Skip to content

The Hemp Farming Act of 2018 (the “Bill”) introduced by Senate Majority Leader Mitch McConnell, would provide a much needed stimulus for the United States rural economy. Given the pending risk of a trade war looming over agricultural businesses, the continuing decline in agricultural commodity prices, and the ever-present institutional risks facing producers, one might wonder why anyone would continue, let alone enter, the farming profession. The Bill offers hope, however, for the men and women who make their living off the land.

Why?

Diversification of crop production and strategic crop rotation are fundamental to a successful farming business. And, the planting and cultivation of hemp could be implemented into any number of crop rotations because it: (i) thrives in almost all climates; (ii) enriches the soil; (iii) uses less water than most other crops; and (iv) grows quickly. The Bill makes hemp a viable rotation crop by legitimizing it as an U.S. agricultural commodity through (i) advancing opportunities for hemp research, (ii) including it as a coverable commodity under the Federal Crop Insurance Act, and (iii) removing it from the Controlled Substances Act.

The Bill has bipartisan support and, for the sake of the rural economy and all those many industries who stand to deservingly benefit from its passage, we hope it soon becomes law.

 

The bill, known as the Hemp Farming Act of 2018, would legalize hemp, removing it from the federal list of controlled substances and allowing it to be sold as an agricultural commodity.  “By legalizing hemp and empowering states to conduct their own oversight plans, we can give the hemp industry the tools necessary to create jobs and new opportunities for farmers and manufacturers around the country,” McConnell said in a statement last week introducing the bill. The bill has bipartisan support.

This bill also seeks to end the grey area surrounding hemp-derived CBD extracts: “The term ‘hemp’ means the plant Cannabis sativa L. and any part of that plant, including the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts and salts of isomers, whether growing or not, with a delta-9 tetrahydrocannabinol concentration of not more than 0.3 percent on a dry weight basis.”

What does this mean?

As I have previously stated, my hope was that this bill would not only deschedule industrial hemp as a controlled substance but provide clarity regarding hemp-derived CBD. This bill has done exactly that and now what remains to be seen is can Sen. McConnell get this over the finish line in its current form?

 

Yesterday, Senator Mitch McConnell spoke to a group of hemp advocates in his home state of Kentucky that he will introduce legislation to legalize industrial hemp as an agricultural commodity.  If approved, Sen. McConnell’s legislation would allow states to control their own hemp regulations by removing federal restrictions.

What does this mean?

While industrial hemp has benefited from the 2014 Farm Bill and related state programs, there is still a considerable grey area surrounding the legality and commercialization of industrial hemp, including CBD, in the United States.  The Federal government has long taken the position that general commercialization of industrial hemp is NOT permitted in all 50 states and the DEA’s new definition for “Marihuana Extract” includes: “an extract containing one or more cannabinoids that has been derived from any plant of the genus Cannabis, other than the separated resin (whether crude or purified) obtained from the plant.” It should be noted that this definition of “Marihuana Extract” includes CBD isolate that is extracted from industrial hemp.  While Sen. MConnell’s legislation has not yet been released as of posting of this blog, the hope is that it will provide clarity on not only legalizing industrial hemp but also providing clear guidance on the legality of cannabinoids derived from industrial hemp.

 Yesterday, details of the Fiscal Year 2018 Budget were released.  Congress has once again elected to prohibit the Department of Justice (“DOJ”) from spending money on actions that prevent medical marijuana states giving practical effect to their state laws that authorize the use, distribution, possession, or cultivation of medical marijuana.  Congress also continued existing provisions shielding state industrial hemp research programs from federal interference.  Adult-use was left off.

What does this mean?

It’s a nice reassurance for industrial hemp/medical marijuana businesses, their employees and patients acting in compliance with state rules.  Note, this does not prevent the DOJ from using funds to prevent adult-use marijuana programs.  However, just last week, a bipartisan group of 59 lawmakers wrote a letter that the DOJ should be blocked from enforcing federal marijuana prohibition in states that have enacted legalization, medical AND adult-use.  It is still unclear when there will be enough appetite in Congress to get adult-use marijuana shielded from the DOJ, but I remain hopeful.

Young cannabis plants, marijuanaAccording to a prominent cannabis advisory firm, the cannabis industry raised over a $1 Billion in investment dollars in 2016.  These investments included public companies on the TSXV (cultivation and extract company), NYSE (REIT) and NASDAQ (pharmaceutical company).

What does this mean?

Majority of large investments are going into real estate and pharmaceutical company – as these investments are not subject to the strict regulatory environment restricting ownership of companies that cultivate and sell cannabis.  Big money will continue to flow to “non-plant touching” business in 2017; however, I expect a fair amount of consolidation in the cultivation and retail sectors.

Young cannabis plants, marijuanaYesterday the DEA published a final rule providing for a new drug code for “Marihuana Extract” .  The DEA states that this will allow them to track quantities of “Marihuana Extract” separately from marijuana to aid in the compliance with relevant drug treaties.  This new rule is set to become effective on January 13, 2017.  The DEA’s new definition for “Marihuana Extract” includes: “an extract containing one or more cannabinoids that has been derived from any plant of the genus Cannabis, other than the separated resin (whether crude or purified) obtained from the plant.”

What does this mean?

Fundamentally this does not represent a change in federal law, as cannabinoids extracted from “marihuana” (as defined in the CSA) are federally illegal.  However, the plain language of the new definition does appear to expand the CSA’s reach to cover cannabinoids extracted from the genus Cannabis not just “marihuana”.  This means that cannabis businesses that have imported permissible parts of the plant Cannabis sativa L., are now also likely prohibited from extracting cannabinoids from such plant material.

NOTE:  Given the varied implications, my firm is further analyzing the implications to the cannabis and pharmaceutical industries.  We will provide an update when appropriate.

On August 12, 2016, the DEA published a policy in the federal register (81 Fed. Reg. 53846) designed to increase the number of entities registered under the CSA to grow marijuana to supply legitimate researchers in the United States.  The DEA has concluded that the best way to satisfy the current researcher demand for a variety of strains of marijuana and cannabinoid extracts is to increase the number of federally authorized marijuana growers.  While the new policy does not entirely make clear what entities may apply to become federally authorized marijuana growers, it seems that “commercial enterprises” may apply.  Specifically, the policy states that “under the historical system, there was no clear legal pathway for commercial enterprises to produce marijuana for product development.  In contrast, under the new approach… persons may become registered with DEA to grow marijuana not only to supply federally funded or other academic researchers, but also for strictly commercial endeavors funded by the private sector and aimed at drug product development.”

The DEA will evaluate each application to determine:  (1) whether adding such applicant to the list of registered growers is necessary to provide an adequate and uninterrupted supply of marijuana to researchers in the United States; and (2) whether the proposed registration would be consistent with the public interest.  Among the factors to be considered are whether the applicant has previous experience handling controlled substances in a lawful manner and whether the applicant has engaged in illegal activity involving controlled substances.

What does this mean?

Importantly, the DEA has concluded that in lieu of requiring the growers to operate under a contract with NIDA, a registered grower will be permitted to operate independently, provided the grower agrees (through a written memorandum of agreement with DEA) that it will only distribute marijuana with prior, written approval from DEA.  This is still unproven and there is no certainty that the private sector will be able to take advantage of this.

A favorable ruling from the Ninth Circuit in United States v. McIntosh is a reassuring win for the medical marijuana industry.  This federal case concluded that § 542 of the Consolidated Appropriations Act prohibits DOJ from spending money on actions that prevent medical marijuana states giving practical effect to their state laws that authorize the use, distribution, possession, or cultivation of medical marijuana.

What does this mean?

It’s a nice reassurance for medical marijuana businesses, their employees and patients acting in compliance with state rules. It is also likely to dissuade the DOJ from taking similar actions in the near future and provides a valuable precedent to certain defendants so long as the current prohibition on DOJ enforcement spending remains in effect. However, Congress can change the spending prohibition at any time.

The footnote of the case reaffirms that marijuana is still federally illegal and does not provide immunity from prosecution for federal marijuana offenses.   The footnote is below:

[Footnote 5: The prior observation should also serve as a warning. To be clear, § 542 does not provide immunity from prosecution for federal marijuana offenses. The CSA prohibits the manufacture, distribution, and possession of marijuana. Anyone in any state who possesses, distributes, or manufactures marijuana for medical or recreational purposes (or attempts or conspires to do so) is committing a federal crime. The federal government can prosecute such offenses for up to five years after they occur.

Congress currently restricts the government from spending certain funds to prosecute certain individuals. But Congress could restore funding tomorrow, a year from now, or four years from now, and the government could then prosecute individuals who committed offenses while the government lacked funding. Moreover, a new president will be elected soon, and a new administration could shift enforcement priorities to place greater emphasis on prosecuting marijuana offenses.

Nor does does any state law “legalize” possession, distribution, or manufacture of marijuana. Under the Supremacy Clause of the Constitution, state laws cannot permit what federal law prohibits. Thus, while the CSA remains in effect, states cannot actually authorize the manufacture, distribution, or possession of marijuana. Such activity remains prohibited by federal law.]

Finally, this ruling also only covers “medical marijuana” and not “recreational marijuana.”  As I have stated before, this does not prevent the DOJ from using funds for enforcement actions against recreational marijuana businesses.

The U.S. Drug Enforcement Administration filed documents with the Federal Register on Thursday outlining its denial of petitions to reschedule marijuana.  The DEA stated that marijuana has no known medical use and that the decision was based heavily on the evaluations of the U.S. Food and Drug Administration and the Department of Health and Human Services.  This determination should not be interpreted as the DEA now going after state-legal marijuana business, rather DEA enforcement action will remain focused on heroin, fentanyl, meth, cocaine.  Ultimately, the DEA’s decision is a neutral to the marijuana industry.