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Navigating through the Weeds: Advice for Farmers and Businesses Considering Hemp Image

Navigating through the Weeds: Advice for Farmers and Businesses Considering Hemp

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With the 2018 Farm Bill signed into law nearly a year ago legalizing the cultivation of industrial hemp, farmers are looking to hemp for relief from the economic hardships posed by traditional row-crop rotation. Despite its popularity and the eagerness of farmers to buy into this new commodity, federal agencies have yet to issue necessary regulations establishing hemp as a viable option for farmers. Additionally, the strict FDA regulations surrounding the ever-popular CBD oil create a regulatory minefield for hemp and CBD-related businesses, leaving them dazed and confused.

Why Hemp?

Like corn and soy beans, hemp has near-infinite uses in the agricultural, commercial, and industrial markets. The plant itself can be broken down into four parts: stalk, leaves, flower, and seed. The stalk is used for its fibrous composition in industrial and consumer textiles (twine, rope, carpet, and clothing). The leaves are used is building materials such as the novel Hempcrete blocks, a lightweight alternative to concrete cinderblocks, as well as in animal bedding and mulch. CBD oil is primarily extracted from the hemp flower and used in the CBD products carried by nearly all businesses, in one form or another,  while hempseed oil is extracted from the seed and used in industrial and hygienic products from fuel, semiconductors, and printer ink, to soaps, lotions, and cosmetics.

Given this laundry list of established uses, it is no wonder experts estimate the CBD market will reach $16 billion in retail sales alone by 2025.

Hemp is Marijuana, Right?

To give a classic, lawyerly answer: it depends. Cannabis is a plant of the Cannabaceae family and contains more than eighty biologically-active chemical compounds. The most commonly known compounds are delta-9 tetrahydrocannabinol (THC) and cannabidiol (CBD). Technically, hemp and marijuana share the scientific name, cannabis sativa l; however, hemp’s recent legal definition distinguishes it from its psychoactive sibling, marijuana. Hemp is defined as cannabis sativa L containing no more than 0.3 percent THC. If the THC content is above the 0.3 percent threshold, the plant is deemed marijuana and must be destroyed, even in states where marijuana is legal.[1]

Given this statutory, bright-line difference between hemp and marijuana and the severe consequences for violations, farmers and cannabis-related businesses have cause for concern that their crop could go up in smoke.

Minnesota Licensing

Under the 2018 Farm Bill, hemp cannot be legally cultivated under this new legislation until the USDA publishes regulations for a nationwide hemp program. The USDA recently sent proposed regulations to the Office of Management and Budget for review and approval, expected in time to accommodate the 2020 planting season.

Once the USDA regulations go into effect, states must prepare a state plan for USDA approval outlining how it will regulate hemp and licensees. In the meantime, Minnesota growers must operate under and comply with the Minnesota hemp pilot program, authorized under the 2014 Farm Bill and implemented by the Minnesota Department of Agriculture (MDA).

Anyone wishing to grow or process hemp in Minnesota must obtain a hemp pilot program license. Additionally, anyone who sells hemp seed for planting, processes raw hemp plants or plant parts, conducts laboratory testing, or handles raw, viable hemp must also obtain a license. To obtain a license under the MDA hemp pilot program, hemp growers and processors must submit to the MDA for approval an application, fingerprints, and a map of their field and must further consent to a background check. The MDA has different license applications for growers and processors. A “processor” is defined as a person or business that stores, handles, sells raw industrial hemp (including seeds), or that converts raw industrial hemp into a marketable product.

Applications for the 2020 season will be posted to the MDA website in October or November. The application takes six weeks to process.

The FDA Minefield

Although the 2018 Farm Bill legalizes the growth and processing of industrial hemp, it does not authorize the sale of CBD products, explicitly preserving the FDA’s power to do so.

Guidance involving the sale and marketing of hemp-derived CBD products is hazy as the FDA has not issued new regulations since the 2018 Farm Bill passed. The FDA Commissioner issued a press release on December 20, 2018 (the day President Trump signed the 2018 Farm Bill). The Commissioner explained that under the Federal Food, Drug, and Cosmetic Act (the “FD&C Act”) and Section 351 of the Public Health Service Act, it is illegal to introduce CBD into the food supply, market CBD products as dietary supplements, or market CBD products with a claim of therapeutic benefit or any other disease claim before going through the FDA approval process.

Under the FD&C Act, neither THC nor CBD products can be marketed or sold in interstate commerce as a dietary supplement or with claims that such products treat diseases or provide other therapeutic or medical use. The FDA concluded that THC and CBD products are excluded from the dietary supplement definition under 21 U.S.C. § 321(ff)(3)(B) because both THC and CBD are active ingredients in drug products that have been approved under 21 U.S.C. § 355. Also, under the FD&C Act, any product intended to have a therapeutic or medical use or is intended to affect the structure or function of the body of humans or animals, is a drug. 21 U.S.C. § 321. As the only FDA-approved drug containing CBD is Epidiolex, all other drugs containing CBD are unapproved. Generally, unapproved drugs cannot be distributed or sold in interstate commerce.

Additionally, under 21 U.S.C. § 331(ll) of the FD&C Act, it is prohibited to introduce or deliver for introduction into interstate commerce any food containing a substance that is an active ingredient in an FDA-approved drug product under 21 U.S.C. § 355. This restriction applies unless the FDA has issued a regulation approving the use of the substance in the food. 21 U.S.C. § 331(ll)(2). To date, no such regulation has been issued for any substance.

Recently, on August 13, 2019, the Principal Associate Commissioner of the FDA gave a speech on FDA developments regarding CBD. In this speech, the Commissioner reiterated that, under the FD&C Act, it is unlawful to:

(1) sell a food or a dietary supplement containing CBD in interstate commerce; and

(2) Market hemp and hemp-derived products, such as CBD, with claims of therapeutic or medical benefits.

The Commissioner subsequently stated that the FDA concluded that no statutory exceptions apply to CBD. The FDA is cracking down on cannabis-related businesses, issuing warning letters to businesses selling and marketing such unlawful products. The Commissioner closed by stating that the FDA’s CBD working group is evaluating all data relevant to CBD and working with federal, state, and local regulators to determine the potential uses of CBD and other hemp and hemp-derived products. The FDA plans to issue a report by early fall detailing its progress.

Conclusion

The legalization of hemp has garnered a lot of attention and demand from agricultural, consumer, and industrial industries. Despite the hype, some questions are still left unanswered. As such, individuals and businesses exploring this new commodity should be aware of the regulatory landscape surrounding hemp and ensure they possess the necessary licenses required to grow and process hemp.

[1] Crop insurance, available beginning in 2020 under the Whole-Farm Revenue Protection program, does not cover loss due to excess THC content. Crop insurance will be available to producers who are in areas covered by USDA-approved hemp plans or who are part of approved state pilot programs.

This information is general in nature and should not be construed as tax or legal advice.