USDA Hemp Announcement Offers Clarity, Cause for Concern for Some

Cannabis Industry News Alert

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The United States Department of Agriculture (USDA) has offered much-needed clarity about the manufacture, distribution and sale of hemp and hemp-derived products. The USDA’s recent pronouncement, however, may not be the news many in the industry wanted to hear.

On May 28, 2019, USDA’s Office of the General Counsel issued a memorandum that concluded, in summary:

  1. As of the enactment of the 2018 Farm Bill on December 20, 2018, hemp has been removed from schedule I of the Controlled Substances Act and is no longer a controlled substance.
  2. After USDA publishes regulations implementing the new hemp production provisions of the 2018 Farm Bill, States and Indian tribes may not prohibit the interstate transportation or shipment of hemp lawfully produced under a State or Tribal plan or under a license issued under the USDA plan.
  3. States and Indian tribes also may not prohibit the interstate transportation or shipment of hemp lawfully produced under the 2014 Farm Bill.
  4. A person with a State or Federal felony conviction relating to a controlled substance is subject to a 10-year ineligibility restriction on producing hemp under the Agricultural Marketing Act of 1946. An exception applies to a person who was lawfully growing hemp under the 2014 Farm Bill before December 20, 2018, and whose conviction also occurred before that date.

Background and Context

The USDA Office of General Counsel’s memorandum offers clarity on the department’s thinking on a variety of important mattersHere is a brief vocabulary and history lesson that may help you understand the importance of this guidance.

Marijuana and hemp are different strains of the Cannabis sativa L plant. Although the federal Controlled Substances Act historically made no distinction between marijuana and hemp, the 2014 Farm Bill created a limited exception for research of industrial hemp, which it defined as any part of the Cannabis sativa L plant, including all derivatives and extracts such as cannabidiol (CBD), provided that the plant contains less than 0.3% tetrahydrocannabinol (THC).  Any Cannabis sativa L plant or derivative from such a plant with a higher THC level is considered marijuana, which remains a Schedule I substance – the most stringently regulated category of narcotics – under the Controlled Substances Act.

The 2014 Farm Bill permitted (1) “an institution of higher education or a State department of agriculture” to (2) “grow or cultivate industrial hemp” on the condition that (3) “the industrial hemp is grown or cultivated for purposes of research conducted under an agricultural pilot program or other agricultural or academic research” and (4) “the growing or cultivating of industrial hemp is allowed” in that State. The dormant hemp industry in the United States began to stir.

Then came the 2018 Farm Bill, which seems poised to dramatically expand both access to and the commercialization of hemp and hemp-derived products. Although the 2018 Farm Bill essentially adopts the definition of hemp from the 2014 Farm Bill, the 2018 Farm Bill does not limit hemp to research purposes and permits the eventual interstate shipment of hemp. Until this latest USDA pronouncement, however, it was unclear how the agency viewed several key provisions of the 2018 Farm Bill.

The Four Main Points of the Memorandum

As noted earlier, the memorandum includes four main points.

First, USDA confirmed that it believes “decontrolling of hemp (and THC in hemp) is self-executing,” meaning that hemp has not been a federally controlled substance since the enactment of the 2018 Farm Bill on December 20, 2018. Whether the decontrolling of hemp is self-executing had been debated in legal circles since January, as some had argued that hemp would be decontrolled only after regulations implementing the 2018 Farm Bill’s hemp provisions had been promulgated. The USDA has now confirmed that the enactment of the 2018 Farm Bill removed hemp (and, by extension, hemp-derived products) from the purview of the federal Controlled Substances Act.

Second, States and Indian tribes may not prohibit the interstate transportation or shipment of hemp lawfully produced under the 2014 Farm Bill. This guidance is welcome news to companies that manufacture and ship hemp using a 2014 Farm Bill license. It also contradicts a recent decision from a federal court in Idaho, which held that a shipment of Oregon hemp bound for Colorado and interdicted by the Idaho State Police was unlawful because Oregon does not yet have an approved plan under the 2018 Farm Bill. The USDA’s memorandum makes clear that USDA “does not concur with the reasoning of the [Court] regarding the shipment of hemp lawfully produced under the 2014 Farm Bill.”

Third, while acknowledging that States and Indian tribes may not prohibit the interstate shipment of hemp lawfully produced under the 2018 Farm Bill, the memorandum makes clear that provision only applies after USDA issues regulations and guidelines to implement the hemp provisions of the 2018 Farm Bill. Put another way, until USDA issues the regulations, States and Indian tribes arguably can prohibit the interstate shipment of hemp not manufactured under the 2014 Farm Bill. Combined with the point above, this point means that States and Indian tribes currently cannot prohibit interstate hemp shipments using a license granted under the 2014 Farm Bill, but they currently can prohibit other interstate shipments of hemp until USDA issues regulations and guidelines implementing the hemp provisions of the 2018 Farm Bill. Once such regulations and guidelines are implemented, all interstate shipments of hemp produced in accordance with applicable federal and state law are permissible. As a practical matter, however, hemp shipments (even those pursuant to the 2014 Farm Bill) are at risk of seizure by local authorities who lack the tools to quickly ascertain the difference between marijuana and hemp and/or who do not fully understand the legality of interstate hemp shipments pursuant to the 2014 Farm Bill.

Fourth, the memorandum clarifies that a person with a State or Federal felony conviction relating to a controlled substance is subject to a 10-year ineligibility restriction on producing hemp. Notably, an exception applies to a person who was lawfully growing hemp under the 2014 Farm Bill before December 20, 2018, and whose conviction also occurred before that date.

Finally, to some observers, the most interesting part of the memorandum may be a brief clause noting that “the publication of regulations implementing the hemp production provisions of the 2018 Farm Bill will likely not occur until later in 2019.” Because the implementation of these regulations implicates hemp policy nationwide in a wide range of ways set out more fully above, this statement by USDA’s General Counsel is an important indication that while USDA is actively working to promulgate hemp regulations, we may still be months away from seeing those regulations and the resulting state plans.

An Additional Practical Takeaway

The memorandum should be welcome news for those possessing licenses under the 2014 Farm Bill that wish to ship hemp, hemp seeds and hemp-derived products from state to state.  But a number of companies across the country are currently distributing, transporting and selling hemp and hemp-derived products (including CBD) that do not have a license under the 2014 Farm Bill. Many of those companies have assumed that because hemp has been descheduled, they may legally transport hemp across state lines without interference.

This recent USDA pronouncement should be a reminder that legal risks are associated with the interstate transportation of hemp and any company considering doing so should carefully investigate the legal landscape in its home state and any state through which it intends to ship hemp, hemp seeds or hemp-derived products.