The immense demand for hemp-derived CBD has motivated farmers to embrace the crop. According to the advocacy group Vote Hemp, 9,770 acres of hemp were grown in 2016 under a limited USDA pilot program. In 2018 the number was 78,176 acres. This year, the first planting since the Hemp Farming Act was signed into law, farmers have received licenses to plant 511,442 acres. By giving farmers a defined, though many think unduly onerous, testing process to certify their crop is within the THC limit, the rule is likely to encourage more hemp planting until supply and demand reach equilibrium. There has been a wide range of where that may be given the many uses of the crop, and only time will tell where research will lead us to or consumer demand will pull us towards.

Certified legal hemp

The Hemp Farming Act of 2018 removed hemp containing .03 percent or less THC from Schedule 1. In theory, this immediately made hemp (and presumably CBD derived from it) as legal as a bushel of corn. Legal hemp is indistinguishable from illegal cannabis without lab testing, which has resulted in police mistaking hemp for cannabis.

The hemp farming rule establishes a national laboratory protocol for certifying hemp is within THC limits, a crucial step for allowing routine transport of hemp from field to processor to market.

Putting the USDA hemp certification process into effect will take some time. The labs will have to be DEA certified. The samples of hemp flower must be collected no more than 15 days before harvest by a USDA-approved agent, who could be law enforcement officers. The testing protocol allows for a margin of error, or “measurement of uncertainty” as USDA terms it, to allow for crops marginally above the THC limit. Beyond that, however, crops with excessive THC will be destroyed. It is likely the hemp industry will advocate for more lenient testing and certification protocols, so the final rule could be different. Given the nature of the plant and benign effects of remediating the crop to reduce THC levels, there’s little reason why more leniency wouldn’t be employed other than to create significant waste and loss (hardship for farmers) for no other discernible reason than continued demonization of a useful cannabinoid.

The draft hemp rule marks the end of hemp’s regulatory stigma but USDA has work to do before the crop is fully normalized. A freak hail storm in eastern Oregon late this summer severely damaged 500 acres of hemp worth $25 million. That’s a total loss for the farmers because the USDA crop insurance program doesn’t yet cover hemp. USDA still must specify standard measures and units for hemp, as it has for all other crops. There can’t be a hemp commodity market until there is a measure, like the bushel, for a standard unit of hemp.

CBD as a commodity

Consumer demand for CBD is the economic engine that has driven a 50-fold increase in the amount of hemp planted in the US since the first pilot programs authorized in the Farm Bill of 2013. High prices for CBD-rich hemp encouraged a rapid increase in the number of acres planted and a frantic scaling of the supply chain to process raw biomass into consumer products.

Prices for hemp biomass and the wholesale CBD products derived from it have been dropping recently, a response to the bumper harvest anticipated this year and continued acreage expansion expected as a result of the USDA rule. Consumer demand for CBD is expected to grow. BDS Analytics estimates that US sales of cannabis- and hemp-derived CBD products were $1.9 billion in 2018 to $20 billion by 2024, a compound annual growth rate of 49 percent.

A growing consumer market for CBD products and an abundant hemp supply will require a buildout of the hemp supply chain and is likely to create significant opportunities, such as specialized farm equipment and building the DEA-certified labs required for testing and certification.

The USDA hemp farming rule will allow farmers to grow as much hemp as required for CBD (if not more) but how soon the market for CBD consumer products grows is subject to other rulemaking. CBD is unlikely to reach its full market potential as a food ingredient before the FDA, or Congress, makes a regulatory distinction between the amount of CBD in a single serving snack or beverage and the therapeutic amounts in prescription medications (Epidiolex, the first FDA approved drug containing a cannabinoid, came on the market in 2018).

Currently, most of the companies adding CBD to food and beverages are relatively small but risk-tolerant regional players. Every global CPG brand is formulating a CBD strategy and some are considering or entering the US market with their own products or through acquisition of incumbent companies even prior to FDA guidance. Similarly, the CBD market is unlikely to reach its full potential until the Treasury Department, or Congress, normalizes CBD sales. Though CBD is legal, companies still have difficulty obtaining routine banking services, such as payment processing.

The exuberance about the prospects for CBD over the next few years is entirely rational, but CBD is just one of the 113 known cannabinoids. One of the others, THC, is the basis of the multi-billion dollar legal cannabis industry. Another, CBG (cannabigerol) is a strong contender to be the next cannabinoid on the market. What little is known of the other cannabinoids points to promising therapeutic applications. The global pharmaceutical industry, like the global CPG industry, is ready to invest in hemp and cannabinoids as soon as the regulatory picture becomes clear and some have begun R&D to get ahead of that timing.

USDA takes the long view

What USDA repeatedly makes clear in the rule is that hemp, outside of the strict requirements for lab certification, is just another legal crop free to find markets and cross borders.

There are no restrictions on hemp seed import/export, which means US farmers can purchase seed on the international market and US cannabis biotech companies are free to export seeds. The rule explicitly states “there’s no need for additional regulation on biomass, fiber, seed, hemp seed oil or hemp seed for consumption.”

The rule sets the stage for US farmers to participate in a global hemp trade. The labs that certify hemp for THC content will also be able to certify it for export, so long as they are DEA certified. USDA, which actively promotes American crops on global markets, will do the same for hemp. “Should there be sufficient interest in exporting hemp in the future, USDA will work with industry and other Federal agencies to help facilitate this process.”

The regulation in many ways clears regulatory barriers to import/export of hemp-derived products. It is reasonable to see this as good for free trade in CBD. The first export of US CBD products was shipped to Mexico at the end of last July.

What about the rest of the plant?

The 90 percent of the hemp plant that yields no CBD (or other cannabinoids) may someday be at least as valuable as the 10 percent that does. In 1938, Popular Mechanics extolled hemp as The New Billion Dollar Crop (which is about $18 billion now) based solely on its value as fiber. Though farmers in 1938 could have used a valuable new crop, the Marihuana (sic) Tax Act was making the crop economically worthless. The farm economy hemp might have sustained was not allowed to take root.

The hemp farming rule begins to reverse that historic mistake. The potential for hemp as a source of food, fiber and plant-based industrial products is substantial. The Congressional Research Service found “The global market for hemp consists of more than 25,000 products in nine submarkets: agriculture, textiles, recycling, automotive, furniture, food and beverages, paper, construction materials, and personal care.” The relatively small existing markets for hemp fiber and hemp seed as food are more profitable per acre than the depressed prices for corn and soybeans.

There is reason to think future policies to address global climate change through “carbon farming” could benefit hemp agriculture. An Australian study concluded a hemp crop is “the ideal carbon sink” because hemp absorbs more atmospheric carbon per acre than any forest or commercial crop.

Products derived from hemp could have advantages in a future carbon-constrained economy. For example, concrete manufacturing is one of the largest industrial sources of C02 emissions globally but hempcrete, a product few people have heard about, is a carbon-negative substitute.

It will be a while, perhaps a long while, before hemp is as common as cotton or hempcrete is standard in new construction. Hemp has a tiny market presence outside of CBD and hemp seed as a food, and its lobbying presence is no larger. The future of hemp as a large and growing market is nonetheless very promising. As more and more hemp is harvested each year it is all but inevitable that entrepreneurs and investors will take on the challenge of bringing entirely new product categories to market.

60 speakers were given three minute slots, during which they could make a public statement regarding the treatment of hemp in the Farm Bill. The speakers (selected via a submission process) represented a wide variety of related parties and included: representatives from state-level agriculture, regulatory and law enforcement agencies; private sector business owners and entrepreneurs; Native American tribal leaders; and a variety of other industry advocates and stakeholders.

The diversity of speakers helped represent a broad view of issues and concerns related to the expansion of hemp cultivation. Due to the fact that it was a listening session, the USDA did not respond to any concerns raised. In the following article, we examine a number of recurrent themes raised by speakers, which illustrate concerns regarding the future of industrial hemp production in the US.

Difficulty distinguishing between hemp and cannabis

Hemp and “consumable cannabis” (adult-use or medicinal cannabis) are the same plant, and are only distinguished by the level of THC. Per the Farm Bill’s definition, industrial hemp contains less than 0.3% THC, in contrast to “cannabis,” which can contain up to 20% THC. To sight and smell, the two are indistinguishable, which places a great amount of importance on testing measures for THC.

A recurring issue, raised by both regulatory and law enforcement officials and hemp cultivators and advocates, is the lack of universal testing measures. Officials expressed concern that it was incredibly difficult to test THC content via roadside stops or in customs examinations. This results in delays to traffic and other processes and can lead to unlawful detainment and seizures. On the commercial side, hemp producers don’t want to see their legal shipments delayed or seized.

Speakers from all sides of the issue agreed that for the hemp industry to move forward, the USDA will need to define consistent testing measures and help provide training to officials tasked with regulating the cultivation and transportation of hemp.

Treating hemp as a viable agricultural commodity

The Farm Bill removed industrial hemp (as defined previously) from the Federal Controlled Substances Act, in effect decriminalizing hemp production. And yet, many advocates brought up concerns related to provisions in the Farm Bill that they felt continued to treat hemp as a scheduled drug.

For example, the Farm Bill requires license applications prior to cultivating hemp, which leads to background checks for the licensees. No other commercial crop requires diligent background checks, and subsequent application and processing fees.

Similarly, the Farm Bill did not eliminate the requirement under the Controlled Substances Import and Export Act wherein the importation of hemp seeds requires registration with the DEA. Industrial hemp has a strong history of cultivation in other parts of the world, including Canada and Europe, and the agricultural science and genomics of hemp in these regions are far ahead of the US. Access to advanced genetics in hemp crops is essential to commercial production and the DEA requirement presents a major roadblock to free trade.

These are just two examples of ways in which the specter of hemp’s past as a controlled substance continues to linger. Asking the USDA and other federal agencies to go all the way with decriminalizing every aspect of hemp motivated commentary across a number of regulatory and operational concerns.

Access to financial institutions for hemp growers

Like any other agribusiness, hemp businesses need access to lines of credit, insurance, and other traditional banking relationships. And yet, like the cannabis banking crisis, a number of hemp cultivators expressed concern related to the reluctance of financial institutions to work with them.

Representatives of financial institutions, including banks and credit unions, also made their voice heard, asking for clear protection against liability so they would feel able to serve hemp producers. Both parties concurred in requesting that the USDA make a clear pronunciation regarding access to banking for hemp producers.

While the SAFE Act has made progress in recent months, there are no guarantees about access to banking for all cannabis businesses. In the meantime, the industrial hemp industry seeks clear and strong direction at the federal level to ease the path to traditional banking.

Lack of clarity for Tribal Lands and sovereign nations

A number of Native American communities and leaders were given an opportunity to speak during the listening session and all shared enthusiasm about the potential economic benefits of hemp cultivation on tribal land. And yet, many pointed to a lack of clarity regarding regulation and self-governance for tribal communities in the 2018 Farm Bill.

For example, the management of much tribal land is a complex web of oversight from federal agencies combined with the autonomous control of tribal governments. A number of Native American leaders asked for further guidance regarding hemp production from the USDA so tribal nations can participate in upcoming planting seasons.

The balance of federal and state oversight

The 2014 Farm Bill carried provisions allowing for the creation of hemp-growing pilot programs at the state level. The successful inclusion of hemp production in the 2018 bill owes much to the success of these pilot programs. During the listening session a number of representatives from state agricultural agencies raised their voices to speak to the success of their programs and to support a continued balance between federal and state oversight.

Kentucky, Wisconsin, and Colorado all provided details on the growth of hemp in their respective states and made the case that future USDA laws should not interfere with state’s rights in the matter of hemp. At the same time, they acknowledged the essential role in federal oversight protecting and ensuring factors that include: intra-state commerce, managing import/export laws and enforcement, and the implementation of standardized testing protocols.

What is next for industrial hemp in the US?

The above topics were a sample of the diverse range of issues and concerns that remain undefined under the current wording of the 2018 Farm Bill. In coming months, each state and tribal nation will have the opportunity to submit a regulatory system governing hemp production in their respective jurisdictions. Those proposals will then be reviewed and approved by the USDA.

The USDA also seeks to implement a regulatory system that addresses these concerns, and more, which is scheduled for release in fall of 2019. If all goes well, hemp producers across the nation will have clear guidance to move forward as early as 2020.

Many cheered the passage of the 2018 Farm Bill, which descheduled industrial hemp and its derivatives (including CBD). But that was just the start of a much more complicated regulatory story that continues to have a major impact on entrepreneurs, investors, and advocates and patients who rely on CBD.

CBD and the 2018 Farm Bill

When President Trump signed the 2018 Farm Bill into law one of the key changes affecting the cannabis industry was the separation of “hemp” and “marijuana.” Before the Farm Bill, any incarnation of the cannabis plant and its byproducts were lumped into a single category and considered a Schedule 1 drug. Key language in Section 1103 of the Farm Bill defines hemp as:

“the plant 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 delta-9 tetrahydrocannabinol concentration of not more than 0.3 percent on a dry weight basis.”

In short, the Farm Bill descheduled industrial hemp and its byproducts as long as it stayed under the threshold of less than 0.3 percent THC. CBD is derived from the cannabis plant, whether there are significant levels of THC or not. CBD industry advocates have interpreted the language “all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers” as descheduling CBD when industrial hemp is the source. And they are “mostly” correct in this interpretation. Unfortunately, there are other federal agencies in play.

CBD and the FDA

United States Department of Agriculture (USDA)  enacted the 2018 Farm Bill in their position overseeing laws related to the cultivation of industrial hemp. The United States Food and Drug Administration (FDA) oversees medicine and food additives. CBD has emerged as a “wonder drug” with a growing list of potential benefits and now appears as an additive in a wide range of consumer products. In addition, the FDA approved Epidiolex, the first CBD-derived drug, in 2018.

All of this has culminated in CBD being a priority of the FDA, so much so, that just a week after the Farm Bill was signed into law, the FDA issued a press release clarifying and asserting their regulatory control over all cannabis-derived compounds.

“We treat products containing cannabis or cannabis-derived compounds as we do any other FDA-regulated products — meaning they’re subject to the same authorities and requirements as FDA-regulated products containing any other substance. This is true regardless of the source of the substance, including whether the substance is derived from a plant that is classified as hemp under the Agriculture Improvement Act.”

Concurrent with the Farm Bill and the press release regarding CBD, the FDA also issued three Generally Regarded as Safe (GRAS) notices for hemp by-products: hulled hemp seeds, hemp protein powder, and hemp seed oil. Clearly demonstrating that (some) hemp products have been descheduled and cleared for use by the FDA.

The FDA’s policy is different toward CBD for two key reasons. Firstly, CBD products are largely marketed with a wide variety of therapeutic claims. In their press release the FDA notes:

“The FDA requires a cannabis product (hemp-derived or otherwise) that is marketed with a claim of therapeutic benefit, or with any other disease claim, to be approved by the FDA for its intended use before it may be introduced into interstate commerce.”

Secondly, the FDA’s approval of CBD-based drug Epidiolex, put CBD and THC into the category of “active ingredients in FDA-approved drugs.” Under the Federal Food, Drug, and Cosmetic Act (FD&C Act) it is “illegal to introduce drug ingredients like these into the food supply, or to market them as dietary supplements.”

In short, the FDA does not distinguish between CBD derived from hemp or “marijuana,” and until the agency approves CBD and establishes a regulatory framework, adding CBD to food and beverages is illegal.

Has the regulation of CBD slowed businesses?

While early CBD research has shown promise as a treatment for conditions like epilepsy and anxiety, as a consumer product it is unproven and has been largely unregulated until recently. In the absence of labeling standards and regulated dosage guidelines, consumers often have little understanding of what they are buying and its potential effects.

All of this uncertainty has earned greater regulatory attention for CBD. There have been reports of crackdowns on bakeries, restaurants and retailers selling CBD in California, New York, Maine and Ohio, just to name a few. This regulatory response has shocked and angered a number of hemp producers and CBD retailers who have invested millions into business ventures that they feel only supply the public with products that help manage health concerns.

Despite the confusing legality, the CBD industry appears to be moving full-steam ahead. In recent months, national retailers as diverse as Walgreens, DSW and Barney’s New York have announced plans (or have already begun) selling CBD products. Indicating the burgeoning CBD industry is well on the way to mainstream acceptance.

What is next for CBD?

In February, former FDA Commissioner Scott Pruitt testified before the House Appropriations Committee and said that the FDA is initiating a rule making procedure with the goal of creating “an appropriately efficient and predictable regulatory framework for regulating CBD products.” The FDA will launch the process with a public hearing on CBD scheduled for May 31, 2019.

Further complexity struck when Pruitt unexpectedly announced his  resignation, which took effect in early April. Pruitt has been replaced by Dr. Ned Sharpless, the former director of the National Cancer Institute. To date, it is unknown whether Sharpless intends to take a progressive stance toward CBD.

While delays occur at the federal level, states are shifting into action. Maine recently passed an emergency law governing CBD. The bill aligns the definition of hemp in Maine’s laws with the definition used in the Farm Bill. Meaning, as long as CBD is derived from hemp sources it is to be considered a food product, rather than medicine, and is cleared for use in Maine.

Ultimately, until the FDA creates a regulatory framework for CBD, it will remain illegal to add it to any food or drink products.

Learn more about the FDA Public Hearing on CBD here

Provide a public comment for the FDA on CBD here