The new funding legislation to reopen the government intends to close the hemp loophole in the 2018 Farm Bill, but businesses that are manufacturing and/or selling intoxicating products derived from hemp cannabinoids do not have to close their businesses.
The legislation includes a one-year off-ramp for hemp-related companies to respond to the changes. Under current law, hemp is legal if it contains less than 0.3% delta-9 THC by dry weight.
The new definition of hemp limits total THC to 0.4 milligrams per product container and prohibits intoxicating substances resulting from chemically converting hemp cannabinoids, which would result in many hemp-derived products that are now legal becoming controlled substances upon the effective date of the new hemp definition in 2026. Therefore, it would be prudent for hemp-related companies to begin thinking through how such changes will impact various aspects of their business.
For example, force majeure clauses in supply contracts that are dependent on the current definition of hemp could be triggered. Covenants in loans, leases, and insurance policies could be triggered if the law changes.
The following are some other areas of business that hemp-related companies should be thinking about, should intoxicating hemp-related substances become federally unlawful in 2026 due to changes to the 2018 Farm Bill’s definition of hemp:
- Contracts and Commercial Arrangements. The following types of contracts and commercial arrangements generally have covenants that could be triggered if federal law changes:
- Loans and financings
- Equity or venture agreements
- Supply contracts
- Insurance policies
- Real estate leases
- Taxes and Accounting. Businesses based on a federally controlled substance have to consider how to account for the impact of Section 280E of the Internal Revenue Code, and there is a possibility that a change in the 2018 Farm Bill could result in IRS scrutiny of hemp-related businesses. Corporate structure could have a significant impact on any tax issues.
- Intellectual Property. Companies with marks registered with the United States Patent and Trademark Office could be challenged for abandonment or illegal use.
- CSA Enforcement. Should hemp substances become controlled substances under the Controlled Substances Act, the federal government could take enforcement action, including seizures and criminal and civil fines and penalties.
- HHS, FDA, and TTB Regulations. Certain products could ultimately be regulated by federal agencies such as the Department of Health and Human Services (HHS), the Food and Drug Administration (FDA), and the Alcohol and Tobacco Tax and Trade Bureau (TTB). Knowing those regulations will be critical.
- State Regulations. Even if THC beverages and other hemp products are federally unlawful, they may be permitted under state law, so understanding state law is key to continuing the THC beverage and hemp product business.
Getting ahead of these types of issues might allow hemp-related businesses to better navigate a changing federal regulatory landscape.
