There’s gold in that green: Industrial hemp comes to the High Plains

In 1848, James Marshall discovered the first flakes of gold at Sutter’s Mill in Coloma, California. Those flakes led to the California Gold Rush and turned the newly acquired ex-Mexican territory into a billion-dollar shot for the American economy.

One-hundred seventy years later, with the stroke of a pen, High Plains farmers could be poised for a similar boom—or a bust—with the federal legalization of industrial hemp in the 2018 farm bill. From state agencies to farmer and commodity organizations, industrial hemp is the hot topic of discussion on the High Plains. In 2017, the lobbying group Vote Hemp estimated that the total retail value of hemp products in the United States at $820 million. Today, U.S. firms are buying up companies that specialize in hemp products and creating new products for the American consumer from CBD-infused soft drinks to hemp-based building materials. The rush is on.

But, before farmers go racing to stake a claim in this new cash crop, there are some points to ponder.

Legal terminology

First things first: “Industrial hemp” is not “marijuana.”

While both are from the plant species cannabis sativa and both naturally produce the psychoactive cannabinoid tetrahydrocannabinol, the line of distinction lies in the THC content in the plants. Hemp, by federal law, must not contain more than 0.3 percent THC by dry weight. Anything above that level and the plant is classified as marijuana and is subject to the Controlled Substances Act of 1970.

This is a critical distinction, explained Larry Mishkin, attorney with Hoban Law Group, a Denver, Colorado-based law firm specializing in cannabis laws.

“The marijuana in the late 1970s or the 1980s was about 5 to 7 percent THC content,” Mishkin said. “Today’s marijuana can reach into the high 20 percent of THC content.” Compared to industrial hemp’s definition of 0.3 percent or lower, there shouldn’t be enough THC in hemp to affect an individual.

This distinction in THC content changed the tide in public acceptance of industrial hemp in the last couple of years. And led to President Donald Trump signing the 2018 farm bill into law Dec. 20, thereby legalizing the industrial hemp industry in the U.S. under the federal umbrella.

“The section of the farm bill declares unequivocally that hemp and all cannibinoids are not controlled substances,” explained Mishkin, who is based in Chicago, Illinois. “That’s huge because up until then there was confusion because marijuana was a Schedule 1 drug under the Controlled Substances Act of 1970.” But now, the federal government has said—in black and white—hemp is legal, he added.

“Now, there’s nothing that says every state has to allow hemp, but the states were told that they can legislate hemp how they choose,” Mishkin said. “It’s much like what the states were told about alcohol at the end of Prohibition.”

And this is where industrial hemp laws get tricky. Because, right now, while the cultivation, manufacturing and distribution of industrial hemp and CBD products is legal, according to federal law, each state and tribe has the duty to write the laws for their own residents.

This state-by-state patchwork of laws has some similarities, but there can also critical differences that farmers and investors need to pay attention to before they join this gold rush, according to Mishkin.

That’s why it’s critical that interested individuals research the laws of their state and consult an attorney before they start staking their claims, Mishkin advised. Still, there are ways to mitigate the risk if you choose to join the rush.

Growing within the rules

Just in the 12-state coverage area of High Plains Journal there are variations of the rules regarding the production, manufacturing and distribution of industrial hemp, and hemp products. Further complicating matters is that some states, such as Oklahoma, New Mexico and Arkansas, also allow medical marijuana use or recreational marijuana use in the case of Colorado.

That can complicate matters if you’re trying to raise industrial hemp because not all cannabis seeds can be used for hemp. Mishkin said it’s very important that growers start out with certified seeds that are guaranteed to come from a plant with 0.3 percent or less THC content. This at least gives them a chance to raise a crop within the federal definition of hemp.

“In speaking with consultants, they have to be very mindful of their seed source and their growing process, and even the make up of the soil,” Mishkin said. Environmental extremes, such as drought or excessive heat could cause the plant to spike in THC production. Most state laws require the hemp crop to be tested for THC content before it is harvested. If the crop “tests hot,” Mishkin said, it could be destroyed because it would be classified as marijuana.

“That could be devastating for someone who grows the crop, follows the rules, but because of the crop testing hot they wind up with marijuana and all they can do is destroy it,” Mishkin said.

Interstate commerce

Because industrial hemp is covered by federal law, it also means that states should honor the Interstate Commerce Clause and allow transportation of hemp and hemp products between states, Mishkin said.

“So, if you grow hemp in Oregon, which is legal in the state, and you transport it to, say, Chicago, for a customer to process it, and the highway goes through Idaho where hemp is not legal at all, under federal law they have to allow that shipment to go through their state,” Mishkin explained. “As long as that manifest indicates that the shipment is just passing through it’s legal. Some states are having trouble with that.”

He added that he’s heard of hemp shipments being pulled over by state police, who contend that it is illegal because the cargo smells and looks like marijuana. And because the only way to tell the legal difference between hemp and marijuana is to test for THC content, those shipments can get confiscated and the drivers held until the matter is cleared up in the lab.

The shipment of CBD oil and products across state lines is another fuzzy matter. Mishkin said that the farm bill states that hemp and CBD are not controlled substances, but some state governments have written their laws to limit the movement of those products into or out of their states.

Banking, lending and risk management tools like crop insurance are all just starting to catch up to the farm bill’s legalization, too, Mishkin said.

“It should open up those doors to allow hemp farmers to get banking services,” Mishkin said. That’s been a key sticking point for states with legalized recreational or medicinal marijuana is banking services and federal money laundering rules.

“They’re still coming to terms to figure out ways to know that they’re lending money for legal hemp and not laundering money for marijuana,” he explained. Expect limited access to lending, lots of compliance reporting and audits and restrictions overall.

The same caution pertains to crop insurance. The U.S. Department of Agriculture isn’t anticipating an insurance product for hemp will be available until at least the 2020 growing season is done. And that’s so regulators can gather production data for baselines. Until then, it may be covered by Whole Farm Revenue Protection policies, but that’s only if the hemp is produced under contract. There’s also no coverage if the crop tests above the 0.3 percent THC limit and must be destroyed.

And, we can’t overlook the little matter of writing regulations for CBD oil and hemp-infused food products at the federal level, Mishkin added.

“The Food and Drug Administration says that we haven’t declared hemp-infused food products or CBD oil products safe, because CBD hasn’t been declared as a safe food additive,” Mishkin said. Those regulations have the potential to affect the market for the lucrative CBD oil that some industrial hemp growers are trying to cash in on in this rush. From drops to balms, from edibles to CBD-infused beverages, FDA is staking its claim over the regulation of this substance just like they would any other food additive, he explained.

Err on side of caution

And, much like the California Gold Rush of the mid 1800s, the real economic winners may not be the producers, but those along the industry chain. From contracting growers to raise hemp, to manufacturing and shipping, there’s lots of potential for people to get into industrial hemp businesses.

Mishkin has decades of experience in cannabis law and has counseled businesses and industry and advocacy groups. And the one thing he tells every business owner is “you can’t just be clean, you have to be squeaky clean.”

“You have to always error on the side of caution,” he said. That may start with forming a new business entity for your hemp production on the farm so that the liability doesn’t wind up on your whole operation. It may mean making sure that every employee can pass criminal background checks and have paid their taxes. Going the extra step to make sure you’re following the rules, and not just assuming that you’ll get a pass because you’re a farmer, is how you can survive in the hemp industry.

From reviewing contracts for growing hemp, or the laws regarding the crop, Mishkin said attorneys are valuable.

“Don’t do anything without legal representation, period,” he said. “There’s just too much of a risk, and even with hemp’s legal status. It’s really important you understand the laws, to not break them but to make sure that you aren’t walking away from something you’re entitled to. You need to know your rights all around.”

The California Gold Rush changed the U.S. economy and the country’s westward expansion exponentially. Likewise, this new Hemp Rush may just do the same for American farmers and farm country.

Jennifer M. Latzke can be reached at 620-227-1807 or [email protected]. Please consult an attorney for your specific legal questions.