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Hemp Eruption Favors Jersey First

Was it really this asinine?

Up until last year, 3 federal agencies and 42 state governments were creating contradictory Hemp growing and processing rules often barring hemp-derived product sales and demonizing one particular item, Cannabidol (“CBD”).  

This exploded in the ensuing 12 months with $641 million in domestic hemp-derived product sales (78% of which was CBD) and 510,000 acres licensed to cultivate Hemp across 34 states (a 455% increase over 2018).

Following its recent issuance of domestic Hemp production interim final rules (“Interim Final Rules”) requiring states to obtain proposed Hemp production plan approval, on December 27, 2019 the U.S. Department of Agriculture (“USDA”) approved New Jersey, Louisiana and Ohio’s Hemp growing, processing and selling regulations.

While leaving unanswered questions about how the U.S. Food and Drug Agency (“FDA”) will regulate hemp-derived products (including CBD cosmetics, dietary supplements, and food additives), this much is clear: Hemp just erupted and Jersey got there first.

Industrial Hemp Overview, CBD, and The Feds

A fast-growing, sustainable, and inexpensively produced plant, Hemp is a variety of Cannabis sativa L.containing less than 0.3% plant chemical delta-9 tetrahydrocannabinol (“THC”). Agricultural Act of 2014, 7 U.S. Code §5940.  Unlike Marijuana, which is cultivated to yield psychoactive THC, Hemp yields more than 25,000 oil and fibrous products. 

CBD is an oil based hemp-derived product offering broad health and wellness uses, serves as a food additive, and is found in many beauty items.  “Animal Feed” is an example of a fibrous hemp-derived product, which, before being sold or distributed, must be deemed “Generally Recognized as Safe” by the FDA and/or listed as a “recognized feed ingredient” by the American Association of Feed Control Officials.

On December 20, 2018, President Donald J. Trump signed the Agriculture Improvement Act of 2018 (“Farm Bill”) legalizing Hemp and its derivatives and forever removing them from the Comprehensive Drug Abuse Prevention and Control Act of 1970, 21 U.S.C. §§ 801, Et. Seq(1970) (“Controlled Substance Act”) and Drug Enforcement Administration’s (“DEA”) clutches.

Prior to the Farm Bill’s passage, confusion existed whether Hemp and its derivates were permissible under the Agricultural Act or a prohibited Schedule 1 narcotic.  Beyond removing plant Cannabis sativa L.containing no more than 0.3% THC on a dry-weight basis from the Controlled Substances Act and DEA’s purview to be federally administered by the USDA and FDA, the Farm Bill:

  • guarantees that Hemp and hemp derived products can be imported, exported and transported from state to state like any other crop;
  • tasks USDA with promulgating hemp regulations;
  • tasks states, territories and Indian tribes with submitting Hemp-growing regulations plans to the USDA including “THC testing procedures”, annual inspections, bookkeeping procedures to track land approved for hemp cultivation, and “effective disposal” plans for excessive-THC-containing hemp plants;
  • empowers the USDA to approve or reject those cultivation regulations within 60 days; and
  • bans hemp cultivation by those with drug felonies in the past 10 years.

Powered by a $6.1 billion annual budget and prosecutorial alliance with the Federal Trade Commission (“FTC”), the FDA oversees a wide range of food, drugs and cosmetics pursuant to Federal Food, Drug, and Cosmetic Act, 21 U.S.C. 301, et seq. and Federal Trade Commission Act, 15 U.S.C. §§ 41-58 (“FTC Act”) conferred powers.  Following Hemp’s cultivation, the FDA has enormous sway over how hemp derived products can be prepared, manufactured and sold.  Other than Epidiolex (an FDA-approved severe epilepsy treatment), the FDA deems most CBD products to be “adulterated” or “misbranded” and, following the Farm Bill’s passage, maintains that CBD (whether from Hemp or Marijuana) cannot be used in a food or dietary supplement if listed as “an active ingredient in a drug product.”  In 2019, the FDA issued a slew of “cease and desist letters” to hemp derived products’ vendors targeting: (1) placing “‘unapproved’ and ‘misbranded’ human drugs and adulterants” and “unapproved and unsafe animal drugs” into interstate commerce; and (2) making false or unsubstantiated health claims.

At odds with the FDA’s position, Colorado passed a law declaring that “food and cosmetics are not adulterated or misbranded by virtue of containing industrial hemp,” including CBD, which, so far, the FDA has not challenged in court. States including California and New York, have said that CBD cannot be added to food until the FDA updates its CBD posture though CBD manufacturers in those states report only limited enforcement of the rules.

USDA’s Interim Final Rules

The USDA’s October 31, 2019 published Interim Final Rules establish a regulatory framework for domestic hemp production oversight in accordance with the Farm Bill.  

Limited to hemp production, sampling, testing and disposal, and solely applying to “hemp producers” (defined as farmers that grow (or cultivate) hemp plants for market), the Interim Final Rules are not regulating CBD or other hemp-derived products’ processing, manufacture, testing, or marketing over which the FDA retains authority (the advertising of which it shares authority with the FTC).  7 CFR 990.1.

Under the Interim Final Rules, a state or Indian tribe may either submit a plan to regulate Hemp cultivation or comply with the USDA’s own Hemp cultivating and processing regulations (the “final rules” on which the USDA intends to publish within two years).

The Interim Final Rules establish testing standards imposing a pre-harvest sampling requirement on Hemp growers collected by federal, state, local, or tribal law enforcement agency and sent to a DEA registered laboratory for testing to ensure that the plants achieve an “acceptable hemp THC level” or be destroyed in accordance with reverse distributor regulations at 21 CFR 1317.15.

The Interim Final Rules fail to establish any seed certification requirements (which many state hemp programs impose) nor any hemp seed importation restrictions other than USDA’s Animal and Plant Health Inspection Service oversight (encompassing pest-related issues).

New Jersey Leads Nation in Hemp Program Approval

Leapfrogging over 16 other states with more established hemp programs, on December 27, 2019, the FDA approved New Jersey’s proposed hemp growing, processing and selling regulations, (including CBD) starting in 2020.

Last summer New Jersey enacted the Hemp Farming Act repealing and replacing its Industrial Hemp Pilot Program and authorizing producers to grow and sell Hemp for commercial purposes; following the Interim Final Rules’ publication, New Jersey’s Department of Agriculture (“NJDA”) promulgated its Hemp Farming Act Rules, N.J.A.C. 2:25-1 et seq..

Encompassing Hemp growing, processing, and license issuance pursuant to the Hemp Farming Act, Farm Bill, and Interim Final Rules, the Hemp Farming Act Rules establish New Jersey’s Hemp Program (“Program”) which NJDA’s Division of Plant Industry will administer.

The Program establishes reporting requirements compelling NJDA to provide the USDA with information including: pre-planting, planting, pre-harvest, and one annual production report listing hemp crop acreage; monthly reports updating hemp producer’s license status and providing noncompliant hemp violations; and annual reports regarding total grown and disposed hemp acreage ensuring that accurate legal land descriptions and hemp quantities are maintained.

The Program’s fee schedule is based upon whether producer is growing, processing, or handling hemp: growers pay annual $300 fee plus $15 per acre fee; handlers pay $450 per year; and processors’ annual fee stems from the type of hemp component being processed (ex., $1450/year for those processing grain ($450) and CBD extract ($1,000)). 

The Program also establishes hemp sampling and testing procedures in which 15 days prior to anticipated harvest date, an NJDA inspector or a DEA-registered third-party lab will collect hemp samples to test for compliance with the federally defined THC level.  THC testing procedures must use postdecarboxylation or other similarly reliable methods and must measure total THC and test results must show the measurement of uncertainty being utilized and state if a given sample meets the 0.3 percent threshold based on the distribution range established by the measurement of uncertainty.

Hemp producers must also agree to grant entry to the NJDA onto premises where Hemp is grown, processed, or handled for inspection and, in addition to individual sampling and testing requirements, the NJDA will also conduct annual inspections of a random sample from Hemp producers.

Unless already participating in a “hemp pilot program” prior to the 2018 Farm Bill’s passage, anyone with a controlled substances criminal conviction is disqualified from Program participation for ten years post-conviction and all key hemp production operation participants must pass a New Jersey State Police criminal background check.  Further, although not subject to adverse criminal law enforcement actions for negligent violations, and, instead, must comply with a Corrective Action Plan tailored to prevent future violations, Hemp farmers committing 3 negligent violations within a 5 year period are disqualified from working in the Program for 5 five years.

Effective through June of 2021, the Hemp Farming Act Rules do not address the FDA’s authority over CBD manufacturing and marketing or Hemp products’ transportation or shipment governed by the Interim Final Rules and Farm Bill.

Reprinted with permission from the January 16, 2020 edition of the “Law.com”Copyright © 2020 ALM Media Properties, LLC. All Rights Reserved. Further duplication without permission is prohibited, contact 877-257-3382 or [email protected].

 

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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