On August 11, 2016, the US Department of Agriculture, jointly with the Drug Enforcement Administration and the Food and Drug Administration issued a Statement of Principles on Industrial Hemp. The publication of the principles signals clearly the commitment of the Federal Administration to support Section 7606 of the Agricultural Act of 2014, which legalized the growing and cultivating of industrial hemp for research purposes. As of today, 31 states have adopted legislation in accordance with Section 7606 to implement local research programs.
As context, the Agricultural Act of 2014, P.L. No. 113-79 Consolidated Appropriations Act for FY 2016 (the “Omnibus Law”) constitute a legal reform for the domestic cultivation of industrial hemp. Taken together, the two laws ensure that individuals and firms that are engaged in authorized agricultural pilot programs are permitted to grow, cultivate, transport, process, sell and/or use industrial hemp under the guidelines and regulations of state law, without interference from agencies using federally-authorized funds.
One of the most interesting things to arise from the Statement was that on Tuesday August 23, the USDA announced that, for the first time, the organic certification of hemp crops grown in compliance with Sec. 7606 of the Farm Bill will be allowed. It is pertinent to note however that several third-party certifiers had already provided USDA Organic Certification to hemp producers, including CBDRx. What is important however is that this USDA instruction will remove any concerns by organic certifiers to certify hemp. It is anticipated that this will open up the doors for hemp producers in the United States to tap into the organic market and capture the ‘organic premium’.
As with all crops, there exists an organic premium for hemp. Transaction reports reveal that Canadian organic hemp seeds are double the conventional price. The demand for organic hemp has increased dramatically in recent years with companies including Nutiva offering to purchase all organic hemp seeds produced. In terms of the opportunity, there are two determining factors: (i) the amount of land that is ‘organic’ or ‘in transition’ (ii) this land is in states in which the state has the necessary infrastructure to grow hemp in compliance with the 2014 Farm Bill Act.
When the states in which hemp can be cultivated are bought to the fore (and those in which it cannot are shaded out), there is a clear opportunity here for many US farmers.
Colorado, Kentucky, and Tennessee currently have the most well established hemp programs and thus will be able to take immediate advantage of this recent change in organic certification. With 115,116 organic acres, Colorado appears to be the most well positioned to take advantage of this regulatory announcement. Two other states that stand out are Oregon and New York. While their pilot programs are not as well established as Colorado, Tennessee, or Kentucky they have a large pool of organic acreage to draw from.
Seed CX welcomes many aspects of the Statement of Principles on industrial hemp. The U.S. is currently the largest importer of industrial hemp in the world. Seed CX’s subsidiary Seed SEF LLC received CFTC approval on August 23, 2016 and plans to launch trading industrial hemp options and forwards later this year.
While the Joint Statement clearly notes that it “does not establish any binding legal requirement,” it is important that all agencies who interact with hemp are clear of the implications of legislation. In collaboration with other industry leaders, Seed CX is eager for additional clarity in one particular area. First, the Statement declares that “Industrial hemp plants and seeds may not be transported across State lines.” This statement refers to propagation or viable seed or clones i.e. it addresses how farmers get the seeds they need to plant their crops. Many in the industry believe that a literal reading of this sentence not only is inconsistent with the federal laws which explicitly forbid federal agencies from interfering with pilot program industrial hemp products but also with other declarations within the Statement that acknowledge the legality of interstate transfers. After all, why would the U.S. government allow producers to import viable seed (from Europe, Australia and Canada) but not from domestic sources?
Equally, the Statement could be interpreted to redefine the term “industrial hemp.” Federal law (Section 7606(b)(2) of the 2014 Farm Bill) states:
“The term “industrial hemp” means the plant Cannabis sativa L. and any part of such plant, whether growing or not, with a delta-9 tetrahydrocannabinol [“THC”] concentration of not more than 0.3 percent on a dry weight basis.” By contrast, the Statement reads: The term “industrial hemp” includes the plant Cannabis sativa L and any part or derivative of such plant, including the seeds of such plant, whether growing or not, that is used exclusively for industrial purposes (fiber and seed) with a tetrahydrocannabinols concentration of not more than 0.3 percent on a dry weight basis.
The notion, for example, that hemp can only be used for “industrial purposes (fiber and seed)” suggests an effort to disregard parts of the plant such as flowering tops. Such a reading would be directly contradictory with federal law. Of course, no executive agency, nor even a combination of agencies, can rewrite federal law. It is thus our reading that the word “includes” in the first sentence of the Statement provision above is merely an illustration of one of the definitions of industrial hemp.
Despite our push for clarification, we believe the Principles are important since it is the first time that federal agencies have formally opined and acted on the legislative changes since 2014 and appreciate USDA’s efforts on the issue of domestic cultivation of hemp. The Industrial Hemp Farming Bill (S-134 and HR-525) would affirmatively and directly remove any legal frictions and it is our expectation that this act will be passed into law in the next legislative year. It is encouraging that so soon after the release of the Statement, action was taken on organic certification. Seed CX looks forward to providing access and opportunities in these new markets.