The Many States of Industrial Hemp

Production and sale of hemp-derived cannabinoid products continue to expand across the United States. But the legal basis for the markets remains clouded in uncertainty. Cannabinoid products are often derived from the cannabis plant, some of which is still classified as marijuana, which was placed on Schedule I under the federal Controlled Substances Act (CSA). Schedule I lists what are considered the worst sort of drugs: dangerous, with high potential for abuse and no known medical application.

The CSA recognizes certain parts of the cannabis plant are not marijuana and, therefore, are not on Schedule I. Excluded from the definition of marijuana are mature stalks, non-viable seeds, seed oil and residue of cannabis plants, and any products made from them.

The federal Agricultural Act of 2014 (“Farm Bill") further carved out an exception for “industrial hemp," low-tetrahydrocannabinol (THC) varieties of cannabis that may be cultivated within certain parameters. States may conduct pilot programs of “market" research, which many argue includes processing and commercial sales. Amendments to the federal budget since 2015 have protected and affirmed industrial hemp grown for research from control under the CSA, and more recently, the transport, processing, sale and use of industrial hemp across state lines.

At least thirty-three (33) states established hemp programs or distinguish industrial hemp from marijuana. Eighteen (18) states have passed specific laws legalizing both the possession and use of products containing cannabidiol (CBD)—a non-psychoactive cannabinoid found in cannabis—for certain conditions. While the laws in these states have much in common, there are subtle, yet extremely important differences.

Confusion remains over what it means for a state hemp regulatory program to be Farm Bill-compliant. Two of the leaders in industrial hemp cultivation are Colorado and Kentucky. They approach the growing, cultivation and distribution of hemp differently. Both states have been authorized to import hemp seed by the Drug Enforcement Administration (DEA) and provide for registration or licensure by participants through their respective departments of agriculture, suggesting both programs are compliant with the Farm Bill’s provisions.

While Kentucky provides licensures for purely research purposes, Colorado provides registrations for both research and commercial purposes. In Kentucky, pursuant to newly enacted legislation, licensees must specifically maintain careful records, which are used by the University of Kentucky for purposes of internal research. Kentucky’s project further details which industrial hemp materials are restricted to transfer or sale within a hemp pilot project as opposed to materials that are eligible for transfer or sale outside of the KDA pilot program.

Colorado differs from Kentucky in that the regulatory scheme more freely provides for the cultivation, processing, transportation and sale of industrial hemp, and products derived therefrom. Colorado hemp laws generally regulate cultivation and harvesting of industrial hemp plants whereas processing, transport and sales of industrial hemp plants and products are regulated by generally applicable state laws, such as food safety. Recently, Colorado’s state department of public health declared foods and dietary supplements containing derivatives of lawful industrial hemp are themselves legal, so long as the concentration of THC in such products remained at or below the legal threshold for industrial hemp plants. Colorado also recently established a citizen’s study group on the use of industrial hemp in animal feeds and is expected to issue legislative recommendations for authorizing hemp-based animal feeds.

To further complicate matters, several states put their own spin on how their legislation deals with industrial hemp. In West Virginia, industrial hemp is defined as all parts and varieties of the plant cannabis sativa L. containing no greater than 1% THC. This is different from most, if not all, other states that define industrial hemp as containing no greater than 0.3% THC. Newly enacted legislation in Florida authorizes universities to develop pilot projects in partnership with public, nonprofit and private entities but appears to only provide for commercialization of industrial hemp after two years of licensure under the pilot project. Missouri and Indiana are among those states to adopt specific legislation allowing for the use of CBD for certain medical conditions, though other states’ laws do not necessarily distinguish between “marihuana," CBD and/or industrial hemp on their face.

As highlighted above, the conversation continues over the specific activities authorized by the Farm Bill, both within certain states and across state lines, including to what extent the manufacture and sale of industrial hemp-derived cannabinoid products are contemplated within the Farm Bill’s provision for market research. Without clarification at the federal level, there remains ambiguity about the purposes for which industrial hemp may be grown pursuant to the Farm Bill. Opportunity in the hemp industry abounds, but with that opportunity comes attendant risk and uncertainty in a changing legal and institutional environment. Market participants are encouraged to consult with knowledgeable legal counsel.

Learn more about the regulations governing the hemp and the CBD industry from cannabis attorney Bob Hoban during The State of CBD in Dietary Supplements Panel on Thursday, Sept. 28 at 2 p.m. at SupplySide West in Las Vegas. The Panel is underwritten by Next CBD.

Matthew Smith is counsel to Hoban Law Group (hoban.law) and an attorney-at-law licensed to practice in the state of Kentucky. Smith is vice president of the Kentucky Hemp Industries Association Inc. and is an active sponsor of the hemp industry in Kentucky. His practice at Campbell & Smith Law is focused on corporate counsel, business formation, intellectual property, real property, and regulatory compliance for business in the hemp industry.

David B. Bush is a senior attorney with Hoban Law Group. He has been licensed to practice law since 1992 and is an AV® rated attorney. In 2017, Bush joined forces with the Hoban Law Group, where he continues to focus on cannabis business law, corporate law, commercial contracts and commercial dispute resolution. He serves on the Business Advisory Council of the National Hemp Association and is a member of the Board of Directors of the Hemp Industries Association.