Marne Coit, JD, LLM: Action Needed for North Carolina’s Hemp Program

  Author: Marne Coit, JD, LLM As we approach the October 31, 2020 deadline when all state pilot programs are set to expire, North Carolina (NC) faces a unique challenge in terms of how to proceed with its hemp program. Action is needed by either the state legislature and/or the United States Congress in order to allow for continuity of the hemp program. Without further action and clarity on the future of the program, hemp growers are left with uncertainty that will cause further harm to an already tumultuous fledgling industry. One of the keys to increased stability for the industry is consistent, reasonable regulation. The fate of NC’s industry, in particular, lies at the intersection of an unclear regulatory path that can be addressed by actions by either the state and/or the federal government. NC was among the first states to develop a pilot program under the authority of the 2014 Farm Bill and it has been one of the leading states in hemp production. According to a 2018 report by Hemp Industry Daily, “North Carolina finished its hemp-growing season in 2017 with more growers, more acres and more processors than any other state in its first year of hemp production.”[1] The program has grown very quickly – particularly during 2019 after the passage of the 2018 Farm Bill – and now has approximately 1,500 licenses as the state enters its fourth growing season. The program has fewer roadblocks than other states, with no limits on the number of licensees or acres grown and with applications accepted on a rolling, year-round basis. However, within the last year the outlook for the industry has changed considerably. Instead of continued growth, expansion and opportunity, the program is now looking at a contraction. While the number of license holders continues to increase, it is at a much slower pace than has occurred during the first three years. And the number of growers who hold licenses but who are deciding to either not grow hemp this year or grow less than in previous years is expected to increase. One of the major impediments is a lack of clarity on the law. On October 31, 2019 the United States Department of Agriculture (USDA) published an interim final rule (IFR) in the Federal Register.[2] Under the IFR states have one year in which to decide to either submit a state plan to the USDA for approval or to choose to operate under the USDA’s plan, in which case growers from that state would apply directly to the USDA for a license. However, because of a legal technicality, NC’s decision about which of these paths to choose – and therefore the future of the program – is in limbo. At the same time, the clock is running, as states only have until October 30, 2020 to decide which path to take. After that date the current pilot programs expire. Without further action, that means that the more than 1500 licenses currently held in NC will also expire. The North Carolina Department of Agriculture & Consumer Services (NCDA&CS) is the administrative agency that has authority to administer the hemp program under the rules of the current state pilot program. However, under its current authority the agency is limited in the actions that it can take. In particular, it does not have the authority to submit a state plan to the USDA, but would need to get such authority from the North Carolina General Assembly (GA). The authority to do so was included in the North Carolina Farm Act of 2019[3] (2019 Farm Act), a state bill which was originally proposed in the spring of 2019. This bill, though, has not been passed into law, which is problematic, particularly when coupled with the timing of USDA’s regulations. The language of the Farm Act appears to be supportive of the hemp industry, as evidenced by the stated purpose, as follows:

“1) Promote the cultivation and processing of hemp and open new commercial markets for farmers and businesses through the sale of hemp products.

(2) Promote the expansion of the State’s hemp industry to the maximum extent permitted by law, allowing farmers and businesses to cultivate, handle, and process hemp and sell hemp products for commercial purposes.

(3) Encourage and empower research into hemp growth and hemp products at State institutions of higher education and in the private sector.

(4) Move the State and its citizens to the forefront of the hemp industry.”[4]

  Additional language in the bill would provide the authority for the NCDA&CS to submit a state plan to the USDA. However, during the 2019 legislative session it only passed in the Senate, and did not pass in the House. One of the reasons for this was a proposed ban over what has been termed “smokable hemp”. A further discussion of this proposed ban is outside of the scope of this article. The key point here is that the bill was not passed into law, thereby indirectly leaving the future of the state hemp program in limbo, since the NCDA&CS is not able to submit a plan to the USDA.   Another component of this issue is timing. In order to submit a state plan that would be approved in time before the October 31, 2020 deadline, the USDA has asked states to submit their plans by mid-August of this year. It seems increasingly unlikely that the GA in NC will either pass the farm act or similar legislation in time to meet this rapidly approaching deadline. If there is no further action taken by the GA – that also provides enough lead time for the NCDA&CS to submit a plan to USDA by mid-August – then the current pilot program will expire on October 31. As a result, all of the currently valid licenses will also expire. Growers in NC who want to continue to grow hemp after this date would need to apply for a license directly from USDA. Again, this uncertainty does little to provide the regulatory stability that is much needed for the industry.   Alternatively, Congress could step in and grant the USDA the authority to extend state pilot programs beyond October 2020. In fact, the National Association of State Departments of Agriculture (NASDA) passed a policy item in February 2020 to support the extension of the state pilot programs until December 31, 2021.[5] At that point, presumably the USDA would have had time to incorporate public feedback and comments provided in response to the IFR into a final rule.   By extending the time period allowed for state pilot programs to continue until the USDA’s final rule goes into effect, growers in states such as NC would have time to make the necessary adjustments to their farm plans. It would also provide more stability by allowing growers to transition from the pilot program directly to the regulations laid out in the final rule. Without such an extension of NC’s pilot program, and without further, timely action by the NC GA, growers in NC will instead go from the pilot program to the USDA’s IFR and then to the USDA’s final rule, all potentially within the span of one year. This outcome does very little to provide the regulatory certainty that is so needed for the industry to be successful – or to maintain NC’s place as a national leader in the industry.   *Marne Coit, JD, LLM, is on the faculty of the Department of Agricultural and Resource Economics at North Carolina State University in Raleigh, NC. She works for NC State Extension in hemp law, and her teaching and research focus is on food, agricultural and hemp law.   The opinions expressed herein are the author’s alone, and do not reflect the views or opinions of NC State University, NC State Extension or NCDA&CS. [1] https://mjbizdaily.com/wp-content/uploads/2018/04/Hemp-Report_Top-10-US-States.pdf [2] https://www.federalregister.gov/documents/2019/10/31/2019-23749/establishment-of-a-domestic-hemp-production-program [3] https://www.ncleg.gov/Sessions/2019/Bills/Senate/PDF/S315v10.pdf [4] https://www.ncleg.gov/Sessions/2019/Bills/Senate/PDF/S315v10.pdf [5]https://s3.amazonaws.com/nasda2/media/D_AI_HempPilotExtension.pdf?mtime=20200227151112