Notwithstanding the language of the 2018 Farm Bill, the absence of federal regulations implementing the new law and sanctioning state hemp programs revised pursuant to the 2018 Farm Bill has caused significant confusion regarding the true impact of the act.

The Agriculture Improvement Act of 2018 (the “2018 Farm Bill”), signed into law on December 20, 2018, altered the federal government’s treatment of hemp in a number of ways. The 2018 Farm Bill expanded the definition of “hemp” to include, explicitly, derivatives, extracts and cannabinoids, and removed hemp from the definition of federally unlawful marijuana under the Controlled Substances Act (CSA). See 2018 Farm Bill, Pub. L. No. 115-334 §§ 10113, 12619, 132 Stat. 4490. Notably, the 2018 Farm Bill also explicitly permitted the interstate transportation of hemp: “No State or Indian Tribe shall prohibit the transportation or shipment of hemp or hemp products produced in accordance with subtitle G of the Agricultural Marketing Act of 1946 (as added by section 10113).” Id. at § 10114.

Subtitle G, for its part, provides that “[n]othing in this section prohibits the production of hemp in a State or the territory of an Indian tribe—(1) for which a State or Tribal plan is not approved under this section, if the production of hemp is in accordance with section 297C or other Federal laws (including regulations).” Id. at § 10113 (emphasis added). This final clause, “or other Federal laws,” is significant because the Agriculture Act of 2014 (the “2014 Farm Bill”) is also a “federal law,” and to date approximately 40 states have instituted industrial hemp programs pursuant to the 2014 Farm Bill. Under the language of the 2018 Farm Bill, then, states may not interfere with the interstate transportation of hemp produced in accordance with either the 2014 Farm Bill or—once regulations are implemented and state hemp programs are approved—the 2018 Farm Bill.

Notwithstanding the language of the 2018 Farm Bill, the absence of federal regulations implementing the new law and sanctioning state hemp programs revised pursuant to the 2018 Farm Bill has caused significant confusion regarding the true impact of the act.

Legal Memorandum by the USDA

In a legal memorandum issued by the United States Department of Agriculture (USDA) on May 28, 2019, the USDA Office of the General Counsel (OGC) took steps to clarify a number of issues that have developed in the temporal gap between the enactment of the 2018 Farm Bill and the promulgation of regulations meant to implement the law. The OGC’s memo, written to USDA Commissioner Sonny Perdue but relevant to businesses throughout the country, draws a number of critical conclusions based upon thorough statutory analysis and a review of pertinent case law. These conclusions relate to (i) the lawfulness of hemp; (ii) the interstate transportation of hemp; and (iii) state authority to continue to regulate hemp.

Hemp Is No Longer a Controlled Substance

The first significant position in the OGC’s memo is the confirmation that the 2018 Farm Bill amended the CSA to exclude hemp (defined to include “the seeds thereof and all derivatives, extracts, cannabinoids”) from the definition of “marijuana,” and amended the CSA to exclude the THC in hemp from the Schedule I reference to “tetrahydrocannabinols.”

This conclusion from the OGC is significant because, as a legal opinion from a federal agency charged with regulating hemp, it provides strong support to the position that passage of the 2018 Farm Bill, without more, is sufficient to alter the legality of hemp. In arriving at its conclusion, the OGC addresses and strikes down the argument that, because the regulations implementing the modified version of the CSA have not yet been implemented, the scheduling and decontrolling effects of the 2018 Farm Bill are without force. Although the CSA is typically amended through rulemaking, the OGC explained that “the schedules also can be amended directly by Congress through changes to the statute.” OGC memo, page 4. Although the Code of Federal Regulations had not yet been updated to reflect the legislative changes to the CSA, that too is irrelevant because “statutes trump regulations.” Id. at 5. Thus, the moment the 2018 Farm Bill became law, hemp—including any “derivative thereof”—ceased to be a controlled substance. Id., page 1 (emphasis added).

States May Not Prohibit the Interstate Transportation of Certain Hemp and Hemp Products

As mentioned at the outset, the 2018 Farm Bill prohibits states and Indian tribes from preventing the interstate transportation of hemp. However, the absence of federal regulations implementing the new law and sanctioning state hemp programs has led to uncertainty as to whether an entity can move hemp and hemp products between states before such regulations are put in place.

This issue—both a legal conundrum and a practical business problem—came to a head in Big Sky Scientific LLC v. Idaho State Police, 1:19-cv-00040, 2019 WL 438336 (D. Idaho Feb. 2, 2019). The plaintiff in Big Sky is a Colorado-based hemp processor that purchased a hemp crop from a licensed cultivator in Oregon. See id. at *2. The truck carrying the federally lawful hemp crop passed through Idaho en route to its final destination in Colorado. See id. at *3. Although both Colorado and Oregon developed industrial hemp programs pursuant to the 2014 Farm Bill, Idaho has not, and its criminal laws do not distinguish between hemp and marijuana. Thus, when the truck driver stopped at a port of entry outside of Boise, Idaho, he was arrested for marijuana trafficking in violation of the Idaho criminal code and his cargo was seized. See id. The plaintiff sought an injunction against the Idaho state police, arguing the cargo was federally lawful hemp and, as such, Idaho could not interfere with its transportation. Id. at *5. The District Court disagreed, in part “because no ‘plans’ to regulate the production of industrial hemp under the 2018 Farm Act have either been approved (by the federal government as to Oregon, as pertinent here) or created and promulgated by the United States Department of Agriculture.” Id. at *6.

The OGC memo takes this issue on directly. The OGC views the 2018 Farm Bill’s reference to the production of hemp in accordance with “other federal laws,” discussed above, as dispositive. OGC memo, page 8. “It is my opinion that ‘other Federal laws’ encompasses [the] 2014 Farm Bill,” and therefore “under 2018 Farm Bill § 10114(b), a State or Indian tribe may not prohibit the transportation or shipment of so-called ‘2014 Farm Bill hemp’ through that State or Tribal territory.” Id. at 9. The OGC went so far as to explicitly disagree with the ruling in Big Sky based on this analysis: “USDA is not a party in the Big Sky case, and this office does not concur with the reasoning.” Id. Therefore, according to the OGC, even before the USDA promulgates regulations implementing the 2018 Farm Bill, that act’s protections regarding the interstate transportation of hemp still apply to hemp produced pursuant to the 2014 Farm Bill.

States Can Impose More Stringent Requirements Than the Federal Government

Finally, the OGC memo highlights a crucial, and often overlooked, provision of the 2018 Farm Bill, which states that “[n]othing in this subsection preempts or limits any law of a State or Indian tribe that—(i) regulates the production of hemp; and (ii) is more stringent than this subtitle.” Pub. L. No. 115-334 §§ 10113 (emphasis added). In other words, “the 2018 Farm Bill reserves the authority of States and Indian tribes to enact and enforce laws regulating the production (but not the interstate transportation or shipment) of hemp that are more stringent than Federal law.” OGC memo, page 2 (emphasis added).

This point is critical. Despite the OGC’s support for the position that states cannot interfere in the transportation of hemp, businesses in the hemp industry must still pay close attention to the specific rules and regulations in each state in which they seek to cultivate or process their hemp products, as states are still free to prohibit hemp production. Consider—as an example—a hemp producer in Kentucky that seeks to ship its products to Pennsylvania. Kentucky has enacted detailed laws and regulations related to the processing and sale of hemp products, but neighboring Ohio has issued guidance prohibiting the sale of hemp products, specifically hemp-derived CBD, outside of medical marijuana stores. If the Kentucky business sought to ship its product through Ohio and into Pennsylvania, under the OGC’s interpretation of the 2018 Farm Bill (and the bill’s clear language), Ohio should not be able to prevent that shipment. However, if the producer in Kentucky decided to move its operations to Ohio, it would need to familiarize itself with Ohio’s more stringent laws and regulations regarding the production of hemp within its borders.

Conclusion

In addition to clarifying the federal treatment of hemp and highlighting the continuing ability of states to restrict hemp production, notwithstanding current federal legislation, the OGC memo has the potential to dramatically impact the industrial hemp industry. Prior to this legal memorandum, many entities have been hesitant to engage in interstate commerce involving hemp or hemp products—and understandably so. In the wake of Big Sky, it is not difficult to imagine why trucking companies might refuse transportation contracts, and cultivators and producers concerned with the potential of losing full shipments of product would artificially limit their customer bases and vendors to certain states. With this opinion from the USDA, the federal government has finally provided some guidance as to how interstate shipments of hemp are to be treated

We expect further guidance from the USDA and the U.S. Food and Drug Administration, as well as the promulgation of regulations implementing the 2018 Farm Bill, by the end of 2019. Because the rules applicable to cannabis operators—at both the federal and state levels—are constantly fluctuating, it is critical that entities transacting business in this space retain competent counsel to guide them through the complex regulatory landscape that governs their trade.

[Note: Duane Morris assisted the American Trade Association for Cannabis and Hemp (ATACH) in its amicus brief on behalf of Big Sky Scientific in Big Sky v. Idaho State Police. Duane Morris is the national law partner of ATACH.]