United States: USDA Releases Interim Final Rule For Industrial Hemp Production, Requests Comments

Highlights

  • The U.S. Department of Agriculture (USDA) has issued an Interim Final Rule (IFR) for the establishment of a domestic hemp production program. By publishing the rule in the form of an IFR, USDA is able to issue guidance before the beginning of the 2020 growing season for hemp, providing a measure of certainty and clarity to farmers, processors and other stakeholders.
  • Three key takeaways are as follows:

    1. The IFR is a critical first step in kicking off the development of a safe and regulated domestic hemp and hemp-derived cannabis market.

    2. The IFR proposes solutions for states and tribes to mitigate concerns over varying climates, growing seasons and THC testing.

    3. The IFR establishes time frames for both states and hemp producers: States can start submitting their own plans as soon as the IFR is published in the Federal Register (expected within the next few days), and USDA will approve or disapprove the plan within 60 days. Hemp producers may submit applications to USDA 30 days after the IFR is published.

The U.S. Department of Agriculture (USDA) on Oct. 29, 2019, announced the issuance of an Interim Final Rule (IFR) for the establishment of a domestic hemp production program, as required by the 2018 Farm Bill. By publishing the rule in the form of an IFR, USDA is able to issue guidance before the beginning of the 2020 growing season for hemp, providing a measure of certainty and clarity to farmers, processors and other stakeholders. By simultaneously soliciting comments, as is typical for notice-and-comment rulemakings, the Department is acknowledging that, in its desire to get regulations on the books as quickly as possible, there are necessarily areas in which it can and will incorporate additional data, information and feedback from hemp market participants. Publishing an IFR now allows USDA to meet its statutory obligations while identifying ways in which the regulations can be improved for future growing seasons.

The IFR has two objectives:

  1. to set forth requirements for state and tribal plans for regulating industrial hemp production within their borders
  2. to establish a federal plan for producers operating in states or territories that do not submit their own plan for approval by USDA

While there are many considerations addressed in the IFR, this alert highlights those relating to testing and disposal requirements, as these are often seen by stakeholders as the provisions of greatest import to the proper functioning of a domestic hemp industry. Holland & Knight will address all of the major provisions affecting stakeholders in future publications in the coming weeks.

Under the Farm Bill, industrial hemp is defined as crop containing less than 0.3 percent tetrahydrocannabinol (THC). Stakeholders' primary concerns are the risk that differences in climate between growing regions, the uncertain length of the growing season in those regions, and that the lack of precision in testing for THC would force the destruction of non-compliant crops or hemp products, unless USDA provided for remediation of those products. Without the opportunity for remediation, hemp could be uninsurable, potentially undercutting the hemp industry before it has the chance get off the ground. The IFR is silent on remediation options and opportunities. However, in the IFR, the USDA has proposed bifurcated regulations that are positive steps forward to help moderate the risk to farmers of growing a crop that unintentionally crosses the 0.3 percent THC threshold.

State and Tribal Plans

The IFR outlines the steps that states and tribes should take to submit their own plans to USDA for regulating hemp production for approval. USDA will approve or disapprove a plan within 60 days of submission. Moreover, hemp producers may submit an application for a USDA license 30 days after the IFR is published. USDA will issue licenses to hemp producers if the hemp producer's state or tribe does not have its own plan, or if the state or tribe's plan was not approved by USDA. If the hemp producer's state or tribe operates under an approved USDA plan, the hemp producer should submit his application to the state or tribe.

The IFR proposes potential solutions to these issues for states and tribes that submit their own plans to USDA for approval. In these situations, the Department's proposed solutions for the above-mentioned risks are to require testing at U.S. Drug Enforcement Administration (DEA)-registered laboratories, using standardized testing methods, and report the "measurement of uncertainty" in evaluating the accuracy of the test results – functionally acting as a margin of error. Test results for THC concentration will be reported as a percentage plus or minus the margin of error; if 0.3 percent falls within that range, the product will be considered in compliance with the law and these regulations. For example, if a farmer grows a crop with THC concentration between 0.3 and 0.5 percent, and if the state considers the farmer to have "exercised the standard of care that a reasonably prudent person would have exercised in a similar situation," then USDA allows for states to impose a corrective action plan to "correct the negligent violation" rather than forcing the farmer to destroy the crop. Among other solutions, and depending on the state plan, this could include remediation of non-compliant products.

Federal Plan

USDA has issued a more stringent set of requirements for growers in states that do not have their own, USDA-approved plans. As required by the Farm Bill, growers in those states are permitted to apply directly to USDA for a license. Growers under the federal plan that negligently or unintentionally grow crops between 0.3 percent and 0.5 percent THC are offered the opportunity to develop a corrective action plan, but there is no "measurement of uncertainty" flexibility for test results. Growers can pay for the sample to be retested, but this discrepancy presents an additional burden for hemp farmers in states without their own plans.

Conclusion

USDA was tasked with creating rules to govern the production of a crop that, until 2018, had been illegal in most states – and was under pressure from Congress to do so in time for the 2020 growing season. USDA acknowledged this urgency and is to be commended for recognizing the areas where it has imperfect information, and to solicit comment from affected parties for how the rule can be improved.

Hemp growers, processors and other market participants should now proceed on parallel tracks – following the guidance that USDA has laid out in this IFR, while providing feedback to USDA on how that guidance can be improved.

In addition, it is expected that many states and tribes will proceed with developing state plans and submitting them for approval to USDA.

It is also anticipated that new regulations and guidance will be issued in coming weeks by the U.S. Food and Drug Administration (FDA) and potentially other federal agencies regarding the regulation of cannabis products.

Holland & Knight's Public Policy & Regulation Group looks forward to helping our clients navigate both the regulations and the comments process in the months and years ahead.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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