The Nickel Report

Last December, we reported that President Trump signed into law the Agriculture Improvement Act of 2018 (the 2018 Farm Bill). Since then, federal and state governments have rushed to implement the new law and state analogs in time for the 2020 growing season. As we have seen with the development of complex new regulatory schemes in other industries, regulatory uncertainty and opportunities abound.

Federal Action

According to a US Department of Agriculture (USDA) memorandum, under the 2018 Farm Bill, domestic hemp may be grown with a valid USDA license, under a USDA-approved State or Tribal plan, or under the 2014 Farm Bill industrial hemp pilot program. The latter will expire one year after USDA establishes its regulatory plan for issuing licenses, a goal the agency has been expeditiously working toward.

Recently, USDA sent interim final regulations for a nationwide program for the production of industrial hemp to the Office of Management and Budget (OMB) for review. OMB generally has up to 90 days to review proposed regulations, but there is pressure to complete it much sooner to accommodate the 2020 planting season. Once approved by OMB and published by USDA, the interim final rule will immediately go into effect. USDA developed the rule based, in part, on public comments it received during a March 2019 listening session. There will be opportunity to comment on the interim final rule after it goes into effect, at which point stakeholder input will help determine whether the regulations should be modified.

Meanwhile, several other federal agencies are taking action to assist hemp farmers. USDA’s Risk Management Agency announced last month that hemp crop insurance will be available for the 2020 season. The insurance, available through the Whole-Farm Revenue Protection program, will initially cover certain hemp grown for fiber, flower, or seeds, but additional coverage is expected as USDA implements the 2018 Farm Bill. The National Credit Union Administration also recently released interim guidance for federally insured credit unions that provide financial services to hemp-related businesses.

The Food and Drug Administration (FDA) has also entered the fray regarding hemp-derived cannabidiol (CBD). Notwithstanding the 2018 Farm Bill, the FDA retains regulatory authority over many products containing cannabis or cannabis-derived compounds, including CBD derived from hemp, such as human and animal drugs, cosmetics, dietary supplements, food and beverages. Under the Federal Food, Drug and Cosmetic Act, CBD may not be added to food because the FDA has classified it as a drug. On May 31, 2019, however, FDA held a public hearing in an effort to obtain scientific data and information about the safety, manufacturing, product quality, marketing, labeling and sale of products containing compounds like CBD. FDA also allowed the public to submit written comments on the topic until July 16, 2019, and received over 4,000 submissions. The FDA is evaluating the comments it received over the last few months to inform its next steps and regulatory pathways for the lawful use and sale of appropriate cannabis-derived products.

Finally, the US Environmental Protection Agency (USEPA) published a notice on August 23, 2019, seeking public comment on applications it has received, since the passage of the 2018 Farm Bill, to add hemp as an authorized crop to the labeling of pesticide products registered under the Federal Insecticide, Fungicide, and Rodenticide Act. This authority is important because the use of registered pesticides in a way that is not consistent with the directions on labels could be a violation of federal environmental laws and lead to enforcement action. USEPA anticipates making a final decision about the use of the pesticides on hemp before the end of the year to allow growers to make informed decisions before the 2020 growing season.

State Action

Although the 2018 Farm Bill legalized hemp cultivation, possession, sale and distribution, it reserved to the states and Indian tribes the authority to enforce more stringent laws regulating its production. States allowing hemp production within their jurisdictions must either do so according to USDA regulations or submit a regulatory plan to the Secretary of Agriculture for approval.

In many states that have legalized cannabis across the board, such as Colorado, Washington and California, the regulation of hemp is well underway. Other states are rushing to catch up. As the following representative examples suggest, the results are far from uniform as states develop their own hemp regulatory schemes concurrently with USDA.

Arizona

In May 2018, Governor Ducey signed bipartisan legislation that authorized the Arizona Department of Agriculture to license qualified applicants to grow and process industrial hemp. Under the law, the Department of Agriculture began issuing licenses on May 31, 2019.

Kansas

At the end of August, the Kansas Department of Agriculture released a draft of regulations for the state’s Commercial Industrial Hemp Program. Public comments on the draft were submitted through September 13, 2019, and the regulations will be revised based upon that public input. In anticipation of USDA’s interim final rule, Kansas will make applications available for the 2020 growing season this month, and licenses will be due on November 30, 2019. Ultimately, implementation of the Commercial Industrial Hemp Program is contingent upon (1) the state’s regulatory adoption process and (2) program acceptance by USDA.

Texas

In June 2019, Governor Abbott signed a bill that legalized industrial hemp production—but not until 2020. The law allows farmers to grow industrial hemp under a state-regulated program approved by USDA. It also legalizes hemp-derived products like CBD oil. Any products made for human consumption will be regulated by Texas Health and Human Services.

Virginia

Amendments to the Virginia Industrial Hemp Law permitting the commercial production of industrial hemp took effect on March 21, 2019. The Virginia Department of Agriculture and Consumer Services (VDACS) is the lead agency for implementing the recent changes and promulgating rules that comply with state and federal requirements. On July 25, 2019, VDACS issued a policy, under the guidance of Governor Northam, providing oversight over hemp-derived extracts intended for human consumption. Importantly, this policy treats hemp-derived CBD oil as an approved food ingredient or dietary supplement.

Florida

On June 25, 2019, Governor DeSantis signed a bill creating a new agricultural hemp program and requiring the Florida Department of Agriculture and Consumer Services (FDACS) to adopt rules and submit them to USDA. Although the bill did not go into effect until July 1, 2019, FDACS started its hemp rulemaking process on June 6, 2019. FDACS is in the process of considering public comment on proposed rules. Once this process is complete, FDACS will start testing CBD products for consumer safety, but, as of now, they are not regulated.

Hunton Andrews Kurth Can Assist Industrial Hemp Clients

As this area of law continues to develop rapidly, there are likely to be inconsistencies between federal and state law and even between agencies at the same governmental level. Now is the time to take action to influence federal and state regulatory developments that will control the budding hemp industry.

Hunton Andrews Kurth has decades of experience representing clients in highly regulated industries on matters related to influential rulemakings and legislation, compliance with complex new regulatory programs, and in related enforcement actions and litigation. Hunton also has experience representing clients in the cannabis industry. We are closely monitoring regulatory developments regarding the production, sale and marketing of industrial hemp and industrial hemp products to advise clients on how they impact their businesses.