Updated: Jan 29, 2020
Last week, we traveled to Washington D.C. for meetings with Kentucky Congressional delegates to discuss the latest buzz on hemp. From the recently released USDA interim final rule on U.S. hemp production, to the Kentucky ban on CBD flower, we learned the latest on hemp topics trending on Capitol Hill, across the Commonwealth, and nationwide.
Here are our takeaways —
USDA Interim Final Rule & Hemp Production Guidelines
As part of the rule making process, the USDA engaged in numerous discussions with hemp industry stakeholders. This included meetings and listening sessions with different State and tribal representatives, industry organizations, individuals and groups with experience in the hemp industry, and law enforcement. Kentucky leaders, particularly Senate Majority Leader Mitch McConnell, worked in-step with the USDA to establish the interim rules on hemp production. Prior to the publishing of the rule, Senator McConnell hosted USDA officials for a series of roundtables, discussion panels, and tours showcasing Kentucky’s hemp industry.
Despite USDA’s diligence, the complexity of establishing a new regulatory program for domestic hemp production, a crop that could not be legally grown on a commercial basis under Federal law for several decades, proved to be an ambitious and overwhelming task.
While our representatives unanimously feel that the USDA interim final rule on hemp production was a step in the right direction, and applauded the agencies efforts to establish the rule in a timely and attentive matter, they were quick to acknowledge its flaws.
Stakeholders have noted the concerns regarding THC levels and definition, testing procedures, and THC liability. Each Congressman avidly expressed their commitment to addressing these issues by spearheading or supporting various pieces of subsequent legislation as needed.
Congressman Comer was particularly interested in discussing the concern of the liability of the grower versus the lack of liability for processors. The rule deems the grower responsible for THC levels and testing, despite (typically) having no control of their hemp genetics or the end product produced. Senator Rand Paul felt similarly to Congressman Comer and went a step further to ask “why is the crop being tested at all?” He feels that rather than testing a crop in the field, only the end product should be tested. This would remove the THC “science” burden from the grower, and let the “science people” or processors handle the responsibility. The term “end product” would also apply to raw end products, such as hemp flower, seeds, or clones — ensuring all hemp products purchased are compliant with the <0.3 THC limit.
The interim final rule is in place for the next two years under a trial period, and the USDA will be making necessary adjustments based on the guidance of Congress, and most importantly—-those currently involved in hemp production. Since the publishing of the rule in October 2019, the USDA has sought public feedback on the hemp production guidelines and how to improve them. The comment period has been extended through January 29, 2020. If you are a hemp producer or industry stakeholder, we encourage you to review the interim final rule here, and submit your feedback at www.regulations.gov.
FDA Regulation of CBD (cannabidiol) and CBD Products
The Agricultural Marketing Service (AMS) of the USDA estimates that about two-thirds of hemp acreage planted is for floral material (CBD production), while the remaining third is divided evenly between fiber and grain production. Therefore, the USDA hemp rule impacts the burgeoning CBD industry more than any other segment of the domestic hemp market.
Remember, however, that the USDA does not oversee the production of the final hemp products, only the agricultural crop up until harvest and sale to the processor.
The Federal Drug Administration (FDA) is the agency responsible for regulating the production and sale of hemp-derived foods and products containing CBD (cannabidiol). The FDA has authority to issue a regulation allowing the use of such ingredients in food and dietary supplements, but has yet to establish a regulatory route for such products. If FDA does not provide clarity about their plans for future regulation of CBD, there will continue to be uncertainty and downward pressure on the CBD portion of the hemp market.
Just this week, Congressman Comer and Congressman Thomas Massie co-sponsored new house bill, H.R. 5587, that would provide the Food and Drug Administration the flexibility to allow hemp-derived cannabidiol (CBD) to be marketed in dietary supplements. The bill would also require a study and report from the U.S. Department of Agriculture, which oversees the production of hemp, and on the regulatory and market barriers for farmers engaged in hemp production. This is a positive step forward as CBD is currently not regulated, and needs transparency as a product/ingredient. Additionally, the USDA study regarding barriers for hemp production and marketing will be a valuable tool as the industry continues to develop.
Hemp-derived CBD Banking and Merchant Services
In December, four federal financial regulatory agencies issued a guidance clarifying the legal status of hemp and the relevant requirements for banks providing financial services to hemp related businesses. This guidance came at the request of Senate Majority Leader Mitch McConnell (R-KY) and Senator Ron Wyden (D-OR), who contacted several federal banking and financial regulatory institutions earlier in the year in an effort to reiterate hemp’s legality, and to request timely guidance and clarification to help ease concerns from lawful hemp farmers and producers about the lack of access to financial services.
Still, hemp producers and processors — particularly those engaged in the CBD industry — struggle with merchant services such as credit card processing and e-commerce sales. This was a topic that Representative Andy Barr is particularly concerned about. He is familiar with several of his constituents who have struggled with card processing in the past, but was excited to announce some progress as the first BB&T loan provided to a large CBD processing company in Kentucky.
Rep. Barr was successful in securing a hemp and CBD provision in the SAFE ("Safe and Fair Enforcement”) Banking Act, which passed in the House last fall. He explained that his provision essentially directed the same regulatory agencies to provide hemp and CBD banking guidance, which is exactly what the joint resolution did in December. Like Senator McConnell, he is redirecting his focus back to the FDA and pressing them to settle on the regulation of CBD. The FDA is the only remaining uncertainty regarding the legality of CBD merchant services.
Federal Crop Insurance For Hemp
The USDA also just rolled out a pilot program for federal crop insurance. Only a select number of producers in Kentucky will be eligible for a new crop insurance option through USDA’s Risk Management Agency (RMA) in selected counties. The pilot insurance program will provide Actual Production History (APH) coverage under 508(h) Multi-Peril Crop Insurance (MPCI) for eligible producers.
In addition to Kentucky, producers in certain counties in Alabama, California, Colorado, Illinois, Indiana, Kansas, Maine, Michigan, Minnesota, Montana, New Mexico, New York, North Carolina, North Dakota, Oklahoma, Oregon, Pennsylvania, Tennessee, Virginia, and Wisconsin will be eligible to participate. The MPCI coverage is for hemp grown for fiber, grain or CBD oil for the 2020 crop year. It is in addition to the Whole-Farm Revenue Protection coverage available to hemp growers announced earlier this year.
Congressman Comer admitted his worry that federal crop insurance could leave behind smaller hemp producers. He hopes the USDA will offer a sliding scale of sensible rates so that all growers can afford reasonable crop coverage. We also discussed the potential for the program to be taken advantage of, considering the lack of stable genetics and uncertain overall crop value. The pilot program should be sure to take into consideration producers of all farm and grow sizes. It’s important for producers to learn more about options for crop insurance and how it could impact their future plans. We hope that small and medium hemp growers across the country will take the time to weigh in on the federal crop insurance plan and share how it benefit or hurt their operation.
State-Related Issue: Hemp Flower Ban
It is important for us to bring issues impacting the Kentucky hemp industry to the forefront of our conversations with our representatives. Right now, amongst Kentucky hemp growers, there’s probably no hotter topic than the hemp flower ban. Probably because Kentucky is currently bordered by states purchasing and selling high-CBD hemp flower for nearly 500+ times the amount hemp biomass is selling for in Kentucky. We argued on behalf of lifting the ban because, whether we like it or not, all the states around us are doing it and making a fortune. The hemp flower ban is causing our states competitive edge to take a hit.
Comer supports many of his constituents in lifting the ban on hemp flower to open up new market opportunities for the Kentucky hemp industry. He agreed, that Kentucky is losing a major competitive advantage by not allowing this industry. Why would we not want our farmers to make more money off of the same exact crop? We’re talking the difference from $15-20 per pound for hemp biomass (for extraction) to $150+ per pound for hemp flower.
Overall Takeaways —
USDA Interim Final Rule and Hemp Production Guidelines: Kentucky congressional delegates are making strides to address the concerns raised by the USDA interim final rule on hemp production (i.e. THC levels, testing, and grower liability). Congressman Comer is particularly energized about addressing grower liability and repercussions for non-compliant crops. Senator Paul hopes to address this issues by reassigning testing requirements to the final product, rather than the harvested hemp crop. Many of the issues within the USDA hemp rule may be resolved once the FDA determines a regulatory route for CBD.
FDA Regulation of CBD: The FDA has been more forthcoming in recent months, recognizing the need for standards on CBD products and production, but raising concerns on potential health risks without proper research and studies regarding dosing, potential effects of long-term use, or proven medical benefits — particularly regarding serious medical conditions or diseases such as epilepsy or cancer. The FDA has indicated that it is looking to carve out a regulatory path for dietary supplements, and FDA approved medicines. Just this week, Rep. James Comer and Rep. Thomas Massie co-sponsored a new house bill, H.R. 5587, that would provide the Food and Drug Administration the flexibility to allow hemp-derived cannabidiol (CBD) to be marketed in dietary supplements.
Hemp-derived CBD Banking and Merchant Services: The joint statement from the four federal financial regulatory agencies clarified the legal status of hemp and the relevant requirements for banks providing financial services to hemp related businesses. Still, many industry stakeholders engaged in CBD production or product sales struggle with merchant services such as credit card processing and e-commerce platforms. Congressional leaders anticipate that the resolution to these issues will come with the FDA regulation of CBD.
Federal Crop Insurance For Hemp: The USDA has launched a pilot program for federal crop insurance. Only a few farms from Kentucky are eligible to participate in the trial. Congressman Comer wants to ensure that the federal crop insurance program does not leave out the smaller hemp growers and that the program isn’t easy to take advantage of.
Kentucky Hemp Flower Ban: The general consensus is that federal law does not ban hemp flower, and based on the 2018 Farm Bill and the new USDA Hemp Production Guidelines, as long as the raw hemp flower material in question is produced under a legal hemp program and falls under the <0.3 THC threshold, it should be legal to sell.
We appreciate Senate Majority Leader Mitch McConnell, Senator Rand Paul, Representative James Comer and Representative Andy Barr, along with their distinguished staff members, for taking the time to meet with us and offer their genuine thoughts on these subjects. As hemp advocates, we are grateful for the continued leadership of our Congressional delegates and are committed to supporting their efforts on behalf of Kentucky hemp and the U.S. industry.