Member Blog: Hemp & CBD Legalization, Regulation & Compliance – Key Language in the Farm Bill

by Michael Cooper, co-founder of MadisonJay Solutions

Few developments in the world of cannabis — whether marijuana or hemp — could match the impact of the 2014 Farm Bill. But the 2018 Farm Bill, approved by the House and the Senate this week, promises to do just that.

As a quick reminder, the 2014 Farm Bill created an exception to the federal laws that prohibit the cultivation and sale of cannabis. To simplify, to the extent that a state created a pilot program to study hemp cultivation and the plants were of a sufficiently low level of THC, the resulting plant would be considered “Farm Bill hemp” and not subject to the prevailing federal prohibitions. To state the obvious, this was a very significant change. In fact, as a result of a combination of the magnitude of the change and the narrowness of the exception, apparent confusion led to periodic enforcement actions and court challenges.

As 2018 draws to a close, Congress must once again reauthorize the Farm Bill. It’s worth noting that the periodic reauthorization has nothing to do with hemp policy, and everything to do with the federal legislative process.  

And the relatively narrow “exception” for hemp in the 2014 Farm Bill is on the cusp of significant expansion. Hemp, defined as cannabis plants and all their parts, extracts, “cannabinoids,” and derivatives with a THC concentration of less than 0.3%, will be subject to a regulatory scheme devised by the federal Department of Agriculture and will be removed from the federal Controlled Substances Act. States that wish to regulate hemp may propose regulations that the state “shall submit to the Secretary” of Agriculture. Notably, no state “shall prohibit the transportation or shipment of hemp or hemp products” produced in compliance with these new rules.

So, inquiring minds might wonder, what happens if 2018 Farm Bill hemp turns out to have a THC concentration of 0.31% instead of the permissible 0.3%? To the extent that higher THC concentration is the result of an honest mistake, Section 297B(e)(2) provides the answer: if the state has developed hemp regulations, and the state concludes the violation was the result of “negligence” (e.g., an unintentional oversight), the producer will be required to take corrective action. If that happens 3 times in a 5-year period, the producer will be ineligible to produce. If the state has not developed hemp regulations, the same standard will be applied by the federal Secretary of Agriculture pursuant to Section 297C(c)(2).

That is, a “negligent” mistake should not place the cultivator at risk of being placed outside of the protections of the Farm Bill (discussion of the reach of those federal laws is fascinating, but beyond the scope of this post). As a result, it will remain advisable for hemp cultivators to implement sufficient compliance efforts to avoid any potential inference that they are intentionally seeking a higher THC concentration.  

Barring the unexpected, the 2018 Farm Bill will have a seismic impact on the hemp and hemp-derived CBD industry. With the nation watching, a smooth, well-regulated transition can only help to bolster calls for broader cannabis reform. As a result, once the 2018 Farm Bill becomes law, the industry will undoubtedly be paying close attention to the regulations promulgated by federal and state hemp regulators. And they will be working hard to demonstrate that they are staying within those guidelines.

Michael Cooper is the co-founder and managing member of MadisonJay Solutions LLC, a leading regulatory advisor to the adult-use cannabis industry that helps businesses understand the latest rules and build effective compliance infrastructure to address risk. He is the Vice Chair of the NCIA’s State Regulations Committee, and publishes and speaks frequently on cannabis regulation.

He is a graduate of Harvard College and Harvard Law School, and previously served as General Counsel of MHW, Ltd. and in the litigation department of Cravath, Swaine & Moore LLP.  He began his legal career as a law clerk on the U.S. Court of Appeals for the Fifth Circuit. He can be reached at mcooper@madisonjaysolutions.com.