Regulatory Limbo: Can a State-Federal Model of Governance Work for Hemp?

Features - Features

A battle between state ag and the feds is brewing, revealing deep uncertainty about the crop’s economic future.

May 19, 2020

© Igor Morski

The Agricultural Improvement Act of 2018 (the 2018 Farm Bill) has been a massive experiment in the limits and efficacy of federalism, bringing to question the true authority states possess within their jurisdictions. Can state officials, for example, write hemp regulations that work for their states while being tethered to a one-size-fits-all federal framework? Can the state-federal model of governance realistically work for hemp?

Since the U.S. Department of Agriculture (USDA) issued its interim final rule on Oct. 31, 2019, many state officials have been outspoken in their criticisms, saying the proposed federal guidelines are far too difficult to enforce in reality and could even hurt farmers’ ability to profitably grow the crop. Based on interviews conducted by Hemp Grower and a comprehensive analysis of formal comments and letters filed with the USDA, the process has been fraught with setbacks and complexity, raising deep uncertainty for hemp growers across the country.

“Is this a crop that farmers will want to invest in if they don’t know the rules of the road?” Connecticut Commissioner of Agriculture Bryan Hurlburt posed to Hemp Grower about the challenges states are facing in writing their plans. “The goal is not to have a hemp program that’s a perfect program; the goal is for our growers to be able to grow a new crop, get it to the marketplace, meet the consumer demand and hopefully make some money to further their business.”

The 2018 Farm Bill required the USDA to craft federal hemp rules—but it also gave states the right to develop their own plans for enforcing them. Until Oct. 31, 2020, states and tribes have the option to either continue operating under their pilot programs set forth by the Agricultural Improvement Act of 2014 (the 2014 Farm Bill), which allowed growing limited quantities of hemp for research purposes, or operate under a new plan that they submit to the USDA for approval.

Many states are holding onto their pilot programs because they generally have less stringent regulations than those required by the 2018 Farm Bill. But beginning Nov. 1, 2020, all state plans and hemp producers must be in compliance with the 2018 Farm Bill. That means states must develop plans compliant with the interim final rule, and those plans must be approved by the USDA.

As of April 29, the USDA had approved 16 new state plans; 18 states had decided to continue operating under their pilot programs until Oct. 31, 2020; and most other states were still at the drawing board.

“All of this regulatory fluctuation really has a downward effect on people’s interest in participating in the program,” Hurlburt says. “All it does is benefit foreign growers. Because if we can’t meet the domestic demand, consumers are going to get their [hemp products] somewhere else.”

Most of the disagreement between states and the USDA comes down to the testing of hemp: what’s tested, when it’s tested, how much is tested and where it’s tested.

What’s Tested

One of the most controversial aspects of the interim final rule is the tetrahydrocannabinol (THC) limit. Under the proposed rule, hemp that contains more than 0.3% THC in state-administered tests is technically considered marijuana (also called “hot” hemp) and must be disposed of. Farmers face a “negligence threshold” of 0.5% THC, meaning that if they produce hemp over that limit three times in a five-year period, they won’t be allowed to grow hemp for the following five years.

Hemp testing is made even more difficult by the methodology mandated by the USDA. The rule imposes a “total THC” standard, which means laboratories must test the levels of both delta-9 THC (the primary intoxicating compound in cannabis) and THCA (tetrahydrocannabinolic acid, the non-psychoactive acid form of THC found in the plant when raw) in the crop. The total THC testing method tends to increase the THC concentration results, when the delta-9 THC limit is already a challenge to meet.

This is where the 2018 Farm Bill and state laws have differed drastically. Many states were previously testing only delta-9 THC levels, as well as making additional exceptions to alleviate pressure on farmers. A Louisiana law, for example, gave state authorities the latitude to make the call: If there were several lots of hemp on the same property and one tests high for THC and the other tests low, both lots could be “blended” for testing purposes. That exception has since been removed from Louisiana’s law to fit with the 2018 Farm Bill, leaving farmers in the state facing at least one new regulation this growing season that could significantly hinder their success.

According to many state agricultural directors’ formal comments, the total THC requirement will be difficult for farmers to comply with and will limit the strains they can grow. They also say the proposed negligence threshold is far too low and would put farmers in an untenable situation based on factors beyond their control, such as severe weather.

“They’re fearful of the legal ramifications if their field goes hot even though the farmer did everything in their power to grow a good crop, such as [selected] the correct seed or variety, tested soil types and had good growing conditions,” says Bruce Kettler, director of the Indiana State Department of Agriculture and co-chair the Indiana Hemp Advisory Committee. (“Plant stresses such as drought, flooding, extreme nutrient levels, heat, cold, etc. can all cause THC spikes,” as can altitude, according to a Georgia Farm Bureau report.)

The National Association of State Departments of Agriculture (NASDA), a Washington, D.C.-based organization that represents the interests of state agriculture directors, issued formal comments that urged the USDA to set the negligence threshold for THC at 1% instead of 0.5% and allow states the flexibility to decide what to do with hemp that tests above 0.3% THC. As a compromise, the association has floated the idea of using stalks or seed of hot plants for biomass or other “non-human consumption” purposes rather than in CBD products.

In response to criticism on the interim final rule, the USDA recently relaxed or delayed a few of its most contested hemp program requirements for the upcoming growing season. One of the revisions provides additional options for disposing of hemp that tests above the 0.3% THC limit, including burning the crop on the field or blending it with other biomass materials for compost. The USDA says states or tribes will be responsible for establishing protocols and procedures to ensure appropriate disposal practices.

In the same breath, though, the USDA clarified that it cannot touch the stringent THC requirement. The U.S. Congress wrote the threshold into law, so it needs congressional approval to change.

When It’s Tested

The USDA’s interim final rule requires hemp to be tested within 15 days of harvest. Many states have said this time frame is too narrow and have recommended testing 30 to 45 days within harvesting instead. The reason: States simply don’t have the current capacity to collect samples in such a short time frame.

“We expect that a backlog in testing will develop in any area where there is a relatively higher number of licensed farmers per testing laboratory, especially where these farmers themselves have multiple lots that require testing,” NASDA wrote in its comments to the USDA. “Qualified inspectors will be overburdened by the expected spikes in their demand.”

Inclement weather could exacerbate the situation, as it could push all farmers in an area to harvest at nearly the same time, putting greater pressure on already limited state resources.

Farmers who encounter inclement weather will already be dealing with a fair share of problems, not the least of which involve THC levels, which also tend to spike the longer hemp is in the ground. In North Carolina, for example, the harvest season for field-grown hemp runs from late August through October. Data from the N.C. Industrial Hemp Pilot Program in 2019 revealed that the ag department collected the largest percentage of non-compliant samples in October. The non-compliance rate in October was 51%, while the non-compliance rate for the entirety of 2019 was only 15%.

“We still need to understand a lot about seeds and traits [and] the chemistry of the crop as it reaches harvest so we can accurately assess the THC content,” says NASDA CEO Barb Glenn, Ph.D. “It’s all about the rigor of that 0.3% THC. We respect that, but at the same time we need more research to understand that particular level.”

How Much Is Tested

The USDA’s interim final rule also requires states to sample and test every hemp field, putting further pressure on state resources. For some states, this could mean doubling the number of tests, which would greatly increase the workload for state regulatory officials, inspectors, testing laboratories and farmers, not to mention added costs for both the states and farmers.

Ben Thomas, director of the Montana Department of Agriculture, says he believes a risk-based approach to sampling and testing is much more appropriate. Montana has developed a list of cultivars that have consistently tested well below the federal threshold of 0.3% THC in local areas. For these varieties, Montana randomly samples and tests. For other “riskier” varieties, state inspectors test 100%, Thomas says.

“It’s purely an issue of pragmatism,” Thomas says. “Just like we don’t require THC testing of wheat, we shouldn’t require THC testing of these well-established, certified varieties that won’t have alarming THC levels.”

Montana opted to develop a new hemp plan compliant with the 2018 Farm Bill, which the USDA recently approved of—but only if Montana doesn’t continue with its risk-based testing approach, which the state will phase out Nov. 1, 2020.

“All of this regulatory fluctuation really has a downward effect on people’s interest in participating in the program.” Connecticut Commissioner of Agriculture Bryan Hurlburt

Tom Melton, Ph.D., North Carolina State University professor and chair of the N.C. Industrial Hemp Commission, says the sampling of all hemp produced is simply not feasible without significant additional resources. North Carolina currently has more than 1,350 licensed hemp growers. In the fall of 2019, the North Carolina Department of Agriculture and Consumer Services tested 55% of the hemp fields in the state, with employees working up to 70 hours a week, he says. It is “impossible” to ask this staff to do more, he says.

On a bright note, the USDA has said “there is room for discretion in the final rule” regarding the 15-day harvest window and sampling procedures. However, it has yet to revise those areas of regulation.

Where It’s Tested

There is also the matter of available licensed testing facilities. The USDA’s interim final rule requires hemp to be tested at a laboratory registered with the U.S. Drug Enforcement Administration (DEA). As part of the USDA’s recent revisions, the agency has delayed that requirement until Oct. 31, 2021, or until the final rule is published—whichever comes first.

“Because currently there isn’t sufficient capacity in the United States for the testing and disposal of non-compliant hemp plants, USDA has worked hard to enable flexibility in the requirements in the interim final rule for those issues,” said Greg Ibach, USDA undersecretary for marketing and regulatory programs, in a news release.

However, the requirement still looms as the industry anticipates its eventual enforcement.

A number of labs have applied for certification, but currently many states, and even some entire U.S. regions, don’t have a single lab, let alone enough to handle the incoming supply of testing samples.

Because of the lack of DEA-registered laboratories in many parts of the country, authorities often contract with private laboratories that operate with ISO/IEC 17025:2017 certifications instead. For their own reasons, many of these private laboratories may be unwilling to secure DEA approval, meaning those private laboratories would be unavailable for hemp testing after the USDA’s delay in the requirement has expired.

North Carolina currently has four DEA-registered laboratories, according to a list of DEA-registered labs published by the USDA. (Labs must contact the USDA to be on the list, so it may not be comprehensive.) Requiring samples from every lot of hemp to go through a DEA-registered facility would likely be a problem because of the vast number of samples and the capacity of labs, but also because the state likely would not have enough staff to collect samples, Melton says.

“In Connecticut, we don’t have any DEA-licensed facilities,” Commissioner Hurlburt says. There is only one DEA-licensed facility in New England, according to the USDA list. “This isn’t just a simple requirement on paper. This is an actual restriction to access,” Hurlburt says.

What’s Next

Much could change before Oct. 31, 2020, when states must have a USDA-approved plan in place to grow hemp. Some states have been holding off on submitting a plan to the USDA until the agency clarifies certain aspects of the interim final rule.

Kettler of the Indiana State Department of Agriculture said the state chose to operate under its 2014 pilot program plan for this growing season because of uncertainty surrounding plant testing, lab testing requirements and the 15-day testing interval.

In states still operating under their pilot programs for 2020, farmers who grow hemp will be able to sell their crops, Kettler notes. Just because the pilot programs contain a research component does not preclude farmers from contracting to sell their crops. They simply are required to work with a university researcher in some capacity, he says.

Still unclear, however, is whether the USDA can allow states to continue operating under their pilot program plans after Oct. 31, or whether an extension of the sunset date requires an act of Congress. So, in the 2020 crop year, states will be operating under one of two regulatory frameworks: the USDA framework set forth by the interim final rule or a state-run pilot program framework, the latter of which is seen as less onerous to farmers.

“It might take a season or two of disasters,” says Kyle Sosebee, J.D., a Massachusetts-based hemp and cannabis lawyer. “I wonder if we’re going to see states that have USDA-approved plans just have disastrous growing seasons, where you see half the crops getting destroyed because they passed their [THC] limit, and then, possibly, the states that are still under their 2014 pilots doing well. Then there might be some sort of federalist revolt.”

Speaking strictly in the theoretical, Sosebee says he is watching to see whether a state flouts the USDA process and decides to create its own regulatory framework with help from a state legislature. In other words, “just make the bet that the feds aren’t going to do anything about it.”

Once the 2020 growing season is wrapped up, the USDA says it will re-open comments on the interim final rule to gather feedback from the year, so more changes may be in the pipeline. But of the states that have filed written comments thus far, Colorado had arguably the harshest words: “Rather than serving the public interest, the [USDA rule] subverts it by precluding experienced stakeholders from shaping the regulatory scheme upon which their livelihoods depend.”