Consequences of producing non-compliant hemp

This alert was updated on January 25, 2021.

The hemp industry is growing on a global scale with many private equity groups, investors, venture capitalists, industry leaders, and established corporations seeking to take advantage of consumer and commercial opportunities in this industry. However, many hemp producers, investors, and corporations alike worry about complying with the hemp regulations, since there is an inconsistent patchwork at the state and local level and complex, evolving federal regulations.

On January 19, 2021, the United States Department of Agriculture (USDA) published its much anticipated Final Rule for domestic hemp production (Final Rule)^[1] that establishes guidelines for states and Indian tribes that want primary regulatory authority over hemp production in their respective jurisdictions. The Final Rule also provides guidelines for a federal, USDA plan for hemp producers located in states or tribal territories that allow hemp production but do not have an approved hemp production plan.^[2] The Final Rule governs hemp production and the consequences of producing non-compliant hemp.

Prior to the Agriculture Improvement Act of 2018, better known as the 2018 Farm Bill, Cannabis sativa L. with delta-9 tetrahydrocannabinol (THC) levels greater than 0.3 percent fell within the definition of “marihuana”^[3] under the Controlled Substances Act (CSA),^[4] and was therefore a Schedule I controlled substance unless it fell under a narrow range of exceptions (eg, the “mature stalks” of the plant). The term “hemp,” which is no longer illegal pursuant to the CSA, refers to the plant species Cannabis sativa L. and any part of that plant, including the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with a THC concentration of not more than 0.3 percent on a dry weight basis. THC is the primary intoxicating component of cannabis. Cannabis with a THC level exceeding 0.3 percent is considered marijuana.^[5]

This article discusses the testing requirements used to identify non-compliant hemp, consequences for hemp producers who cultivate non-compliant hemp, and what a hemp producer may do with the non-compliant hemp.

Testing

Before the hemp can be tested, a sampling agent must collect the hemp samples from the flower material of the plants within the 30 days prior to the anticipated harvest.^[6] Only laboratories that are registered with the Drug Enforcement Administration (DEA) may test the samples to calculate their THC concentration on a dry weight basis. Hemp testing laboratories are not required to be International Organization for Standardization (ISO) accredited; however, the USDA strongly encourages adherence to the ISO 17025 standard.^[7]

The laboratory result will provide a THC concentration range to factor in the test’s measurement of uncertainty (ie, the margin of error). A sample is considered hemp if its THC concentration range includes or is less than 0.3 percent on a dry weight basis.^[8] For example, a sample with a THC concentration of 0.35 percent and measurement of uncertainty of +/-0.06 is considered hemp because the THC concentration range, 0.29 percent to 0.41 percent, includes 0.3 percent. However, if the measurement of uncertainty for that sample is +/-0.02 percent, then the sample is not considered hemp since the THC concentration range, 0.33 percent to 0.37 percent, is greater than and does not include 0.3 percent.

The laboratory must use a post-decarboxylation or other similarly reliable method to test the sample’s total THC concentration. Hemp plants produce multiple varieties of THC, such as THC-acid (THC-A) that can convert into THC, and a post-carboxylation method calculates the total potential THC concentration, including THC-A. Two common post-decarboxylation methods are gas chromatography and high-performance liquid chromatograph. A hemp producer may be able to request a retest if they believe the original THC concentration results were an error depending on the jurisdiction in which the hemp producer is licensed, therefore it is important to consult an attorney who is familiar with hemp laws in the applicable jurisdiction.

Non-compliant hemp

Non-compliant hemp and products derived from non-compliant plants must be disposed of in accordance with the relevant jurisdiction’s hemp production plan.^[9] Two important considerations for hemp producers is what happens to the hemp producers themselves if they produce non-compliant hemp and what happens to the non-compliant hemp.

What happens to the hemp producer?

A hemp producer who produces non-compliant hemp will not be subject to any criminal enforcement action by the federal, state, tribal, or local government if the producer negligently violated its jurisdiction’s hemp production plan.^[10] “Negligence” is defined in 7 C.F.R. §990.1 as a “[f]ailure to exercise the level of care that a reasonably prudent person would exercise in complying with [these] regulations …”

The Final Rule further states that a negligent violation includes: (1) failing to provide a legal description of the land on which the hemp was produced, (2) not obtaining proper licenses or authorizations, or (3) producing plants that exceed the acceptable hemp THC level. Importantly, a hemp producer that produces plants with a THC concentration between 0.3 percent and 1 percent will not be considered “negligent” so long as the hemp producer used reasonable efforts to grow compliant plants.^[11]

The USDA may conduct random audits to verify compliance with the Final Rule no more than once every three years.^[12] The audit may be a ‘‘desk-audit’’ where the USDA requests records from a licensee, or the audit may be a physical visit to a licensee’s facility. Also, the USDA may request records from the licensee to include production and planting data, testing results, and other information as determined by USDA.

If a hemp producer negligently produces non-compliant hemp, then the hemp producer will need to either (a) follow the corrective action plan established by the applicable state or tribe or (b) follow the corrective action plan described in the Notice of Violation issued by the USDA. Corrective action plans generally require the hemp producer to correct the negligent act by a certain date and periodically submit compliance reports to the state, tribe, or USDA for at least two years.

There are only a few circumstances when a hemp producer may lose its ability to produce hemp for a negligent violation. Regardless of whether a hemp producer is licensed by a state, tribe, or USDA, a hemp producer will lose its license for at least five years if it commits three negligent violations in a five-year period.^[13] If the hemp producer is licensed by the USDA, then the hemp producer’s license may be suspended if the producer fails to comply with an Agricultural Marketing Service Administrator’s written order related to negligence.^[14] Individual states and tribes with approved hemp production plans may also revoke a producer’s license for negligently violating that jurisdiction’s plan, so it is important to carefully read the relevant jurisdiction’s hemp production plan.

If a hemp producer produces non-compliant hemp with a culpable mental state greater than negligence (ie, recklessly, intentionally, or knowingly), then that producer will be subject to the rules and regulations of the jurisdiction in which it is licensed. If the hemp producer is licensed by the USDA, then that producer’s license will be immediately revoked.^[15] Regardless of whether a hemp producer is licensed by a state, tribe, or USDA, the Attorney General and the chief law enforcement officer of the applicable state or tribal territory will be notified of any non-negligent violation committed by a hemp producer. In short, a hemp producer is more likely to face criminal liability for producing non-compliant hemp if they recklessly, intentionally, or knowingly produce the non-compliant hemp, depending on the jurisdiction in which the hemp producer is licensed.

What happens to the non-compliant hemp?

Hemp producers cannot use non-compliant hemp because non-compliant hemp is marijuana – a Schedule I controlled substance.^[16] States and tribes must notify the USDA any time non-compliant hemp is produced, and a disposal record must be made and sent to the USDA confirming that the non-compliant hemp was disposed of properly. Hemp producers may either dispose of non-compliant hemp or try to remediate non-compliant hemp.

A hemp producer that decides to dispose of the non-compliant hemp may either dispose of the hemp using a DEA-registered reverse distributor or law enforcement personnel, or the producer may dispose of the hemp at the farm or production facility.^[17] If a hemp producer elects to do the latter, they must use a disposal method that renders the plant non-retrievable/non-ingestible,^[18] such as mulching or composting the crop.^[19]

Alternatively, a hemp producer may attempt to remediate the non-compliant hemp.^[20] Remediation makes a non-compliant plant compliant and can occur by “removing and destroying flower material, while retaining stalk, stems, leaf material, and seeds [or by] shredding the entire plant into a biomass like material … ”^[21] If a producer elects to remediate the non-compliant hemp, then the remediated crop must be tested to determine its THC concentration levels.^[22] Regardless of the disposal method used, it is important for a hemp producer reach out to a lawyer who is familiar with hemp production laws in their specific jurisdiction, since the laws may vary jurisdiction to jurisdiction.

Conclusion

Hemp producers will face different consequences for producing non-compliant hemp (ie, hemp with a THC concentration range that exceeds and does not include 0.3 percent THC) depending on the jurisdiction in which the hemp producer is licensed. Generally, hemp producers themselves are more likely to face criminal liability for recklessly, intentionally, or knowingly producing non-compliant hemp, and the non-compliant hemp will be disposed of in a manner authorized by the relevant jurisdiction. Since regulations vary from jurisdiction to jurisdiction, it is important to contact a lawyer who is familiar with hemp laws in your jurisdiction.

If you have any questions about these regulations, please contact Matt Miehl or Chris Gismondi.

^[1] The Final Rule may be found at https://www.federalregister.gov/documents/2021/01/19/2021-00967/establishment-of-a-domestic-hemp-production-program

^[2] A list to states or tribal territories with approved, or submitted, plans can be found at https://www.ams.usda.gov/rules-regulations/hemp/state-and-tribal-plan-review.

^[3] “Marihuana” is the statutory spelling in the Controlled Substances Act, but this article will use “marijuana” because it is the more commonly used spelling to reference the substance.

^[4] 21 USC 801 et seq.

^[5] 7 CFR 990.1.

^[6] §§ 990.3(a)(2)(i), 990.24(a). The Agricultural Marketing Service (AMS) of the USDA issued guidance on specific steps for sampling, including a valid way to collect a statistically representative sample, may be found at https://www.ams.usda.gov/sites/default/files/media/SamplingGuidelinesforHemp.pdf.

^[7]  Laboratory testing guidelines may be found at https://www.ams.usda.gov/sites/default/files/media/TestingGuidelinesforHemp.pdf.

^[8] See § 990.1 (defining “Acceptable hemp THC level” for the purpose of complying with a state, tribal, or USDA hemp plans “is when the application of the measurement of uncertainty to the reported [THC] content concentration level on a dry weight basis produces a distribution or range that includes 0.3 percent or less.”).

^[9] See generally, §§ 990.3, 990.27.

^[10] §§ 990.6(c)(3), 990.29(c).

^[11] §§ 990.6(b)(3), 990.29(a)(3). The Final Rule provides a few illustrations of a hemp producer using reasonable efforts to grow compliant plants, such as using certified seeds, using other seed that has reliably grown compliant plants in other parts of the country, or engaging in “other best practices.”

^[12] §§ 990.5(a), 990.28(b).

^[13] §§ 990.6(c)(4), 990.29(e).

^[14] § 990.30(a)(2).

^[15] § 990.31(c).

^[16] §§ 990.3(a)(3)(i), 990.27(a).

^[17] §§ 990.3(a)(6)(i), 990.27(a).

^[18] § 990.1 (defining disposal as an “activity that transitions the non-compliant product into a non-retrievable or non-ingestible form.”).

^[19] See USDA Agricultural Marketing Services, Hemp Disposal Activities, available at https://www.ams.usda.gov/rules-regulations/hemp/disposal-activities.

^[20] §§ 990.3(a)(3)(i), 990.27(c).

^[21] § 990.1.

^[22] §§ 990.3(a)(6)(iii), 990.27(c).