The long-awaited hemp industry regulations have finally (mostly) dropped. At the end of October, the United States Department of Agriculture (“USDA”) finally issued its Interim Final Rule implementing the hemp-related provisions of the Agriculture Improvement Act of 2018 (“the 2018 Farm Bill”). Through the rule, the USDA has established the U.S. Domestic Hemp Production Program. The USDA has two years to promulgate its final rule and is soliciting public comment on the Interim Final Rule through December 30.

Most significantly, the rule outlines how the USDA will approve State-submitted hemp production plans and establishes a federal plan for producers in states that do not have their own USDA-approved plan. Kentucky was the first state – and Tennessee was the third - to submit its hemp program to the USDA for approval a year ago. Now, with this guidance, industry experts are analyzing whether those proposed state plans, like Kentucky’s, comply with the USDA’s requirements as well as what impact the rule has on all aspects of hemp farming, production, and processing.

Wasn’t hemp already legal? The 2014 Farm Bill had authorized states to adopt “pilot” programs for research into cultivation, marketing, and processing of hemp. Then, the 2018 Farm Bill removed hemp from the definition of marijuana in section 102(16) of the Controlled Substance Act and directed the USDA to establish a national regulatory framework for hemp production. This made clear that both the plants and derived products are legal, so long as the THC concentration does not exceed 0.3 percent. However, implementation of hemp legalization has largely been on hold, awaiting official USDA guidance on how the agency will regulate hemp farming and production.

What does the rule do? What does it not do?

• Most important, the rule establishes the guidelines that will be used to approved state regulatory programs. This is a critical foundation for stabilizing and growing the industry.
• The rule does not give any guidance on the production and legal status of (the smokable) hemp flower. Recently, a federal judge in Indiana granted a preliminary injunction finding that Indiana’s law criminalizing smokable hemp violates federal law, but that case is on appeal. Kentucky regulations prohibit the manufacture and sale of smokable hemp.
• The rule defines testing measurement of more than 0.5% THC as “negligence.” Most observers consider this ceiling to be too low, and the strict liability standard to be inconsistent with traditional legal interpretations of negligence.
• The rule requires non-compliant crops to be destroyed. Many industry observers believe enforcement should only prohibit non-compliant plants from entering commerce, allowing for farm usage or research. In addition, there may be suitable remediation practices that will allow farmers some reasonable cost recovery.
• Unfortunately, the rule envisions a continuing role for the Drug Enforcement Agency in administering the new guidelines. USDA and state agricultural departments are more suitable regulators for this new agricultural commodity.
• The rule does not establish a seed certification plan.
• The rule does not address any of the significant Food and Drug Administration regulatory issues.

USDA is seeking comments from industry and farmers through December 30, although several trade associations are seeking an extension of the comment period.

Stites & Harbison’s Hemp Industry Practice group has analyzed the 161 page rule and is prepared to advise and support our hemp industry clients. One thing is clear: the 2020 growing season will be a formative one for the industry. Reach out to our Hemp Team to discuss how these USDA regulations impact your business and investment opportunities.

Read the Interim Final Rule here.