USDA Issues Interim Final Rule for Hemp

Introduction

On October 31, 2019, the US Department of Agriculture (USDA) issued an Interim Final Rule with Request for Comments¹ (IFR) to implement the hemp provisions of the 2018 Farm Bill.² The new rule establishes requirements for approval of state or tribal plans regulating the production of hemp in their territories and establishes an alternate federal plan for regulating hemp production in states that do not have a state plan. The rule takes effect immediately, in time for the 2020 hemp growing season. The IFR will remain in place for two years while USDA considers public comments and finalizes the rule. Interested parties can submit comments until December 30, 2019.

The IFR closely tracks the provisions of the 2018 Farm Bill, with a few exceptions. Generally, farmers must obtain a license or registration from the state or tribal territory in which they are located or from the USDA, allow collection of a random sample of a mature hemp crop prior to harvest, submit the sample to an approved laboratory for testing the THC level, and destroy any non-compliant crop in its entirety. Perhaps of most concern to farmers will be the availability of USDA-approved testing facilities, the accuracy of test results, and the ability to regulate or predict the THC level of a crop as it grows. The blunt requirement to destroy an entire crop "lot" if a random sample produces test results that exceed the THC standard, provide no opportunity to mitigate THC levels or salvage any portion of the crop. Beyond the production stage, any increase in hemp production facilitated by these rules will put pressure on US Food and Drug Administration (FDA) and the states to clarify and expand laws governing hemp products, in particular CBD products.

The Farm Bill and the IFR address only the domestic production of hemp. They do not address importation of hemp grown in other countries or export of domestically grown hemp. Moreover, Congress left responsibility for regulating the production and sale of hemp products to the FDA and the states. Thus, the Farm Bill and IFR leave many questions unanswered as to how that industry might develop and the demand for hemp.

Background

As Arnold & Porter has previously explained, the 2018 Farm Bill legalized hemp—defined as cannabis with a THC concentration of not more than .3 percent³—and opened the door for a domestic hemp industry. The Farm Bill allows states and tribes to regulate the production of hemp in their territories, provided the state or tribe promulgates a regulatory plan that meets certain minimum requirements and is approved by the USDA. States and tribes may impose more stringent requirements, including prohibiting hemp altogether, if they want additional restrictions. Farmers located in states or tribal territories without an approved plan or prohibition will be regulated by USDA pursuant to its program in the IFR.

State/Tribal and Federal Plan Comparison

The table below contains a summary of the basic features that the IFR requires of state or tribal plans to regulate hemp and the comparable requirements in the USDA plan. As noted above, states can implement more stringent provisions than required for USDA approval. Thus, producers who are eager for clarification will need to continue to wait to see what each state or tribe will include in its final plan, if they choose to develop one at all.

Notable Provisions

Regardless of whether a producer is operating under a state/tribal plan or the USDA plan, certain provisions are worth further consideration.

Acceptable hemp THC level. The IFR recognizes imperfections in testing. Test results must include both the level of THC concentration and a measurement of uncertainty, and as long as the .3% THC threshold falls within the measurement of uncertainty (i.e., margin of error), the crop is compliant. In addition, at least the USDA plan permits additional testing if a producer believes the original results were in error. Nevertheless, the IFR imposes a strict all-or-nothing standard by considering the test results as "conclusive evidence" that an entire lot—defined as "a contiguous area in a field, greenhouse or indoor growing structure containing the same variety or strain or cannabis throughout the area"⁴—is not in compliance and must be destroyed. In contrast, the 2018 Farm Bill provisions require only disposal of "plants, whether growing or not, that are produced in violation of [the THC standard]."⁵ The IFR does not allow for alternatives, such as harvesting compliant plants or compliant parts of non-compliant plants, creating compliant biomass, or removing THC through processing. Given the cost of land and the cost of inputs to grow hemp, this bright line rule may create significant risk for farmers. Farmers can reduce their "lot" size and thereby minimize the risk of total loss, but the cost of testing each lot may be prohibitive.

Making compliance even more difficult is the IFR's requirement that test results include both delta-9 THC, which is psychoactive, and THC-A (tetrahydrocannabinolic acid), a non-psychoactive cannabinoid that is a precursor to THC. The 2018 Farm Bill defined hemp in terms of delta-9 THC levels only, but the IFR requires that test results include THC-A to account for THC-A's conversion to THC, which generally occurs through heat, such as smoking or vaporizing. The conversion of THC-A to THC does not occur on a 1:1 basis,⁶ and testing laboratories will need to have accurate methods to account for the loss during conversion.

Reasonable efforts. The IFR appears to contemplate that hemp production is a developing science and thus allows producers some leeway regarding violations. Producers will not be found to have committed a negligent violation if they make reasonable efforts to grow hemp but in fact produce cannabis with a THC level of not more than 0.5%. USDA acknowledges that producers may take precautions and use best practices but still produce plants that exceed the acceptable hemp THC level. The agency is seeking comments regarding what other reasonable efforts should be considered. Despite this recognition, however, any plants exceeding the acceptable hemp THC level must still be destroyed. While producers may get the benefit of the doubt on violations, they can still lose their whole crop and suffer significant economic harm.

Seed Certification. USDA chose not to include a seed certification requirement as part of either plan. While some states implemented this concept under the 2014 Farm Bill, USDA explains that the same seeds can produce different results, i.e., different THC concentrations, depending on growing locations and conditions. USDA also cited a lack of technology and accurate data on the issue. The IFR places the risks of crop differentials squarely on the growers while the agricultural science develops to offer more certainty in crop outcome.

Laboratory testing. If hemp production continues to increase, there may be a shortage of qualified labs to conduct testing. USDA is considering establishing a laboratory approval process for labs that wish to offer THC testing services. The agency would develop a particular program for hemp, with specific regulatory, legal, quality assurance and quality control, and analytical testing components. Any such requirement would be in addition to the existing requirement that that the laboratory be registered with DEA.

Hemp Products

Currently the most lucrative use for hemp is extraction of cannabinoids, particularly cannabidiol (CBD). However, the legal status of hemp extracts, including CBD, remains unclear and unchanged by the IFR. FDA continues to have regulatory authority over hemp products and has taken the position that CBD is lawful in cosmetic and approved drug products but not in conventional food and dietary supplements. The IFR's Regulatory Impact Analysis acknowledges FDA's authority to reverse its current position and allow the use of CBD in food and dietary supplements. It also notes FDA's statement that it is actively considering the issue, but FDA has not provided a time by which it might make a decision. A major concern for FDA is the safety of CBD products, and the agency is expected to provide a report to Congress regarding CBD by the end of the year.

States also regulate the manufacture and sale of hemp products, including CBD products. Some states still prohibit the sale of CBD products or restrict sales to their highly regulated medical systems, although most of these states are changing their laws to allow hemp products, including CDB products. Among the states that permit CBD products, there is an increasingly complex patchwork of regulations governing, among other things, sourcing, testing and labeling, with each state establishing its own requirements.

The uncertainty created by the changing laws in this area, and by FDA's delay in deciding how it might regulate CBD products, undermines the ability to predict future growth in the hemp product market. Hemp producers may want to follow FDA's progress, and state law developments, in order to anticipate the market demand for hemp.

Conclusion

While the IFR provides a path forward for cultivation of hemp, issues remain for growers subject to these new rules. Hemp growers should consider not only submitting comments to the IFR but also continuing to provide feedback to USDA over the next two years as it drafts a final hemp rule.

© Arnold & Porter Kaye Scholer LLP 2019 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.