Hemp – A Year in Review
Cannabis Industry News Alert
This time last year we were trumpeting the arrival of the Farm Bill and making predictions about how that landmark legislation would shape the hemp industry. And even though that seems like only yesterday, the past year witnessed a number of significant developments that have helped shape the legal, regulatory, and economic landscape of the industry. We have gathered a number of those key events into what we’re calling “Hemp – A Year in Review.”
The Farm Bill roared into 2019 with much fanfare. We jumped on the bandwagon and published trends to look out for in 2019. These included: (1) increased “smart” money and research; (2) explosion of hemp and hemp-derived products; (3) increased ancillary services to hemp-related businesses; (4) vertical integration of hemp businesses; and (5) federal regulations and state regimes. Like most prognosticators, we missed a few (we prefer to think we were just ahead of our time) and we got a few right.
The U.S. Food and Drug Administration (FDA), however, gave hemp advocates pause by warning that it was keeping a close eye on the industry. The FDA warned that they would “take enforcement action needed to protect public health against companies illegally selling cannabis and cannabis-derived products that can put consumers at risk and are being marketed in violation of the FDA’s authorities.”
By February, 41 states had enacted industrial hemp legislation. Farmers in many of these began to switch crops to grow industrial hemp. One Kentucky farmer who switched from tobacco to industrial hemp made roughly $100-$700 dollars more an acre.
As hemp products were introduced more into mainstream commerce, it became apparent that America was starting to become a major player in the global hemp market. Analysts predicted that by 2022 America could reach up to a one-third share of the global hemp market.
Although the hemp industry was beginning to flourish in the U.S., states were having a hard time figuring out how to differentiate between cannabis products classified as hemp, those with less than 0.3% of delta-9-tetrahydrocannabinol (THC), and cannabis classified as the schedule I drug marijuana. Of note, a grandmother at Disney World was arrested for having prescribed CBD oil in her purse. Even though the oil was derived from hemp, a presumptive marijuana test came back positive. Figuring out how to differentiate between the two products was and still is sticky for states that have not legalized marijuana in some form.
Amidst this tricky differentiation, the United States Department of Agriculture (USDA) released guidance in April that allowed for the importation of hemp seeds.
On May 28, 2019, USDA’s Office of the General Counsel issued guidance on the manufacture, distribution and sale of hemp products. We previously discussed and summarized this guidance. Most importantly, the guidance helped remind those interested in hemp that there are risks still associated with the interstate transportation and cultivation of the plant.
Hemp planting season was delayed by unusually high rainfall and a lengthy rainy season in many parts of the country, which lowered projected hemp crop yields. Some analysts nonetheless predicted that hemp supply would exceed demand and ultimately drive down price.
As the public’s fascination with CBD increased, so too did the regulatory scrutiny applied to the companies manufacturing and selling CBD products. On April 2, 2019, the FDA and the Federal Trade Commission (FTC) issued warning letters to three companies marketing their CBD products as treatments and cures for a variety of diseases and illnesses. We analyzed these warning letters and provided a helpful list of dos and don’ts when marketing hemp products.
Two states – New Jersey and Washington – released guidance regarding the use of CBD in foods. Washington followed the FDA’s guidance by making clear that CBD may not be used as a food ingredient. In contrast, New Jersey added a provision to its hemp legislation that allowed CBD to be used in food. These differing state-level approaches show that CBD, like marijuana, is governed by a patchwork of state laws that can be at odds with federal law, creating a complex and risky regulatory landscape.
The FTC continued the crackdown on CBD marketing, issuing three more warning letters to companies that it saw as making unsubstantiated health claims. While these letters were not accompanied by formal enforcement actions, they resulted in negative publicity for both the warned companies and the broader CBD industry. As we discussed in a post analyzing these letters, plaintiffs’ attorneys have taken note by filing numerous putative class actions against CBD companies.
On October 31, the USDA published an interim rule establishing the regulatory framework for hemp production, which we analyzed in a post. The rule allows states and Indian tribes to submit plans for regulating hemp production in their territory and establishes a federal plan that governs in states that allow hemp production but do not have their own plan. At the time the rule was published, 10 state and 10 tribes had submitted proposed plans, and a number of others have submitted plans since.
The FDA sent a shot across the bow of the CBD industry on November 25, issuing 15 warning letters to companies “for illegally selling products containing [CBD] in ways that violate the Federal Food, Drug, and Cosmetic Act (FD&C Act),” and publishing a consumer update detailing safety concerns surrounding CBD. Like the FDA and FTC’s previous warning letters, these letters were not accompanied by formal enforcement actions, but the FDA’s decision to simultaneously send 15 warning letters and publish a stern consumer update sent a clear signal to the industry, as we discussed in another post. But there was a small silver lining, as the FDA stated that its actions “come as the FDA continues to explore potential pathways for various types of CBD products to be lawfully marketed,” indicating that more comprehensive regulatory guidance regarding CBD should be coming soon.
On December 27, the USDA finally approved the first round of state and tribal hemp production plans. This was a great way for the hemp industry to end its first year since the 2018 Farm Bill. Hemp producers should be entering 2020 preparing policies and procedures to align with the USDA rules.
As 2019 drew to an end, those banks interested in working with industrial hemp clients now have more guidance but should still be mindful of how to protect themselves from not unwittingly financing marijuana.
The future of the hemp industry in the U.S. is still a moving target, but with regulations and production plans now in place, 2020 is setting up to be an exciting year for hemp. As hemp’s sister plant is legalized in more and more states, so the hemp industry will also continue to grow. Those interested in the hemp industry, though, should still be mindful of the distinction between these two plants and how to capitalize on the new hemp market.