As CBD booms, hemp growers worry new federal regulations will hurt their business
PORTLAND (AP) — Hemp growers and entrepreneurs who were joyous a year ago after U.S. lawmakers reclassified the plant as a legal agricultural crop now are worried their businesses could be crippled if federal policymakers move ahead with draft regulations.
Licenses for hemp cultivation topped a half-million acres last year, more than 450% above 2018 levels, so there’s intense interest in the rules the U.S. government is creating. Critical comments on the draft have poured in from hemp farmers, processors, retailers and state governments.
Growers are concerned the government wants to use a heavy hand that could result in many crops failing required tests and being destroyed. The U.S. Department of Agriculture, the agency writing the rules, estimates 20% of hemp lots would fail under the proposed regulations.
“Their business is to support farmers — and not punish farmers — and the rules as they’re written right now punish farmers,” said Dove Oldham, who last year grew an acre of hemp on her family farm in Grants Pass. “There’s just a lot of confusion, and people are just looking for leadership.”
The USDA did not respond to the criticism but has taken the unusual step of extending the public comment period by a month, until Jan. 29. The agency told The Associated Press it will analyze information from this year’s growing season before releasing its final rules, which would take effect in 2021.
Agricultural officials in states that run pilot hemp cultivation programs under an earlier federal provision are weighing in with formal letters to the USDA.
“There are 46 states where hemp is legal, and I’m going to say that every single state has raised concerns to us about something within the rule. They might be coming from different perspectives, but every state has raised concerns,” said Aline DeLucia, director of public policy for the National Association of State Departments of Agriculture.
Most of the anxiety involves how the federal government plans to test for THC, the high-inducing compound found in marijuana and hemp, both cannabis plants. The federal government and most states consider plants with tiny amounts — 0.3% or less — to be hemp. Anything above that is marijuana and illegal under federal law.
Yet another cannabis compound has fueled the explosion in hemp cultivation. Cannabidiol, or CBD, is marketed as a health and wellness aid and infused in everything from food and drinks to lotions, toothpaste and pet treats.
Many have credited CBD with helping ease pain, increase sleep and reduce anxiety. But scientists caution not enough is known about its health effects, and the U.S. Food and Drug Administration last year targeted nearly two dozen companies for making CBD health claims.
Still, the CBD market is increasing at a triple-digit rate and could have $20 billion in sales by 2024, according to a recent study by BDS Analytics, a marketing analysis firm that tracks cannabis industry trends.
About 80% of the 18,000 farmers licensed for hemp cultivation are in the CBD market, said Eric Steenstra, president of the advocacy group Vote Hemp. The remaining 20% grow hemp for its fiber, used in everything from fabric to construction materials, or its grain, which is added to health foods.
But hemp is a notoriously fickle crop. Conditions such as sunlight, moisture and soil composition determine its ratio of THC to CBD. Choosing the right harvesting window is critical to ensuring it stays within acceptable THC levels.
Under the draft USDA rules, farmers have no wiggle room. They must harvest within 15 days of testing their crop for THC, and the samples must be sent to a lab certified by the U.S. Drug Enforcement Administration. Samples must be from the top of the plant, where THC levels are highest, and the final measurement must include not just THC, but also THCA, a nonpsychoactive component.
Crops that test above 0.3% for the two combined must be destroyed. Growers with crops above 0.5% would be considered in “negligent violation,” and those with repeated violations could be suspended from farming hemp.
In addition, a pilot program for federal crop insurance that would be available to hemp growers in some states specifies that crops lost because of high THC levels won’t be covered.
Those provisions are causing alarm among growers and states with pilot hemp programs allowed under the 2014 Farm Bill. Some states allow THC levels above 0.3%, and not all include THCA in that calculation. Many permit more harvesting time for growers after THC testing.
Farmers are lobbying for a 1% THC limit and a 30-day harvest window to give them more flexibility while remaining well under THC levels that can get people high.
The draft regulations don’t “seem to be informed by the reality of the crop,” said Jesse Richardson, who with his brother sells CBD-infused teas and capsules under the brand The Brothers Apothecary.
“If no one can produce (federally) compliant hemp flower, then there will be no CBD oil on the market.”
Growers are also worried about the proposed rule requiring that all THC testing be done in a DEA-certified lab because there are so few of them. Some states have only one, which would serve hundreds of growers in a short harvest window.
Samantha Ford, a third-generation farmer in North Carolina, waited two weeks to get back THC results from a lab last fall and then spent 45 days harvesting her 1 acre of hemp by hand.
“The 15-day window — that’s not feasible, and that was on a small scale,” she said. “I can’t imagine farmers who have acres and acres and acres of it.”
Concerns also have emerged about the workload the draft rules would place on states. Many do random sampling for THC levels, but the USDA would require five samples from every hemp lot — a burden for state agricultural departments, said DeLucia, of the national ag agencies group.
If federal rules are too onerous and expensive, some states might drop their hemp programs. In those cases, farmers would have to apply for licenses with the USDA, and at this stage it’s unclear how U.S. officials would manage or pay for a nationwide licensing program, DeLucia said.
Under the 2018 Farm Bill, the USDA must approve state plans for hemp programs. Louisiana, Ohio and New Jersey last month were the first to get the green light — but those plans might need to be reworked after final rules are written.
“What we don’t want to see is states having to write their rules and then have to change the rules again and rewrite them” after 2021, said Steenstra, of Vote Hemp.
Marijuana and Hemp (Cannabis) Law
It is important to realize that changes may occur in this area of law. This information is not intended to be legal advice regarding your particular problem, and it is not intended to replace the work of an attorney.
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Oregon’s cannabis laws are both complex and in a state of flux. They are most easily discussed by compartmentalizing them into four broad areas: personal, medical, commercial and hemp.
Since July 1, 2015, possession of less than an ounce of marijuana by adults 21 years old and older is legal anywhere in Oregon, except that its use is prohibited in public places and in public view. Adults, at their home, may also lawfully cultivate four plants per household (again, out of public view), and they may lawfully possess all of the following:
- eight ounces of dried flowers from the plants;
- 72 ounces of infused liquids;
- 16 ounces of infused solids; and
- one ounce of extracted oil.
(Note that the oil must be purchased from someone with a license to extract the oil.)
Beginning Oct. 1, 2015, adults 21 years or older will be able to purchase up to one-quarter ounce (7 grams) of marijuana, immature (nonflowering) plants, and seeds from medical marijuana dispensaries. These purchases will be tax free until Jan. 1, 2016, and then be taxed at a rate of 25 percent until that law ends on Dec. 31, 2016. It is anticipated that adult use dispensaries will be up and running by then.
As of Aug. 1, 2015, most of this law is contained within Ballot Measure 91 (2014) as amended by HB3400 (2015). The law allowing adult sales at medical marijuana dispensaries is in SB460 (2015).
A person who suffers from a debilitating medical condition (from a limited list of mostly severe physical conditions and PTSD) and who has been so diagnosed by an Oregon licensed medical doctor or osteopath (an MD or DO) and who registers with the Oregon Health Authority is protected from arrest and prosecution under state laws so long as the patient with a registry identification card stays within the limits allowed, and does not do any of the prohibited things set forth in ORS 475.316. The limits are:
- six mature plants, defined, effective March 1, 2016, as flowering; until then, a mature plant is defined as being more than a foot tall or more than a foot wide or flowering;
- 18 immature plants or starts or seedlings, defined, until March 1, 2016, as less than a foot tall and less than a foot wide and not flowering. Starting March 1, 2016, there is no limit on the number of immature plants, starts or seedlings a patient may have.
The patient can designate a caregiver and a grower who are similarly protected. Collectively, these three people may possess up to 24 ounces of “usable marijuana,” which includes hashish. A grower is only allowed to cultivate for four patients, but an unlimited number of patients may designate the same location for their growsite.
Irrespective of who cultivates it, the patient owns all the medicine, until March 1, 2016; beginning on that date, the patient may choose to give the grower the ownership of the medicine.
The patient may authorize himself or herself, or the caregiver or the grower to distribute any excess usable medical marijuana to a medical marijuana dispensary and be fully reimbursed. The dispensary, in turn, can reimburse the grower (who may also be the patient) and in turn be fully reimbursed by patients and their caregivers.
As noted above, an unlimited number of patients may designate the same location as their growsite. Responding to the emergence of commercial medical cultivation and concerns about leakage out of state and large growsites in urban areas, the legislature imposed the following changes, effective March 1, 2016:
- Urban gardens in areas zoned residential are allowed 12 plants, unless there were 24 plants designated at that location by Jan. 1, 2015; in that case, all 24 plants are allowed.
- Other areas (not urban residential zones) are allowed up to 48 plants, unless there were 96 plants designated at that location by Jan. 1, 2015; in that case, 96 plants are allowed.
- Indoor medical marijuana growsites will be allowed to have up to 6 pounds of usable marijuana per mature plant, and outdoor marijuana growsites will be allowed 12 pounds per mature plant.
Medical growsites will undergo a registration process starting March 1, 2016, which will include monthly reporting to the Oregon Health Authority on what is cultivated, possessed and distributed to patients and dispensaries.
The Medical Marijuana Act is codified beginning at ORS 475.300. Administrative rules can be found at OAR 333-008-0000. These laws were also amended by HB3400 (2014).
Most of the law regarding commercial licensing of adult use facilities is found in Ballot Measure 91 (2014), HB 3400 (2015) and future OLCC rules. The OLCC has announced that it expects to have draft rules ready by October 2015 and final rules ready by November 2015.
Effective Jan. 4, 2016, the Oregon Liquor Control Commission (OLCC) must accept applications for four kinds of commercial adult use licenses: Production, Processing, Wholesale and Retail. A person or business entity will be able to hold all four licenses or choose to hold less than all four types. Note that medical marijuana growers, by participating in the OLCC production rules, will become able to distribute marijuana to OLCC-licensed retail outlets. The Legislature imposed a 2-year residency requirement for applicants, which will be in effect until Jan. 1, 2020.
Industrial hemp is defined as Cannabis sativa with a crop-wide average THC concentration of less than 0.3 percent. Industrial hemp is an agricultural commodity with thousands of applications, including clothing, cosmetics, construction materials, food, fuel and paper. Production, possession and commerce in industrial hemp have been legal in Oregon since Jan. 1, 2010 (SB 676). In 2015, the Oregon Department of Agriculture finalized rules implementing the Oregon Industrial Hemp Program. The Oregon Department of Agriculture issues licenses to cultivate and process industrial hemp, as well as licenses to produce and sell agricultural hemp seed. Industrial hemp farmers are required to cultivate a minimum crop of 2.5 acres.
Industrial hemp growers and handlers statutes are codified at ORS 571.300 to 571.315. Administrative rules can be found at OAR 603-048-0010. These laws were amended by SB 881 (2015).
1. Even though the rules and limits described above are state laws, the legislature, for the first time since the end of alcohol prohibition, has allowed cities and counties to opt out of some of these statewide laws. The laws concerning adult use and cultivation, processing and retail sales, as well as medical processing and medical dispensaries can be banned. How? In counties where 55 percent of the people voted against Measure 91 (all counties east of the Cascades, except for Deschutes and Wasco Counties), if a city or county bans state-licensed marijuana businesses by Dec. 31, 2015, then the people would have to collect signatures and have an initiative election in November 2016. In counties where less than 55 percent voted against Measure 91, the ban is automatically referred to the people for a vote in November 2016.
2. Marijuana possession, cultivation and distribution and use remain illegal under federal law. The current policy of the U.S. Department of Justice is to discourage enforcement of the Federal Controlled Substances Act in those states that have enacted medical and/or adult use laws consistent with eight prioritized concerns of the federal government, so long as those laws are “robustly enforced.” In January 2017, a new president will be sworn in and federal policy may change.
3. Other federal law problems include the inability of marijuana businesses to be able to use FDIC-insured banks and their inability to deduct “ordinary and necessary business expenses” (except for the costs of goods sold) from their federal taxes.
This brief outline of the laws is just that, a brief outline. Consulting with an Oregon licensed attorney is strongly encouraged. Although penalties for noncompliance with what are complex regulatory schemes are becoming less severe, there is still a thin green line between being legal and being a criminal.
Legal editor: Leland R. Berger, with assistance from Courtney Moran on industrial hemp, August 2015
Marijuana and Hemp (Cannabis) Law It is important to realize that changes may occur in this area of law. This information is not intended to be legal advice regarding your particular problem, and