USDA Hemp Interim Rule: Crisis or Opportunity?

USDA Hemp Interim Rule: Crisis or Opportunity?

Does the USDA Interim Rule herald a crisis or opportunity for the hemp industry?

Although it has mostly been debunked linguistically, the idea that the Chinese word for “crisis” is composed of two characters meaning “danger” and “opportunity” remains a powerful and popular meme. It is an apt reference to the hemp industry’s current predicament.

The USDA issued its interim final rule (Rule) on October 29, 2019. The Rule has been both eagerly and anxiously anticipated by anyone who interacts with the hemp industry. For the past six months there has been widespread speculation regarding the Rule’s likely provisions. Remarkably, the USDA operated a leak-proof rule drafting operation rivaled only by the Mueller investigation. Upon learning in September that the Rule had been delivered to the White House for final approval I submitted a Freedom of Information Act request to see if I could acquire a copy. I never received a response.

At 161 pages, the Rule is long. In addition to discussions about a large number of issues, it is riddled with necessary but mind-numbing discussions on administrative matters and budgets. Once the Rule was issued my office took an “all hands on deck” approach. We read, analyzed, summarized, and published several articles about it. You can read them here, here, and here.

I decided to take a more philosophical approach in this article and ask whether the Rule will initiate a crisis or create novel opportunities in the hemp industry. To a large degree, the answer to this question hinges on how the industry responds to two of the Rule’s key provisions regarding analytical laboratories (Labs) and total THC.

The first crisis point initiated by the Rule is its requirement that Labs “must be registered by the DEA to conduct chemical analysis of controlled substances (in accordance with 21 CFR 1301.13).” The USDA’s basis for implementing this requirement is that Labs “could potentially handle cannabis that tests above the 0.3% concentration of THC on a dry weight basis, which is, by definition, marijuana and a Schedule 1 controlled substance.” In other words, implied in the requirement for testing cannabis samples for their THC concentrations is the fact that some will not test within the legal limit for hemp and will thus be illegal marijuana. Since it is illegal to possess marijuana without a DEA registration, all Labs must be registered with the DEA in order to perform compliance testing for hemp.

On its face, this position makes perfect sense. If a Lab will be handling illegal material then it should be licensed to do so. However, this begs the question of how a Lab can get licensed. The USDA helpfully indicates that it will post directions for obtaining a DEA registration. But a quick review of DEA Form 225 (Application for Registration Under the Controlled Substances Act) presents an immediate hurdle. Section 4 states, “You MUST be currently authorized to prescribe, distribute, dispense, conduct research, or otherwise handle the controlled substances in the schedules for which you are applying under the laws of the state or jurisdiction in which you are operating or propose to operate.” Marijuana is illegal in almost half of the states. Will that disqualify Labs in those states? Even if we assume a workaround on this point, the DEA is infamous for its unyielding animosity towards marijuana. Are we to assume that it will go easy on the new Labs signing up to do analytical testing? And, even if we assume an about-face by the DEA on the issue of marijuana in this context, does the agency have sufficient resources to vet the large number of applications that it will receive during the next several months?

The fact is that analytical testing for hemp is currently a critical failure point in the hemp industry. There are simply not enough Labs to conduct analytical testing at the rate that hemp is being produced. The new requirement that all Labs must be registered with the DEA to handle marijuana has the potential to lock down the entire supply chain. This is not to say that Labs should not hold proper certifications. But, unless the USDA is willing to coordinate with the DEA to fast-track applications or ditch this provision altogether in favor of issuing an exemption for handling and disposing of non-compliant hemp, this requirement threatens to place the industry into an immediate crisis scenario. Of course, for Labs that already hold DEA registrations, this is an enormous opportunity to ramp up their business, provided that they have the ability to do so.

The second crisis point initiated by the Rule is its requirement that, “Testing will be conducted using post-decarboxylation or other similarly reliable methods where the total THC concentration level measured includes the potential to convert delta-9- tetrahydrocannabinolic acid (THCA) into THC.” This is a technical way of saying that the Rule requires the total THC value of a hemp crop not to exceed 0.3%. In other words, the concentrations of THCA in hemp now matter. I am particularly interested in the total THC issue and have previously written about it in detail. If you are not familiar with the issue I encourage you to click here to be directed to an article in which I analyze and debunk the arguments for using total THC as the metric for determining whether a cannabis sample is lawful hemp or illegal marijuana. Although I am not surprised, I am disappointed and concerned that the USDA chose to implement the total THC metric. For the reasons I discuss in the article I just referenced, the 2018 Farm Bill did not require the USDA to implement a total THC testing protocol.

Additionally, using the total THC protocol will have disastrous consequences for the hemp industry. Primarily, the Rule will dramatically reduce the varieties of hemp that can be cultivated. This is because it is difficult to find hemp genetics that reliably test within the 0.3% THC limit when using a total THC protocol. Much, if not most, of the hemp currently being cultivated will not pass a total THC test. Farmers are already nervous about growing a “hot” crop. Under the new rules, growing a crop that exceeds 0.5% total THC could result in severe sanctions, even if the actual delta-9 THC concentrations are substantially below 0.3%. This also has the potential to stymie innovation since there is little “wiggle room” to conduct research and development. As with the situation discussed above, producers of genetics with reliably low total THC values will profit from this opportunity since their competitors’ strains will no longer be legally viable.

Every crisis presents opportunities. In this case, the USDA rule presents significant opportunities for the few Labs that hold DEA registrations and the genetics producers that have cultivars with reliably low total THC concentrations. However, these provisions have the potential to provoke a general crisis in the industry at large as the majority of participants struggle to find solutions. Although I tend to be an optimist, I am concerned about how these two provisions will impact the industry.

October 30, 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.

15 comments on “USDA Hemp Interim Rule: Crisis or Opportunity?Add yours →

  1. I’m curious, how was the number 0.3% chosen as the cutoff in the original Farm Bill? Was this number just chosen arbitrarily? Or is there some reasoning behind it?

    1. Casey, the 0.3% limit is an arbitrary number based on the work of Canadian scientist Ernst Small, who conducted research on cannabis and published “The Species Problem with Cannabis” in 1971. In his book, Small stated that there isn’t a natural point at which the cannabinoid content could be used to distinguish strains of hemp and cannabis. Despite this he drew an arbitrary line on the continuum of cannabis types, and simply decided that 0.3 percent THC was the proper line. The line has held.

  2. I’m confused by the statement: “In other words, implied in the requirement for testing cannabis samples for their THC concentrations is the fact that some will not test within the legal limit for hemp and will thus be illegal marijuana.”

    I’ve been studying like crazy for months, including reading every article you and your staff have written to understand as much about industrial hemp versus marijuana because I am starting my own CBD online business. I thought I was doing well in understanding the differences by reading tons and tons of information. As an example, I will cite today from an article by Matt Shipman, North Carolina State University, who very neatly described, the two plants, and I quote “Hemp and marijuana are, taxonomically speaking, the same plant; they are different names for the same genus (Cannabis) and species. The difference is that hemp plants contain no more than 0.3 percent (by dry weight) of THC (tetrahydrocannabinol), the psychoactive substance found in marijuana. By comparison, marijuana typically contains 5 to 20 percent THC. You can’t get high on hemp. In other words, Cannabis plants with 0.3 percent or less of THC are hemp. Cannabis plants with more than 0.3 percent THC are marijuana.”

    So, based on the above, if a hemp plant is truly hemp, it should never test higher than 0.3 percent THC. If hemp is a different plant (genus) from marijuana, then how could hemp ever have more than 0.3 percent of THC? If a producer takes hemp to a lab for testing how does it miraculously convert to a marijuana plant? Since by definition, as stated above and in many other articles, hemp is a totally different plant than marijuana. They look different and are grown differently. If you are testing a cactus, it doesn’t automatically become a rose if it failed some sort of cactus test. So how does a hemp plant (and samples thereof) become a marijuana plant? Hemp is hemp. Right?

    Or, are we to read between the lines and assume that a failed sample is because a producer brought in what he thought was hemp, and perhaps by accident it got mixed with a batch of marijuana plants and that’s why the sample tested for more than 0.3 percent THC? Why would he/she be that stupid? Or, are we to also believe that farmers bring in marijuana by mistake for testing because they don’t know the difference between that type of cannabis plant and hemp? I find that totally unlikely. Again, isn’t hemp, hemp? You can’t call a tiger a lion if it happened to lose it’s stripes.

    Please set my mind straight as all of my previous understanding has now gone out the window.

    1. Thank you for your comments and questions, Tammy. This is a very confusing issue. I completely agree with Matt Shipman’s statement. Hemp and marijuana are the same plant, taxonomically speaking: cannabis sativa l. The difference is not botanical. It is legal. Cannabis with no more than 0.3% THC is hemp and cannabis with THC concentrations in excess of 0.3% are marijuana. Unfortunately, agriculture is not always as cut and dried as we would like, nor are the testing methods used to distinguish the differences between marijuana and hemp. For example, a grower may intend to grow hemp, only to have her crop test “hot” because the THC developed to me more than 0.3%, despite the grower’s attempts to keep it below that level. Additionally/ alternately, the sample submitted to the analytical lab could test above 0.3% because it was the most trichome-rich part of the plant from which it was taken, was an aberration from the crop and not a representative sample, because the laboratory equipment was not operated correctly or was malfunctioning, and or any number of other reasons. The unfortunate fact is that a farmer who intended to grow lawful hemp may submit a sample that tests positive for marijuana. It is one of the most difficult parts of the industry.

    2. Agreed. How do they test for THC when thats the chemical that occurs after decarboxilation. If they test a raw plant it would be THC-A which in not controlled substance.

    3. Thanks for your comment and questions, Tammy. It can be very confusing. I completely agree with Shipman. Marijuana and hemp are the same plant, taxonomically speaking. The sole distinction between them is their respective concentrations of delta-9 THC. Otherwise, they are the same. The issue with testing is that it is not black and white. A lot of the result depends on factors such as the parts of the plant used to take the samples, the testing method used, and how long after flowering the test is taken. Cannabinoids express over time and ink greater concentrations in the flower than other parts of the plant, so a test result will be effected based on these factors.

  3. My state, Minnesota, switched to the Total THC formula out the blue last summer. I’ve already been thinking about how this will effect our hemp (flower pre-rolls) distribution business, so the new USDA rules were no surprise. The DEA certified testing facility is a curve ball though. What I am still unclear about is what are the effective dates for product that is already in the supply chain; harvested, cured, in warehouses,with processors,.What about retail inventory of flower products that stores have in stock? When does that need to be destroyed? And the state rules add another whole layer of confusion (ie Minnesota implemented the Total THC metric last summer as well as strict labeling rules that go into effect 1/1/20). So many questions. Thanks a lot for being on top of this so quickly, Rod!

    1. Jim- It is important to keep in mind that the USDA regulations primarily focus on production and the testing methods are for pre-harvest. Post-harvest hem is lawful or not based on whether it was grown in accordance with the laws of the state in which it was cultivated. Currently, that is all under the 2014 Farm Bill pilot programs.

  4. Rod- That’s very interesting. So are you saying that product inventory on hand made from hemp that was grown and tested before the new USDA rules and that previously qualified would still be legal to sell (at least at the Federal level) regardless of THCa level? Couldn’t that make existing hemp supplies and product inventory more valuable?

    1. Jim- Great question. Although the rule takes place immediately, its testing protocols are for pre-harvest hemp grown under a USDA license (as of 11-4-19 none have yet been issued) or a state plan approved by the USDA (no state plans have yet been approved). So, the “total THC” position does not apply to post-harvest material currently on the market. I assume that there will be significant confusion about this issue now that the USDA has effectively given its position on the “total THC” issue. As for current material being more valuable, that is possible, though speculative given all of the moving regulatory and market parts.

  5. Rod – I guess it will get sorted out eventually. Sounds there is a fair amount to do yet with the distribution side as well as growers. I just hope that too many people dont get whipsawed in the meantime.

    Btw… I just got an invitation from the Minnesota Dept of Ag to attend listening session as they work on the plan they submit to USDA. Invite says ““We are actively reviewing the rules USDA recently released,” said Agriculture Commissioner Thom Petersen. “We want to ensure our state plan and upcoming rules work for those in the industry and we welcome input during this process. It’s important to lay a good foundation to ensure this new industry is successful into the future.”

    I plan on attending and adding my two cents worth. Maybe other states will give this opportunity, too.

  6. Rod – The process of recovering alcohol used to strip oils from hemp uses heat and this leads to de-carb. Hence, it is very likely a processor using alcohol will produce a full-spectrum extract (FSE) that is over the Fed limit. Dilution of the FSE will put the resulting product under the limit and one would be wise to obtain CofAs attesting to that, but that temporary condition would put the processor in legal jeopardy. If a processor posts their CofAs on their website for the FSE, it is quite possible the processor is providing public evidence for prosecution by a zealous DA. Any comment on this?

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