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Industrial Hemp: Legalized Marijuana’s More Lucrative Sibling

Derived from the identical plants, much easier to cultivate, and profoundly more profitable, industrial hemp lacks legalized marijuana’s glamour and intrigue.

However, industrial hemp’s staggering growth and application has eclipsed that of marijuana and the recent Hemp Industry of America v. U.S. Drug Enforcement Agency, Case No. 17-70162 (9th Circuit, April 30, 2018) ruling establishes that the Agricultural Act of 2014, 7 U.S. Code Section 5940 (Farm Bill)—and not the Comprehensive Drug Abuse Prevention and Control Act of 1970, 21 U.S.C. Sections 801, Et. Seq (1970) (Controlled Substance Act)—industrial hemp definition  prevails.

Industrial Hemp Overview

Hemp-derived products rising acceptance, combined with easing state regulations, caused the United States’ hemp production to explode in 2017.

A versatile plant used for thousands of years as a food and fiber source, industrial hemp was grown commercially in the United States until both its and marijuana’s cultivation was prohibited after World War II.

In Section 7606 of the Farm Bill, the federal government opened the door to legal industrial hemp cultivation in conjunction with state agricultural research pilot programs. As defined by Section 7606 of the Farm Bill, industrial hemp is a variety of cannabis sativa L. containing less than 0.3 percent plant chemical delta-9 tetrahydrocannabinol (THC), the psychoactive compound typically associated with “marihuana.” The Farm Bill legalizes industrial hemp including, but not limited to, cultivation, transport, processing, sale and use. See Pub. L. 113-79, Section 7606; Consolidated Appropriations Act, 2018 (Pub. L. No. 114-441 (Sec. 537, 729).

Different varieties of the same plant species, cannabis sativa, marijuana is cultivated to yield psychoactive THC and industrial hemp is cultivated for more than 25,000 oil and fibrous products.

Cannabidiol (CBD) is an example of an oil based hemp-derived product, has broad health and wellness uses, and, according to cannabis research firm Brightfield Group, the domestic CBD market reached $291 million in 2017 and will hit $1.65 billion by 2021.

“Animal Feed” is an example of a fibrous hemp-derived product, which, before being sold or distributed, must be deemed “generally recognized as safe” (GRAS) by the Food and Drug Agency (FDA) or listed as a “recognized feed ingredient” by the American Association of Feed Control Officials.

From 2016 to 2017, the number of hemp producers doubled and the top 10 hemp-growing states acreage licensed for cultivation grew by 140 percent.  In 2017, Oregon, Tennessee, and Vermont’s hemp producers tripled, while Minnesota, New York and North Dakota enjoyed respective growth of 533 percent, 425 percent and 600 percent.

Of the top 10 hemp-growing states, Kentucky and Colorado accounted for 81 percent of total acres registered for hemp production in 2016 and, though both significantly expanded their hemp programs in 2017, they now account for only 64 percent of total acres registered for hemp production.

Excluding Colorado and Kentucky, the average number of acres licensed for hemp production was 374 in 2016; in 2017, average hemp production acres stood at 1,787—a 377 percent increase.

Pennsylvania and New Jersey Industrial Hemp

To explore potential economic growth, Pennsylvania’s General Assembly passed the Industrial Hemp Research Law, 3 Pa.C.S.A 701-710 (Act 92) permitting cultivating hemp for research conducted under an agricultural pilot program established by Pennsylvania’s Department of Agriculture (PDA).

During 2017 season, 14 Pennsylvania permit holders planted and grew slightly more than 36 acres of industrial hemp. In 2018, the PDA will issue up to 50 permits entitling each permittee to a maximum research plot of 100 acres.

Products produced from Pennsylvania grown hemp may be sold as part of approved marketing research. Due to federal regulations, raw or unprocessed hemp plants or plant parts are not permitted to move across state lines. Once processed, most materials can move freely within and outside of the commonwealth.

Although presently illegal to grow hemp in New Jersey, under the Farm Bill, CBD consumption is federally legal in all 50 states. Because New Jersey has not made laws specifically related to CBD from hemp oil, it is legal in New Jersey to purchase and consume CBD oils sourced from hemp cultivated outside of New Jersey.

Marijuana Versus Hemp

Although a conflict exists between their respective industrial hemp definitions, in the landmark Hemp Industry of America v. U.S. Drug Enforcement Agency case, the U.S. Court of Appeals for the Ninth Circuit ruled that Section 7606 of the Farm Bill pre-empts the Controlled Substances Act.

Specifically, based on the Controlled Substance Act’s below expansive marijuana definition, in December 2016, the Drug Enforcement Agency’s (DEA) issued a clarifying rule stating that, because it is extracted from marijuana flowers CBD is an illegal drug:

“All parts of the plant cannabis sativa L., growing or not; seeds thereof; extracted resin; and every compound, manufacture, salt, derivative, mixture or preparation of such plant, its seeds or resin” but exempting plant components including: mature stalks; produced fiber; oil or cake made from the seeds of such plant; any other compound, manufacture, salt, derivative, mixture or preparation of such mature stalks (except the extracted resin), fiber, oil, cake or the sterilized seed of such plant, which is incapable of germination—i.e., nonpsychoactive.

Although denying injunctive relief based on standing grounds, the Ninth Circuit ruled that  where the Farm Bill applies, it supersedes or overrides any conflict with the Controlled Substances Act which also applies to “nonpsychoactive hemp” protected by Ninth Circuit’s 2004 decision.

Congress’ intent in enacting the Farm Bill was to confirm that industrial hemp, and cannabinoids derived from industrial hemp, are not to be treated as controlled substances, see Amicus Brief of 29 Bi-Partisan Members of U.S. Congress in Support of Petitioners with Consent of All Parties at 3, 26, Hemp Industries Association. v. DEA, Case No. 17-70162 (argued February 15, 2018).

Contrary to how controlled substances are treated, the Farm Bill sought to specifically allow for many commercial activities relating to industrial hemp including product development, exploring hemp-derived cannabinoids’ economic impact and creating a retail marketplace for hemp-derived products.

Cannabinoids, including THC and CBD, are compounds which naturally occur in cannabis, both “marihuana” and “industrial hemp,” but also an array of noncannabis sources including cacao, human breast milk, and even other flower varieties, as the DEA acknowledges, see Denial of Petition to Initiate Proceedings to Reschedule Marijuana, 81 Fed. Reg. 83,688-765, 53,692, 53,698, 53,753 (Aug. 12, 2016) (citing Giovanni Appendino et al., Cannabinoids: occurrence and medicinal chemistry, 18 Curr. Med. Chem. 1085 (2011).

Naturally occurring cannabinoids, per se, are not controlled substances (with the exception of synthetic THC), See Hemp Industries Association v. DEA, 357 F.3d 1012, 1014 (9th Cir. 2004); Hemp Industries Association v. DEA, 333 F.3d 1082, 1089 (9th Cir. 2003).

Similarly, because cannabinoids derived from “industrial hemp” are lawful, they cannot be deemed an “adulterant” by virtue of alleged illegality and there are no other sources of federal or state law which specifically classify CBD or other hemp derivatives as an adulterant. The products would, at minimum, be appropriately regulated as dietary supplements pursuant to the Dietary Supplement Health and Education Act of 1994, if not also as a conventional food pursuant to the Federal Food, Drug and Cosmetic Act. 

This treatment would be appropriate given the longstanding prevalence of products containing derivatives of industrial hemp, including various amounts of cannabinoids. Further, there is evidence that FDA has been notified of self-affirmed GRAS status for products containing various derivatives of industrial hemp.

Steven Schain

Steven Schain

2019 National Law Journal “Finance, Banking, & Capital Markets Trailblazer” award winner, Steve Schain is Senior Counsel at Smart-Counsel, LLC, a 100% female owned boutique Cannabis law firm.  Steve represents entities, governments and individuals in litigation, regulation and compliance, financial services, license applications and entity formation. Reach Steve at [email protected]

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