South Carolina Expands Hemp Program: What you need to know

This post was written by Philip Snow, an attorney with the Kight on Cannabis law firm.

South Carolina Governor Henry McMaster signed House Bill 3449 (Bill) into law on March 28, 2019. This Bill expanded South Carolina’s already existing hemp program, which previously allowed forty applicants the ability to cultivate hemp. These forty license holders, which were licensed in 2019, were limited to cultivating up to forty acres of hemp. This Bill expands the total number of licenses available, and it also allows license holders the ability to exceed the forty-acre cultivation limit.

The language of the Bill allows any previous applicant who did not receive one of the forty original licenses the ability to apply for a license to cultivate hemp. Each of these applicants were sent addendums by the South Carolina Department of Agriculture. The addendums required personal contact information for the license holder and the addendums also mandated each license holder submit to, and pass, a state and federal background check. As with the previous program, all license holders were required to submit their global positioning system coordinates for their cultivation operations. Additionally, all license holders were required to submit evidence they are contracting with another individual or entity to process their cultivated hemp. Lastly, the Bill removed the burdensome requirement that in order to receive a license, an applicant had to partner with a university for research purposes, which some previous applicants found to be a significant barrier to entry.

In addition to expanding South Carolina’s existing hemp program, the Bill also provides much needed clarification on certain definitions (and prohibitions) related to hemp. The Bill defined hemp products as: “all products with the federally defined THC level for hemp derived from, or made by, processing hemp plants or hemp plant parts, that are prepared in a form available for commercial sale, including, but not limited to, cosmetics, personal care products, food intended for animal or human consumption, cloth, cordage, fiber, fuel, paint, paper, particleboard, plastics, and any product containing one or more hemp-derived cannabinoids, such as cannabidiol. Unprocessed or raw plant material, including nonsterilized (sic) hemp seeds, is not considered a hemp product.”

While this may seem like a broad definition of hemp products, it explicitly states that unprocessed or raw plant material (read hemp flower) may not be freely possessed or sold. Specifically, the Bill provides that “it is unlawful for a person to cultivate, handle, or process hemp in this State without a hemp license issued by the department pursuant to the state plan.” This means that you cannot provide hemp flower to any retailer for commercial sale within the state of South Carolina. Based on that, there are a number of CBD shops operating in the state that appear to be in direct violation of this provision.

A conversation with South Carolina’s Department of Agriculture confirmed this. I was told that the South Carolina Law Enforcement Division is not concerned if one licensee transfers hemp or hemp products to another licensee. However, transfers of hemp flower from a licensed entity to a non-licensed entity can result in criminal prosecution for both parties.

It is vitally important to be aware of the powers and restrictions provided in the Bill. It authorizes the power to grant licensure to people previously rejected, and it gives them and existing licensees the ability to cultivate more than forty-acres of hemp. Equally important is the authority provided by the Bill to terminate a license. If an entity is found providing hemp flower to a non-licensed entity, it runs the risk of criminal prosecution or loss of licensure, possibly both.

While it is of paramount importance to understand the rules and regulations governing your industry, it is equally important to ensure you are taking the best possible actions to protect your interests in this business. Without having contracts in place that protect your legal rights, you are doing yourself a tremendous disservice and exposing yourself to risk. Hand-shake deals, barroom promises, or even simple provisions put forth on paper seldom offer you the protection of a well-drawn legal contract. Given any licensee can resubmit to the Department of Agriculture its contract with a processor for cultivated hemp, it is worth exploring whether your contracts give you the protections you need in the event of a dispute.

Thanks for tuning in and please feel free to reach out with any questions.

May 16, 2019

This post was written by Kight on Cannabis attorney Philip Snow. Philip works closely with clients in the hemp and CBD industry to develop compliance strategies. Kight on Cannabis is a law firm founded by attorney Rod Kight that represents legal cannabis businesses. You can contact us by clicking here.