USDA Issues Guidance on Hemp Legalization Following the 2018 Farm Bill

Earlier this week, the General Counsel for the US Department of Agriculture (USDA) released a legal opinion to clarify certain provisions of the Agriculture Improvement Act of 2018, commonly referred to as the 2018 Farm Bill. The 2018 Farm Bill was enacted in December 2018 and legalized hemp, a non-psychoactive varietal of the cannabis plant. In the months that followed, it was evident that the 2018 Farm Bill raised more questions than it answered. Arnold & Porter previously examined the changes made by the 2018 Farm Bill and how state and local governments were reacting to the new federal laws.

Now, six months after the 2018 Farm Bill's enactment, USDA seeks to clarify four provisions of the law. Those hemp-related provisions include: Section 7605, which phases out the 2014 Farm Bill; Section 10113, allowing states and Indian tribes to regulate hemp or follow a federal plan for doing so; Section 10114, which prohibits states and tribes from interfering with the transportation or shipment of hemp in interstate commerce; and Section 12619, removing hemp from the Controlled Substances Act (CSA).

USDA's opinion identified four conclusions based on these provisions, each of which is explained below.

Conclusion 1:

As of the Enactment of the 2018 Farm Bill on December 20, 2018, Hemp Has Been Removed from Schedule I of the Controlled Substances Act and Is No Longer a Controlled Substance.

The 2018 Farm Bill amended the CSA in two ways, both of which took effect immediately upon enactment. First, Section 12619(a) amended the definition of "marijuana" in the CSA to exclude hemp.¹ Second, Section 12619(b) amended Schedule I of the CSA to exclude the THC found in hemp from the definition of "tetrahydrocannabinols."² THC, the psychoactive ingredient in marijuana, can exist in hemp, but only in a concentration of less than 0.3% by dry weight.

USDA takes the position that the changes made to the CSA by the 2018 Farm Bill are self-executing. The opinion identifies two challenges to that position but dispenses with both. The first is that regulations need to be published for the changes to take effect. While rulemaking may be the typical way to amend the CSA, Congress can also directly amend the schedules through statute, which it has done here.

A second and similar challenge is that the changes are not effective because they are not reflected in the Code of Federal Regulations. USDA explains that it is "axiomatic that statutes trump regulations." The Drug Enforcement Administration (DEA) does have rulemaking obligations related to updating and republishing the schedules, but those updates are not required for changes made by Congress to take effect. USDA referenced a similar situation in 2012 where DEA itself recognized that rulemaking is unnecessary for legislative changes to the CSA schedules to become effective.

Conclusion 2:

After the Department of Agriculture Publishes Regulations Implementing the Hemp Production Provisions of the 2018 Farm Bill Contained in Subtitle G of the Agricultural Marketing Act of 1946, States and Indian Tribes May Not Prohibit the Interstate Transportation or Shipment of Hemp Lawfully Produced Under a State or Tribal Plan or Under a License Issued Under the Departmental Plan.

Section 10114(b) of the 2018 Farm Bill provides that states and Indian tribes cannot interfere with the interstate shipment of hemp or hemp products that were "produced in accordance with subtitle G of the Agricultural Marketing Act of 1946 (as added by section 10113)." Subtitle G governs the growing of hemp and requires USDA approval of state or tribal plans as well as development of a federal plan for regulating the production of hemp where there is no approved state or tribal plan.

Citing the Supremacy Clause³ and preemption doctrines,⁴ USDA explains that Section 10114(b) effectively preempts any state law that would interfere with the interstate commerce of hemp. USDA reasoned that the 2018 Farm Bill meets the standards for "conflict preemption" because federal law prevails when compliance with both federal and state law is impossible, or in situations where state laws are an obstacle to the accomplishment and execution of Congressional objectives.⁵ Any prohibition on interstate shipment would be interfering with the objectives of the 2018 Farm Bill.

New regulations under subtitle G for growing hemp have yet to be implemented and only hemp "grown in accordance with subtitle G" enjoys the express interstate protections of section 10114(b). As noted below in Conclusion 3, however, USDA provides another way to meet the requirement of "grown in accordance with subtitle G" prior to the promulgation of new regulations. The opinion notes that the Secretary of Agriculture is responsible for issuing regulations and guidelines related to approving state and tribal regulatory plans and federal licenses under subtitle G. USDA believes that the regulations will likely be issued later in 2019.

Conclusion 3:

States and Indian Tribes May Not Prohibit the Interstate Transportation or Shipment of Hemp Lawfully Produced Under the Agricultural Act of 2014.

USDA addresses the question of whether, prior to the approval of a state hemp production plan under subtitle G, states and tribes can prohibit the interstate shipment of hemp lawfully produced under a 2014 Farm Bill state pilot program. The opinion finds the answer in § 297B(f) of the 2018 Farm Bill, which provides that hemp produced in a state or tribal territory that does not yet have a USDA approved plan is still legal if done in accordance with "other Federal laws." Because hemp is no longer controlled under the CSA and because the 2014 Farm Bill is still in effect,⁶ USDA concludes that hemp grown under a 2014 Farm Bill plan is deemed to have been grown in accordance with "other Federal laws." Further, because § 297B falls within subtitle G, hemp produced in accordance with other federal laws is also deemed to be grown in accordance with subtitle G, and states and tribes cannot interfere with its interstate transportation.

The position USDA takes is noteworthy because a federal magistrate judge reached the opposite conclusion earlier this year.⁷ The Idaho State Police seized a shipment of hemp that was sent from Oregon to Colorado. The judge found that, because the 2018 Farm Bill plans have yet to be implemented, the hemp could not have been produced "in accordance with subtitle G." USDA emphasizes that the ruling failed to consider the "other Federal laws" language. The case is currently on appeal to the Ninth Circuit.

USDA instead agrees with a district court in West Virginia that dismissed the government's case against a producer and allowed the interstate shipment of hemp products.⁸ Like the Idaho magistrate, the judge in West Virginia also failed to consider the "other Federal laws" language, but USDA recognizes that the conclusion reached in West Virginia is consistent with USDA's "interpretation that States cannot block the shipment of hemp, whether the hemp is produced under the 2014 Farm Bill or under a State, Tribal, or Departmental plan under the 2018 Farm Bill."

Conclusion 4:

The 2018 Farm Bill Places Restrictions on the Production of Hemp by Certain Felons.

USDA's final conclusion relates to a new restriction in the 2018 Farm Bill that did not exist in the 2014 version. An individual with a felony conviction related to a controlled substance is prohibited from participating in a program to produce hemp under subtitle G for a period of 10 years following the conviction. USDA explains that a narrow exception exists, however, for individuals with convictions who were already lawfully producing hemp under the 2014 Farm Bill. The opinion emphasizes that it is the responsibility of the state or tribe to determine eligibility.

Limits on USDA Authority

USDA concludes its opinion by recognizing the limits on its own authority. First, the opinion reiterates that states and tribes have the authority to regulate hemp production (but not interstate transportation) more stringently than the federal government. Second, the opinion recognizes that the USDA's authority under the 2018 Farm Bill does not affect the authority of the Secretary of Health and Human Services and the Commissioner of Food and Drugs to regulate hemp under existing laws. Thus, anyone involved in the hemp industry must also be aware of those regulations.

In addition, if a court were to reach a different conclusion on the issues addressed in the opinion, the court's ruling would prevail. As noted above, the issue of interstate transportation of hemp grown under the 2014 Farm Bill is pending before the Ninth Circuit.

Navigating Hemp Production and Sale Moving Forward

USDA's legal opinion helps clarify some of the questions raised by the 2018 Farm Bill, but many issues remain. For example, state legislatures are responding to the 2018 Farm Bill at their own pace and continue to take many different positions on hemp. This has resulted in a patchwork of state laws that are confusing for those who want to grow, process, and/or sell hemp and hemp products on a nationwide basis. Further, many states are in the process of updating their old laws prohibiting hemp, but these laws were not amended in time for the 2019 growing season. This may mean that businesses will import hemp in order to meet the increasing demand for hemp products. Although there are no longer any criminal prohibitions on importing hemp, the 2018 Farm Bill and the USDA opinion left open the issue of interstate transportation of imported hemp. This hemp likely is protected by other provisions of the 2018 Farm Bill, namely section 10114(a), which broadly protects interstate commerce of hemp.

We expect laws governing hemp to become more consistent and settled as the year progresses and states update their laws and the USDA promulgates regulations and approves state plans for growing hemp.

© 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.