North Carolina SBI “Wish List” Threatens Hemp Farmers

Note: This article is about events impacting hemp in North Carolina. However, the issues it addresses are currently being discussed and voted on in state legislatures across the country. So, while the particulars of this article may not apply to other states, the general themes do. I encourage you to reach out to your state legislators to let them know your thoughts. 

INTRODUCTION

The North Carolina State Bureau of Investigation (SBI) issued a “wish list” of items for inclusion in the North Carolina Farm Act of 2019 (SB315). SB315 addresses hemp and will replace the current industrial hemp pilot program if it is enacted.

As an aside, it is an open question whether SB315, or any other hemp legislation that is enacted, will lawfully govern hemp if not expressly approved by the US Department of Agriculture (USDA). Section 297B(a)(1) of the Agricultural Improvement Act of 2018 (2018 Farm Bill) clearly requires a state desiring to have primary regulatory authority over hemp to submit and have a plan approved by the Secretary of the USDA. Absent such approval, federal law controls. This is not the issue at hand, so I won’t delve into it in this article, but it is an important issue to consider as more and more states enact hemp laws in the wake of the 2018 Farm Bill.

The SBI wish list, which is un-dated, un-signed, and styled “Industrial Hemp/CBD Issues” can be read by clicking here or reading the embedded document below. I encourage you to read it. It’s not very long, and contains some bizarre and wrongheaded proposals.

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In this article I am going to discuss what the letter states, including the nature of the SBI’s concerns about SB315, some surprising acknowledgements about the SBI’s view of probable cause with respect to hemp, and the strange and occasionally unconstitutional proposals it posits as remedies to its concerns. If the SBI’s wish list of proposals is included in SB315 then it is no exaggeration to say that the NC hemp program will fail.

THE SBI’S CONCERNS

I have been informed that the letter was either used in, or written shortly after, a meeting last week between SBI personnel and Senator Brent Jackson, sponsor of SB315. It appears to have been released on May 21 or 22. In it, the SBI states its concern that SB315 is, essentially, too permissive. The SBI letter states that SB315 “requires no license to possess, handle, transport, or sell hemp products or extracts. [It] modifies the definition of marijuana in Chapter 90-87 to exclude hemp, hemp products, or hemp extracts.” According to the SBI, this poses a significant problem:

“The unintended consequence upon passage of this bill is that marijuana will be legalized in NC because law enforcement cannot distinguish between hemp and marijuana and prosecutors could not prove the difference in court.”

This statement is false, or at least histrionic. There are several methods available for law enforcement to distinguish between hemp and marijuana. Most notably, NC can implement a program that will assist law enforcement in policing unlawful marijuana.

Regardless of your belief about whether or not marijuana should be lawful in NC, the fact is that it is currently unlawful. Marijuana is thus an issue for law enforcement to address. For this reason, the SBI is right to consider how SB315 may impact its enforcement activities. However, its conclusion (or fear mongering) is unfounded. First of all, low cost field tests are available that measure tetrahydrocannabinol (THC) concentrations, rather than the presence of THC. (As the SBI states, it currently uses field tests that merely detect the presence of THC, not its concentrations.) Second, law enforcement officials in states where marijuana has been legalized have successfully relied on regulations and technology, such as seed to sale tracking, to police unlawful marijuana trafficking. This is much more subtle and difficult police work than identifying marijuana in a state in which only hemp is lawful. In other words, there is substantial precedent for establishing programs and policing illegal marijuana under similar, though more difficult, circumstances that do not involve choking out an industry.

The penultimate concern for the SBI is that SB315 will eliminate probable cause:

“Hemp and marijuana look the same and have the same odor, both unburned and burned. This makes it impossible for law enforcement to use the appearance of marijuana or the odor of marijuana to develop probable cause for arrest, seizure of the item, or probable cause for a search warrant. In order for a law enforcement officer to seize an item to have it analyzed, the officer must have probable cause that the item being seized is evidence of a crime.”

This statement is remarkable in several ways. But, before I address them I want to acknowledge that, generally speaking, it is not unreasonable for the SBI to be concerned about an erosion of probable cause, a fundamental component of enforcing the law. However, as I discuss below, the SBI’s concern with respect to probable cause as it relates to hemp is misplaced.

The first reason that the SBI’s statement is remarkable is that it appears to be the first time that a law enforcement agency- any law enforcement agency- has acknowledged in a public writing that the appearance or odor of marijuana is no longer probable cause for arrest now that hemp is lawful. Since the distinction between lawful hemp and unlawful marijuana is based solely on the concentrations of one molecule, delta-9 THC, then neither the look nor smell of cannabis in and of themselves are sufficient to establish probable cause that the plant material at issue is marijuana. However, as simple as this concept is, I am not aware of it having been previously acknowledged in writing by law enforcement. That being said, the issue is a hot one in criminal law, as a quick Google search of “hemp probable cause” will show. Of the search results, I recommend this excellent article on the subject by Phil Dixon, a professor at the NC School of Government.

Second, the statement is remarkable in its support of the notion that passage of SB315 will effectively legalize marijuana in North Carolina. It will do no such thing. As Professor Dixon and rulings by both the Colorado and Vermont supreme courts point out, probable cause can be established by “odor plus”, namely, the smell of marijuana plus the existence of some other factor that provides a reasonable basis to believe that the plant material is, in fact, marijuana. This is not difficult and applies to any number of other circumstances. Parents routinely pull screaming kids off of playgrounds, but are not suspected of kidnapping unless some other factor is present. I can walk around downtown in my hometown of Asheville with a plastic bag of baking soda and not be suspected of possessing cocaine absent some other suspicious behavior. I am confident that we will not save more kids or arrest more coke dealers if we decide that holding screaming kids or bags of white powder are in and of themselves sufficient to establish probable cause of kidnapping or cocaine trafficking. The “odor plus” standard is working in other states and there is no reason that it cannot work in NC.

Third, as pointed out by my client and friend, Lee Van Tine, the SBI’s assertion completely ignores the fact that under section 10114 of the 2018 Farm Bill, a state may not prohibit the interstate transportation of hemp through its borders. In other words, NC will have hemp traveling through its borders no matter what legislation is enacted. Probable cause under the new “odor plus” standard is an issue that will need to be worked out under any, or no, NC hemp program.

In summary, if SB315 is enacted it will not legalize marijuana in NC by eliminating probable cause. There are methods and technologies already used in many states to regulate lawful cannabis and distinguish it from illegal marijuana. Also, the need for a slightly higher standard to establish probable cause is not overly burdensome. Finally, regardless of what legislation is enacted, NC will have hemp traveling through its borders that it cannot prohibit, thus necessitating the need for pragmatic regulations and development of new criteria for probable cause anyway. There is no need for any of the bizarre, overbearing, and unconstitutional “solutions” posed by the SBI (discussed below), the implementation of which would be a financial catastrophe for the NC hemp industry, and devastate thousands of NC farmers and their employees.

THE SBI’S PROPOSED “SOLUTIONS”

The SBI poses fifteen (15) solutions to the probable cause problem it poses, all of which are unwarranted and many of which are downright absurd. Three are even unconstitutional. I will address them each. [Note: Each SBI “solution” is numbered and copied and pasted in italics. My response follows.]

(1) Limit the varieties of hemp that can be grown in NC to those which are used in rope, clothing, and paper. Do not allow the variety of hemp that produces “buds” similar to marijuana.

There are a wide array of hemp genetics. To a limited degree they can be divided between “industrial” uses and non-industrial uses; however, and aside from the notion that there is no hemp variety that solely produces “rope, clothing, and paper“, it is nearly impossible to create a bright line between hemp varieties in the way that is suggested by the SBI. You can extract CBD from so-called “industrial” hemp strains and smoke their flowers. You can also derive fiber from hemp that produces “buds similar to marijuana”. Certainly, neither of these situations are ideal for hemp users, but the SBI’s proposed solution is unworkable in that you cannot easily draw such a distinction between hemp varieties. Even if you could, it would not address the SBI’s stated concern.

Also, and this will be a theme throughout this article, this proposal will greatly harm NC farmers, many of whom grow specifically hemp for its CBD and flower. As I write this, approximately one-hundred (100) NC farmers are poised to have their applications to grow hemp approved by the NC Industrial Hemp Commission. They all applied under the assumption that hemp would not be regulated in this manner and that they could grow for hemp flower, which brings the highest premium in sale price. We can assume that NC farmers will soon be competing with farmers in China, Latin America, and eastern Europe in hemp production. It is unlikely that they will be able to compete on price for biomass. But they will be able to compete (and as the emerging hemp flower market has shown, thrive) in the market for high quality hemp flower. Taking away that valuable crop is shortsighted.

(2) Modify the definition of marijuana in 90-87(16) as follows:
(16) “Marijuana” means all parts of the plant of the genus Cannabis, whether growing or not; the seeds thereof; the resin extracted from any part of such plant; and every compound, manufacture, salt, derivative, mixture, or preparation of such plant, its seeds or resin, but shall not include the mature stalks of such plant, fiber produced from such stalks, 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 resin extracted therefrom), fiber, oil, or cake, or the sterilized seed of such plant which is incapable of germination. The term does not include industrial hemp as defined in G.S. 106-568.51, when the industrial hemp is produced in compliance with rules issued by the North Carolina Industrial Hemp Commission and provided to a processor. The possession or sale of hemp in any other circumstance, unless in lawful possession pursuant to the North Carolina Epilepsy Act, is unlawful.

This proposal has several problems, the first of which is that it is unconstitutional. It assumes that NC will not have any out of state hemp. The 2018 Farm Bill and a deep body of Supreme Court precedent expressly prohibits this type of protectionism. One of the most basic and fundamental concepts in Constitutional law is that a state cannot restrict interstate commerce by only allowing products made by its citizens to the exclusion of similar products made by citizens of other states. This is based on the Commerce Clause, which states that the US Congress shall have power “To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes.” A first year law student learns this in the initial Constitutional law class she takes. Given its obvious defect I’m not sure how this proposal made the cut and landed a spot on the SBI’s document.

The proposal also relies on the legal status hemp existing in an extended state of suspension: whether it is legal or not depends on the outcome of a long chain of events, starting with the cultivation and ending months later with the final sale or transfer to a processor. This is a silly and unworkable way to regulate an agricultural, or any other, product.

In addition to all of the same reasons I discussed above, it harms farmers by limiting their market to a handful of processors. Moreover, how does NC determine whether an out of state buyer is a “processor” if the buyer’s state laws are written differently?

(3) An individual must be 18 or older to purchase or possess hemp, hemp extract, and CBD products.

This proposal may seem self-evidently reasonable, except for the fact that the World Health Organization has released two reports on CBD within the past year, both of which found that CBD is non-toxic, non-addictive, non-psychoactive, and may have substantial health benefits. It is a true statement that the sugar in a bag CBD gummies is substantially more toxic, addictive, mind altering, and dangerous than the CBD contained in them. Yet, we don’t impose an age restriction on the purchase of non-CBD gummies. Why should we impose an age restriction when CBD is added?

Additionally, with respect to hemp, there are exactly zero (0) recorded deaths in all of human history based solely on the use of cannabis. Lacking meaningful quantities of THC, hemp is even safer and should not be age-restricted.

(4) Provide immunity for law enforcement officers who seize hemp and hemp products during the course of an investigation, even if the products fall within the legal limits of THC and CBD.

This is a novel concept in criminal law and, for the reasons discussed above, totally unnecessary.

(5) Clarify that all paraphernalia used to smoke plant-based materials (whether hemp or marijuana) is illegal.

What about paraphernalia to smoke tobacco? What about dry-herb vaporizers? What about high end glass art that can be, but usually isn’t, used as a bong? What about your corncob pipe, cigar clipper, or rolling papers? What about all of the retail and online businesses that have lawfully been selling these items for years? I could go on and on. This suggestion is absurd.

(6) Plant based materials and plant based commercial products cannot be made in hemp processing facilities in NC. Only oils, balms, lotions, salves, etc. can be made in these facilities.

This solution drastically restricts economic activity in NC while not addressing the fact that law enforcement will still have to resolve its stated problem, namely, the erosion of probable cause. Officers will still have to learn and implement “odor plus” for shipments of hemp transported in the state. This solution burdens business without addressing the concern which gave rise to the need for a solution in the first place. In other words, it’s not a solution.

(7) Hemp in plant form cannot leave processing facilities.

My response to this solution is the same as my response to number six (6), above.

(8) Hemp in plant form cannot be sold by processors or commercial businesses. It can only be sold by NC farmers with a license from the NC Department of Agriculture.

For the same reasons I stated above, this proposal is unconstitutional since it restricts commerce in hemp to NC citizens. Regardless, even if it was not unconstitutional this solution literally does nothing. What is to stop anyone from acquiring a hemp farming license and then, instead of farming simply using it as a sort of “broker’s license” to sell hemp? In fact, under this proposal a retail establishment desiring to sell hemp could simply become licensed as a farmer and then carry on, business as usual. And what about out of state businesses selling their hemp online into NC? In short, this will not limit hemp sales, nor will it address the probable cause issue.

(9) Mandate that only growers and processors with a license from the NC Industrial Hemp Commission can possess hemp or hemp plants. Any other person who possesses hemp or hemp plants will be charged with possession of a Schedule VI controlled substance.

This provision is preempted (ie, overruled) by the 2018 Farm Bill’s mandate that a state cannot prohibit the transport of hemp through its borders discussed above. It would be stricken if challenged in court.

(10) Hemp and CBD containing edibles such as candies, gummies, lollipops, brownies, etc. cannot be sold or possessed in NC. No edible hemp and CBD food products. (this follows FDA regulations)

The FDA is holding a public hearing on this issue next week. In addition to the fact that it has not enforced its prohibition on using CBD as an ingredient food (with one possible exception), the FDA has stated that it is seeking paths to allow it and even asked Congress to address it via legislation. There is good reason to believe that CBD will eventually be allowed in food. Additionally, and for the reasons discussed in this post, the FDA’s position can only lawfully apply to products containing CBD isolate, not hemp extracts, such as “full” or “broad” spectrum formulations.

(11) Place a ban on smoking hemp, hemp products, hemp extracts, and CBD products.

Implementing this solution would solve the probable cause problem because the presence of a marijuana odor emanating from a pipe or vape would be sufficient to establish probable cause that a law is being violated (ie, smoking hemp or smoking marijuana). However, it would merely drive the use of smokeable hemp underground. Additionally, and as discussed above, it would significantly harm farmers by reducing a primary emerging market. The smokeable flower market is proving to be profitable for farmers and provides an effective way for them to compete with large scale hemp biomass growers in other countries.

(12) Regulate CBD oils to ensure they [sic] oils sold in NC are produced by NC farmers, tested by the Department of Ag to fall within legal limits of THC and CBD. The oil products could have a label and tax stamp. Any CBD products without this tax stamp would be illegal to manufacture, sell, or possess.

For the same reasons I stated above, this proposal is unconstitutional since it restricts commerce in hemp to NC citizens. Given its obvious defect I’m not sure how this proposal made the cut and landed a spot on the SBI’s document.

(13) Place a tax stamp on all hemp grown in NC and CBD products manufactured in NC. This stamp could go on all products by NC licensed growers and processors. This tax stamp would allow for the product to be followed from the field to the processor to the store. It would ensure that hemp grown by NC farmers is being sold to NC processors, and then sold in NC retail stores. It also ensures that the products fall within the legal THC limits. Any hemp and CBD products without the tax stamp would be illegal to manufacture, sell, or possess.

This proposal is somewhat antiquated: it discussed “tax stamps” as if seed to sale tracking technology wasn’t already widely available and in use. It also assumes that sales would be restricted per one of the other solutions, above. And, it does not address products that come into NC from other states.

(14) License hemp/CBD retail stores in NC. A store must be on the approved list to sell hemp and CBD products.

Requiring a license to sell hemp/CBD products at the retail level is not unreasonable, provided the process to obtain it is not onerous or incommensurate with obtaining a license to cultivate, process, or handle hemp. However, the fact that it does nothing to address the SBI’s concern about probable cause begs the question of why it is being proposed.

(15) Add Epidiolex to Schedule V so it can be prescribed by physicians in NC. This is an FDA approved pharmaceutical form of CBD which is already a Federal Schedule V controlled substance.

This solution seems out of place. Not only does it fail to address the SBI’s probable cause concern, but it also is not pertinent to anything else in the SBI letter. Why does the SBI care what prescriptions can be dispensed by NC pharmacists?

CONCLUSION AND CALL TO ACTION

The SBI wish list letter appears to be a desperate effort to derail a good hemp bill. While it is true that hemp will pose new challenges to law enforcement, those challenges are overshadowed by the significant economic opportunities that hemp presents for NC citizens, particularly farmers. Every new industry creates challenges and opportunities. Attempting to stifle the industry simply to avoid addressing the challenges is the wrong approach, particularly when reasonable solutions exist.

If you are a citizen of NC and do not want to see these SBI solutions implemented, then it is crucial that you let your legislators know immediately. SB315 is being discussed as I write this article and the time to contact your legislators is now. Click here for the official NC website that will tell you who your representatives are and their contact information. Additionally, I encourage you to reach out to and support the NC Industrial Hemp Association, which has been actively working to ensure that SB315 is enacted without unreasonable burdens on farmers, businesses, or citizens.

Finally, if you are not a citizen of NC, it is possible and even likely that similar conversations, issues, and proposals are occurring in your state. I encourage you to find out and make your position known.

May 23, 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.