January 4, 2019
Decriminalization of Hemp
Raises New Opportunities in Agriculture, Medicine, Fibers/Textiles and Biofuels
With passage of the 2018 farm bill, hemp is no
longer a Schedule I narcotic under the Federal Controlled Substances Act.
After nine months of congressional deliberation, on
December 20, 2018, the President signed into law the 2018 farm bill (the
Agricultural Improvement Act of 2018). The 807-page document addresses
numerous topics, including the removal of hemp
and its derivatives and associated THC
from narcotics classified under Schedule I of the federal Controlled
Substances Act of 1970 (CSA). Hemp has historically been prized for food
and making ropes and more recently for producing shoes, fabrics, fuels and
other useful consumer and commercial products.
With the President’s signature, hemp is no longer
included within the definition of “marijuana,” a controlled substance under
the CSA, and the U.S. Drug Enforcement Administration (DEA) no longer has
jurisdiction to prosecute hemp offenders. Instead, hemp is now considered an
agricultural commodity, defined as all parts of the plant having less than
0.3% THC on a dry weight basis, including hemp extracts, cannabinoids and
derivatives. As a result, at the federal level the manufacture,
possession and interstate commerce in popular hemp-derived CBD
products are definitively legal.
Federal legalization of hemp is a national
Paul Armentano, Deputy Director for NORML, the National
Organization for the Reform of Marijuana Laws, recently stated
“[t]he significance of this law change
should not be underemphasized. This law marks the first change in the
federal classification of the cannabis plant since it was initially
classified as a Schedule I controlled substance by Congress in 1970, and
paves the way for the first federally-sanctioned commercial hemp grows since
World War II.”
As discussed below, federal legalization of hemp is
also of major significance to Arizona, too.
Regulations and administrative burdens will still
The 2018 farm bill is not without licensing and
administrative requirements. A state or tribal government will be required
to submit a plan to the U.S. Department of Agriculture (USDA) concerning the
monitoring, regulation and enforcement of the production of industrial hemp,
and the USDA will have 60 days for review of the plan.
States and tribal governments may impose more restrictive parameters on hemp
production than the 2018 farm bill but cannot alter the definition of hemp,
employ less restrictive policies than those of that bill, or interfere with
the interstate transportation or shipment of industrial hemp. Tribes located
in states without an industrial hemp program can implement their own
programs allowing the commercial cultivation, production and distribution of
industrial hemp, and such programs should avoid DEA enforcement actions
against the crop.
Federal regulations will apply to the states.
Like Arizona’s industrial hemp bill described below, state and
tribal industrial hemp plans submitted to the USDA must track properties
where cultivation is expected and promulgate testing, disposal and
enforcement procedures. Penalties for violations of approved state and
tribal plans must also be addressed in these plans. Participants discovered
to be negligent in violating the plan must be noticed, a corrective action
plan developed, and violations corrected, and the violator will be subject
to periodic reporting to the state or tribe for at least two years, but
criminal or civil enforcement actions are not applicable unless three such
violations occur within five years. The term “negligent violation” means
unintentional errors in the application for license, failures to obtain the
required license, or the production of hemp with more than the 0.3% THC
maximum. Other violations where a culpable mental state greater than
negligence is present will subject the perpetrator to prosecution by the
Department of Justice or the chief law enforcement officer of the state or
FDA will continue its oversight of hemp-based
foods and topicals.
With respect to hemp-based food and cosmetic
products, the U.S. Food and Drug Administration (FDA) is already weighing in
on the effects of the 2018 farm bill by staking its claim to regulating
dietary supplements and other food products containing hemp. On December 20,
2018, FDA Commissioner Scott Gottlieb, M.D., issued a press release on the
FDA’s continuing involvement in and oversight of foods, drugs and
cosmetic products containing hemp under the Federal Food, Drug, and Cosmetic
Act of 1938 and other laws (FFDCA), despite passage of the 2018 farm bill.
To the Commissioner, the 2018 farm bill made no changes to the FDA’s
jurisdiction or regulation of products containing hemp under the FFDCA;
rather, according to the Commissioner, the FDA will continue to “closely
scrutinize [hemp-based] products that could pose risks to consumers”
including, specifically, products touted as therapeutic or intended for use
in the diagnosis, cure, mitigation, treatment, or prevention of diseases –
whether hemp-based or not – all of which must be submitted to the FDA
FDA warns the hemp industry.
to remind the hemp community that the FDA’s mission is to regulate food and
drug products including hemp, Commissioner Gottlieb referred in his December
20 letter to several warning letters his office had issued in late 2017 to
producers and promoters of CBD hemp oil and other products containing hemp.
These warning letters called out the violators for marketing their hemp
products while substantial clinical investigations have been instituted,
thus disqualifying CBD as an unregulated dietary supplement. As such, the
FDA warned, the promoted CBD products were new drugs requiring FDA
The DEA currently defines a CBD drug as “a drug product in finished dosage
formulation that has been approved by the [FDA] that contains cannabidiol …
derived from cannabis and no more than 0.1 percent (w/w) residual [THC].”
Thus, FDA approval of hemp-based products will still be required to keep the
DEA at bay, and the 2018 farm bill did nothing to change this outcome, but
with the passage of that bill the FDA is now pledging to make its processing
of applications for approval more efficient and timely.
2018 FDA-issued GRAS notices to Fresh Hemp Foods
permit certain hemp products for sale.
Further instructive to the
hemp industry is the Commissioner’s reference in his December 20 letter to
(and in praise of) several GRAS (Generally Recognized as Safe) notices
issued in 2018 to Fresh Hemp Foods, Ltd.'s hemp seed food products. As a
result, on December 20, 2018, the Commissioner announced that hulled hemp
seeds, hemp seed protein and hemp seed oil containing no CBD or THC have
been approved as additives to food products under certain circumstances.
Clearly, the FDA was reminding hemp producers to follow the Fresh Hemp Food
process before conducting interstate commerce in any hemp-based products not exclusively made from hulled hemp seeds, hemp seed protein and hemp
seed oil containing no CBD or THC.
Numerous questions arise about the effects of the
2018 farm bill.
Much has yet to be analyzed about the effects of
the 2018 farm bill on Arizona consumers, dispensers and cultivators. We do
not yet know how Arizona will react to the 2018 farm bill, including whether
or how commercialized industrialized hemp operations now authorized under
the 2018 farm bill will be regulated by Arizona. But hemp farmers and
distributors may now have easier access to banking, finance, insurance (via
federally insured coverages) and USDA federal grants. Experts are opining
that the hemp industry will explode from $700 million annually in 2018 to $2
billion or more annually in just a few years.
Questions abound concerning the effects of the 2018
farm bill on commerce, including the following:
What research will be conducted on hemp-based CBD’s effects on
Will insurance be readily available to growers and medical
users of hemp-based CBD?
Will traditional lenders make business loans to farmers who
grow industrial hemp and distributors who sell it?
Will the U.S. Patent and Trademark Office accept federal
trademark protection for hemp-based CBD products, and, if so, under what
Will mass retail marketers such as Target and Wal-Mart
introduce or re-introduce hemp-based products?
Will businesses in the hemp-based CBD marketplace be relieved
of current taxation under IRC §280E applicable to the illegal sale of drugs
(limiting the deductibility of business expenses to cost of goods sold)?
These and many other questions
will arise, and we will attempt to provide answers as additional
information, governmental positions and regulations, agency and court
decisions are issued, and commentators make their opinions public.
Arizona’s criminal statutes impose substantial
penalties for the possession or distribution of cannabis.
Arizona’s criminal statutes, possession or sale of cannabis or marijuana is
illegal (A.R.S. §§ 13-3401 and -3405), subjecting perpetrators to fines and
prison terms. “Cannabis” (under whatever name designated) is defined in
Arizona’s criminal code as:
from any part of the plant of the genus cannabis;
every compound, manufacture, salt, derivative, mixture or
preparation of the plant, its seeds or its resin; and
every compound, manufacture, salt, derivative, mixture or
preparation of such resin or THC (A.R.S. § 13-3401).
Under Arizona criminal law, the term “cannabis” does
not include oil or cake made from the seeds or stalks of the plant,
but it does include the resin extracted from the seeds or stalks. The term
“marijuana” means all parts of any plant of the genus cannabis from which
the resin has not been extracted, whether growing or not, and the seeds of
such plant. “Marijuana” does not include the mature stalks of such plant or
the sterilized seed of such plant which is incapable of germination. (A.R.S.
Remember, hemp is a cannabis plant containing THC
(albeit typically in minimal amounts), thus causing confusion on whether
persons producing, selling or possessing hemp or hemp-based CBD can be
criminally prosecuted in Arizona. Part of this confusion lies in the
fact that, after Arizona’s criminal statutes were passed (years ago), the
Arizona Medical Marijuana Act (AMMA) was passed in 2010 to make another
cannabis plant (marijuana) legal for certain medical conditions when
dispensed by licensed dispensaries to licensed patients. The Arizona
Industrial Hemp Bill, regulating hemp as an agricultural product (see
discussion below) and enacted in 2018, caused further confusion. The 2018
farm bill at the federal level added another layer of uncertainty.
Therefore, unless otherwise excepted/exempted (see
below), the possession or sale of resin from the plant or anything made
therefrom (i.e., “cannabis,” defined above), or the possession or sale of
any part of the plant containing resin (i.e., “marijuana,” defined
above) may result in imprisonment.
Arizona’s Medical Marijuana Act of 2010 permits
the cultivation, production and possession of cannabis that is marijuana
under certain circumstances.
A qualified exemption from criminal
liability for possession or sale of cannabis was established in 2010 by
enactment of the AMMA, legalizing the possession and sale of medical
marijuana in limited circumstances. (A.R.S. §§ 36-2801 et seq.). A
patient registered with the state may possess up to 2.5 ounces of “usable
marijuana,” defined as the dried flowers
of the marijuana plant (which flowers contain resin) and any mixture or
preparation thereof. (A.R.S. § 36-2801). In late June 2018 the
Arizona Court of Appeals affirmed a medical marijuana patient's criminal
conviction for possession of marijuana, a narcotic, in the form of
"hashish," the resin extracted from cannabis flowers, on the premise that
the plant's resin is not a mixture or preparation of marijuana but an
"extraction" not included within the AMMA's definition of "usable
Various industry groups have filed amicus briefs requesting the Arizona
Supreme Court accept an appeal of the appellate court's decision.
The AMMA includes a (rebuttable) presumption that a
qualifying patient is legally using medical marijuana if he/she has a
patient registration card and is not in possession of more than the
permitted 2.5 ounces of marijuana. (A.R.S. § 36-2811). A registered
dispensary and its agents are not subject to criminal enforcement for
working in the dispensary or cultivation facility, provided that the AMMA is
being complied with. (A.R.S. §§ 36-2811[E] and [F]).
Therefore, the AMMA provides protection from criminal
penalties to registered patients, dispensaries, and dispensary and
cultivation facility agents only, and only provided that the possession,
sale and cultivation are in compliance with the law. Unregistered patients,
companies and persons are not so protected, and their possession, sale or
cultivation would be illegal in Arizona. Can dispensaries cultivate and sell
hemp-based CBD to AMMA-licensed patients under the AMMA? Probably not (see
the discussion below).
THE ARIZONA INDUSTRIAL HEMP BILL
Commercial production of industrial hemp permitted
by federal law will soon be permitted in Arizona.
In May 2018, to
stimulate economic growth and agricultural vitality in Arizona, Governor
Doug Ducey signed into law the Arizona Industrial Hemp Bill, establishing
limited pilot programs on hemp cultivation and production, such as those
conducted for research at universities.
Additionally, the Arizona Hemp Bill permits the commercial growth,
cultivation and marketing of industrial hemp and hemp products in Arizona on
the condition that federal law permits such activities (A.R.S. §§ 3-311
et seq.). The exact interplay between the Arizona hemp bill and the
federal 2018 farm bill is not yet certain, but there now appears to be a
larger window of opportunities opening in Arizona for the cultivation,
production and distribution of industrial hemp-based products in interstate
Regulation of hemp production in Arizona resides with
the Arizona Department of Agriculture (AZDOA), not the Department of
Health Services, which today regulates medical marijuana (also a cannabis
plant). After the Arizona hemp bill was enacted, special committees were
formed by AZDOA (comprised of a majority of farming interests) to recommend
administrative rules and application processes for implementing the Arizona
bill. As a result of the Department’s interest in obtaining community input
on the bill, its effective date was delayed until August 2019.
Federal legalization of hemp is an Arizona game
The passage of the 2018 farm bill was a game
changer for the AZDOA and Arizona’s own hemp bill. On December 20, 2018,
Brian McGrew, AZDOA’s industrial hemp program manager/Plant Services
Division, advised the author that “we will be adjusting our program rules
accordingly … mak[ing] the licensing and compliance process easier and
allow[ing] for the interstate movement of industrial hemp.” He cautioned,
however, that “a licensing program [must first] be established [by AZDOA]
before planting can begin. Growers will still need to wait for the
Department to establish administrative rules and an application process.” On
December 27, 2018, Mr. McGrew further confirmed “there will be no changes to
the [Arizona hemp bill] based on the provisions in the [federal 2018] farm
bill. There is nothing in the Arizona law that will prohibit CBD
production,” assuming that hemp-based CBD has a THC below 0.3%. As we have
pointed out elsewhere, however, this is not a pass to anyone producing or
distributing hemp-based CBD (e.g., medical marijuana dispensaries in
Arizona); rather, there are licensing requirements under both farm bills,
and the FDA maintains review jurisdiction over ingestible and topical CBD.
Mr. McGrew also advised that a recently proposed
Arizona bill, Senate Bill 1003, sponsored by State Sen. Sonny Borrelli (R.
- Lake Havasu City) would move back the effective date of the Arizona hemp
bill to May 31, 2019. Senator Borrelli recently stated, “We want to make
sure we start growing the first hemp crop in its growing season. This is a
$500 million industry. It’s time Arizona is a part of it.” The AZDOA expects
to accelerate its work to accommodate the earlier effective date if passed.
Arizona expects to grant four types of industrial
Under the Arizona hemp bill, “industrial hemp” is
defined as any part of the plant cannabis sativa L. with THC of < 0.3%
on a dry-weight basis (A.R.S. § 3-311). The term “hemp products” is
defined as products such as cloth, cordage, fiber, building supplies, and
paper, but the term excludes a hemp product to be ingested except when made
from sterile hemp seed or hemp seed oil.
AZDOA expects its licensing regime to grant four
types of industrial hemp licenses:
Grower, for persons interested in growing and
propagating industrial hemp
Harvester, for persons interested in providing
harvesting services to a licensed hemp grower
Transporter, for persons transporting industrial hemp
to a licensed hemp processer
Processor, for persons interested in processing
harvested industrial hemp into seed or products.
AZDOA reports that applicants will be expected to
disclose the physical location of the cultivation area, expected planting
and harvesting dates, expected end-users of hemp products, and knowledge of
state and federal requirements for propagating and processing industrial
hemp. Applicants must pass fingerprint clearances and otherwise comply with
policies and procedures of the Department. A link has been provided by the
Department as Q-and-A’s at
Under Arizona’s current hemp regulatory and licensing
scheme, Arizona medical marijuana dispensaries may be able to
cultivate and sell hemp-derived CBD to patients and non-patients alike under
an exemption from state criminal penalties provided by the Arizona
Industrial Hemp Bill, if the hemp is commercially cultivated,
produced and sold as industrial hemp pursuant to federal law (i.e., the 2018
federal farm bill). However, as we have discussed above, under the 2018 farm
bill each state will be required to submit its own plan for licensing and
regulating hemp-based products for the USDA’s approval. Arizona is
fast-tracking the building of its own plan for submission to the USDA.
Thus, until that plan is approved and Arizona has
licensed a hemp provider, it appears that Arizona’s criminal laws preclude
the legal cultivation and distribution of hemp-based CBD products. It
further appears that medical marijuana dispensaries and other cultivators,
producers and promoters of hemp will be required under federal law to comply
with the Arizona’s regulatory and license plan when it has been approved by
We are attending meetings of the AZDOA and committees
tasked with writing rules and regulations to implement the Arizona hemp
bill, and we will issue additional articles as developments occur. The next
meeting is expected to be held in January, but a date has not yet been
picked by Mr. McGrew.
Despite the passage of the 2018 farm bill removing
industrial hemp from the CSA, as this article is written the fact remains
that, in Arizona, to avoid criminal prosecution for possessing or selling
hemp-derived CBD products, the actor must be one of the following:
a person or entity in receipt of an AZDOA license to
cultivate, possess or sell industrial hemp products under a pilot program
approved by the state; or
a person or entity engaged in the commercial production,
processing, manufacturing and distribution of industrial hemp pursuant to
the 2018 farm bill (A.R.S. §§ 13-3405 and 3-220), provided that that person
or entity also has a license from the state and the state’s plan to regulate
hemp has been approved by the USDA.
Neither of the above exceptions is currently
available. The Arizona Industrial Hemp Bill is not effective until August
2019, and the 2018 farm bill, while effective immediately, must still be
implemented through the federal regulatory process. Persons cultivating,
possessing or selling hemp-derived CBD products in Arizona remain at risk of
prosecution, at least until we learn more from Arizona and the USDA on
implementing the federal and state hemp bills enacted in 2018.
If Janet Jackim, whose practice is focused on
cannabis, marijuana and hemp business law, can assist you, please call (480)
425-2616 or email her at Jackim@SacksTierney.com.
DISCLAIMER: Possessing, using, distributing, and/or
selling cannabis, marijuana or marijuana-based and hemp or hemp-based
products is presently illegal under federal law, regardless of any state law
that may decriminalize such activity under certain circumstances. Although
federal enforcement policy may at times defer to states’ laws and not
enforce conflicting federal laws, interested businesses and individuals
should be aware that compliance with state law in no way assures compliance
with federal law, and there is a risk that conflicting federal laws may be
enforced in the future. No legal advice is intended to provide any guidance
or assistance in violating federal or state law.
 “Hemp” is a species of plant within the genus
cannabis. Its sibling is commonly referred to as “marijuana.” The
two plants look different (hemp is tall and narrow, while marijuana
is short and wide) and are cultivated differently. Hemp is typically
cultivated for its seeds (for food) and stalks (for ropes), while
marijuana is grown for its flowers and buds to maximize the
psychoactive properties of THC (see footnote 2 below). Hemp is high
in CBD (see footnote 3 below), but low in THC, while marijuana is
high in THC and low in CBD.
 Tetrahydrocannabinol, a crystalline compound
that is the main active psychoactive substance in cannabis. The term
psychoactive substance “means a substance affecting the mind or
behavior.” Merriam-Webster Dictionary.
 Derived from the stalk and seed of cannabis
(hemp) plants, cannabidiol (CBD) oil or CBD hemp oil is a natural
botanical concentrate that is high in the compound CBD, which is
frequently used for its anti-inflammatory, anti-psychotic and tumor
fighting properties. CBD is also found in marijuana; the 2018 farm
bill did not make marijuana-based CBD legal.
 On December 20, 2018 the Kentucky Department
of Agriculture became the first state to submit its state plan to
the USDA for review under the 2018 farm bill.
 Currently, Epidiolex is the only FDA-approved
 Recipients of these letters included Colorado
companies That’s Natural! Marketing & Consulting and Stanley
Brothers Social Enterprises, LLC, of Charlotte’s Web fame, Florida’s
Green Roads of Florida LLC and California’s Natural Alchemist.
 Further discussion of the FDA’s position on
hemp-based CBD is outside the scope of this article.
 According to Vote Hemp and cannabis market
data firm New Frontier projections.
 “Resin” is generally known as a sticky
flammable organic substance, insoluble in water, exuded by some
trees and other plants.
 Cannabis is a genus of flowering plants in
the family Cannabaceae. The number of species within the genus is
disputed. Three species may be recognized: Cannabis sativa, Cannabis
indica, and Cannabis ruderalis; C. ruderalis may be included within
C. sativa; or all three may be treated as subspecies of a single
species, C. sativa.
 Dried marijuana flowers typically contain
resin of varying amounts, from which THC can be extracted.
 State v. Jones, No. 1 CA-CR 16-0703,
Court of Appeals of Arizona, First Division, June 26, 2018.
 The farm bill of 2013, enacted by President
Obama in 2014, defined industrial hemp as distinct from marijuana,
notwithstanding the CSA. It authorized institutions of higher
education and persons authorized by state departments of agriculture
to regulate, conduct research on and constitute pilot programs on
industrial hemp, when such states had legalized hemp cultivation.
Arizona’s 2018 entry into the industrial hemp marketplace late in
coming; by 2018 the majority of states in the U.S. had approved
commercial or research/limited hemp programs.