions in which the prescription, distribution, dispensing, research and handling of marijuana is legal. Accordingly, this USDA rule may reduce the number of labs that will be authorized to engage in this industry, which would be problematic given the fact that there are currently too few labs compared to the amount of hemp being produced.

Therefore, the proposed USDA rules present real challenges for the hemp industry as many crops will likely fail to meet the total THC limit and fewer labs will be allowed to test the crop.

If you would like to further discuss this issue, please contact our team of regulatory attorneys.

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BREAKING: USDA Releases Hemp Rules

Today, the U.S. Department of Agriculture (“USDA”) released its interim hemp rules. This is a major step in the full implementation of the 2018 Farm Bill. These rules are not final but they will be effective as soon as they are published in the Federal Register. Stakeholders will have 60 days to submit comments on the interim hemp rules.

Expect to see additional analysis of these rules on this blog in the coming days. For now, we’ve highlighted some of the main points that stuck out to us.

State and Tribal Plans. The 2018 Farm Bill requires states and Indian Tribes to submit hemp cultivation plans to the USDA. The interim hemp rules require that these plans include a practice to collect, maintain and report information on hemp cultivators, the land where hemp is produced, and the status and number of licenses issued. Plans must include a procedure for testing hemp within 15 days of the anticipated harvest. Plans must also ensure that samples are representative of an entire hemp lot and the state or tribal agency charged with testing must have unrestricted access to all land, building, and structures used for the cultivation, handling, and storage of hemp. Hemp producers may not harvest before samples are taken. Hemp that tests above 0.3% THC is deemed a “non-compliant cannabis plant” and a state or Tribal plan must cover the destruction of such material. Non-compliant cannabis plants must also be reported to USDA, along with other information on hemp producers and production generally. States and Tribes must also establish lab standards for testing hemp.

The USDA will review state and Tribal plans within 60 days of receipt. States and Tribes can submit amended plans in the event that the USDA does not approve of the initial submission or if the state or Tribe alters a previously approved plan. The USDA will, from time-to-time, audit state and Tribal plans.

USDA Licensing. If a state or Tribal plan is not approved, would-be hemp producers can grow hemp in that state or Tribal area under a USDA hemp license, so long as “the production of hemp is not otherwise prohibited by the State or Indian Tribe.”

The USDA will issue hemp producer licenses. Applicants can apply 30 days after the rules are published in the Federal Register. After that, the USDA will accept applications between August 1 and October 31 each year. Applicants must submit their contact information and a criminal history report. Remember that a felony conviction, at either the state or federal level, results in a 10-year ban from participating in the legal hemp industry, unless a person was lawfully growing hemp under the 2014 Farm Bill before December 20, 2018.

USDA license will be valid until December 31st three years after the year the licensed was issued. Licenses cannot be sold, assigned, transferred, pledged or otherwise disposed of. An application is required for each location where hemp is grown. USDA licensees must submit tests within 15 days of harvest to the USDA or to a state agency, federal agency, or a person approved by the USDA to accept tests. Non-compliant plant material must be destroyed. USDA licensees will be subject to inspections and must maintain records relating to hemp.

Total THC Testing. The interim hemp rules also cover THC testing, which was a point of concern in the lead up to theses rules being released. The interim hemp rules state that:

A State or Tribal plan must include a procedure for testing that is able to accurately identify whether the sample contains a delta-9 tetrahydrocannabinol content concentration level that exceeds the acceptable hemp THC level. The procedure must include a validated testing methodology that uses postdecarboxylation or other similarly reliable methods. The testing methodology must consider the potential conversion of delta-9 tetrahydrocannabinolic acid (THC-A) in hemp into THC and the test result measures total available THC derived from the sum of the THC and THC-A content. Testing methodologies meeting these requirements include, but are not limited to, gas or liquid chromatography with detection. The total THC concentration level shall be determined and reported on a dry weight basis.

This appears to require Total THC testing, which includes THC-A, and as has been implemented in Oregon. Laboratories who test hemp will also report their “measurement of uncertainty” or “MU.” The USDA provides additional context on this concept:

The definition of “acceptable hemp THC level” explains how to interpret test results with the measurement of uncertainty with an example. The application of the measurement of uncertainty to the reported delta-9 tetrahydrocannabinol content concentration level on a dry weight basis produces a distribution, or range. 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. For example, 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. However, if the measurement of uncertainty for that 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. Thus the “acceptable hemp THC level” is the application of the measurement of uncertainty to the reported delta-9 tetrahydrocannabinol content concentration level on a dry weight basis producing a distribution or range that includes 0.3% or less. As such, the regulatory definition of “acceptable hemp THC level” describes how State, Tribal, and USDA plans must account for uncertainty in test results in their treatment of cannabis.

Labs that test cannabis for THC levels must be registered with the DEA. The USDA is considering a fee-for-service that would allow labs to seek approval with the USDA for THC-testing.

Interstate Transport. The interim rules prohibit states or Tribes from “prohibiting the transportation or shipment of hemp or hemp products produced under a State or Tribal plan,” a license issued by the USDA, or “under 7 U.S.C. 5940[.]” What is 7 U.S.C. 5940? It’s the codification of the 2014 Farm Bill’s industrial hemp provisions. That means that states (looking at you Idaho) can not seize hemp produced under the 2014 Farm Bill, so long as it’s done in compliance with state law or cultivated by an institution of higher education.

Bottom line. We’ve just begun to scratch the surface. These interim hemp rules also outline hemp violations, the appeal process for hemp licensing, and touch on the interplay with the Controlled Substances Act. More than anything else, the USDA’s release of these rules means that we are finally headed towards full implementation of the 2018 Farm Bill. We expect the USDA to be inundated with state and Tribal hemp plans and applications for USDA hemp production licenses over the next few weeks, and then again early next year after many state legislature reconvene. We’ll keep an eye out for developments and suggest you do the same.

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Should You Import Hemp to the United States?

The passage of the 2018 Farm Bill and the legalization of hemp and hemp-derived products has sparked strong business interest from foreign stakeholders. For the past few months, our firm has received numerous inquiries from existing and prospective clients about the legality of importing the agricultural crop and its derived products, particularly hemp-derived CBD (“Hemp-CBD”), to the United States.

This blog posts briefly addresses the risks and feasibility of engaging in this business at the moment.

IMPORTING HEMP

Although the 2018 Farm Bill legalized the commercialization of hemp and its derivatives, the production of the crop has yet to be regulated by the U.S. Department of Agriculture (“USDA”), which is tasked with adopting rules that will serve as a road map for states and Indian tribes wishing to regulate hemp within their borders.

The USDA had anticipated issuing its rules by the end of summer; however, the agency only recently submitted (on September 13) its proposed rules to the White House Office of Budget and Management (“OBM”), which reviews all regulations adopted and implemented by a presidential administration. Until this process is complete, we are left with little guidance on the production of hemp, including its transportation — note that the USDA rules were released today and will be addressed in another blog post.

Back in April, the agency issued a statement in which it expressly legalized the importation of hemp seeds and set forth ways in which the seeds should be imported from Canada and other foreign countries. Then on October 16, the agency quietly updated its guidelines to allow the importation of both hemp seeds and plants in the United States. According to the USDA’s webpage, hemp plants for planting that originate from Canada and other foreign countries may be imported so long as certain requirements are satisfied. Hemp plants from Canada must be accompanied by “a phytosanitary certificate from Canada’s NPPO to verify the origin of the plant and to confirm no plant pests are detected.” Hemp plants from countries other than Canada must also be accompanied by a phytosanitary certificate as well as an application for a Permit to Import Plants or Plant Products, better known as a PPQ 587 permit

These new guidelines align with the position taken by some U.S. courts that foreign hemp may be freely shipped to the U.S. because hemp is now excluded from the Controlled Substances Act (“CSA”)’s definition of marijuana. Yet, in practicality, these court decisions did not eliminate the risk that foreign hemp be seized at the border. This is because hemp is hard to differentiate from marijuana. The crop looks and smells like its psychoactive cousin, which means additional guidelines were desperately needed from the USDA.

Although the agency’s guidelines confirm the importation of hemp plants is lawful, the rules do not mention the need to attach a copy of THC testing results, showing that the plant meets the 0.3% THC limit imposed under federal law. Therefore, it will be interesting to see whether hemp will now freely pass U.S. Customs and Border Protection or if additional regulations, such as testing protocols will be needed.

IMPORTING HEMP-CBD PRODUCTS

In addition to removing the hemp plant from the CSA, the 2018 Farm Bill legalized hemp concentrates and extracts, including Hemp-CBD. Nevertheless, the new law preserved the authority of the Food and Drug Administration (“FDA”) to regulate Hemp-CBD products, including but not limited to foods and dietary supplements. From the moment hemp and its derivatives were legalized, the FDA took the position that the use of Hemp-CBD in foods, dietary supplements and unapproved drugs is unlawful in the United States because CBD was already approved as an active ingredient in a drug used in the treatment of epilepsy (i.e., Epidiolex).

Given the popular demand of Hemp-CBD products, the federal agency has been pressured by lawmakers and stakeholders to reconsider its position on CBD and forge a pathway towards legalizing their sale and marketing in the United States.

Consequently, until the agency adopts new rules and regulations, the sale of these products will remain unlawful in the United States, even if manufactured and imported from overseas — although the FDA seems on board with the sale and marketing of Hemp-CBD topicals.

For more information on this issue, contact our team of regulatory attorneys.

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Hemp-CBD Across State Lines: Maryland

The Agriculture Improvement Act of 2018 (“2018 Farm Bill”) legalized hemp by removing the crop and its derivatives from the definition of marijuana under the Controlled Substances Act (“CSA”) and by providing a detailed framework for the cultivation of hemp. The 2018 Farm Bill gives the US Department of Agriculture (“USDA”) regulatory authority over hemp cultivation at the federal level. In turn, states have the option to maintain primary regulatory authority over the crop cultivated within their borders by submitting a plan to the USDA.

This federal and state interplay has resulted in many legislative and regulatory changes at the state level. Indeed, most states have introduced (and adopted) bills that would authorize the commercial production of hemp within their borders. A smaller but growing number of states also regulate the sale of products derived from hemp.

In light of these legislative changes, we are presenting a 50-state series analyzing how each jurisdiction treats hemp-derived cannabidiol (“Hemp CBD”). Each Sunday, we summarize a new state in alphabetical order. Today, we turn to Maryland.

Maryland’s Industrial Hemp Pilot Program opened a little more than a year ago. In line with the 2014 Farm Bill, the purpose of the program was and is to authorize and facilitate research of industrial hemp and any aspect of cultivating, manufacturing, transporting, marketing, or selling industrial hemp for agricultural, industrial, or commercial purposes. The Maryland Department of Agriculture (“MDA”) or an institution of higher education that submits an application to the MDA may cultivate, manufacture, transport, market, or sell industrial hemp if the hemp is cultivated to further agricultural or academic research—notably, an undefined term in Maryland’s law.

Last year, MDA issued hemp regulations to govern its program. Per MDA guidance, farmers can partner with institutions of higher education, but otherwise, general commercial cultivation is prohibited. MDA also notes that it does not have jurisdiction over hemp processing or sale.

Earlier this year, Maryland’s governor approved of HB-1123, which includes specific provisions for hemp production and requires the MDA to create a plan for monitoring and regulating hemp production in the state.

That said, Maryland isn’t as open to Hemp CBD. The Maryland Department of Health sort of follows the FDA’s approach and holds that foods and beverages containing Hemp CBD are adulterated and can’t be sold in Maryland (sorry, no Maryland Hemp CBD crab cakes). The state has not really addressed many other types of products, but it could change its position to include Hemp CBD products such as vapes, cosmetics, or topicals (apparently, the state will try ban flavored vapes in the future).

Stay tuned to the Canna Law Blog for developments on hemp and Hemp CBD in Maryland and other states across the country. For previous coverage in this series, check out the links below:

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