After 10 months of anticipation from the American hemp industry, on October 31, the United States Department of Agriculture (USDA) published its interim final rule (Rule) establishing the regulatory framework for hemp production. While the Rule includes some requirements that the hemp industry advocated against, the Rule does provide much-needed clarity to the regulatory landscape. This clarity should also provide an important downstream effect – enticing more service providers, such as banks and insurance companies, to enter the hemp industry.
Broadly speaking, the Rule allows states and Indian tribes to submit plans for regulating hemp production in their territory and establishes a federal plan (USDA Plan) that governs in states that allow hemp production but do not have their own plan. Ten states and 10 tribes have already submitted proposed plans to the USDA, and that number is expected to grow rapidly in the coming weeks.
The Rule mandates that each state and tribal plan include certain minimum requirements regarding (1) sampling and testing cannabis crops; (2) destroying non-compliant crops; (3) collecting and sharing information regarding land used for hemp production; and (4) procedures to ensure hemp producers comply with USDA and state regulations. This article provides an overview of these requirements and some of the specific regulations found in the USDA Plan.
Sampling and Testing
The Rule requires that state and tribal plans incorporate procedures for sampling and testing cannabis – within 15 days prior to the anticipated harvest – to ensure the cannabis does not exceed the “acceptable hemp THC level.” These procedures must ensure the testing is completed by a DEA-registered laboratory using a reliable methodology for testing the THC level. The Rule places the burden on the producer to ensure the laboratory reports its test results to the USDA.
The Rule demonstrates the USDA’s recognition that hemp producers face dire consequences if their product tests higher than 0.3% THC, and for that reason, the “USDA believes that there must be a high degree of certainty that the THC concentration level is accurately measured and is in fact above 0.3% on a dry weight basis before requiring disposal of the crop.” To that end, the Rule sets out the following standard for determining whether a sample falls within the “acceptable hemp THC level”:
If 0.3% or less is within the [laboratory test’s margin of error, also known as the “measurement of uncertainty"], 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.
Importantly, to determine whether cannabis falls within the acceptable hemp THC level, both the THC and “decarboxylated” THCA – which is the acidic, non-psychoactive form of THC that converts into THC when heated – must be taken into account. This requirement, which the hemp industry advocated against, will make it more difficult to produce cannabis that falls within the acceptable hemp THC level.
Destroying Non-Compliant Crops
The question of what to do with cannabis plants that tested above the legal limit has been a difficult one for policymakers. While the hemp industry advocated for a remediation procedure under which plants that failed THC testing could still be used in some fashion (for example, composting), the Rule unequivocally requires the destruction of all plants exceeding the acceptable hemp THC level. The Rule makes clear such plants are considered marijuana, which is still a Schedule I drug under the Controlled Substances Act (CSA). Producers must ensure non-compliant plants are “disposed of in accordance with CSA and DEA [Drug Enforcement Agency] regulations” under any plan – USDA, state, or tribal. This means the non-compliant plants must be collected and destroyed by a law enforcement officer or a “DEA-registered reverse distributor.” Further, USDA officials have said USDA crop insurance programs will not cover losses related to the destruction of non-compliant cannabis plants.
USDA licensees must notify the USDA of non-compliant plants and provide documentation of their proper disposal within 30 days. State and tribal licensees must provide the same information to the appropriate state or tribal agency, which then reports the information to the USDA.
Information Regarding Land Use
The Rule also requires hemp producers to report specific information regarding the land on which they produce hemp. USDA licensees must report the street address and, if practicable, the GPS coordinates of every lot and greenhouse where hemp is produced to the USDA’s Farm Services Agency (FSA). State and tribal licensees must report the same information to the agency designated in their respective state or tribe’s plan. Additionally, all producers must report the acreage and/or square footage dedicated to hemp production to the FSA.
The Rule also contains certain compliance requirements for USDA licensees. States and tribes must incorporate similar requirements and may adopt more stringent requirements if they so desire. Under the Rule, the USDA may conduct audits of USDA licensees and issue corrective action plans for negligent violations of the USDA Plan. The corrective action plan will include a reasonable date by which the producer must correct the violations, and will require the producer to periodically report to the USDA regarding its compliance with the plan for, at minimum, the next two calendar years. Negligent violations include, but are not limited to: (1) failure to provide a legal description of the land on which hemp is produced; (2) producing hemp without a license; or (3) producing cannabis plants exceeding the acceptable hemp THC level.
Negligent violations are not subject to criminal enforcement, but may lead to suspension or revocation of a producer’s license. A producer that commits three negligent violations in a five-year period will have its license revoked and will be ineligible to produce hemp for five years. If a producer commits a violation with a “culpable mental state greater than negligence,” the USDA will report the violation to the Attorney General and the chief law enforcement officer of the state or tribe where the cannabis was produced.
The USDA Plan does provide a small safe harbor for producers that end up with cannabis plants that exceed the acceptable hemp THC level. If a producer’s cannabis exceeds that level, but does not have a THC concentration greater than 0.5% on a dry weight basis, it is not considered a negligent violation so long as the producer made “reasonable efforts to grow hemp.” While this leeway is a welcome part of the Rule, producers have little margin for error. A producer that has made “reasonable efforts to grow hemp,” but nonetheless produces cannabis plants with a THC concentration that exceeds 0.5%, has committed a negligent violation, and three negligent violations over a five-year period results in a five-year ban from producing hemp.
Finally, the Rule limits the participation of certain convicted felons in hemp production. A person with a felony conviction relating to a controlled substance is ineligible to be a “key participant” in a producer operating under the USDA Plan for 10 years following the conviction, subject to a limited exception for felons who were lawfully growing hemp under the 2014 Farm Bill. The Rule defines a “key participant” as a “sole proprietor, a partner in a partnership, or a person with executive managerial control in a corporation” – the definition does not include non-managerial employees of hemp producers.
While the Rule provides much-needed guidance to the burgeoning hemp industry, it contains some complex requirements and harsh penalties for negligent violations of those requirements. And it is worth emphasizing that the Rule governs the production of a crop that was considered a Schedule I narcotic just a short time ago. Hemp producers should thus take great care to develop robust policies and procedures to ensure their compliance with the USDA, state, or tribal plan that governs their operations.