The deadline to submit comments to the U.S. Department of Agriculture (USDA) on proposed regulations for hemp was Wednesday—and advocates, stakeholders and lawmakers had a lot to say.
In the three months since USDA published an interim final rule for hemp, which was federally legalized under the 2018 Farm Bill, more than 4,600 individuals and organizations took the opportunity to weigh in, with many recommending certain revisions before rules for the crop are finalized.
On Wednesday alone, more than 1,000 comments were posted—a significant number considering that the public comment deadline was initially set for the end of last month until USDA extended it based on the volume of responses.
Here’s what lawmakers, stakeholders and advocates had to say about USDA’s proposed regulations:
While many celebrated the department’s commitment to quickly developing rules for the crop, there have been widespread, bipartisan concerns about select provisions that the industry and its supporters say could hamper its growth and create unnecessary burdens for farmers.
Several members of Congress, including entire congressional delegations representing Virginia, Maine, Colorado and Connecticut, have sent letters to USDA outlining requests for changes to the rules. Most inquiries identify the same specific concerns: 1) the negligence threshold for the allowable amount of THC is too low and doesn’t account for factors such as drought that can cause potency levels to spike, 2) the 15-day testing window before harvest is too short and 3) requiring testing to be conducted at Drug Enforcement Administration-licensed laboratories is onerous and will cause delays.
“Colorado continues to see tremendous growth in this industry and we are excited for the economic potential of this new crop,” the state’s congressional delegation wrote in a letter sent on Tuesday. “Therefore, it is critical the USDA establish a regulatory structure that allows our farmers to succeed.”
Colorado is a leader in every step of the hemp supply chain, maintaining a careful balance of regulatory oversight and economic support.
It is critical that the USDA establish a regulatory structure that allows our farmers to succeed. https://t.co/Isqausxc7l
— Rep. Joe Neguse (@RepJoeNeguse) January 30, 2020
“While the [interim final rule] begins to formulate a much needed regulatory structure, there are key provisions that are unnecessary, burdensome, and could hurt Colorado’s hemp industry,” they said.
The Connecticut congressional delegation made similar points in a letter sent to Agriculture Secretary Sonny Purdue on Wednesday.
As the @USDA continues to create a path forward for #hempfarming, I joined my colleagues from CT & @bryanhurlburt in sending a letter to @SecretarySonny advocating for a system that ensures farmers have the flexibility they need to enter the hemp industry. https://t.co/Pm7qUWa3Mq
— Rep. Joe Courtney (@RepJoeCourtney) January 30, 2020
“While [the proposed rules] help define the path forward for our farmers who wish to grow hemp, they contain a number of restrictive requirements that may prevent these very people from even taking advantage of the new agricultural opportunity,” the lawmakers said. “Our state’s hemp farmers want an opportunity to grow hemp, and have it treated the same as any other agricultural commodity. The rule as currently written assumes hemp is a controlled substance until it is proven otherwise.”
USDA also heard from Colorado Gov. Jared Polis (D) and the state’s attorney general and agriculture commissioner, who submitted comment on Wednesday identifying eight areas in the proposed rules that they argue need “modification.” Those areas include issues with regulations around sampling periods, lab certification requirements, THC thresholds and disposal protocol.
“As an early mover state in hemp, we understand the pivotal role a workable regulatory structure plays in allowing a new industry to flourish and we appreciate the hard work your staff has undertaken to construct a framework for states to operate their own hemp programs,” the letter, a hard copy of which was submitted on Colorado-grown hemp paper, states. “We understand that establishing a regulatory framework is a difficult task and we appreciate your willingness to consider the alternative approaches to regulating hemp as well as the legal issues set forth in this document.”
In a press release, Polis said “Colorado is the top state for hemp production, and we are proud of our work to increase good jobs and honored to help the Department of Agriculture figure out what we already know about hemp in Colorado.”
“We want to unleash this industry to grow and innovate. The proposed interim final rule, as currently written, does not support best practices in hemp production at a critical time in the development of this important industry,” he said. “The recommended changes we’ve put forward will support the hemp industry while establishing appropriate guidelines.”
The advocacy group Vote Hemp sent its comments on Wednesday, stating that it “believes the USDA has taken steps in the right direction in drafting the [interim final rule], however certain provisions do raise serious concerns for our stakeholders, hemp producers, processors and manufacturers.”
The negligence threshold, sampling protocol, testing and disposal requirements and laboratory restrictions were among the group’s chief concerns.
“We appreciate that the Agency also wants to get feedback after the 2020 growing season,” Vote Hemp said, adding that it recommends that USDA hold “another comment period in the 2nd half of 2021 and issue a final rule in the fall of 2021 after having more time to see how the new [interim final rule] has been working.”
“We sincerely appreciate your consideration of these comments and look forward to working with the Agency to ensure a strong and successful hemp industry,” the group said.
On Monday, Vermont’s agriculture department submitted comments to USDA, expressing similar concerns about the regulations.
Again, the top problems the state agency identified concern the THC threshold, sampling protocol and laboratory certification requirements.
“We believe our suggestions will improve the hemp program making it better for small growers while creating more opportunities for those making a living from hemp,” Vermont Agriculture Secretary Anson Tebbetts said in a press release. “I hope the USDA will consider providing States with the necessary flexibility to be able regulate hemp production while providing Vermont farmers with greater certainty and less risk.”
Michigan’s agriculture department said in comments submitted Wednesday that it “looks forward to working with USDA to develop and implement a strong industrial hemp program that’s compliant with the intent of the Hemp Farming Act of 2018 and is economically viable for Michigan hemp growers and processors.
The letter focused primarily on the THC threshold, with the department arguing that the “regulatory fear that hemp could potentially exceed a 0.3 percent concentration of THC and the unfair suspicion that it will be grown and used for illicit purposes must be balanced with the reality that all but three states have legalized Cannabis sativa L in at least some form or fashion.”
“Throughout North America, the combined legality of hemp at the federal level, and marijuana at the state level, has resulted in many positive outcomes including, but not limited to, new business opportunities, job creation, increased state sales tax revenue, and improved quality of life,” the letter states. “These positive outcomes far outweigh the perceived negative consequences of growing hemp that marginally exceeds 0.3 percent.”
The National Association of State Departments of Agriculture (NASDA) sent in its comments on Tuesday, reiterating that the proposed testing window is too short, the THC threshold is too low and the laboratory requirements are unnecessary, among other concerns.
“On behalf of NASDA state and territorial members, we are grateful for your dedicated work in establishing a federal program that facilitates the growth of a promising new industry while accommodating the diverse needs and challenges of farmers across our country,” the organization wrote. “Given their own diverse resources and challenges, our members will benefit from greater clarity from USDA in meeting the requirements of the 2018 Farm Bill. We ask that you incorporate these concerns, as well as the feedback from our individual members, as you advance a final rule.”
Outside of the practical, agriculture-specific provisions, others have raised questions about finance implications. The American Bankers Association (ABA) said in comments submitted Wednesday that it sees three possible problems with the interim final rule.
In a letter sent today to the @USDA, ABA recommended several changes to an interim final rule that would facilitate banks offering services to hemp growers and hemp-related businesses. Read the letter: https://t.co/ZhIiMGeK3U
— American Bankers Association (@ABABankers) January 29, 2020
Federal guidances stipulates that hemp businesses are entitled to financial services, but it requires them to be licensed—and currently, USDA’s rules only allow federal, state and local enforcement officials to access the licensing database, so ABA wants to expand access to banks. ABA also said licenses should be able to be automatically renewed to avoid uncertainty. Finally, it is seeking clarification on what happens to licenses when “unanticipated events, such as a death or illness, occur between planting and harvesting.”
“ABA appreciates the opportunity to comment on the USDA interim final rule on domestic hemp production. We believe that, with important changes to the rule, farmers will be encouraged to consider a crop which has a great deal of promise for a variety of uses, including clothing, construction, and as a replacement for plastics,” the letter concludes. “However, some of the practical limitations, as discussed above, must be addressed to ensure that risks are appropriately mitigated and that farmers and their lenders feel comfortable supporting this industry.”
Of course, these comments represent just a small fraction of the more than 4,600 that have been submitted. Many individuals engaged in the hemp industry also shared their thoughts and concerns, though many echoed the same points about excess restrictions and requirements.
“Enforcing these regulations will be impossible to uphold and will create an extra stress on farmers who already have so many variables to contend with in a new emerging industry,” one commenter wrote. “Free the industry, move out of the small farmers way. Stop favoring large corporate interest.”
Another person wrote that the “0.3 percent THC requirements are not founded in any science and just downright silly.”
“These strict requirements will do nothing but hurt the farmers as well as the end product that is produced,” they said. “I recommend at least a 1 percent THC threshold, which would allow farmers to focus on producing quality CBD biomass without the added worry of losing everything because of a meaningless percentage.”
A commenter based in Kentucky expressed frustration over the rule’s proposed 10-year ban on participation in the hemp industry by certain people with prior felony drug convictions.
“I believe that it is hypocritical, and cruel to restrict these persons from the hemp/cannabis industry,” the comment states. “We love our neighbors and family members—we need them to have every opportunity to get their lives back. Judicial consequences have failed tremendously in the war on drugs.”
It remains to be seen how much stock USDA will put into the public comments, but in any case, it’s clear that not only is interest in the regulations strong and widespread, but recommendations on changes are largely consistent.
This story has been updated to include comments from the Colorado congressional delegation.
Photo courtesy of Brendan Cleak.
GOP Senator Presses Treasury Secretary On Tax Credits For Marijuana Businesses
A Republican senator recently pressed the head of the Treasury Department on whether marijuana businesses qualify for a federal tax benefit.
During a Senate Finance Committee hearing on Wednesday, Treasury Secretary Steven Mnuchin was asked about the “opportunity zone” tax credit, which is meant to encourage investments in “distressed,” low-income communities through benefits such as deferrals on capital gains taxes.
Sen. James Lankford (R-OK), whose state’s voters approved a medical marijuana ballot measure in 2018, told Mnuchin that businesses that derive more than five percent of their profits from things like alcohol sales are ineligible for the tax credit, but there’s “not a definition dealing with cannabis businesses.”
“Are they within that five percent amount or are they not at all because there’s a federal prohibition on cannabis sales?” the senator asked.
“I’m going to have to get back to you on the specifics,” Mnuchin replied.
“That’d be helpful to get clarity because there are cannabis businesses across the country that, if they fall in opportunity zones, they’ll need clarification on that,” Lankford said. “When you and I have spoken about it before—it’s difficult to give a federal tax benefit to something that’s against federal law.”
Lankford, who opposes legalization and appeared in a TV ad against his state’s medical cannabis ballot measure, has raised this issue with the Treasury secretary during at least two prior hearings. When he questioned whether cannabis businesses qualify for the program last year, he clarified that he personally does not believe they should.
While Mnuchin’s department has yet to issue guidance on the issue, he said in response to the earlier questioning that his understanding is that “it is not the intent of the opportunity zones that if there is this conflict [between state and federal marijuana laws] that has not been cleared that, for now, we should not have those businesses in the opportunity zones.”
Mnuchin has also been vocal about the need for Congress to address the lack of financial resources available to state-legal marijuana businesses. Because so many of these companies are forced to operate on a largely cash-only basis, he said the Internal Revenue Service has had to build “cash rooms” to store their tax deposits.
“There is not a Treasury solution to this. There is not a regulator solution to this,” he said during one hearing. “If this is something that Congress wants to look at on a bipartisan basis, I’d encourage you to do this. This is something where there is a conflict between federal and state law that we and the regulators have no way of dealing with.”
Last week’s Finance Committee hearing was centered around President Trump’s Fiscal Year 2021 budget request, which separately includes a provision calling for the elimination of an appropriations rider that prohibits the Justice Department from using its fund to interfere in the implementation of medical cannabis laws as well as a continued block on Washington, D.C. spending its own local tax dollars to legalize marijuana sales.
Photo courtesy of C-SPAN.
American Bar Association Wants Protections For Marijuana Banking And Lawyers Working With Cannabis Clients
The American Bar Association (ABA) approved two marijuana-related resolutions during its midyear meeting on Monday.
The group’s House of Delegates voted in favor of proposals endorsing pending federal legislation to protect banks that service cannabis businesses and calling for a clarification of rules to ensure that lawyers will not be penalized for representing clients in cases concerning state-legal marijuana activity.
Under the banking resolution, ABA “urges Congress to enact legislation to clarify and ensure that it shall not constitute a federal crime for banking and financial institutions to provide services to businesses and individuals, including attorneys, who receive compensation from the sale of state-legalized cannabis or who provide services to cannabis-related legitimate business acting in accordance with state, territorial, and tribal laws.”
HOD Res 103D: Adopted. Urges enactment of laws to ensure that it shall not constitute a federal crime for banks and financial institutions to provide cannabis-related services. #ABAMidyear
— American Bar Association (@ABAesq) February 17, 2020
ABA added that “such legislation should clarify that the proceeds from a transaction involving activities of a legitimate cannabis-related business or service provider shall not be considered proceeds from an unlawful activity solely because the transaction involves proceeds from a legitimate cannabis-related business or service provider, or because the transaction involves proceeds from legitimate cannabis-related activities.”
A bill that would accomplish this goal was approved by the House of Representatives last year, but it’s currently stalled in the Senate, where it awaits action in the Banking Committee. That panel’s chair, Sen. Mike Crapo (R-ID) is under pressure from industry stakeholders to advance the legislation, but he’s also heard from anti-legalization lawmakers who’ve thanked him for delaying the bill.
“Passage of the [Secure and Fair Enforcement] Banking Act or similar legislation will provide security for lawyers and firms acting to advise companies in the industry against having their accounts closed or deposits seized,” a report attached to the ABA resolution states. “This will also foster the rule of law by ensuring that those working in the state-legalized legitimate cannabis industry can seek counsel and help prevent money laundering and other crimes associated with off-the-books cash transactions.”
“Currently, the threat of criminal prosecution prevents most depository institutions from banking clients, including lawyers, who are in the stream of commerce of state-legalized marijuana. This Resolution is necessary to clarify that such provision of legal and other services in compliance with state law should not constitute unlawful activity pursuant to federal law.”
The second marijuana-related resolution ABA adopted on Monday asks Congress to allow attorneys to serve clients in cannabis cases without facing federal punishment.
Text of the measure states that the association “urges Congress to enact legislation to clarify and explicitly ensure that it does not constitute a violation of federal law for lawyers, acting in accord with state, territorial, and tribal ethical rules on lawyers’ professional conduct, to provide legal advice and services to clients regarding matters involving marijuana-related activities that are in compliance with state, territorial, and tribal law.”
HOD Res 103B: Adopted as revised. Urges enactment of laws to ensure lawyers can provide legal advice and services for clients' legal marijuana-related activities. #ABAMidyear
— American Bar Association (@ABAesq) February 17, 2020
Such a change would provide needed clarity for lawyers as more states legalize cannabis for adult use. ABA’s own rules of conduct have been a source of conflict for attorneys, as it stipulates that they “shall not counsel a client to engage, or assist a client, in conduct that the lawyer knows is criminal or fraudulent.” Federal law continues to regard marijuana as an illegal, strictly controlled substance.
An ABA report released last year made the case that there’s flexibility within that rule, however, as “it is unreasonable to prohibit a lawyer from providing advice and counsel to clients and to assist clients regarding activities permitted by relevant state or local law, including laws that allow the production, distribution, sale, and use of marijuana for medical or recreational purposes so long as the lawyer also advises the client that some such activities may violate existing federal law.”
A new report attached to the resolution states that “statutory guidance is needed that explicitly ensures that attorneys who adhere to their state ethics rules do not risk federal criminal prosecution simply for providing legal counsel to clients operating marijuana businesses in compliance with their state law.”
“This Resolution accomplishes this elegantly by harmonizing federal criminal liability with States’ ethical rules regarding the provision of advice and legal services relating to marijuana business. If a state has legalized some form of marijuana activity and explicitly permitted lawyers to provide advice and legal services relating to such state-authorized marijuana activity, such provision of advice and legal services shall not be unlawful under the Controlled Substances Act or any other federal law.”
Last year, ABA adopted another cannabis resolution—arguing that states should be allowed to set their own marijuana policies.
Border Patrol Union Head Admits Legalizing Marijuana Forces Cartels Out Of The Market
The head of the labor union that represents U.S. Border Patrol agents acknowledged on Friday that states that legalize marijuana are disrupting cartel activity.
While National Border Patrol Council President Brandon Judd was attempting to downplay the impact of legalization, he seemed to inadvertently make a case for the regulation all illicit drugs by arguing that cartels move away from smuggling cannabis and on to other substances when states legalize.
Judd made the remarks during an appearance on C-SPAN’s Washington Journal, where a caller said that “the states that have legalized marijuana have done more damage to the cartels than the [Drug Enforcement Administration] could ever think about doing.”
“As far as drugs go, all we do is we enforce the laws. We don’t determine what those laws are,” Judd, who is scheduled to meet with President Trump on Friday, replied. “If Congress determines that marijuana is going to be legal, then we’re not going to seize marijuana.”
“But what I will tell you is when he points out that certain states have legalized marijuana, all the cartels do is they just transition to another drug that creates more profit,” he said. “Even if you legalize marijuana, it doesn’t mean that drugs are going to stop. They’re just going to go and start smuggling the opioids, the fentanyl.”
One potential solution that Judd didn’t raise would be to legalize those other drugs to continue to remove the profit motive for cartels. Former presidential candidate Andrew Yang made a similar argument in December.
Federal data on Border Patrol drug seizures seems to substantiate the idea that cannabis legalization at the state level has reduced demand for the product from the illicit market. According to a 2018 report from the Cato Institute, these substantial declines are attributable to state-level cannabis reform efforts, which “has significantly undercut marijuana smuggling.”
Additionally, legalization seems to be helping to reduce federal marijuana trafficking prosecutions, with reports showing decreases of such cases year over year since states regulated markets have come online.
In his annual report last year, Supreme Court Chief Justice John Roberts also noted reduced federal marijuana prosecutions—another indication that the market for illegally sourced marijuana is drying up as more adults consumers are able to buy the product in legal stores.