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How will the Agricultural Improvement Act of 2018 affect the growing of hemp and the production and sale of CBD?

Posted by ROBERT KOSSACK on

For the applicable text from the Agriculture Improvement Act of 2018, CLICK HERE.

On December 12, 2018, the United States House of Representatives and the United States Senate passed the Agriculture Improvement Act of 2018, H.R. 2 of the 115th Congress (Agriculture Improvement Act). President Trump is expected to sign the Agriculture Improvement Act into law. The Agriculture Improvement Act will be effective through fiscal year 2023.

Section 10113 of the Agriculture Improvement Act will amend the Agricultural Marketing Act of 1946, 7 U.S.C. §101113, et seq., (Agricultural Marketing Act) by adding Subtitle G related to Hemp Production as sections 297A through 297E, sometimes referred to as the Hemp Farming Act of 2018, which will change some of the rules for growing hemp and marketing CBD.

Senate Majority Leader Mitch McConnell (R-KY) was the United States senator primarily responsible for addition of the Hemp Farming Act of 2018 to the Agriculture Improvement Act of 2018.  Kentucky was historically a hemp growing state until passage of the Marihuana Tax Act of 1937.  According to Rolling Stone magazine, "[I]n order for mainstream retailers to feel comfortable carrying CBD products and Kentucky’s farmers to subsequently cash in on the CBD craze, McConnell put together legislation making it official. . . . when Sen. Chuck Grassley (R-IA) proposed an amendment that would exclude CBD and other major compounds (called cannabinoids) from the definition of legal hemp, McConnell shot the proposal down, saying, 'I’ve declined to include suggestions that would undercut the essential premise of the bill, namely that hemp and its derivatives should be a legal agricultural commodity.'” 

Section 10114 of the Agriculture Improvement Act specifically bans any State or Indian tribe from prohibiting the transportation or shipment of hemp or hemp products through their territories. Up until now, this has been assumed to be the case after passage of Section 729 of the Consolidated Appropriations Act of 2018 (and prior such budget acts since 2016) that bans federal funds from being used to “prohibit the transportation . . . sale, or use of industrial hemp . . . within or outside the State in which the industrial hemp is grown or cultivated.”  cont.

Section 12619 of the Agriculture Improvement Act specifically takes growing hemp and extracting CBD from it out of the realm of Department of Justice control by amending the Controlled Substances Act, 21 U.S.C. § 802, and specifically redefining “marihuana” as not including “hemp as defined in section 297A of the Agricultural Marketing Act" and by exempting tetrahydrocannabinols (THC related cannabinoids) from Schedule I if such THC is found within “hemp” as defined in Section 297A of the Agricultural Marketing Act.  Again, this was already assumed to be the case since the present law defines “industrial hemp” as “any part of [the cannabis sativa L.] plant, whether growing or not, with a delta-9 tetrahydrocannabinol concentration of not more than 0.3 percent on a dry weight basis.”

New Section 297A of the Agricultural Marketing Act makes clear that “any part” of the cannabis plant actually means “any part,” something the Department of Justice has sometimes chosen to ignore. Section 297A(1) defines hemp (the term “industrial hemp” will fall by the wayside) as follows:

"The term 'hemp' means 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." 

It may as well have said, "CBD extracted from hemp is legal!  What is it you don't understand?"

Growing hemp with a Delta-9 THC level not exceeding 0.3 percent and extracting CBD from such hemp is presently legal under the Legitimacy of Industrial Hemp Research section of the Agricultural Act of 2014, 7 U.S.C. §5940, in States that have passed legislation enabling hemp pilot programs supervised by their departments of agriculture and/or their universities. The Hemp Farming Act of 2018 removes hemp production from Drug Enforcement Administration control and places the control for growing hemp and extracting CBD from it with the United States Department of Agriculture by amending the Agricultural Marketing Act and by repealing the Legitimacy of Industrial Hemp Research section of the Agricultural Act of 2014.  cont.

Growing hemp and extracting CBD from it is presently controlled by the Legitimacy of Industrial Hemp Research section of the Agriculture Act of 2014, and those rules will remain in place until “1 year after the date on which the Secretary [of Agriculture] establishes a plan under section 297C of the Agriculture Marketing Act of 1946.” So hemp farmers growing hemp and hemp handlers extracting CBD from hemp should be able to operate under the present rules for at least another year -- which year will not begin to run until the Secretary of Agriculture declares practices for maintaining relevant crop information and develops procedures for:

maintaining relevant information, including a legal description of the hemp farm land;
complying annual inspections
conducting random samples;
testing crop Delta-9 THC concentrations;
disposing of non-THC compliant plants;
disposing of non-THC compliant products;
enforcing the new rules;
conducting annual inspections;
complying with the enforcement procedures;
submitting data to the U.S. Department of Agriculture;
certifying States and Indian reservations have the resources and personnel to carry out the new policies and procedures; and,
issuing licenses to hemp producers in accordance with plans established by the State, the Indian tribe, or the Secretary of Agriculture.

State or Indian tribal plans would need be approved by the United States Secretary of Agriculture, and so long as the State of Indian tribal plan satisfies the procedures specified above as devised by the Secretary of Agriculture, approval should be guaranteed as the Hemp Farming Act of 2018 establishes a property interest requiring due process without arbitrary decisions being made that are not in conformance with the spirit of the law.

There is no exact way of predicting exactly when the United States Secretary of Agriculture will develop these procedures. No deadline has been set, but figure at least another three to six months, if not more. When the Legitimacy of Industrial Hemp Research section of the Agricultural Act of 2014 is repealed, then the Agricultural Marketing Act of 1946, 7 U.S.C. § 1621, will totally control.  The question arises whether CBD manufactures and distributors will be protected by both laws until such time.  cont.

The new law seeks to take growing hemp out of the realm of criminal enforcement, and instead of criminal penalties, corrective action is encouraged.  The new law classifies non-compliant behavior into intentional and negligent categories. If a farmer were to grow in error a plant with a Delta-9 THC level above 0.3 percent, mistakenly fail to provide a farm’s correct legal property description, or mistakenly fail to receive the required license, then the farmer is allowed to correct their mistake and is allowed two warnings over a five-year period.  If the farmer receives a third warning within that five-year period, then the farmer “shall be ineligible to produce hemp for a period of 5 years beginning on the date of the third violation.”

Presently, if a hemp farmer were to accidentally grow cannabis with a Delta-9 THC level in excess of 0.3 percent, the hemp farmer could potentially be arrested for growing marijuana. With the new law in place, corrective action would be the key to avoiding unintentional mistakes and noncompliance. Conversely, intentional misconduct is to be reported to the Attorney General.  Any person who materially falsifies information in their application “shall be ineligible to participate in [the] program.”

Some state laws forbid people with felony convictions for dealing in controlled substance from growing hemp under the present pilot programs.  For example, in Nevada, such felons are banned from participating in the pilot program and growing hemp five years from the time of their conviction. The old law left such bans up to the individual states. The new law creates a federal ban of ten years from the time of the last felony controlled substance conviction unless the farmer or handler is already lawfully growing or processing hemp under a presently existing state pilot program in which case they are grand-fathered in.  Note that the time accrues from the time of conviction, not from the time of completion of sentence. Theoretically, someone serving a life sentence for trafficking in a controlled substances could still receive a license to grow hemp if the prison allowed them to do so in the prison yard and if their conviction was more than ten years old.

Previously an argument could be made that the Legitimacy of Industrial Hemp Research section of the Agricultural Act of 2014 preempted state law under the Supremacy Clause of the United States Constitution allowing CBD to be sold and shipped to customers in all states and territories. The new law expressly states there is no federal preemption thereby allowing any State of Indian tribe to regulate the production of hemp in a more “stringent” way than provided for in the new law. This is a major problem as it could cause a wide variety of state laws to be inconsistent with the new federal law. For example, a state could lessen the permissible amount of Delta-9 THC, or include all THC derivatives in the formula, or enact a lifetime ban on all felons with controlled substance convictions from participating in the hemp business.  Since the latest Gallop poll found 66 percent of all Americans want marijuana legalized for all purposes, more stringent hemp growing laws in states that presently have industrial hemp pilot programs is not expected, but states trying to protect jobs growing and processing hemp in their state could have an effect although present enforcement of such laws seems to be completely lacking when individual customers order online and receive their CBD and/or hemp products through the mail.  It would appear a State or Indian tribe could outlaw all cannabis, and some states like North Dakota have kept such laws on their books.

Other than allowing hemp to be grown on Indian reservations by Indian tribes, not much is expected to change in the CBD industry with passage of the Hemp Farming Act of 2018 except that hemp growers and hemp handlers will be better protected from Department of Justice harassment since the Department of Justice and the Drug Enforcement Administration are no longer to play a part (they never were suppose to play a part) in the hemp industry other than enforcement of Food and Drug Administration regulations (i.e., not advertising CBD as a drug) and Section 351 of the Public Health Service Act, 42 U.S.C. 262, regulating biological products. CBD should not be considered a biological product especially if it carries a disclaimer that it is “not intended to diagnose, treat, cure, or prevent any disease.”  A biological product is defined as “a virus, therapeutic serum, toxin, antitoxin, vaccine, blood, blood component or derivative, allergenic product, protein (except any chemically synthesized polypeptide), or analogous product, or arsphenamine or derivative of arsphenamine (or any other trivalent organic arsenic compound), applicable to the prevention, treatment, or cure of a disease or condition of human beings.” See 42 U.S.C. § 262(i)(1).


The Secretary of Agriculture is also suppose to “consult with the Attorney General in carrying out the Secretary’s duties in establishing practices for maintaining relevant crop information and developing the procedures as previously described.

If a State or Indian tribal plan is not approved by the Secretary of Agriculture, then production of hemp is still legal if done in accordance with the Hemp Farming Act of 2018, meaning that only hemp with a Delta-9 THC level not exceeding 0.3 percent is grown, as provided for by a “plan established by the Secretary [of Agriculture] to monitor and regulate that production in accordance with the [Hemp Farming Act of 2018]” unless “the production of hemp is not otherwise prohibited by the State or Indian tribe.”  The United States Secretary of Agriculture would have to approve the plan and issue a license for the hemp to be grown in States and Indian territories that have not established their own plans.

The Secretary is to make his collected information available to law enforcement personnel which would include the grower’s contact information, the location of their farm, and their inspection reports.

The Secretary of Agriculture is obligated to annually submit to the Committee on Agriculture of the House of Representatives and the Committee on Agriculture, Nutrition, and Forestry of the Senate a report containing updates on the implementation of the new law.  The Secretary of Agriculture is given sole authority to promulgate the Federal regulations and guidelines for implementing the Hemp Farming Act of 2018.

By passage of the Hemp Farming Act of 2018, hemp growers and handlers should qualify for a variety of benefits they presently lack like crop insurance and banking privileges which would be a tremendous help to the hemp and CBD industries.

Presently the Secretary of Agriculture is former Georgia Republican Governor Sonny Perdue, a Trump appointee.  Perdue opposed the effort to grow medical marijuana in Georgia because he said it was against federal law.  Hopefully, this is no harbinger of how Perdue will lead the hemp revolution.

Former Georgia Republican Governor Sonny Perdue is presently the United States Secretary of Agriculture.  Historically, he has opposed the legalization of marijuana.  Hopefully he will have a different attitude when it comes to hemp and CBD.

 

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