Author: wnnadmin

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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