Industrial Hemp – An Overview

The cultivation of hemp along with the production of hemp-based products has had a long, tumultuous legal history in the United States. Hemp—a variety of the Cannabis sativa plant species—is typically grown for its industrial uses. Although industrial hemp is derived from the same Cannabis sativa species as the marijuana plant, industrial hemp has lower concentrations of the psychoactive component tetrahydrocannabinol (THC) and higher concentrations of cannabidiol (CBD) which decreases the psychoactive effects. Hemp is used to produce a variety of things, including fiber, paper, biodegradable plastics, biofuel, food products, and animal feed.

In the early days of the United States, hemp was freely grown for its industrial uses. By the mid-1930s, all cannabis was regulated as a drug in every state. The first national regulation of cannabis was the Marihuana Tax Act of 1937, which effectively made the possession and transportation of cannabis illegal throughout the United States. This law remained in effect until 1969, when the Supreme Court found the Act unconstitutional in Leary v. United States. In response to the Supreme Court’s decision, Congress passed the Controlled Substances Act of 1970 (CSA), which once again prohibited the use of cannabis for all purposes.

Despite various states drastically changing their own cannabis policies, the CSA has been the reigning federal law on cannabis since it was enacted. This remained true until the passage of the Agricultural Act of 2014. The Agricultural Act of 2014, also referred to as the 2014 Farm Bill, created a framework for cultivation of industrial hemp without the need for a permit from the Drug Enforcement Administration (DEA). Under the 2014 Farm Bill, states were permitted to implement hemp research pilot programs that allowed farmers to cultivate cannabis that contained no more than 0.3% of THC, provided that they met any other requirements imposed by each state.

The Agricultural Improvement Act of 2018, also known as the 2018 Farm Bill, took the hemp provisions of the 2014 Farm Bill several steps further. While the hemp cultivation allowed in the 2014 Farm Bill was relatively narrow, the 2018 Farm Bill provided for much broader allowances. The 2018 Farm Bill allows states to expand their allowed hemp cultivation beyond small pilot programs. Additionally, the 2018 Farm Bill explicitly allows the transfer of hemp and hemp-derived products across state lines for commercial and other purposes. There are no restrictions on the sale of hemp-derived products, provided that those products are produced consistent with all applicable laws.

However, many legal aspects of hemp cultivation remain murky. In a webinar conducted by the United States Department of Agriculture (USDA) on March 13, 2019, legislators and members of the hemp industry had an opportunity to identify issues that continued to surround hemp cultivation. Public comments were solicited, and many individuals shared their perspective with USDA officials.

On October 31, 2019, the USDA published an interim final rule (IFR) entitled “Establishment of a Domestic Hemp Production Program.” This IFR was effective immediately upon publication, with an expiration of November 1, 2021. The IFR set forth explicit procedures for State and Tribal governments to obtain USDA-approval for hemp production plans. The required procedures included: tracking the land where the hemp is grown; testing for THC levels; disposing of non-compliant plants; and collecting and sharing information with USDA. The comment period for the IFR was open from October 31, 2019, through January 29, 2020, and again from September 8, 2020, through October 8, 2020. During all comment periods, a total of 5,900 comments were received from various stakeholders, including Indian Tribes, industry and agricultural organizations, private citizens, and executive agencies. On January 19, 2021, the USDA published the final rule that established the Domestic Hemp Production Program, superseding the 2019 IFR. The final rule became effective on March 22, 2021, developing a regulatory program for the oversight of hemp.

Despite the 2018 Farm Bill provisions and the 2021 Final Rule, transportation of hemp and hemp-derived products continues to be an ongoing issue. For example, some states are content in allowing hemp to cross their borders but place restrictions on certain strains of cannabis with a THC level higher than 0.3%. Challenges lie with the fact that there is currently no roadside test available to determine THC levels of transported cannabis, making the job of law enforcement officials difficult when they have to balance allowing hemp to cross state lines while continuing to prohibit other types of cannabis. Despite the fact that all fifty states have legalized industrial hemp as of April 2021, the hemp industry continues to face problems. These problems involve the development of reliable and effective tests for THC levels, the importation of hemp seeds into the United States, and the role that banks have in an industry with uncertain legality.

With the 2023 Farm Bill on the horizon, there may be some new developments within the hemp industry in the near future. Industry stakeholders anticipate a push to raise the allowed THC limit from 0.3% to 1%. Also up for discussion is the promulgation of a sub-definition for industrial hemp that would set regulations for grain and fiber hemp apart from regulations for cannabinoid and floral hemp. Such a distinction would allow for more lenient inspections of hemp grown for grain and fiber, making the banking and transportation processes more efficient and easier for those dealing with only this part of the industry. The USDA itself published a report following the passage of the 2018 Farm Bill, defining the difference between these types of hemp. In addition, industry members also hope that more attention is placed on the manufacturing process. Oftentimes during the dilution process used to obtain compliant CBD levels, THC levels can spike, technically turning a once lawful product into a controlled substance in that very moment. Manufacturers hope for some guidance or additional regulations in this area to ensure they remain in compliance. Furthermore, DEA-certified lab testing is in the spotlight as well. The USDA’s 2019 IFR required all hemp testing laboratories to be certified by the DEA; however, the DEA has since delayed enforcement of this due to an insufficient number of approved facilities. Given this prolonged issue and the fact that it has never been fully implemented, many have called for the lab requirement to be removed in the upcoming 2023 Farm Bill. Lastly, since the 2018 Farm Bill, many hemp-derived cannabinoids have entered the marketplace, including delta-8 THC, delta-10, and THC-O acetate. While these products remain within the legal THC threshold, many consider them to be “intoxicating.” Further review of and guidance on these new, intermediate products is anticipated with the 2023 Farm Bill as well.

Federal Regulatory Authority

In industrial hemp, administrative agencies such as USDA/FDA/EPA have been given authority by Congress to create regulations implementing the requirements of the federal law.  In 2024, the Supreme Court of the United States issued two rulings that are expected to have a major impact on how judges decide cases challenging those regulations and that agency authority.

Loper Bright Enters. v. Raimondo, 144 S. Ct. 2244 (2024) overruled the long-standing doctrine of deference established in Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837 (1984). Chevron deference was a two-step process that clarified how and when federal courts should defer to an agency regulation interpreting a statute.  Chevron only applied in situations where a court had determined that the statutory language the agency was interpreting was ambiguous.  If it was ambiguous, the court would consider whether the agency’s interpretation of the statutory language was “reasonable”.  If it was reasonable, the court was required to defer to the agency’s interpretation. If it was not, the court would overrule the interpretation.

Loper Bright formally overturned Chevron. In a 6-3 decision, the Supreme Court held that “courts may not defer to an agency interpretation of the law simply because a statute is ambiguous[.]” Following the ruling, courts are instead required to exercise independent judgment in determining whether an administrative agency has acted within its statutory authority.  Courts may still seek guidance from the agencies involved, but courts will no longer be required to defer to an agency’s interpretation of a statute.

In Corner Post, Inc. v. Bd. of Governors of the Fed. Rsrv. Sys., 144 S. Ct. 2440 (2024), the Supreme Court extended the period of time during which a party may file a lawsuit challenging federal agency actions. According to 28 U.S.C.S. § 2401(a), the six-year statute of limitations began to run when an administrative agency’s action was “final.”  In Corner Post, the Supreme Court ruled that an action becomes “final” when a plaintiff suffers an injury, rather than when a “final regulation” is released. This ruling expands the potential for plaintiffs to challenge federal agency rules and regulations that have been final for over six years.

While the full effect of these two rulings remains to be seen, it is highly likely that the agricultural industry will be impacted by the Supreme Court’s decisions. Importantly, the rulings fundamentally change how courts will resolve lawsuits challenging agency regulations for misinterpreting the agency’s statutory authority. Impacts are most likely to be felt in areas of the law, such as industrial hemp, dominated by statutes with relatively ambiguous language where Congress has relied on agency regulations to fill in specifics.