Does the USDA Rule Affect Hemp That Is Currently On the Market?

As everyone in the hemp industry is now aware, the USDA issued its interim final rule (Rule) on October 29, 2019. The Rule was published in the Federal Register on October 31, 2019. Among other things, publication of the Rule initiated a 60 day public comment period. Publication also made the Rule effective.

In this article I will discuss the Rule’s impact on hemp that was grown and harvested (or soon to be harvested) in 2019, much of which is currently on the market. For other articles on the Rule see the following links – click here for licensing requirements, here for summary of important provisions, here for discussion of opportunities and challenges related to testing, and here for interstate transport.

Part 1- Does the Rule Regulate Hemp Grown in 2019?

Since the Rule was released, the question I have been asked most often is the legal status of harvested hemp with “total THC” concentrations in excess of 0.3% but with delta-9 THC concentrations that do not exceed the statutory legal limit of 0.3%. (For a complete discussion of total THC, click here.) My clients want to know if this hemp, which was lawfully grown and cultivated under state industrial hemp pilot programs, is now considered non-compliant and illegal under the Rule. The short answer is “no”. But before you stop reading, it is important to understand the basis for this answer, which I discuss below. Additionally, I address two concerns I have about misapplication of the Rule.

As I stated at the beginning of this article, the Rule is currently in effect. It became effective on October 31, 2019, and extends through November 1, 2021. Does this mean that it applies retroactively and/or with respect to hemp that is currently on the market?

With respect to whether the Rule has retroactive effect, the answer is clearly no. There is nothing in the Rule to indicate that it purports to undo the legal status of hemp that was lawfully grown prior to October 31, 2019. Even if there was such a provision, its enforceability would be questionable at best. The US Constitution prohibits Ex Post Facto (“after the fact”) laws that are penal in nature.

With that question answered, the operative question becomes whether the Rule applies to harvested hemp (or soon to be harvested hemp) grown under a state pilot program. The answer to this question is also “no”. The Rule governs, “a program for the production of hemp in the United States.” According to the Rule, the term “produce”, when used as a verb, “is a common agricultural term that is often used synonymously with ‘grow’ and means to propagate plants for market, or for cultivation for market, in the United States. In the context of this part, ‘produce’ refers to the propagation of cannabis to produce hemp.” In other words, the Rule primarily governs the cultivation of hemp, not post-harvest market activity. In fact, there are only two short provisions in which the Rule addresses post-harvest market activities. The first provision asserts that a state or tribe cannot interfere with interstate transport of hemp. The second includes within the definition of “handle” the following activity: “storing… hemp plant parts prior to the delivery of such plant or plant part for further processing.” The Rule does not define or even address processing in any other provision or context.

In addition to the fact that the Rule does not regulate post-harvest market activity, it does not directly regulate hemp production until it issues licenses to producers. According to the USDA, it will not begin to issue licenses until December 1, 2019. With respect to USDA licensing of hemp producers, it is unlikely the Rule will have a substantial impact on the 2020 growing season. This is because the USDA will only issue licenses to producers in states that have not submitted a plan for approval by the USDA and that do not have an industrial hemp pilot program enacted under the 2014 Farm Bill. Currently, there are only three states that meet this criteria: Idaho, Mississippi, and South Dakota.

As for producers in states that have submitted plans for approval by the USDA, they will have to apply directly to their respective state authorities to cultivate hemp. This cannot happen yet since no state plans have been approved.

Finally, in states that have not submitted a plan but which have pilot programs under the 2014 Farm Bill, producers will continue to cultivate hemp under their pilot programs, which will not sunset until November 2020.

For these reasons, hemp with delta-9 THC levels that do not exceed 0.3% that was lawfully cultivated in 2019 under a state pilot program is lawful, notwithstanding that its total THC may exceed 0.3%. (Note- This assumes that the state in which the hemp was cultivated either tested and approved a pre-harvest sample or, if the state did not test the hemp at issue, the sample was independently tested and is compliant under the state’s industrial hemp program rules.)

Part 2- Concerns About Misapplication of the Rule By Law Enforcement and Other Agencies.

Having provided that analysis, I now want raise two concerns: (1) that the Rule will create further confusion about total THC, and (2) that the Rule will be used to justify seizures of lawful hemp by law enforcement agencies.

(1) The Rule will almost certainly create further confusion about total THC. The concept of total THC is perhaps most notable for the confusion, pseudo-science, and poor legal reasoning that always seem to surround any discussion of it. The Rule’s testing provisions, combined with confusion over what the Rule actually governs, are likely to exacerbate the confusion over total THC.

(2) The Rule will be used to justify seizures of lawful hemp by law enforcement agencies. Seizures of lawful hemp (ie, grown under a pilot program with delta-9 THC concentrations within the 0.3% legal limit) are already a problem for the industry. There have been several high profile stories of hemp seizures, and even arrests, based on allegations of marijuana trafficking. We have dealt with this issue for several clients. Once seized, hemp is usually tested in state crime labs using the gas chromatography technique. This technique uses heat to separate the compounds in a sample. In the process, it decarboxylates much of the THCa in the test sample. (For more information on analytical testing methods and decarboxylation, click here.) This means that some lawful hemp may test “hot” due to the conversion of THCa molecules to delta-9 THC molecules during the testing process. This issue is already difficult to address since it requires the application of a number of technical and scientific concepts. Now that the Rule requires a total THC standard for future hemp production, I am concerned that law enforcement agencies will point to it as evidence that a total THC standard applies to all hemp currently on the market. While it is clear that this is incorrect, the addition of yet another technical concept to the “mix” of issues regarding the legal status of hemp is likely to sow confusion. And, even when it does not sow confusion, I worry that it may be accepted by courts addressing the issue as evidence of Congressional intent, notwithstanding that Congress did not mandate a total THC standard in the 2018 Farm Bill.

Part 3- Conclusion.

The USDA’s adoption of a total THC standard is both disappointing and frustrating. For reasons that are beyond the scope of this article, I believe that this standard may end up being catastrophic. At a minimum, it will dramatically change the industry. For now, it is important to be clear about the scope of the Rule. Specifically, its total THC standard does not apply to hemp grown in 2019, nor does it apply to hemp that will be grown in 2020 under state pilot programs that do not use a total THC standard.

Legal Disclaimer: This article is not intended to provide legal advice. It is my legal analysis, not a definitive statement of law. This is a new issue and, as of this writing, no court has ruled on it and no definitive statement currently exists. Please feel free to contact me directly if you would like legal advice about a contemplated transaction and your particular circumstances.

November 7, 2019

Rod Kight is an attorney who represents lawful cannabis businesses. He speaks at cannabis conferences across the country, drafts and presents cannabis legislation to foreign governments, is regularly quoted on cannabis matters in the media, and maintains the Kight on Cannabis legal blog, where he discusses legal issues affecting the cannabis industry. You can contact him here.