Steven Schain of Hoban Law Group

Derived from identical plants, vastly easier to cultivate, and profoundly more profitable, industrial hemp always lacked legalized marijuana's sizzle.

That all changed on Dec. 20, 2018 when President Donald J. Trump signed the Agriculture Improvement Act of 2018 (Farm Bill) legalizing hemp and its derivatives and forever removing them from the Comprehensive Drug Abuse Prevention and Control Act of 1970, 21 U.S.C. Section 801, Et. Seq (1970) (Controlled Substance Act) and Drug Enforcement Administration's (DEA) clutches.

While 42 respective state programs await the U.S Department of Agriculture's (USDA) Farm Bill regulations before allowing full “commercialization” and the Food and Drug Agency's (FDA) “medications, consumables and Cannabidiol (CBD) containing products restriction” is concerning, the writing is on the wall.

Industrial hemp is the next gold rush.

Industrial Hemp Overview

Hemp-derived products' rising acceptance, combined with easing state regulations, caused U.S hemp production to explode in 2018.

A versatile plant used for thousands of years as a food and fiber source, Industrial hemp was grown commercially in the United States until both its and marijuana's cultivation was prohibited after World War II.

“Industrial hemp” is a variety of Cannabis sativa L. containing less than 0.3% plant chemical delta-9 tetrahydrocannabinol (THC), the psychoactive compound typically associated with “Marihuana,” Agricultural Act of 2014, 7 U.S. Code Section 5940. Different varieties of the same plant species, Cannabis sativa, marijuana is cultivated to yield psychoactive THC and industrial Hemp is cultivated for more than 25,000 oil and fibrous products.

CBD is an example of an oil based hemp-derived product, has broad health and wellness uses, and, according to cannabis research firm Brightfield Group, CBD's domestic market reached $291 million in 2017 and will hit $1.65 billion by 2021.

“Animal Feed” is an example of a fibrous hemp-derived product, which, before being sold or distributed, must be deemed “generally recognized as safe” (GRAS) by the FDA and listed as a “recognized feed ingredient” by the American Association of Feed Control officials.

From 2016 to 2017, the number of hemp acres planted nearly tripled (from 9,767 to 26,217) and the top 10 hemp-growing states acreage licensed for cultivation grew by 140 percent. In 2017, Oregon, Tennessee and Vermont's hemp producers tripled, while Minnesota, New York and North Dakota enjoyed respective growth of 533, 425 and 600 percent.

In 2017, Colorado farmers planted nearly 10,000 acres of hemp and Kentucky hemp acreage more than doubled in 2018, up to 6,700 acres from 3,200 in 2017. Montana's number of planted  hemp acres skyrocketed from just under 550 in 2017 to 22,000 in 2018, a 40-fold increase

Farm Bill Overview and Impact

Prior to the Farm Bill's passage, confusion existed whether hemp and its derivates were permissible under the Agricultural Act or a prohibited Schedule 1 narcotic leading to the DEA's December 2016 “clarifying rule” stating that, because it is extracted from marijuana flowers CBD is an illegal drug under the Control Substance Act's marijuana definition: “all parts of the plant cannabis sativa L., growing or not; seeds thereof; extracted resin; and every compound, manufacture, salt, derivative, mixture or preparation of such plant, its seeds or resin” but exempting plant components including: mature stalks; produced fiber; 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 extracted resin), fiber, oil, cake or the sterilized seed of such plant, which is incapable of germination—i.e., nonpsychoactive.

Beyond removing plant cannabis sativa L. containing no more than 0.3 percent THC on a dry-weight basis from the Controlled Substances Act and DEA's purview, the Farm Bill:

• Guarantees that hemp and hemp-derived products can be imported, exported and transported from state to state like any other crop;
• Tasks USDA with promulgating hemp regulations “as expeditiously as practicable”;
• Tasks states, territories and Indian tribes with submitting hemp-growing regulations          plans to the USDA including “THC testing procedures,” annual inspections,                    bookkeeping procedures to track land approved for hemp cultivation, and  “effective disposal” plans for excessive-THC-containing hemp plants;
• Empowers the USDA to approve or reject those cultivation regulations within 60 days; and
• Bans hemp cultivation by those with drug felonies in the past 10 years.

Operationally, the Farm Bill removes major hurdles impeding hemp cultivators' ability to run successful, profitable businesses including accessing insurance and banking, finding adequate harvesting equipment and processors, and moving hemp biomass or finished products between states.

Unfortunately, the Farm Bill neglects to provide states with any “hemp manufacturing or processing” regulating guidelines, guarantee interstate commerce for CBD-containing products, limit the FDA's authority to ban CBD from foods, drugs and cosmetics, or clarify whether a clause guaranteeing interstate commerce for “hemp products” affects the FDA's ability to limit CBD use in foods, drugs and cosmetics.

The FDA and CBD

Pursuant to Federal Food, Drug, and Cosmetic Act, 21 U.S.C. 301, et seq. conferred powers, the FDA oversees a wide range of food, drugs and cosmetics. Following the hemp plants' cultivation, the FDA has enormous sway over how hemp-derived products can be prepared, manufactured and sold. Other than Epidiolex (an FDA-approved severe epilepsy treatment), the FDA deems most CBD products to be “adulterated” or “misbranded” and, following the Farm Bill's passage, announced plans to review CBD use in food, drugs and cosmetics “in the near future” while maintaining that CBD (whether from hemp or marijuana) cannot be used in a food or dietary supplements if CBD is listed as “an active ingredient in a drug product.”

Despite its hard-line stance, the FDA has only sporadically enforced its ban on adding CBD to food, drugs and cosmetics, with enforcement limited to several warning letters to CBD manufacturers making possible medical claims.

At odds with the FDA's position, Colorado passed a law declaring that “food and cosmetics are not adulterated or misbranded by virtue of containing industrial hemp,” including CBD, which, so far, the FDA has not challenged in court.  States including California and New York, have said that CBD cannot be added to food until the FDA updates its CBD posture though CBD manufacturers in those states report only limited enforcement of the rules.

Pennsyvania and New Jersey's Hemp Programs

Presently 42 states have launched “hemp pilot” programs most of which allow growing and processing, but not selling, industrial hemp prior to the Farm Bill's passage.

To explore potential economic growth, Pennsylvania's General Assembly passed the Industrial Hemp Research Law, 3 Pa.C.S.A 701-710 permitting growing or cultivating hemp in  Pennsylvania for research conducted under an agricultural pilot program established by Pennsylvania's Department of Agriculture (PDA).

During 2017 season, 14 permit holders planted and grew slightly more than 36 acres of Industrial hemp. During the 2018 season, 33 permit holders planted and grew approximately 580 acres of industrial hemp. In 2019, up to 60 permits will be issued and entitling each permittee to a maximum research plot of 100 acres.

Despite the Farm Bill's passage, products produced from hemp grown in Pennsylvania may only be sold as part of approved marketing research and raw or unprocessed hemp plants or plant parts are not permitted to move across state lines. Once processed, most materials can move freely within and outside of the commonwealth.

Proclaiming that farmers should “diversify products by adding a lucrative crop,” on Nov. 21, 2018, New Jersey Gov. Phil Murphy signed Bill No. 1330 regulating industrial hemp “purchase, sale and marketing.”

Bill No. 1130 directs New Jersey's Department of Agriculture (NJDA) to establish an agricultural pilot program to study and promote industrial hemp cultivation to the maximum extent permitted by federal law and may  partner with any New Jersey institution of higher education to administer the agricultural pilot program.

Specifically, although not establishing a timetable, Bill No. 1130 requires NJDA to adopt the program administering rules and regulations addressing:

• Licensing or contracting with program participants;
• Prescribing requirements for institutions of higher education to participate in, or to be affiliated with, the program;
• Prescribing sampling and testing procedures ensuring that cultivated industrial hemp complies with federal law;
• Establishing fee schedule to be paid by licensees, contracted growers or participating institutions of higher education to NJDA to cover the program administering/implementing costs;
• Certifying seed cultivars that comply with federal law or licensing distributors of hemp seed capable of germination; and
• Regulating industrial hemp's purchase, sale and marketing.

Steve Schain is senior counsel to global cannabis law firm Hoban Law Group. With 14 offices and 44 lawyers, Hoban Law Group is the only practice 100 percent devoted to cannabis and hemp law. Admitted to practice in Pennsylvania and New Jersey, Schain represents entities, governments and individuals in choosing a structure, preparing and submitting license application, regulation, compliance and litigation and drafting legislation. Contact him at [email protected].