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U.S. cannabis regulations as they affect hemp cultivation
The United States and Europe are considered the biggest power-holders of the global cannabis market. With a projected valuation of $89 billion in 2024, the world CBD market relies heavily on these two players, and investors are closely following the trend of cannabis regulations in the two regions. The 2018 Farm Bill provides an essential amendment to the existing provisions on the cannabis plant by granting commodity status to hemp—an industrial variation of the cannabis plant. Before the passage of the 2018 Farm Bill, extracts of the cannabis plant containing over 0.3 percent tetrahydrocannabinol (THC) level were classified as marijuana as specified under the Controlled Substance Act.
Subsequently, hemp was removed from the Schedule 1 controlled substances list, granted a legal backing for cultivation, and most importantly, defined as a variation of the cannabis plant containing no more than 0.3 percent THC. With the passage of the 2014 Farm Bill, the U.S. Department of Agriculture (USDA) authorized pilot programs on request for institutes interested in cannabis cultivation market research. The 2018 Farm Bill relaxed the provisions of the 2014 Bill and subsequently allowed hemp cultivation and interstate commerce involving hemp products providing that the necessary requirements are fulfilled.
Although there are other restrictions in the provisions of the 2018 Farm Bill, the USDA was granted complete oversight in the regulation of hemp cultivation plans by states and Indian tribes. In October 2019, the USDA published an interim final rule with a request for comments in the Federal Register—the official daily journal of the United States federal government. As stated in this publication, the interim rule outlines provisions for the USDA to receive and approve plans submitted by states and Native American reservations for the local cultivation of hemp. Also contained in this rule are different plans targeted at regulating the THC levels, providing licensing framework, overseeing the destruction of hemp plants not in compliance with stated regulation, and providing a plan for enforcing provisions of the interim rule. The interim rule was expected to be valid through November 1, 2021.
States’ compliance with current regulation on hemp cultivation
As expected, the interim rule generated many comments, with many analysts suggesting how the commercial cultivation of the cannabis plant will be affected. Mixed reactions trailed the announcements as some states decided to abandon the new federal legislation and follow the provision of the Farm Bill on cannabis pilot programs. This was made possible by provisions of the 2018 Farm Bill that authorized states to regulate hemp production in compliance with federal parameters.
In February, Michigan, Tennessee, and three other states decided to extend their pilot research as defined under the 2014 Farm Bill into the 2020 growing season. Tennessee subsequently approved more applications, matching this announcement with actions as the total number of licensed growers reached 2,900. On the other hand, Michigan explained the features of the 2014 Farm Bill affecting the new decision on the state’s website, while documenting several concerns on the provisions of the interim final rule.
In the same year, Arkansas, Maryland, Minnesota, Missouri, New Mexico, Kentucky, Maine, Wisconsin, and Vermont also announced plans to extend their pilot programs into 2020. By choosing to extend their pilot programs, these states effectively rejected the interim final rule provisions. Some states, however, complied with the interim final rule, and as of January 2020, the USDA has granted approval to six states, including Texas, Ohio, New Jersey, Nebraska, and Delaware.
Native American tribes granted approval in compliance with the interim final rule provisions, including the Yurok Tribe in Northern California, Iowa Tribe of Kansas and Nebraska, Fort Belknap Indian Community in Montana, and the Colorado River Indian Tribes in Arizona and California. Montana was approved by the USDA under the interim rule, but the state has decided to extend its pilot program for the 2020 growing season. In all the 50 states, more compliance variation to the rule is expected through the 2020 growing season. About 15 other Native American tribes and nine states are currently under review.
Interestingly, the USDA offered a three-year hemp cultivation license plan to local hemp farmers in states that have decided to opt out of the interim rule. Applicants are only required to submit a federal background test, provided their resident state hosts no hemp production program but does legally back hemp production.
Effects of the new regulation on hemp growers in 2021
The U.S. cannabis market is expected to be affected by the new provisions of the interim final rule as specified by the USDA. For the 2021 growing season, experts have predicted an erratic supply pattern for cannabis and cannabis-derived products. Farmers in states that have decided to extend their pilot programs will be restricted from the domestic production of hemp until they can secure federal approval under the USDA production program. Since approvals might take up to 60 days before consideration, nationwide hemp supply projections for subsequent growing seasons might be affected.
Provisions of the interim rule will also allow hemp growers in the approved states to cultivate hemp on a large scale with fear of sanctions or restrictions on the 2018 Farm Bill. Hemp growers are, however, expected to understand the patchwork of state laws guiding hemp production in their states in addition to the provision of federal legislation in the same instance. In a broad perspective, neither the 2018 Farm Bill nor the USDA’s interim final rule addressed CBD-derived products issue, which has since been confined to the jurisdiction of the FDA. Hemp-derived CBD, dietary supplements, drugs, and beverages remain prohibited under federal and state rules. This means that hemp produced under the 2014 pilot programs, 2018 Farm Bill, interim final rule, and USDA hemp production programs are restricted largely to industrial use.
In a case where more states secure approval for commercial hemp production, this single observation is expected to affect the cannabis market’s forces of demand and supply as more units of hemp are produced for a singularized industrial use. The interim final rule might present more technicalities to the production of hemp in the U.S., however, it opens up more opportunities for hemp farmers and a platform for future modifications to regulation on other products of the U.S. cannabis industry.