USDA Embraces Hemp as a Crop, But Many Hurdles Remain for Growers

At the same time that the agency opened the gate for farmers across the nation to grow industrial hemp in 2020, the USDA tempered optimism about a new, money-making crop on Tuesday with caution of obstacles for an emerging industry: The hottest hemp product, cannabidiol (CBD), is sold in a gray market; bankers are wary of handling hemp money; and interstate shipment of hemp is problematic.

Farmers have edged into hemp production under a 2014 law that allows pilot projects. Some 230,000 acres were planted this year, estimates advocacy group Vote Hemp. The 2018 farm law legalized cultivation of industrial hemp with USDA to oversee state regulation of growers. The USDA will publish on Thursday a rule to assure consistency among states. Producers will be eligible for an array of USDA programs, from crop insurance to low-cost loans, in 2020.

"We have already seen a large growth in production," said Greg Ibach, agriculture undersecretary for marketing. The experiences this fall of the pioneer farmers of hemp, in harvesting, drying and selling the crop "are going to be very instructive in whether we see greater growth in the industry or whether producers take a step back."

Agriculture Secretary Sonny Perdue said hemp could bring "new economic opportunities for our farmers, and we hope the ability to grow hemp will pave the way for new products and markets."

Analysts such as CoBank, an agricultural lender, say there are many risks in hemp, from lack of processing capacity to the uncertain direction of federal regulation. "However, with big risks can potentially come big rewards," said a recent CoBank report. CDB fetches the best price at present, but there are two other markets for hemp — fiber for apparel and potentially biocomposites and the grain/seed sector, including use in food or livestock rations.

"The level of interest and demand for hemp seems to be strong," says Eric Steenstra, president of Vote Hemp, who expects hemp acreage to increase. Plantings this year were three times larger than the group's estimate of 78,176 acres in 2018.

"Hemp is currently legal to grow in 46 states, and all of those states have indicated they will submit a plan to the USDA," said Chief Executive Barb Glenn of the National Association of State Departments of Agriculture. "USDA's presentation of the guidelines means farmers can plant hemp for the 2020 growing season, and states can develop regulations that are uniform and consistent to encourage interstate commerce."

The USDA interim final rule, which takes effect on Thursday, spells out how hemp-producing fields and greenhouses will be tracked, the format for testing hemp for levels of the psychoactive substance tetrahydrocannabinol (THC), and disposal procedures for plants that exceed the limit of 0.3% THC.

"Hot" plants with too much THC do not qualify as a loss on crop insurance, said Bill Northey, the agriculture undersecretary who runs the farm program. Growers will be eligible for so-called whole farm crop insurance, for all crops grown on a farm, with coverage on up to $8.5 million of revenue. To get insurance, growers must have a contract with a buyer for the crop.

Last week, the FDA said it "continues to explore potential pathways for various types of CBD products to be marketed lawfully" but it has not said when it will decide the parameters for including CBD in food, beverages, or supplements. The substance already is widely marketed in a regulatory gray zone. Attorney Micheal Weiner said controversy over vaping could mean FDA will take a longer look at CBD and issue stronger regulations than earlier expected. "The FDA was concerned that CBD producers did not have safety data, and the vaping issues lend credence to their concerns," said Weiner, of the law firm Dorsey and Whitney.

Lenders are reluctant to deal with hemp entrepreneurs because of hazy federal guidelines to divide the licit crop from illegal marijuana containing higher levels of THC. The House passed, 321-103, the SAFE Banking bill on September 25 to block federal bank regulators from penalizing lenders who provide services to legitimate marijuana-related businesses. The bill was referred to the Senate Banking Committee.

The 2018 Farm Bill "allows for the interstate transportation and shipment of hemp," said the USDA in its interim final rule. However, a Colorado hemp extraction company has fought for months to free a cargo of hemp biomass that was seized in Idaho in January, reported Hemp Industry Daily. Local officials argued in U.S. appellate court in August that shipments would not be legal until USDA wrote rules that allow hemp production and transport.

The USDA's general counsel said in a May 28 opinion that states cannot prohibit interstate shipments. "Yet, despite the new law, authorities in several states have either confiscated or attempted to confiscate shipments of hemp traveling through their states. They have argued that since there are no regulations for the 2018 law, they still have the authority to confiscate the shipments," said Transport Topics.

Ibach said the interim rule will have a two-year life, allowing a "test drive" of hemp regulations in 2020 with revisions to follow as warranted before a final regulation is written. There will be a 60-day comment period on the interim rule.

To read the interim final rule, click here.

The USDA home page for hemp and farm bill programs is available here.