The Long-Awaited USDA Rules on Hemp Production Have Arrived

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The United States Department of Agriculture unveiled rules today that will guide the booming domestic hemp industry, and likely accelerate the boom. 

After President Donald Trump signed the 2018 Farm Bill into law last December, legalizing hemp and hemp-derived products like CBD, the US Department of Agriculture promised to finalize federal regulations in time for farmers—and states—to plan for 2020. And today, the Department did just that, announcing the publication this week of an interim final rule that establishes the U.S. Domestic Hemp Production Program. 

“At USDA, we are always excited when there are new economic opportunities for our farmers, and we hope the ability to grow hemp will pave the way for new products and markets,” said U.S. Secretary of Agriculture Sonny Perdue.

Another way to look at the significance of this legislation is that cannabis plants are now legal, so long as they contain less than .3% THC, a threshold that legally differentiate hemp from marijuana. Perdue referenced this thin-but-significant line when he said, “Our program requires all hemp growers to be licensed and includes testing protocols to ensure that hemp grown under this program is hemp and nothing else.” 

Hemp industry groups were cautiously optimistic about the release of the rules, emphasizing the significance of the  milestone while focusing on deciphering the details. Jonathan Miller, general counsel of the US Hemp Roundtable told Cannabis Wire that his team is “thrilled” that the rules have been released, adding that he is “eagerly poring over the details” while encouraging others to share feedback. Michael Bronstein, the president of the American Trade Association of Cannabis and Hemp told Cannabis Wire that these rules are “the critical piece for marketplace development,” but also noted that his team is “reviewing the release carefully as it relates to THC levels, testing, disposal, and other requirements.” 

The interim final rule will be effective as soon as it is published in the Federal Register on October 31. The USDA has been taking public comment on hemp for months, as Cannabis Wire has covered, and there will still be a sixty-day public comment period on this rule, after its publication, to “allow USDA to seek input on the rule as it is enacted,” USDA Under Secretary Greg Ibach said during a call with reporters Tuesday morning. This interim hemp rule will sunset after two years, “which gives us time to make it through a full crop cycle as well as deliver a final rule,” Ibach said. 

“We will use the 2020 growing season as a chance to test drive the interim rule to guide any adjustments that are made and the final rule,” he said. 

One particular segment of the hemp industry is driving a significant majority of the interest in it: hemp-derived CBD products. The interim rule draft states at the top of the document, “Producer interest in hemp production is largely driven by the potential for high returns from sales of hemp flowers to be processed into CBD oil.” (See the end of this piece for specific numbers.)

The hemp-derived CBD industry is eagerly anticipating rules from another federal agency, the Food and Drug Administration, for these products, which are due any day now and will determine which products, specifically, will be able to contain CBD. One of the top priorities for CBD companies is food and beverages, which is the most complicated product for the FDA, as compounds that are under clinical drug trials or in existing pharmaceutical products cannot typically be added to foods. In the summer of 2018, the FDA approved a CBD-based pharmaceutical derived from cannabis plants, and that product, Epidiolex, is now available in the US under prescription. 

But the US Department of Agriculture requirements just released do indicate some of the products allowed to contain CBD, in advance of the FDA’s own rules. When hemp producers file the required acreage report with their local Farm Service Agency, they will have to state the use of that acreage, according to the new interim final rule. The four options are fiber, grain, seed, and, significantly, processing. This latter option is for hemp “grown for extraction of plant resin (which includes cannabidiol (CBD) and other phytocannabinoids). Resin is used in oils, lotions, cleansers, bath or other pharmaceutical or topical products.” 

Another issue that is driving interest in hemp industry circles is the question of oversupply: On this, the rule notes that while hemp production is booming in the US, “it remains unclear whether consumer demand will meet the supply.” And, as of now, farmers can’t count on exporting their excess just yet. The rule says only that “should there be sufficient interest in exporting hemp in the future, USDA will work with industry and other Federal agencies to help facilitate this process.” 

One issue that could emerge with exports is that there’s no international agreement on the THC threshold for hemp, with standards ranging from 0.2 percent in Spain to 0.5 percent in Paraguay.  (Read Cannabis Wire’s analysis on the different global definitions of hemp here.)

Meanwhile, the process for testing cannabis plants to ensure they stay at or near that .3% limit that separates hemp from marijuana in the eyes of the US federal government was a key component of the rulemaking process throughout the year. The USDA has released detailed guidelines for the submission of hemp samples for lab testing for THC-levels. (USDA Undersecretary Greg Ibach said, though, that the agency would “consider alternative sampling and testing protocol that states might submit if we believe they will result in a comparable or similar early result.”)

Another significant point in the USDA’s discussion with stakeholders over the months has been how the department would approach seed certification. Under the new interim final rules, the short answer is: It won’t. The rule states, “USDA will not include a seed certification program in this rule because the same seeds grown in different geographical locations and growing conditions can react differently. For example, the same seed used in one State to produce hemp plants with THC concentrations less than 0.3%, can produce hemp plants with THC concentrations of more than 0.3% when planted in a different State.” 

(Cannabis Wire reported on a meeting held between global cannabis and hemp giant Canopy Growth and the White House last month regarding the USDA’s rule, and much of Canopy’s presentation focused on the issue of seed certification.) 

States and Indian tribes will have to submit their hemp plans to the USDA for approval, and these plans will have to cover everything from plant disposal, to farmer licensing, to testing for THC levels. Once those plans are approved, licensed hemp farmers will be able to obtain loans, crop insurance, disaster assistance, and other programs more broadly available to farmers. 

Most states have moved forward with authorizing hemp regulations. While states can be more restrictive than the “federal plan,” they can’t be less restrictive. And a state can choose not to allow a hemp program, but it cannot prevent interstate hemp transport. 

At the end of the USDA call about the hemp rule, a reporter from The Associated Press asked whether the USDA would provide any grant funding to help states and tribes with implementing hemp programs. The answer was No. 

“There will not be USDA funding programs to assist the states and tribes,” Undersecretary Greg Ibach said. 

Meanwhile, a reporter with Spectrum News who covers Kentucky mentioned concerns she’d heard from African American hemp farmers—that large corporations will come in and squash smaller farmers, and those farmers are asking what protections might exist.

“I think the state plans will make a difference,” USDA Undersecretary Bill Northey said, in reference to how states might choose to distribute licenses. “Certainly we’re going to see large and small processors, as well. 

“I really do believe that, at the end of the day,” he said, “most of the folks that will be growing this crop will be producers, as opposed to companies. What we’ve seen so far is companies have worked with producers to grow the crop.”

Hemp by the numbers

The USDA’s interim final rule included a lot of eye-opening data about the size of the US hemp industry, and estimates about where the industry is headed. 

Here are some highlights:

Producers in 2018: 3,543
Future producers: “we estimate that there will be approximately 6,700 producers under State and Tribal plans, approximately 1,000 producers under the USDA plan.”

Acreage planted in 2018: 77,844 acres
Future acreage: “Acreage in 2019 is expected to at least double from 2018.”

Prices paid for hemp products, per pound:
Fiber: $0.07 to $0.67
Grain or seed: $0.65 to $1.70
Flowers: $3.50 to $30.00 (“or more, depending on the CBD content.”) 

How much hemp is grown for this flower?
Estimates are “that about two-thirds of hemp acreage planted is for floral material, while the remaining third is divided evenly between fiber and grain.”

What can farmers expect to make per acre?
“In 2018 Kentucky farmers were paid $17.75 million for harvested hemp materials from 6,700 planted acres. This results in a societal willingness to pay (assuming Kentucky is sufficiently representative of the United States) of around $2,650 per acre.”

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