July 23, 2019

Hemp and CBD – The Latest From Washington

Holland & Knight Regulatory & Litigation Blog
Taite R. McDonald

Even as states across the country move forward with legislation and state plans for legalized industrial hemp and hemp-derived products, the news coming out of Washington, DC has slowed. This does not mean that regulatory agencies, such as USDA and FDA, have set aside the issue for now; on the contrary, they are hard at work crafting the rules to govern these new marketplaces, and we anticipate the first regulations to be published in the coming months. What those will look like, however, is still a popular topic of parlor games in the nation’s capital.

When we last wrote on the state of play for the hemp regulations that will be promulgated by USDA, there was still lingering uncertainty on the timeline and some major provisions. Some of those, such as the interplay of state and federal laws on the interstate commerce of hemp, have been mostly resolved; in this instance, USDA has determined that, once its regulations have been published, states “cannot prohibit the interstate transportation or shipment of hemp lawfully produced under a State or Tribal plan or under a license issued under the USDA plan.” But two thorny issues remain unresolved: the form of the rule itself, and the treatment of hemp that is negligently produced with THC levels greater than the legal maximum of 0.3 percent.

Typically, "notice and comment" regulations follow a predictable path: the agency issues a proposed rule, solicits input from stakeholders and the general public, addresses that input, and then issues a final rule. However, this can be a time consuming process, and with USDA working to have a governance structure in place before the planting season for hemp, the agency has announced that it will move directly to an interim final rule, which it aims to have in place by August. While this may sound like inside baseball, the impact on stakeholders could be significant. On one hand, an interim final rule would give farmers the certainty they need to plant hemp for the 2020 growing season; on the other, it limits the ability of all stakeholders to help shape the final rule, and correcting any missteps by USDA will be a more time-consuming process.

The uncertainty around when and how USDA will respond to public comment on the interim final rule exacerbates the uncertainty of how the federal government will treat hemp that is negligently – that is, unintentionally – grown with THC concentrations greater than 0.3 percent. Unfortunately, our previous commentary that "whether and how states determine the intentions of growers that grow hemp with THC concentrations of greater than 0.3 percent, the extent of permissible remediation and the stage in the production timeline at which such remediation is allowed are all open questions at this point" remains true today. And if USDA moves forward with an interim final rule, it is likely that they will take the "easier" path and defer to the states on whether to allow for remediation of non-compliant products, with destruction of those products being the default option. With many states looking to USDA for guidance, this could significantly hamper the industrial hemp marketplace in the next few years. Requiring destruction of non-compliant products would make hemp nearly impossible to insure, and cut the legs out from under the industrial hemp market before it could even get off the ground. We urge all market participants to weigh in with USDA and their state department of agriculture to ensure that remediation of non-compliant products is allowed.

There are still many moving pieces, and nothing is ever truly final in rulemakings like these; proposed rules and interim final rules become final rules, and even those can be amended and updated over time. There will be additional opportunities for farmers, processors, distributors, consumers, and others to influence the market for industrial hemp and hemp-derived products. But for the 2020 growing season at least, time is of the essence.

On the FDA rulemaking front, there is not much new to report since last month. Like USDA, FDA has begun the process of writing rules to govern its segment of the hemp marketplace. We don’t expect to hear from FDA on this issue again until later in the summer or early fall. However, in the meantime, FDA is continuing to crack down on companies promoting cannabidiol (CBD) with unsubstantiated health claims, and health care and life sciences companies should continue to proceed with caution until FDA clarifies the legal landscape around CBD in products regulated by FDA.

In Congress, the Senate Banking Committee is holding a hearing on July 23 entitled “Challenges for Cannabis and Banking: Outside Perspectives.” And on July 10, a subcommittee of the House Judiciary Committee held a hearing entitled “Marijuana Laws in America: Racial Justice and the Need for Reform.” The Senate hearing is noteworthy because it is the first time Senator Crapo (R-ID), the chair of the Banking Committee, has expressed a willingness to engage in this issue. We’ll provide a readout in the days following the hearing.

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