Tag Archives: 2018 Farm Bill

USDA Issues Regulatory Framework for Hemp Production Under 2018 Farm Bill

Seth Goldberg
Seth A. Goldberg

The long awaited regulations establishing a regulatory framework under the 2018 Farm Bill passed last December were issued today (10/29/19).  An Interim Final Rule will be published in the Federal Register later this week, which will make the U.S. Domestic Hemp Production Program effective.   As explained in the Interim Final Rule: “The program includes provisions for maintaining information on the land where hemp is produced, testing the levels of delta-9 tetrahydrocannabinol, disposing of plants not meeting necessary requirements, licensing requirements, and ensuring compliance with the requirements of the new part.”  USDA has published the Interim Final Rule and Guidelines for Sampling and Guidelines for Testing pursuant to the Interim Final Rule on its website.

Among other key provisions, the new regulatory framework provides for USDA’s approval of State and Tribal Land hemp programs established under the 2018 Farm Bill, which will end debate as to whether hemp activities in a State or Tribal Land receiving such approval are federally lawful.  To be approved, those plans will have to contain stringent requirements for testing the THC content of hemp to ensure it does not meet the definition of marijuana, and contain procedures for the enforcement of violations of the State or Tribe’s hemp program.  Importantly, the regulatory framework provides for USDA’s granting of hemp production permits in states and territories that do not establish hemp programs for approval by USDA.

Duane Morris attorneys will be publishing a more fulsome review of the Interim Final Rule.  Please visit our Alerts and Updates webpage, or our cannabis industry webpage for that information.

 

Federal Court Halts Indiana’s Ban on Smokeable Hemp

On September 13, 2019, a federal district court in the Southern District of Indiana issued an Order regarding Indiana’s treatment of “smokeable hemp” that could have far-reaching consequences for the hemp industry.  C.Y. Wholesale Inc. et al. v. Holcomb et al., 1:19-cv-02659 (S.D. In., Sep. 13, 2019). The court issued a preliminary injunction against the state of Indiana that prohibits the enforcement of certain provisions of a new Indiana law that regulated criminalized the manufacture, finance, delivery, or possession of “smokeable hemp.”  Id.

On May 2, 2019, Indiana Governor Eric Holcomb signed Senate Enrolled Act No. 516 (the “Act”) into law.  Among other things, the Act made it a Class A misdemeanor to manufacture, deliver, finance the manufacture or delivery of, or possess “smokeable hemp.” Ind. Code § 35-48-4-10.1. The Act defined “smokeable hemp” as “a product containing not more than three-tenths percent (0.3%) delta-9-tetrahydrocannabinol (THC), including precursors and derivatives of THC, in a form that allows THC to be introduced into the human body by inhalation of smoke.” Ind. Code § 35-48-1-26.6.

The Act’s prohibition on “smokeable hemp” is not unique.  For instance, Kentucky’s industrial hemp regulations list products that are not to be sold to the public, and those products include “Hemp cigarettes” and “Hemp Cigars.” 302 Ky. Admin. Regs. 50:070. And the North Carolina legislature is considering a bill that would similarly ban “smokeable hemp.” Such bans are viewed as assisting local law enforcement in the performance of their duties.  As federally lawful hemp and federally unlawful marijuana have the same appearance and a virtually identical smell, police officers throughout the country often have trouble distinguishing between the two.  A ban on “smokeable hemp” would help officers and citizens avoid the waste of time and resources that could be caused by confusing unlawful marijuana and lawful hemp.

However, on June 28, 2019, a few days before the Act became effective, a group of Indiana businesses that sell hemp products at wholesale or retail filed a motion for a preliminary injunction to prohibit enforcement of the smokeable hemp ban.  The plaintiffs argued Indiana’s smokeable hemp ban was unconstitutional because it was preempted by the 2018 Farm Bill and because it violated the Commerce Clause of the Constitution. The Court agreed.

First, the court held that Indiana’s “smokeable hemp” ban was impermissible because it was not limited in scope to intrastate activities, and as such interfered with interstate commerce.  The 2018 Farm Bill explicitly provides “No State or Indian Tribe shall prohibit the transportation or shipment of hemp or hemp products produced in accordance with,” federal or state law.  2018 Farm Bill § 10114.  By criminalizing the delivery and possession of “smokeable hemp,” the Act precludes transportation of hemp or hemp products through Indiana “and thus impede[s] the interstate commerce of hemp in contravention of the 2018 Farm Bill’s express prohibition on state laws that do so.” C.Y. Wholesale Inc. et al., 1:19-cv-02659 at 8. For instance, the court explained, “a driver traveling along I-74 from Ohio to Illinois who passes through Indiana with smokeable hemp in the vehicle, including hemp bud or hemp flower, would be in ‘possession’ of smokeable hemp and thus subject to arrest and criminal penalties under SEA 516.” Id.

Second, the court held Plaintiffs had shown a likelihood of success on the merits of their conflict preemption claim.  “[T]he plain language of the 2018 Farm Bill, as well as statements from its legislative sponsors, reflect Congress’s intent to de-stigmatize and legalize all low-THC hemp, including its derivatives and extracts, and to treat hemp as a regulated agricultural commodity in the United States.” Id. at 10. However, Indiana’s smokeable hemp ban would “criminalize the manufacture, finance, delivery, and possession of hemp bud and hemp flower—hemp derivatives of the kind specifically legalized under the 2018 Farm Bill—[which] frustrates these congressional purposes and objectives.” Id. at 11.

Although the dispute has not been finally resolved, in granting the plaintiffs’ motion for a preliminary injunction, the court has given a strong indication of its view on the matter. If the court ultimately finds Indiana’s law unconstitutional, it is likely to impact other federal court analysis of similar state laws across the country. Duane Morris will continue to monitor this case and will provide additional updates as necessary.

Ninth Circuit Punts on Interstate Transportation of Hemp

On September 4, 2019, the Ninth Circuit issued its ruling in Big Sky Scientific LLC v. Jan Bennetts et al, the case involving the seizure of an interstate shipment of hemp that occurred after the enactment of the 2018 Farm Bill. In a three-page opinion, the court sidestepped the substantive issues presented on appeal and held that the parties should pursue their claims in state court.

In January 2019, a hemp cultivator in Oregon attempted to ship a truckload of hemp to a processor in Colorado. But as the cargo passed through Idaho, the Idaho State Police seized the shipment and arrested the driver, alleging violations of Idaho state law. The Idaho police charged the driver with a crime and filed a civil complaint in state court against the hemp itself. The Idaho civil case was stayed pending resolution of the criminal proceeding.

View the full Alert on the Duane Morris LLP website.

Ninth Circuit Hears Oral Argument in Landmark Hemp Transportation Case

On August 28, 2019, a three-judge panel of the Ninth Circuit Court of Appeals, Judges Hawkins, McKeown and Bybee heard oral argument in Big Sky Scientific LLC v. Jan Bennetts et al.

To review the background briefly, Big Sky Scientific, LLC, a Colorado-based hemp processor, purchased federally lawful hemp from a state-licensed hemp cultivator in Oregon. The parties arranged to ship the hemp from Oregon to Colorado via motor carrier. En route to Colorado, the shipment entered Idaho, where the Idaho police seized the cargo and arrested the driver, alleging violations of Idaho state law. Idaho initiated a state court criminal proceeding against the driver, and a state court civil proceeding against the hemp itself, to ensure the hemp would not be returned to Big Sky. In response, Big Sky filed a motion for a temporary restraining order and preliminary injunction in federal court to force the Idaho State Police to return the seized cargo and stop seizing hemp shipments that pass through the state. The District Court denied Big Sky’s motion, and Big Sky appealed. That appeal was the basis of the oral argument. Duane Morris filed an amicus brief on behalf of the American Trade Association for Cannabis and Hemp in support of Big Sky, arguing that an adverse ruling would have a serious negative impact on the hemp industry. (Duane Morris is the national law firm partner of the American Trade Association for Cannabis and Hemp.)

View the full Alert on the Duane Morris LLP website.

It Is Permissible for Federally Insured Credit Unions to Bank Hemp Businesses

Photo of attorney Michael Zullo
Michael S. Zullo

“Credit unions may provide the customary range of financial services for business accounts, including loans, to lawfully operating hemp related businesses within their fields of membership,” says the National Credit Union Administration (NCRU) in its recently released guidance 19-RA-02.

While this is a significant step for hemp businesses seeking banking outlets, it is far from the relief proposed by Secure and Fair Enforcement Act (“SAFE Banking Act”) and does not represent a blanket permission.  Still, the NCRU Guidance signals a recognition of the growing Cannabis industry and the practical need to provide financial services to businesses in the industry.  Here are some key takeaways.

First, the guidance only applies to Federally Insured Credit Unions, not national banks.

Second, the guidance explicitly relates to credit unions serving “hemp” businesses as defined in the Agricultural Improvement Act of 2018 (2018 Farm Bill), which removed hemp from Schedule I of the Controlled Substances Act.[1]  Marijuana remains a Schedule I drug, which restricts banking access of marijuana businesses.

Third, because the USDA has yet to promulgate regulations and guidelines to implement the hemp production provisions of the 2018 Farm Bill, credit unions must ensure members in hemp-related business are operating under the industrial hemp pilot provisions of the Agricultural Act of 2014 (2014 Farm Bill).

Fourth, credit unions that elect to bank hemp-related businesses must maintain robust Bank Secrecy Act (BSA) and Anti-Money Laundering (AML) compliance programs.  This includes:

  • Maintaining appropriate due diligence procedures for hemp-related accounts and complying with BSA and AML requirements to file Suspicious Activity Reports (SARs) for any activity that appears to involve potential money laundering or illegal or suspicious activity.
  • Remaining alert to any indication an account owner is involved in illicit activity or engaging in activity that is unusual for the business.
  • Staying on top of state and tribal laws, regulations, and agreements under which each member that is a hemp-related business operates.
  • Verifying that the member is part of the pilot program created in the 2014 Farm Bill.
  • Adapting ongoing due diligence and reporting approaches to any risks specific to participants in the pilot program.
  • Being familiar with any other federal and state laws and regulations that prohibit, restrict, or otherwise govern these businesses and their activity.

In sum, banking hemp-related businesses is permissible for credit unions.  But they must be diligent in crafting BSA/AML policies.  This is not a complete solution to the existing banking problems facing the Cannabis industry, but it does evidence a growing regulatory desire to provide access for the industry, which could sway policy makers down the road.

[1] The 2018 Farm Bill defines “hemp” as: “the plant Cannabis sativa L. and any part of that plant, including the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with a delta-9 tetrahydrocannabinol concentration of not more than 0.3 percent on a dry weight basis.”

USDA Memo Clarifies Key Provisions Regarding Hemp in the 2018 Farm Bill

The Agriculture Improvement Act of 2018 (the “2018 Farm Bill”), signed into law on December 20, 2018, altered the federal government’s treatment of hemp in a number of ways. The 2018 Farm Bill expanded the definition of “hemp” to include, explicitly, derivatives, extracts and cannabinoids, and removed hemp from the definition of federally unlawful marijuana under the Controlled Substances Act (CSA). See 2018 Farm Bill, Pub. L. No. 115-334 §§ 10113, 12619, 132 Stat. 4490. Notably, the 2018 Farm Bill also explicitly permitted the interstate transportation of hemp: “No State or Indian Tribe shall prohibit the transportation or shipment of hemp or hemp products produced in accordance with subtitle G of the Agricultural Marketing Act of 1946 (as added by section 10113).” Id. at § 10114.

Subtitle G, for its part, provides that “[n]othing in this section prohibits the production of hemp in a State or the territory of an Indian tribe—(1) for which a State or Tribal plan is not approved under this section, if the production of hemp is in accordance with section 297C or other Federal laws (including regulations).” Id. at § 10113 (emphasis added). This final clause, “or other Federal laws,” is significant because the Agriculture Act of 2014 (the “2014 Farm Bill”) is also a “federal law,” and to date approximately 40 states have instituted industrial hemp programs pursuant to the 2014 Farm Bill. Under the language of the 2018 Farm Bill, then, states may not interfere with the interstate transportation of hemp produced in accordance with either the 2014 Farm Bill or—once regulations are implemented and state hemp programs are approved—the 2018 Farm Bill.

Notwithstanding the language of the 2018 Farm Bill, the absence of federal regulations implementing the new law and sanctioning state hemp programs revised pursuant to the 2018 Farm Bill has caused significant confusion regarding the true impact of the act.

View the full Alert on the Duane Morris LLP website.

Green Light for the Sunshine State: Florida Legislature Approves Sweeping Changes to Hemp, CBD Regulation

On May 3, 2019, the Florida legislature passed SB 1020, creating the state hemp program and authorizing the Florida Department of Agriculture and Consumer Services (FDACS) to enact regulations to govern the program. The bill, first filed in the Florida Senate on February 13, 2019, passed with overwhelming support; the final version passed by a margin of 39-0 in the Senate after passing 112-1 in the House. Governor Ron DeSantis has until May 18, 2019, to veto the bill or it will automatically become law.

“The historic vote,” according to FDACS Commissioner Nicole Fried, is in response to the federal 2018 Farm Bill, which “removed the prohibitions on industrial hemp in place since 1937 and authorized states to create hemp programs.” Id. If SB 1020 becomes law, it will fundamentally alter the treatment of hemp and hemp extracts, including cannabidiol (CBD) products, under Florida law.

View the full Alert on the Duane Morris LLP website.

Patent and Trademark Office Issues New Guidelines for Hemp Following 2018 Farm Bill Legalization

On May 2, 2019, the United States Patent and Trademark Office (USPTO) made available a new examination guide aimed at clarifying the examination procedure for trademarks used in connection with cannabis and cannabis-derived goods and services.

These guidelines are a direct response to the signing of the Agricultural Improvement Act of 2018 (2018 Farm Bill) into law on December 20, 2018. The 2018 Farm Bill changes certain federal authorities relating to the production and marketing of “hemp,” defined as “the plant Cannabis sativa L. and any part of that plant, including the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with a delta-9 tetrahydrocannabinol [THC] concentration of not more than 0.3 percent on a dry weight basis.” These changes include removing hemp from the Controlled Substance Act’s (CSA) definition of marijuana, which means that cannabis plants and derivatives such as cannabidiol (CBD) that contain no more than 0.3 percent THC are no longer controlled substances under the CSA.

View the full Alert on the Duane Morris LLP website.

California Industrial Hemp Registration is Now Open

On April 30, 2019, the California Department of Food and Agriculture (CDFA) made available registration applications to cultivate industrial hemp. The CDFA’s approved regulations require, among other things, a prospective cultivator to register with the county agricultural commissioner where the cultivator is located and pay a $900 registration fee.

However, even though applications are now live, several counties throughout California still restrict or prohibit the cultivation of hemp. The CDFA has identified the following counties as restricting hemp cultivation: Amador, Calaveras, Glenn, Humboldt, Lassen, Marin, Mariposa, Mendocino, Merced, Modoc, Mono, Monterey, Napa, Nevada, Orange, Placer, Sacramento, San Bernardino, San Joaquin, Santa Barbara, Shasta, Sierra, Siskiyou, Sonoma, Tehama, Trinity, Tulare, Tuolumne, Yolo, and Yuba.

It remains unclear how these current regulations will be affected by the Agricultural Improvement Act of 2018 (2018 Farm Bill). Under the 2018 Farm Bill, the CDFA is required to submit its hemp-production plan to the United States Department of Agriculture (USDA) for approval but as of the date of this post the USDA has not issued regulations relating to that review. Additionally, it is unclear how this program will operate in the interim under the 2014 Farm Bill. We will continue to watch as this program develops alongside the USDA’s 2018 Farm Bill program.

USDA Issues Guidance on Importation of Hemp Seeds

USDA has issued its first guidance since the passage of the 2018 Farm Bill. Because the Farm Bill removed hemp from the Controlled Substances Act, the importation of hemp seeds will now be regulated by USDA as an agricultural product, not DEA.  USDA stated that by removing hemp from the CSA, the Act “removed hemp and hemp seeds from DEA authority for products containing THC levels not greater than 0.3 percent. Therefore, DEA no longer has authority to require hemp seed permits for import purposes.” Importation of hemp seeds from international sources will now be permitted if accompanied by the appropriate phytosanitary certification and will be subject to inspection by Customs and Border Patrol.

The reference to DEA authority is significant and confirms that DEA no longer has jurisdiction over hemp or products derived from hemp such as CBD oil.  DEA  needs to update its own guidance documents in light of the 2018 Farm Bill. USDA is working on regulations to implement the state cultivation program provisions of the Farm Bill.  They are expected to be in place in time for the 2020 growing season.