Hemp is quickly rising from the shadows of its former prohibition in Texas. Products containing hemp extracts high in CBD, such as oils, topicals, and infused products, gained such mainstream popularity and acceptance under the 2014 Farm Bill, that on January 1, 2019, hemp became federally legal and removed from the definition of “marijuana” under the U.S. Controlled Substances Act (CSA). Under the 2018 Farm Bill, signed into law by President Trump, the U.S. Department of Agriculture’s (USDA) will issue rules to govern all states’ hemp programs, treating hemp as a federally legal agricultural commodity that can participate in interstate commerce. The Food and Drug Administration (FDA) governs CBD products.
By Lisa L. Pittman
Co-Chair of Cannabis Business Law Group at Coats Rose, P.C.,
Member of Texas Department of Agriculture Industrial Hemp Advisory Council
In 2019, Gov. Abbot signed HB 1325, legalizing hemp in Texas, and directing the Texas Department of Agriculture (TDA) to devise rules from planting to harvest, and the Department of State Health Services (DSHS) to devise rules from testing to end consumable hemp product. The rules address licensing qualifications and procedures, testing and inspection requirements, reporting and record keeping requirements, distribution, manufacturing, and plans for disposal of “hot” products (cannabis with >.3% THC), among other issues. The TDA rules provide slightly more leeway in that if your crop tests at .3% THC within the measure of uncertainty given by the laboratory, then the crop is OK to be harvested and shipped off the licensed property with a transport manifest. A transport manifest is also required to send in a sample for testing.
For a quick introduction to hemp, it is a type of cannabis plant comprised of many cannabinoid compounds, including CBD, CBG, CBN, and THC—the only compound that creates a “high.” In contrast to marijuana, which is tightly regulated from a law enforcement perspective because of its status on Schedule 1 of the CSA, hemp naturally contains low THC. By law, for cannabis to be considered hemp, the THC concentration must be ≤0.3% THC. Until recently, hemp has not been subject to much regulation – though regulation is coming from multiple agencies including the USDA and the FDA. The FDA retains regulatory authority over CBD, the compound of the cannabis plant that is now considered a drug rather than a dietary supplement because of FDA’s approval of a CBD formulation to treat epilepsy. It is still unknown when the FDA will develop rules to regulate hemp CBD products or whether they will be placed in a dietary supplement category. The FDA has held public hearings, taken public comment on the regulation of hemp CBD, and issued several reports as part of their process of creating regulations.
The USDA released its “Interim Final Rule” (IFR) on October 31, 2019 to apply to farming hemp under the 2018 Farm Bill, with a lengthy notice and comment period. The USDA must approve each state’s plan, so even states that have already been producing hemp under the 2014 Farm Bill will have to adjust their programs to conform with the new USDA rules to receive a state plan approval by October 31, 2020. The USDA received over 4,600 comments that it must consider before adopting its “Final Rule” to govern hemp production. Some areas of extreme concern, including the requirements that testing laboratories be registered with the U.S. Drug Enforcement Agency (DEA) and that a reverse distributor licensed by DEA must destroy hot crops according to DEA guidelines, are not going to be enforced through October 31, 2021 or publication of the Final Rule, whichever comes first.
By way of background, under the 2014 Agricultural Improvement Act (the 2014 Farm Bill), hemp was still considered to be marijuana, and was only permitted to be grown in two limited situations: in conjunction with a state’s industrial hemp program or under a contract with a university’s research pilot program. In neither of these instances were hemp or extracts made from hemp allowed to leave those states’ lines. But they did, even on Amazon, and the word got out about CBD’s ability to relieve inflammation, pain, anxiousness, sleeplessness, and other common ailments, without the side effects of synthetic drugs and opiates, or the high of marijuana. The main states to take advantage of the 2014 Farm Bill were Kentucky, Colorado, Oregon, and Montana. After the 2018 Farm Bill, most states activated hemp programs—and some did not wait on the USDA.
Our founding fathers grew hemp, and growing hemp was a requirement of some early Colonists. Before 1937, industrial hemp was legal and used for clothing, paper, rope, and fuel. But in 1937, Congress passed the Marihuana Tax Act, which made all species of the Cannabis sativa L. plant illegal, including hemp. While the purported purpose was to eliminate the use of cannabis as a drug, some theorists posit that the real intent of the Act was to eliminate the competition hemp posed to paper and steel manufacturers by referring to cannabis as “marijuana” in media as a scare tactic in relation to its use as a drug. But, the U.S. needed strong hemp fiber during World War II and it was briefly re-legalized. Since then, the U.S. has been importing hemp to use as fiber for the seats of BMW automobiles manufactured in Alabama, for example. Hemp powders and other goods have been imported for years, found mostly in health stores such as Whole Foods. But now hemp CBD has become mainstream, sold in most national retail chains, even located in the “impulse buy” areas near cash registers.
A controversial topic is the smoking of hemp. The original hemp act authored by Rep. Tracy King contained no overly zealous regulations or prohibitions—it was merely intended to promote the growth of hemp free from undue government interference. However, the overarching concern over the hemp bill was that it was just a subterfuge for marijuana—something our State’s leadership is still staunchly opposed to. Thus, the Senate version of the hemp bill was rewritten to involve the DPS, create crimes for certain activities, ban the manufacture of hemp for smoking, and make a definition for smoking. A promise was made on the Senate floor during the debate that hemp would not be smoked, and that was memorialized in the statute. Therefore, DSHS is forced to make rules required by hemp statute, including broadly banning the smoking of hemp, by prohibiting the manufacture, processing, distribution, and retail sale of smokable hemp.
A word of caution, despite the upward trajectory of the future oriented hemp business, the rise has been volatile. But as a state that leads in agriculture, technology, refining, and medicine, Texas is poised to become the new leader in hemp production, whether for medicinal or industrial purposes. This is an incredibly exciting time to participate in the change of major laws in the dawn of a new industry. I asked Texas Agriculture Commissioner Sid Miller what he thought of the new hemp industry in July 2020:
Lisa Pittman: What impact does the first Texas hemp harvest have on future grow operations in the Lone Star State?
Sid Miller: Well, where we start is not necessarily where we are going to finish. We’ve got a lot of producers signed up, but it’s a lot slower start than we anticipated—one, there was a drop in price, which held a lot of the farmers back, then of course, the day we launched, on March 16th, is about simultaneously when COVID-19 took place; I think a lot of people were a little trepidatious about that, but we do have a lot of farmers signed up—Samplers, all the different licenses, we’ve got good action, whether it be lot permits or producers or processers, we are doing pretty good.
How has the processing of those licenses and permits gone so far?
The Legislature gave us a 60 day turnaround time to process the applications. I think we averaged about 10 days. Most of them went off without a hitch. There were just a few, a handful that didn’t quite fit our template for the application, like having 12 or 15 owners that wouldn’t fit on the application, so we had to hand-walk some of those through, a few other things, but for the most part I was very pleased with how smooth it went off.
About what percentage of the costs incurred by your Department to service the hemp program would you say has been recouped so far?
Well, probably zero. The Legislature allows us to raise $750,000, which we may do, but the Legislature gets the first quarter million—they get the first $250,000 and keep it. The Legislature didn’t give us any appropriations or any FTEs to start the program. So, we are still working for free. What I am having to do is borrow from other programs and use personnel in hopes that we can pay that back once we get enough of the licenses sold, which we are getting pretty close to. Now that we have funds coming in from the sale of licenses, we can get some of the personnel time paid. Starting with nothing and doing everything is tough, but we managed.
Where do you see the opportunity for Texas growers headed compared to other states that started earlier?
Well, we are behind a little bit. We are starting about four years late—a lot of the other states are operating on the 2014 Farm Bill—they don’t have to go through all the hoops and the sampling is different and a little less stringent and a little less oversight. Everyone has to be on the same page—the 2018 Farm Bill comes at the end of October. We are sort of blazing a trail. I think we are one of the first, if not the first, to actually implement the hemp program under the 2018 Farm Bill. We didn’t have any problem getting our plan and our Rules approved. They flew right through, so we are pretty proud of that, we are rocking and rolling and it’s running pretty smooth actually.
Well, maybe in the long run we will be setup for success then under the 2018 Rules.
I think so. We are going to be far ahead of the other states that haven’t switched to 2018. They will still have to rewrite their Rules and adapt and change, and all that. We don’t have to do that. We are up and running, so I feel good about that.
Is there anything Texas can do to improve its laws to economically benefit retailers and growers during the next Session?
You know, I’m not a big government guy, but right now, we’ve got zero field personnel and zero samplers. Since we don’t have any funding, I think the Legislature should address that. If we don’t do any inspections, if we get a complaint, I guess we will have to send someone out. I don’t have any personnel to do that, so the Legislature could probably improve the lack of oversight. We could probably do a better job if the Legislature would see fit to make those allocations.
Do you have any comment on the ban on the manufacture and sale of smokable hemp?
You know, I disagree with that. It’s a huge market. Banning Texas producers from selling and processing smokable hemp does nothing to curtail the sale of smokable hemp. Other states are going to be selling it and our people are going to be buying smokable hemp from out of state suppliers, so it really doesn’t slow it down any at all. It just puts our growers and processors at a disadvantage.
Has the TDA noticed a decline in AG Markets/Commodities since COVID-19 started affecting our economy?
We had some backlog in the meat industry where the virus broke out in the packing plants, and it shut down production which backed up a lot of the animals in the feedlots, and the poultry, the pork, but beef was the one that suffered the most. We have just about worked through all of that now—we are back up to 95 to 99% capacity, but we still have a lot of cattle that are backed up to feedlots that we’ve got to process. It’s still a depressed market there.
I sent a letter to President Trump and William Barr at the DOJ demanding a full investigation. Consumers are paying record high prices for beef and the farmers are receiving low record prices on their end. A farmer was losing $500.00 on a steer, and a packer was making $2500-$3000 on that same steer. They are looking into that. There is going to be a full investigation, which doesn’t affect the hemp business other than a lot of people that are growing hemp are also in the livestock business.
How have President Trump’s recent direct payments to farmers impacted Texas so far, and how much has been sent?
Well, we don’t have those numbers because it’s still ongoing. There’s still money left. They just recently extended the date on the application; I think until August 31st. So there will still be more funds going out. We don’t have a total on that. But it certainly helps. Farmers, you know, we really don’t want a handout. What we’d rather have are good markets and a free market system, but we are appreciative of that because we don’t want to go out of business and lose the family farm.
Right. Have any official testing results been submitted yet on hemp crops and, if so, have any tested “hot”?
Well, we’ve got a few samples, we’ve had 20 requests for sample manifests, and I think a dozen for transfer to actually move it off the farm [as of July 7, 2020]. I don’t believe any of those were “hot,” which is great news, but it’s still early—we have so far 921 producers, which is good. We only have 405 lot permits, so apparently these producers haven’t registered all their fields yet, planting is still going on, not all the fields are planted. But we will get there. We should have at least, if every farmer only has one field, we should have over 900 lot permits and many of them will have two, so we could have 1,500 to 10,000 lot permits, and we don’t right now—it’s a moving target—the permits are still coming in every day. I don’t have the acreage added up on that, but we will get that in the near future. We will have an acreage count.
How much longer do the farmers have this summer to plant? When will be the next opportunity?
We’ve got probably more acres in greenhouse operations than we do field operations, so those plant year-round—planting never stops—there’s not a season when you control the climate and the environment. This is a 90-day crop—a 60-day crop if you are just doing fiber. So we could still have the farmers planting, especially if they use transplants, or seedlings, which a lot of them do, actually planting up through the end of July, first of August… they’d still have time to make a crop.
What can industry stakeholders do to better help the industry?
Well, we just need to keep educating the public. You mentioned the smokable hemp, there’s really not any harm in that, but what people thought was “dope” or “weed” or the equivalent to, which it’s not, it doesn’t have the THC in it, so I think a public education program, we’ve still got some work to do there, but there’s been so many people helped by the CBD and CBG that the word is getting out that this is a very positive crop, it’s not a bunch of pot smokers bending the rules to grow marijuana, but it’s a legitimate crop that has many legitimate purposes, besides the oil, which is great, but the fiber has a lot of applications, too.
Of those legitimate products, which products do you see Texas becoming a leader in? Is it fiber, or what about some other sustainable products as well?
I think we’ll be all of the above…Texas is such a big state, a diverse state, we’ve got such a good growing climate, we’ve got a variety of soils, got a lot of good farmers here, basically have plenty of farmland, we’ve got a lot of greenhouses here, so I would say in five years, we’ll be if not the leader, one of the leaders, in the CBD CBG production and the fiber production.
What needs to happen for the industrial supply chain to be built out in Texas?
Well, we need more processors, we need buyers for that. The farmers, if you tell them they can grow a crop profitably, they will grow the world level with it—they will produce so much of it you can’t use it all, and that’s usually what drives the commodity prices down, so we need more processors for the fiber at this point.
What can we do at the State to attract those businesses to come to Texas and invest and build those facilities and manufacturing plants?
Basically, there’s not a lot left to do—we are already doing everything right already, that’s why so many other types of businesses now, including the hemp processors and distributors, will be coming to Texas. We have a very favorable business climate—no state income tax, low and predictable regulation, we are not a litigious state, we don’t just let the lawyers run crazy suing everybody, we’ve got a good labor force, everything you need for a successful business—that’s why so many people have moved here.
What are some companion industries in Texas that people can apply their skills and resources toward hemp such as construction, technology, refining, medical?
Well, that’s yet to be seen. We don’t really know what those industries are going to be or how they are going to take off. It depends upon the people conducting in those industries. It might be fiber for concrete, it may be fiber for cloth or material or paper or construction materials. At this point, we don’t know what we don’t know. But when we get up and running, we’ll find out.
The hemp industry was soaring when the Farm Bill was signed, and Texas subsequently legalized hemp. Since then, wholesale prices have plummeted, and many are still trying to sell their 2019 crop. Now, 2020 crops from more states are coming online. Apart from having a buyer before you plant a seed, what advice do you have for people getting into this industry?
Well, the first thing I would recommend to somebody that’s wanting to get into this industry, is go to the Texas Department of Agriculture’s website (texasagriculture.gov), I’ve got two very informative videos there—one is about getting into the hemp business, what you need to know, how you need to do it, what are the pitfalls, what are you up against. And then there’s a second video with a little more intel that we require farmers and processors to watch before they get a license. So at least watch the first one, if you’re thinking about getting into hemp, and then if you still want to get into hemp, watch the second one. If you still don’t have your questions answered, I have about 13 pages posted of frequently asked questions about the hemp industry and I think we have just about covered everything. All that information is available at your fingertips, 24 hours a day, seven days a week, 365 days a year.
Very good, thank you, Commissioner. Do you have any other last words?
This is going to be a good industry. It’s been interesting to set up a new industry that we are on the ground floor of in Texas, and we’re helping to shape and mold that, and we just try to get as much input as we can—that’s why I have my own personal (it’s not state-mandated) Hemp Advisory Council, which I’m thankful that you serve on that, and you’ve been in on those meetings and I appreciate the direction and the input from all of the members of that which represents a big cross-section of the industry—whether it be grower, processor, or a testing lab, or transportation or law enforcement, we have someone from just about all of those areas that the hemp industry touches on that Council—we’ve got every aspect of the industry represented, so that’s been very helpful.
Well I sure have appreciated serving on it, and I look forward to our next meeting.