Now that the White House Office of Management and Budget (OMB) has given the go-ahead to the U.S. Department of Agriculture’s (USDA) federal hemp regulations, the draft of interim rules for the industry is live.
Even with the 2018 Farm Bill legalizing hemp as a crop, the lack of federal guardrails has dragged several prohibition-era problems into the present. Licensed hemp businesses continue to have trouble holding down relationships with banks and insurance providers. A snafu in Maine last week led to a strongly worded letter from the governor, who urged the approval of these long-awaited rules.
The USDA published its draft on Tuesday morning, and already industry stakeholders and observers are looking ahead to a new era in the business.
"The USDA’s issuance of federal hemp regulations represents a major agricultural, economic, and environmental milestone for our country," Shawn Hauser, partner and chair of the hemp and cannabinoids practice group at Vicente Sederberg LLP, said in a public statement. "The USDA has established a regulatory framework that will serve as an infrastructure for the U.S. hemp economy. These interim rules provide long-awaited clarity, not only for farmers, but also for regulators and service providers like banks and insurance companies, who were hesitant to work with hemp-related businesses without federal guidelines.
"The rules also provide hemp farmers with important safeguards and benefits generally afforded to agricultural program participants," Hauser continued, "such as protection against state interference of interstate commerce, and eligibility for federal grants and programs. While the hemp industry has seen incredible growth since the passage of the 2014 farm bill, it has been stifled by the lack of federal regulation. The establishment of federal regulations governing hemp as an agricultural crop is a watershed moment for the entire cannabis industry."
A major theme in the release of these rules is standardization. Now, the newly legal U.S. hemp industry can look to the USDA for guidance across a spectrum of issues.
While the 2018 Farm Bill legalized hemp cultivation, processing, transport and sales on a federal level, the bill also allowed states to develop their own regulations for this new industry. Some states elected to carry on their 2014 Farm Bill-era industrial hemp pilot program rules; others set up guidelines that were far more restrictive than what even Congress had envisioned.
The goal was to have some sort of clarity from the federal government in time for the 2020 growing season. Now that the document is approved and published, these rules provide not just a safe harbor for financial institutions, but, one can imagine, helpful rules on pesticide application, cultivar selection, USDA insurance policies, cannabinoid testing protocol and other vital aspects of the business.
States that choose not to set up their own rules for the industry may defer to the USDA. These rules will be in place for one year, at which point amendments will be made as needed.
“Since passage of the 2018 Farm Bill, the CBD and broader hemp markets have seen exponential growth,” Anita Sabine, partner with Manatt, Phelps & Phillips LLP and leader of the firm’s Cannabis and CBD practice, said in a public statement. “At the same time, there has been no uniformity or certainty as to product or operational standards. In turn, multi-state CBD manufacturers, distributors and retailers have been forced to comply with a hodge-podge of mismatched state laws which unintentionally have created minefields for operators and no quality standards for consumers.”
As companies expand across state lines, those various interpretations of the law have been shown hamstring growth in some cases.
“For example,” Sabine said, “Nebraska’s Attorney General has taken the position that the state’s criminal definition of ‘marijuana’ is broad enough to prohibit industrial hemp-derived CBD; South Dakota’s Attorney General issued a statement that its state law makes both industrial hemp and all forms of CBD oil illegal; and the Iowa Attorney General surprised the CBD market already operating in Iowa earlier this year when he issued a statement concluding that despite passage of the Iowa Hemp Act, CBD products remain illegal in Iowa until the USDA approves the Iowa state plan, which it will not do until after the USDA passes its regulations. That was not Congress’ intent when it passed the 2018 Farm Bill. Passage of the USDA regulations cannot come soon enough. It’s time for the industry and consumers to have clarity.”
As for regulations from the U.S. Food and Drug Administration, which purports to oversee the use of CBD and other minor cannabinoids in food and beverages, it’s unclear when any sort of decision will emerge.
U.S. Sen. Ron Wyden (D-OR) shared a public statement on the nexus of USDA and FDA regulation today: "I’ve long said that if you can make and sell hemp products in America, you should be able to grow hemp in America. Congress passed my bipartisan Hemp Farming Act, and now federal regulations must be updated to reflect hemp’s legal status. The USDA interim rule is an important first step to ending uncertainty for farmers, and I now look forward to reviewing the rule and working with the USDA and FDA to ensure farmers in Oregon and nationwide can fully realize this crop’s economic job-creating potential."
This story has been edited since it was originally published Oct. 29 to convey the publication of the USDA's draft interim rules.
See the draft rules here: