Hemp – What’s Next? State Action and Regulations

Hemp – What’s Next? State Action and Regulations

By: Matthew McLaughlin and Conner Reeves

Last week, Congress passed the final version of the 2018 Farm Bill and President Trump signed it today, December 20, 2018. The 800-page omnibus spending bill contains many provisions important to agriculture, but none may be as exciting as the legalization of hemp, which is one of the most versatile plants in the world capable of producing thousands of products, from construction material to healthcare products.

Over the past few weeks, we have received numerous calls from clients and prospective clients throughout the Southeastern United States with questions regarding what opportunities hemp legalization presents for the food and beverage industries, industrial manufacturers, farmers, and processors.

While we believe the legalization of hemp in the United States presents a monumental commercialization opportunity for an agricultural product, certain things must happen before the market for hemp truly opens up across the United States.

Hemp in the United States is going to be heavily regulated at the federal and state level. The 2018 Farm Bill allows state departments of agriculture to develop a state plan in consultation with the state’s governor and chief law enforcement officer to monitor and regulate hemp production. This plan must be submitted to and approved by the Secretary of the United States Department of Agriculture. Only after a state plan has been approved by the USDA can a state open up the licensing of hemp growers and processors.

If a state chooses not to put together a state plan, the USDA will construct a model plan that states can adopt under which hemp growers and processors in that particular state must apply for licenses and comply with federal regulations. A regulatory structure shared at the federal and state level is common having been utilized with healthcare, health insurance, and the alcohol industry.

A state does have the ability to prohibit the growing and processing of hemp within its borders, but states are expressly prohibited from interfering or preventing the interstate transportation of hemp. So, a state could choose to sit on the sidelines and watch surrounding states profit from this emerging industry while semi-trucks full of valuable product crossed that state headed somewhere else.

It will take some time for the USDA to develop and adopt regulations to receive and approve these state plans, as well as other responsibilities of the federal government in overseeing hemp production across the country.

So, where are the most immediate opportunities as they relate to hemp? First, state departments of agriculture must decide if they want to allow the growing and processing of hemp in their state now that it is federally legal. As discussed in previous articles, the market for hemp farming and processing is expected to increase by 2,500 percent over the next three years. It is unlikely (and unfortunate) if a state chose to miss out on this opportunity.

Next, states should determine whether any state legislation is necessary for a state to submit a state plan and, once approved, to implement a regulatory program to license growers and processors and to ensure crop and business compliance through inspections and audits. This framework is similar to the alcohol industry and will challenge policymakers to develop processes to uphold the integrity of the industry while minimizing bureaucratic barriers to market entry. We are already discussing concepts and best practices with stakeholders and policymakers about venturing into new regulatory territory.

After a state plan has been approved and the federal and state regulatory framework is primed, the next step is for agricultural and manufacturing innovators to plant themselves in a state and community that will help their hemp businesses thrive. Economic developers can offer incentive packages for processing centers to renovate empty warehouses and for farmers to flip unused fields. The buzz of a new industry will attract local and out-of-state professionals to look for jobs in towns that otherwise wouldn’t interest them for lack of work. If the regulatory field is fertile, a forward-thinking state can generate a home-grown industry with enormous financial benefits.

Image credit: https://www.gov.mb.ca/agriculture/crops/production/hemp-production.html.

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