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California Passes Industrial Hemp Legislation

california industrial hemp
For the most part, anyway.

We've been closely following the trajectory of SB 1409 and on September 30, 2018, Governor Brown signed the bill which will go into effect on January 1, 2019. This legislation is a huge step for California cannabis, in that it will add an industrial hemp pilot program to the California Department of Food and Agriculture's registration system.

Currently, California law regulates the cultivation of industrial hemp, and specifies certain procedures and requirements on cultivators, not including an established agricultural research institution. Existing law defines “industrial hemp,” via the California Uniform Controlled Substances Act, as a fiber or oilseed crop, or both, that is limited to the non-psychoactive types of the plant Cannabis sativa L. and the seed produced from that plant.

Existing California law also requires that industrial hemp only be grown by those on the list of approved hemp seed cultivars. That list includes only hemp seed cultivars certified on or before January 1, 2013. Industrial hemp may only be grown as a densely planted fiber or oilseed crop, or both, in minimum acreages. Growers of industrial hemp and seed breeders must register with the county agricultural commissioner and pay a registration and/or renewal fee.

SB 1409 deletes the exclusionary requirement that industrial hemp seed cultivars be certified on or before January 1, 2013. Additionally, “industrial hemp” will no longer be defined restrictively in the California Uniform Controlled Substances Act as a fiber or oilseed crop, and the bill deletes the requirement that industrial hemp be grown as a fiber or oilseed crop, or both. We initially presumed this would allow cultivators to harvest hemp for CBD derivation, and related use, but given the recent FAQ issued by the California Department of Public Health effectively banning the sale of CBD food products, how hemp-derived CBD in California will be regulated in the future remains to be seen. We are certain this is an issue that will be taken up by the state during the rule-making process.

SB 1409 also authorizes the state Department of Food and Agriculture to carry out, pursuant to the federal Agricultural Act of 2014, an agricultural pilot program for industrial hemp. Twinning a state-sanctioned pilot program with licensed, private cultivation is a model that has worked well in other states, like Colorado and Oregon. Given the recent expiration of the 2014 Farm Bill prior to passage of the Hemp Farming Act of 2018, however, it remains to be seen how new hemp pilot programs will be viewed and treated by the federal government. Our hope is that Congress will resolve its differences and enact the Hemp Farming Act of 2018 before the end of the year, or at least before California is able to build out and implement its own regulatory system.

Some other provisions included in SB 1409 include detailed requirements for sampling and laboratory testing of industrial hemp. The bill provides new time frames for sampling of industrial hemp and destruction of hemp that exceeds the 0.3% THC limit. Also of note, and perhaps unfortunately, the bill adds a provision to the Food and Agricultural Code giving local jurisdictions the ability to ban industrial hemp cultivation in limited circumstances:

A city of county may, upon a finding that pollen adrift from industrial hemp crops may pose a threat to licensed cannabis cultivators permitted by the city or county, prohibit growers from conducting, or otherwise limit growers' conduct of, industrial hemp cultivation in the city or county by local ordinance, regardless of whether growers meet, or are exempt from, requirements for registration pursuant to this division or any other law.”

We've seen recent litigation on this issue in Oregon, so perhaps the state is trying to insulate its licensees from similar outcomes.

As stated above, we'll be very interested to see how (and if) regulators tackle the issue of industrial hemp-derived CBD in California as they develop the new regulatory framework for hemp. In the meantime, if you are unfamiliar with the current legal status of hemp-derived CBD food products in California, we recommend reading the CDPH's FAQ and checking out our post on the topic here. We'll continue to monitor rule development now that the bill has passed and all hemp-related developments in California closely.

For more on industrial hemp generally (including CBD), check out our wealth of archived posts here.

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California Passes Industrial Hemp Legislation

california industrial hemp
For the most part, anyway.

We’ve been closely following the trajectory of SB 1409 and on September 30, 2018, Governor Brown signed the bill which will go into effect on January 1, 2019. This legislation is a huge step for California cannabis, in that it will add an industrial hemp pilot program to the California Department of Food and Agriculture’s registration system.

Currently, California law regulates the cultivation of industrial hemp, and specifies certain procedures and requirements on cultivators, not including an established agricultural research institution. Existing law defines “industrial hemp,” via the California Uniform Controlled Substances Act, as a fiber or oilseed crop, or both, that is limited to the non-psychoactive types of the plant Cannabis sativa L. and the seed produced from that plant.

Existing California law also requires that industrial hemp only be grown by those on the list of approved hemp seed cultivars. That list includes only hemp seed cultivars certified on or before January 1, 2013. Industrial hemp may only be grown as a densely planted fiber or oilseed crop, or both, in minimum acreages. Growers of industrial hemp and seed breeders must register with the county agricultural commissioner and pay a registration and/or renewal fee.

SB 1409 deletes the exclusionary requirement that industrial hemp seed cultivars be certified on or before January 1, 2013. Additionally, “industrial hemp” will no longer be defined restrictively in the California Uniform Controlled Substances Act as a fiber or oilseed crop, and the bill deletes the requirement that industrial hemp be grown as a fiber or oilseed crop, or both. We initially presumed this would allow cultivators to harvest hemp for CBD derivation, and related use, but given the recent FAQ issued by the California Department of Public Health effectively banning the sale of CBD food products, how hemp-derived CBD in California will be regulated in the future remains to be seen. We are certain this is an issue that will be taken up by the state during the rule-making process.

SB 1409 also authorizes the state Department of Food and Agriculture to carry out, pursuant to the federal Agricultural Act of 2014, an agricultural pilot program for industrial hemp. Twinning a state-sanctioned pilot program with licensed, private cultivation is a model that has worked well in other states, like Colorado and Oregon. Given the recent expiration of the 2014 Farm Bill prior to passage of the Hemp Farming Act of 2018, however, it remains to be seen how new hemp pilot programs will be viewed and treated by the federal government. Our hope is that Congress will resolve its differences and enact the Hemp Farming Act of 2018 before the end of the year, or at least before California is able to build out and implement its own regulatory system.

Some other provisions included in SB 1409 include detailed requirements for sampling and laboratory testing of industrial hemp. The bill provides new time frames for sampling of industrial hemp and destruction of hemp that exceeds the 0.3% THC limit. Also of note, and perhaps unfortunately, the bill adds a provision to the Food and Agricultural Code giving local jurisdictions the ability to ban industrial hemp cultivation in limited circumstances:

A city of county may, upon a finding that pollen adrift from industrial hemp crops may pose a threat to licensed cannabis cultivators permitted by the city or county, prohibit growers from conducting, or otherwise limit growers’ conduct of, industrial hemp cultivation in the city or county by local ordinance, regardless of whether growers meet, or are exempt from, requirements for registration pursuant to this division or any other law.”

We’ve seen recent litigation on this issue in Oregon, so perhaps the state is trying to insulate its licensees from similar outcomes.

As stated above, we’ll be very interested to see how (and if) regulators tackle the issue of industrial hemp-derived CBD in California as they develop the new regulatory framework for hemp. In the meantime, if you are unfamiliar with the current legal status of hemp-derived CBD food products in California, we recommend reading the CDPH’s FAQ and checking out our post on the topic here. We’ll continue to monitor rule development now that the bill has passed and all hemp-related developments in California closely.

For more on industrial hemp generally (including CBD), check out our wealth of archived posts here.

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The 2014 Farm Bill Expired: What Now for Industrial Hemp?

2018 farm bill industrial hemp CBD
Uncertainty continues for hemp legalization.

On September 30, the Agricultural Act of 2014, more commonly known as the “2014 Farm Bill” (the “Farm Bill” or the “Act”) expired before the enactment of its potential successor, the Hemp Farming Act of 2018 (the “2018 Farm Bill”). It’s also unlikely that the 2018 Farm Bill will be revisited before the November elections. The Conference Committee’s failure to meet this deadline has led to numerous inquiries regarding the legal status of state industrial hemp pilot programs over the next few months, and that of CBD products derived from industrial hemp (“Hemp-CBD”). This post discusses the reasons for which existing industrial hemp pilot programs and Hemp-CBD remain lawful at this time.

Section 7606 of the 2014 Farm Bill created a framework for the legal cultivation by states of “industrial hemp” without a permit from the Drug Enforcement Administration (the “Hemp Pilot Programs”). Broadly speaking, the 2014 Farm Bill only protected cultivators registered under a state’s hemp research pilot program, who cultivate cannabis containing no more than 0.3% of THC, and who meet the requirements imposed by their state department of agriculture.

The 2018 Farm Bill, which contains more robust protections for Hemp-CBD, failed to pass last week, in part, because it remained held up in committee. As we explained before, the Senate and the House versions of the bill would first need to be reconciled (the Senate version would legalize industrial hemp in all fifty states whereas the house version is silent on this issue). A reconciled 2018 Farm Bill would have to pass the Senate and the House, before ultimately landing on the President’s desk for signature. Sen. Pat Roberts (R-Kan.), Chairman of the Senate Committees on Agriculture, is hopeful that members of both chambers will resolve those differences during the lame-duck session, the period between the November 6 election and the end of the year. However, until they do, no farm bill technically exists. Therefore, where does this leave existing Hemp Pilot Programs?

Although the Hemp Pilot Programs were enacted pursuant to the 2014 Farm Bill, they do not expire with the it. Indeed, section 7606 of the Act contains no explicit sunset provision. Moreover, on September 28, the President signed an appropriation “minibus” funding bill (“H.B. 6157”) into law. The law provides, in part, for a continuing resolution through December 7, 2018, for any appropriation bill not enacted before October 1. The Agriculture Appropriations Act of 2018, which expressly prohibits federal law enforcement agencies from interfering with the State Hemp Pilot Programs, is on the list of appropriation bills. Accordingly, Congress’ actions reveal that the Hemp Pilot Programs did not expire with the 2014 Farm Bill on September 30, and that they remain in place, at least until December 7.

The expiration of the 2014 Farm Bill has further exacerbated the confusion surrounding industrial hemp and Hemp-CBD. However, we are hopeful that Congress will enact the 2018 Farm Bill before the end of the year. At the very least, Congress will extend the continuing resolution for appropriation until the chambers resolve their differences. But for now, we must embrace this state of uncertainty and accept that change—whatever it might be—is coming.

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DEA Reschedules FDA-Approved CBD

CBD DEA reschedule epidiolex
We’ve got ’em right here.

As soon as the Food and Drug Administration (FDA) approved Epidiolex as the first cannabis-derived prescription, we knew this day would come. Epidiolex was the first approval for a purified drug substance derived from marijuana plants, after all, and marijuana is classified as a Schedule I controlled substance in the federal Controlled Substance Act (CSA). The CSA considers marijuana to be among the most dangerous controlled substances known to man– so dangerous that a doctor cannot prescribe marijuana to treat any disease or ailment. This classification obviously would not work for Epidiolex.

Last Thursday, the Drug Enforcement Administration (DEA) rescheduled “approved cannabidiol [(CBD)] drugs” to Schedule V of the CSA. Schedule V substances have the lowest potential for abuse of all the schedules. The DEA now defines approved CBD drugs as follows:

Approved cannabidiol drugs. A drug product in finished dosage formulation that has been approved by the U.S. Food and Drug Administration that contains cannabidiol . . . derived from cannabis and no more than 0.1 percent (w/w) residual tetrahydrocannabinols.

This definition creates three conditions for a product to be an approved CBD drug. As such, it must:

  1. Be FDA approved;
  2. Be derived from cannabis; and
  3. Have less than .1% THC.

This definition is obviously limited. Right now the only CBD approved drug is Epidiolex. CBD product like oils, tinctures, lattes, and other foods are not approved CBD drugs. Why? They are not FDA approved.

Many of these CBD products are derived from cannabis. Some come from marijuana (Marijuana-CBD). Marijuana-CBD remains a Schedule I substance. Marijauna-CBD products may be legal under state law in states like Washington, Oregon, and California but their sale is only permitted through a states regulated marijuana market. These products come from licensed producers, are developed by licensed processors or manufacturers, and are sold to the public through licensed retailers or dispensaries. Marijuana-CBD products are only legal in states where they were cultivated and these products are heavily regulated at all stages of production, from seed-to-sale. Marijuana-CBD products may also contain significant levels of THC.

There is another classification of cannabis derived CBD products relevant here: CBD derived from industrial hemp (Hemp-CBD). These products arguably do not fall under Schedule I, or any other Schedule, as they are not governed by the CSA. This is because the cultivation of industrial hemp was legalize by Section 7606 of the Agricultural Act of 2014 (the 2014 Farm Bill). Industrial hemp is defined as the cannabis plant with less than .3% THC. The 2014 Farm Bill also requires that industrial hemp is cultivated under a state agricultural pilot program. This usually means that a state will issue a license or other authorization that permits the cultivation of industrial hemp. Some states also require a license to process industrial hemp into other products like Hemp-CBD.

The distribution of Hemp-CBD products is arguably legal under federal law because the 2014 Farm Bill does not explicitly limit distribution. However, the DEA, FDA, and other federal agencies issued guidance in 2016 stating that the 2014 Farm Bill did not permit the interstate transfer or commercial sale of industrial hemp. Despite this, the DEA has rarely taken any enforcement action against distributors of Hemp-CBD, because Congress has limited the DEA’s ability to use federal funds to do so and because the DEA would have to establish that the CSA does in fact cover Hemp-CBD. In oral arguments during HIA v. DEA, the DEA admitted that the 2018 Farm Bill preempted the CSA with regards to industrial hemp. Several states like Idaho prohibit the distribution of Hemp-CBD. Other states like Ohio, Michigan, and California significantly restrict the distribution of Hemp-CBD.

Even though Hemp-CBD does not fall within the CSA, Hemp-CBD products have not been approved by the FDA. This is also true of Marijuana-CBD. This means that even cannabis derived Marijuana-CBD and Hemp-CBD products containing less than .1% THC are not approved CBD drugs for lack of FDA approval. As such, it’s likely that this recent development will have little impact on business distributing CBD, other than for GW Pharma, the makers of Epidiolex who has already seen its stock value surge.

Still, there is always some risk of enforcement action against Hemp-CBD distributors, as the budgetary restriction that prevented the DEA from using funds to prosecute industrial hemp distributors expires on September 30. However, that seems unlikely given the fact that there is a strong argument that industrial hemp is not prohibited by the CSA. It is also possible that the FDA could take a more aggressive approach to limit the distribution of CBD products, but that decision seems to have little relation to the reschedule of approved CBD drugs.

If anything, the DEA’s latest CBD-action is a sign of how the times-are-a-changin’. It’s the first time a cannabis derived product has fallen outside of Schedule I, after all.

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International Cannabis: Selling Worldwide

Our firm’s main practice areas include cannabis, China, trade and immigration. As such, it may not surprise you to learn that we get a lot of questions about the developing international cannabis trade. This is in large part due to the fact that Canada is on the verge of legalizing marijuana nationwide.

Importing or exporting cannabis in the United States at this point is extremely limited. Marijuana is listed as a Schedule I substance in the Controlled Substances Act (CSA) and it is illegal under federal law to possess or sell marijuana. The Controlled Substances Import and Export Act incorporates the schedules of the CSA. That means that the U.S. Customs and Border Protection is likely to seize any shipments of marijuana, even if shipments are going to or coming from a nation that has legalized marijuana in some form. There has even been some noise about barring travel by foreign marijuana company investors themselves as of late.

All of that said, not all parts of the cannabis plant are considered marijuana. The CSA defines “marihuana” as “all parts of the plant Cannabis sativa L., whether growing or not; the seeds thereof; the resin extracted from any part of such plant; and every compound, manufacture, salt, derivative, mixture, or preparation of such plant, its seeds or resin.” The second classification under the CSA is “Exempt Cannabis Plant Material” which includes the following four categories:

  1. Mature stalks
  2. Fiber produced from mature stalks
  3. Oil or cake made from seeds
  4. Seeds incapable of germination

Exempt Cannabis Plant Material also includes “any other compound, manufacture, salt, derivative, mixture, or preparation” of the items listed above. The term does not include resin derived from mature stalks as that is considered marijuana, not Exempt Plant Material.

Back in May 2018, the Drug Enforcement Administration (DEA) issued an internal directive acknowledging that Exempt Plant Material is not “marijuana.” The directive touched on how the distinction impacted internationally traded cannabis

[A]ny product that the U.S. Customs and Border Protection determines to be made from the cannabis plant but which falls outside the CSA definition of marijuana may be imported into the United States without restriction under the Controlled Substances Import and Export Act. The same considerations apply to exports of such products from the United States, provided further that it is lawful to import such products under the laws of the country of destination.”

There you have it straight from the horse’s mouth: Importing or exporting Exempt Cannabis Plant Material is lawful under the Controlled Substance Import Export Act. What is not clearly indicated is whether or not the DEA considers exporting industrial hemp, grown pursuant to the 2014 Farm Bill, as outside of the scope of the CSA.

By nature of the 2014 Farm Bill, industrial hemp cannot be imported. This is because the cultivation of industrial hemp is only permitted if grown pursuant to a state’s agricultural pilot program under the guidance of a state department of agriculture.

But before you go and order a metric ton of mature cannabis stalks, keep in mind that any shipment of any cannabis-related good can come with additional scrutiny. Even if a product is solely derived from Exempt Cannabis Plant Material, that doesn’t mean that Customs will thoroughly investigate its shipment. Importers and exporters should be prepared to prove that the product was solely derived from Exempt Cannabis Plant Material and not marijuana. This can be difficult to do as there is no way to truly test from what portion of the plant a product was derived. You may be thinking, “well can’t a lab confirm that a product contains no THC?” The answer, of course, is “yes”, but even though verifying THC content is important (THC is listed separately from marijuana as a controlled substance in the CSA) it is not dispositive in determining whether a product is derived from Exempt Cannabis Plant Material.

Intrepid importers and exporters should prepare to detail the chain of title for Exempt Cannabis Plant Material. This can include an affidavit from the original supplier of the plant that only Exempt Cannabis Plan Material was used, lab certifications, purchase orders, shipping documentation, and any other documentary evidence showing the source of the plant material. There is no single item guaranteed to satisfy the authorities, so it’s best to prepare multiple documents in case they are needed.

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