Confessions of a California Cannabis Attorney
Mark Herrick on the Ever Changing World of Legal Cannabis in California
Medicinal and Adult use Cannabis: Do they get the same treatment? Part 2
Drop you linen and stop your grinning. It looks as though the Manufactured Safety Branch of the California Department of Health and Safety Brand has had a change of heart.
- Emergency Regulations for Cannabis Manufacturers – Readopted Text
- Summary of Changes in Re-adoption
One of the most prominent changes in this adoption is removal of restrictions created by the adult use (“A”) and medicinal (“M”) license designations. Businesses will be able to complete one license application and receive one license allowing them to operate in both markets. Beginning June 6, 2018, designation of cannabis and cannabis products as adult-use or medicinal will primarily occur at the time of retail sale, except for higher-THC products permitted only in the medicinal market.
The state cannabis licensing authorities developed emergency regulations to implement the mandates of the Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA), signed into law in June 2017. CDPH’s regulations, which became effective on December 7, 2017, outlined the statewide standards and licensing requirements for commercial cannabis manufacturers. Emergency regulations are effective for 180 days and must be re-adopted to stay in effect. CDPH provided public notice of the re-adoption on May 18, a public comment period was held from May 25-29, and OAL approved the regulations on June 6.
So basically, it is time to get your manufacturing license approval before June 6, 2018. This mean if you haven’t already started, it is time to get approval from you local authority (City, Town or County), get approved and then apply for the state emergency temporary license. The perfect time to get start is now.
Goodnight and good luck
The barriers are High to Enter the California Cannabis Market
Proposition 64 created a taxed and regulated marketplace for cannabis cultivation and distribution in California.
California Growers Association (CGA), with an estimated 68,150 cannabis farmers working in California today, the CGA is concerned with the open question of how many of them will end up licensed in the legal market.
Essentially in every step of the process, thousands and thousands of dollars are foisted upon preexisting businesses that have been for the most part operating at a subsistence level. For a lot of people who are just getting involved, these costs are being assessed right now. It’s a massive burden. People can’t get bank accounts, and they can’t get financing because they are too small and the industry is still illegal federally. People are being asked to do things that are pushing them into bad situations with really little recourse.”
As of March 19, the California Department of Food and Agriculture (CDFA) had issued only 2,477 temporary cultivation licenses. O’Neill says that the path to legitimacy in California is too much to bear for many farmers; a lot of them aren’t even applying for licenses. The CDFA has received 4,451 applications; that’s a 6.5-percent application rate in the first three months of the year.
California’s regulatory costs favor well-financed businesses that focus solely on cultivating and manufacturing cannabis as a monocrop—businesses that can weather a few years of losses while the marketplace settles. Where subsistence farmers were once able to maintain their own financial pace, the market is insisting that those smaller operators boost their revenues (and, invariably, their expenses) enough to cover the baseline entrance fees of this new industry.
Through one-time application costs, annual licensing fees, hefty new tax codes, land-use modifications, ecological remediation expenses, building infrastructure improvements, water storage requirements—to say nothing of the stiff competition of well-heeled agricultural businesses entering the so-called “Green Rush”—the price of running a farm that’s survived for decades has suddenly become overwhelming.
Criminals do not pay taxes, ensure customers are 21 and over, obtain licenses or follow product safety regulations,” he said. “We need to give legal businesses some temporary tax relief so they do not continue to be undercut by the black market.
This current licenses and regulatory climate in California compelled the CGA to author a report titled, “An Emerging Crisis: Barriers to Entry in California Cannabis” earlier this year. In 38 pages, the organization laid out a case that state regulations were actually achieving the opposite of what many voters had anticipated at the ballot box in 2016. Growers with deep pockets can now waltz into the marketplace with ease, and small farmers are draining their balance sheets just to have a shot at the fringes of commerce.
The MAUCRSA regulations are only temporary for now. Licenses issued by the state of California—for cultivation, manufacturing, distribution, retail—are good for only four months. The state is expected to deliver more permanent regulations this summer.
And it may be that the regulators are aware of this problem and are addressing it. A bipartisan pair of California lawmakers has announced a bill which would drop the state excise tax on cannabis to 11% from the current 15% for a period of three years. As Leafly reported on March 16, 2018, the bill was introduced by Assembly members Tom Lackey (R-Palmdale), Rob Bonta (D-Oakland). The bill’s co-authors include Assembly members Ken Cooley (D-Sacramento), Reggie Jones-Sawyer (D-Los Angeles), and Jim Wood (D-Healdsburg).
Since recreational cannabis became legal in California at the start of this year, medical marijuana dispensaries and cultivators have struggled to make the transition to a new market with new, often waitlist-requiring steps toward being licensed and legal. Between legal cannabis’ banking challenges, the significant regulatory changes, and California’s booming grey and black market operators, smaller businesses, in particular, have had to face a lot of legal and financial issues to survive in 2018.
How Serious is the State of California in Enforcing the New 2018 Regulation System
California’s Bureau of Cannabis Control has issued more than 1,000 cease-and-desist letters to unlicensed cannabis operators since the recreational use law took effect on Jan. 1, 2018, according to a KCET report.
According to the report, regulators are using online advertising platforms to find the illegal shops. This likely includes Weedmaps, who were sent their own cease-and-desist by regulators last month due to their advertising of unlicensed retailers.
The BCC is including information on how to obtain licenses along with the cease-and-desist letters, and is issuing temporary licenses, free of charge, which are good for 120 days and can be extended by the agency for additional 90 days.
Licensing fees in California run from $4,000 to $72,000, depending on the size of the operation, but, according to the report, fines can run four times the amount of the license itself.
Over 6,000 cannabis businesses have received temporary state licenses in the five months since California began issuing such permits.
Most of California’s massive marijuana industry is still operating without permits. But these operators should not be complacent. The fact that that the State of California has issues over 6,000 Cannabis licenses and that number is growing daily and the fact that they have issued over a thousand cease and desist letters shows that California is serious about implementing the Cannabis regulatory system that went into effect on January 1, 2018.
Some people thought that California would be lax in implementing this system, but they are very wrong. My guess is that the Legislature can’t wait to get the tax revenue under the new system and therefore they are pushing for change. In any event, all cannabis business operators should get their new state licenses quickly before they are fined by the state.
Medicinal and Adult use Cannabis: Do they get the same treatment? Part 1
After Proposition 64 legalized recreational marijuana, the legislature passed the passed the “Medical and Adult-Use Cannabis Regulation and Safety Act” (“MAUCRSA”), creating a combined regulatory system for both medical and recreational marijuana.
When this law was passed it was thought that subsequent regulations from the three regulatory bodies, the Bureau of Cannabis Control, CA Department of Food and Agriculture, CA Department of Public Health would make no distinction between Medicinal and Recreational Marijuana and therefore licenses from these organizations would be for Marijuana and they would not be divided between medicinal and adult Use Cannabis.
However the regulations that were issued on November 19, 2017 and came enforceable on January 1, 2018 did make a distinction between medicinal and adult use marijuana. All the licenses issued by these State Regulatory Bodies, like a Transportation License, Cultivation license or a manufacturing license, if one wants to sell both medicinal and adult use marijuana they have to send in two applications for each license: one for medicinal use and one for adult use marijuana and medicinal use marijuana.
The interesting point here is that the medicinal marijuana and adult use marijuana for all the state licensing use the same license. You just simply check a box for medicinal or adult use marijuana.
Below is a question posed to The California Department of Public Health’s Manufactured Cannabis Safety Branch (MCSB) which issues manufacturing licenses to cannabis businesses. They say that one needs two licenses.
So as I stated one needs to obtain two licenses from each licensing category if they want to do both medicinal and adult use cannabis. However, the interesting point about these licenses is that each type of license uses the same application for both medicinal and adult use cannabis. In other words, each license contains a question of whether your applying for medicinal use or adult use marijuana otherwise all the questions on the license are the same. You just simply check a box either for adult use marijuana or for medicinal marijuana. So in a practical sense that means you send in the exact same license application for both medicinal and adult use cannabis, you just need to check the adult use marijuana or medicinal marijuana, and your answers the rest of the questions are all the same. Please review the license for manufacturing issued by the CDPH Manufactured Cannabis Safety Branch.
In practical terms, this means that medicinal marijuana and adult use marijuana state application have the exact same requirements for approval. This lack of distinction begs the questions of why have two applications for medicinal and adult use marijuana if the requirements are the same?
One explanation is that some local jurisdictions only allow medicinal use marijuana. Remember that one has to get a local jurisdiction license, (city, town or county), before one can apply for a state license. So if the state had only one application for medicinal or adult use marijuana that would be mean in practical terms the local jurisdiction would have no way of ascertaining whether an applicant was planning on doing only medicinal or if they were selling both medicinal and adult use marijuana. If the is some other reason for the state making this distinction please let me know.
THE IMPORTANT POINT HERE IS THAT ANY MARIJUANA BUSINESS THAT IS DECIDING WHERE TO LOCATE THEIR CULTIVATION, COMMERCIAL KITCHEN OR OIL EXTRACTION OPERATION IN A CERTAIN LOCATION, THEY HAVE TO MAKE SURE THAT THE LOCAL JURISDICTION (COUNTY, CITY, OR TOWN) ALLOWS BOTH MEDICINAL AND ADULT USE MARIJUANA.
Here are some links for further research on this issue.
Bureau of Cannabis Control – Licensing Information
Manufactured Cannabis Safety Branch – Licensing Information
CalCannabis Cultivation Licensing – Licensing Information
- CalCannabis Cultivation Licensing – Annual License Application
- Temporary Cultivation License Application with Instructions
How much marijuana can I grow?: Part 3 – THE DANGEROUS LAWSUIT
As stated earlier in my blog posts, there are three types of cultivation licenses that allow one different size lots on which one can cultivate cannabis. The small license is a (Type 2) license that allows one to grow up to 10,000 square feet. That license is the smallest license. The next sized license (or type 3 license), also known as a medium license, allows you to grow up to 22,000 square feet. The Type 5 license which would allow one to grow more than 22,000 square will not be issued before January 1, 2023. Therefore one would think that the largest cultivation allowed would be 22,000 square feet. At this point, the medium type 3 license is the largest license that you can apply for. And one can only apply for one type 3 licenses.
However, as I explained before, the loop hole (which is so large you could drive a Mack Truck through it) is there is a limit to the amount of type three licenses you can obtain; (only) one. However, there is no stated limit in the regulations for the amount of 2 two licenses one can apply for. Therefore, if you apply for ten small (Type 2) licenses, you could theoretically develop 100,000 square feet of Cannabis. This acquiring of my multiple licenses is called stacking and the state has allowed some growers to stack as much as thirty type two licenses. This is how the big growers can cultivate multiple acres for cannabis at this time.
Obviously these licensing regulations have the odor of duplicity and deception. Why even have medium acre grows, or type 3 licenses if one can just stack type 2 licenses. And why would they postpone the type 5 licenses until 2023? You would think that they were postponing the type 5 licenses to give the small growers time to establish themselves before the big cultivators started to operate. However, the postponed 2023 licensing is deceptive because right now large corporation can cultivate multiple acres by stacking type two licenses. So no one needs to wait until 2023 to cultivate more than ½ acre.
This loop hole of stacking type 2 licenses really makes the medium type 3 licenses and the large type 5 licenses superfluous. With stacking type two licenses large cultivator have no need of type 3 for type 5 licenses.
As I stated, since January 1, 2018 many grows have stacked licenses to at least ten acres, and probably more. Therefore now all these large growers have nothing to worry about. However, some people saw the misdirection and hypocrisy of the cultivation licenses limits and started a lawsuit claiming that the current regulations do not follow the intent of the of Proposition 64 which was to protect small growers and give them time to establish themselves before the large corporate cultivators move in.
California’s largest cannabis farmer organization has filed a lawsuit against the California Department of Food and Agriculture’s decision to not limit marijuana farmers to 1 acre.
The California Growers Association’s civil litigation filed in the Sacramento County Superior Court on January 20, 20018 claims the state’s cannabis laws clearly spell out the intention to limit the regulated pot market to small- and medium-sized farms — which the group claims are grows of 1 acre or smaller — until 2023.
The association’s executive director Hezekiah Allen said Wednesday that they have exhausted every other option including meeting with state regulators and staff from Gov. Jerry Brown’s office during the past few months.
“Our government has checks and balances for a reason,” Allen said, “and it is an appropriate time for the judicial branch to weigh in and provide an interpretation of state law.”
Please see https://www.mercurynews.com/2018/01/25/california-growers-association-sues-state-seeks-1-acre-marijuana-grow-cap/
If this lawsuit is successful all of a sudden these stacked licenses will be illegal and these large growers will be in a nightmare situation. It may be the court will grandfather in all the large grows that were created while stacking was legal. But just as easily the court could say that all stacked licenses are now invalid and these people are only entitled to one type 2 licenses which would leave them with a ¼ acre lot.
The fact that California’s new rules allowing marijuana cultivation to favor large corporate farms despite a promise in Proposition 64 that small growers would be protected makes a strong argument for closing the loophole that allows the stacking of type 2 licenses.
Their argument that the founders intent was to limit large grows so as to allow the small farmers to compete and adapt is a very persuasive argument. It is a very cogent and logical argument that small farmers will be protected by quarter acre and half acre lots and won’t have to deal with grows that are larger than twenty two thousand square feet until 2023. Why else would they have structured the law this way if not to protect the small farmer? And the 1/4 loophole of stacking licenses completely defeats the purpose of have to making people wait until 2023 to apply for large licenses, when they can get all the acres they need with stacking type 2 licenses.
Their argument is compelling but practically the success of this lawsuit would throw the whole cannabis cultivation sector in California into utter chaos. Corporations hate uncertainty and try to avoid risk. But right now many cannabis corporations that have already stacked licenses are taking a huge risk and are facing disaster if this lawsuit is successful. And many corporations are waiting to jump into the cultivation sector until this huge uncertainty, the stacking of license, is ended.
This lawsuit is compelling but if successful it will seriously damage the cannabis cultivation sector in California. Trying to protect small farmers is a laudable goal but only if one doesn’t understand basic economic theory. If successful, this lawsuit will seriously reduce the amount of legal cannabis available to the California market, which would drastically the raise the price of raw cannabis, and therefore create a huge opportunity for black market cannabis. The goal of Proposition 64 was to make all the operators in the cannabis market to become legal, therefore ending the black market and bring in an exorbitant amount of tax revenue. However, the success of this lawsuit would just create the black-market they were trying to destroy through legalization. The road to hell is paved with good intention and this lawsuit is a perfect example of this age old saying.
Will the Black Market Still Thrive Under the New Regulations
California can still screw up legalization so that the black market still survives, so criminals will continue to get the money to buy weapons and wage war over market share. The firs way California can screw this up is through taxation.
No one likes the high taxes on Tobacco cigarettes more than I do. These high taxes mean taxes can be decreased in other areas (income tax, sales tax etc.), or we can pay more for needed government institutions like education and health care. High cigarette taxes are a great way for the government to obtain income without reducing a worker’s paycheck, or taxing needed products like nutritious food.
But tax policy is another opportunity where the government can screw up a great source of income. If the taxes are too high, like it is on cigarettes you create a black market for untaxed cigarettes. The taxes on cigarettes are so onerous that when organized crime buys them whole sale and sells them on the black market and (thereby avoiding excise as sales taxes), they can sell them for a 100% markup. They can do that because even when they sell them at a 100% markup the cigarettes are still significantly cheaper that cigarettes are sold including all the taxes. So the various government institutions in this country taxes are so high, they leave an opening for organized crime to make money. And when organized crime gets a solid and high cash flow the result is the corruption of government officials and violent fights over market share where innocent civilians eventually get caught in the cross fire.
The other way the government can screw up legalization is by limiting supply. If the legal supply of a product is restricted, the price of that product will increase and thereby creating an opening for organized crime. This has happened with marijuana in Colorado. Because of the national laws outlawing the sale of Cannabis, no one wants to transport marijuana over state lines. Thereby limiting the supply of cannabis in Colorado, driving up the prices of legalized marijuana that organized crime can grow illegal cannabis and sell in at a cheaper price.
The State of California’s regulations on the amount of Marijuana one can grow will create the same sort of problem. These one acre farmers will simply not be able to provide enough weed to satisfy the demand for recreational marijuana in California. And the obvious result will be illegal grows and sales by organized criminal organizations. And, as stated once organized crime coffers are filled the inevitable result is violence and the corruption of governmental officials.
I appreciate the State of California’s attempt to create a market place where small family farms can thrive. But this noble intention is going limit the supply of legal Marijuana, which will increase the price of legal Marijuana to a point where a black market ensue putting a large swath of cash into the hand of criminals; which will lead to the obvious violence.
The Legalization of recreational marijuana on June 1, 2018 will put a huge dent into the income of marijuana cartels. But this dent will be reduced if the government restricts the supply or taxes the product too much. The ironic thing is that the more the supply, the cheaper the product and therefore the higher you can raise the taxes without creating a black market. So the government in California should do everything in its power to increase the supply, because increase in supply will allow higher taxes and make a black market untenable. Therefore, the restrictions on the size of marijuana growth will only facilitate the growth of a black market, with the ensuing corruption and violence, and reduce the amount of taxes that can be charged so one can avoid creating a black market because the taxed legalized product is too expensive.
One of the main reasons for legalizing marijuana, was so that the income earned from marijuana would stop flowing into criminal hands, and flow into the hands of honest hardworking entrepreneurs. The restrictions on growth are well intentioned but in the end such laws will only help to make this state more corrupt and more violent. If you ignore the basic economic laws of supply and demand, the result is almost always disastrous.
How much cannabis can one grow: Part 2 – Why the Legalization of Marijuana is so Important for the Welfare of this Country.
After reading part one you may ask yourself why is the government trying to restrict the amount of Marijuana one can grow? Why aren’t type 5 licenses being issued until 2023? The answer is the government is trying to protect “family farms”. The government of California is trying to give the “family farms” a chance to thrive before the competition from the large growers enters the market.
I believe this policy is well intentioned but it will have disastrous results.
Many people like me, who strongly believe in the legalization of marijuana, have a libertarian streak. Libertarians think it is my body and if I want to smoke marijuana why shouldn’t I be able to? Most of the time when the government tries to legislate morality it just creates an opportunity for criminals to make money. And when criminals are able to make a lot of money violence and corruption almost always ensues. In legal markets the battle over market share is fought in the consumer market. He who makes the best product at the cheapest price gains the most market share. Consumers benefit from the competition by being able to buy high quality goods at a cheaper price. But when a product is illegal, like marijuana in a large swath of this country, or alcohol during prohibition, the fight over market share becomes a violent war.
When the product in question is illegal trying to beat your competitor in the market place by providing a cheaper and greater quality product gives way to the laws of the black market where you gain market share by killing off your enemies. Gaining market share by killing the competition does not make the product cheaper or better quality. The quality and price is determined by the organization that wins these black market wars and they will charge a higher price for lower quality products because that is how they maximize their profits. In these black market scenarios the consumer loses on many fronts because they have to pay more money for a lower quality product and the society they live in becomes more corrupt and violent.
Right now because Marijuana is still illegal in much of the United States Mexican marijuana cartels are ripping Mexico apart. These cartels are fighting for market share with each other, and because they have so much money brought in by illegal marijuana sales in the United States, they are able to buy the firepower to fight a very serious and deadly war. And this serious and deadly cartel war is killing countless innocent Mexican citizens. And these civilian deaths are a direct result for our demand for illegal marijuana.
The ignorant rationalizations that are causing the cartels wars are the same rationalizations that created Prohibition in our country; the idea that you can legislate morality and tell people what they can and can’t do with their bodies.
When alcohol was made illegal, the demand for alcohol didn’t decrease, the market for alcohol just switched from the legal market to the black market. The result was the golden age of organized crime in America. Gangsters made so much money from selling “bath tub gin” in local “speak easys” that they were pretty much able to buy most of the cops, judges and elected officials in many cities; just like Al Capone did in Chicago. And of course higher market share was not achieved through cheaper and better quality products, but by killing the competition i.e. The Saint Valentine’s Day Massacre. The citizens in the United States realized the only way to prevent organized crime from completely corrupting our government institutions, and pretty much taking control of this country; was the legalization of Alcohol.
A complete legalization of Marijuana across the United States would end these cartel wars in Mexico because it would cut off their money supply to buy soldiers, weapons, law enforcement and politicians. If Marijuana is sold freely and cheaply there would be no black market for the Mexican cartels to exploit, and hence their easy money supply would be shut off. There would be no black market share to fight over and in addition, without the ridiculous income they get from selling illegal marijuana, they would not have the money to buy all the sophisticated weaponry that is costing many innocent Mexican citizens their life.
The legalization of the fifth largest economy in the world is going to put a serious dent in the cash flowing into criminal coffers.
How Much Weed Can an Individual or Corporation Grow in California?: Part 1
There seems to be much confusion on how much weed a person or organization can grow for recreational purposes in California starting on January 1, 2018. The most recent “law”, not regulation (see my recent blog on “What is the Difference Between Proposed and Binding Regulations”), that is binding on this issue is SB 94 which was enacted into law on July 15, 2017.
This law reads in pertinent part:
SB-94 Cannabis: medicinal and adult use.
Section 26061 of the Business and Professions Code is amended to read:
(2) Type 5A, or “indoor,” means for indoor cultivation using exclusively artificial lighting greater than 22,000 square feet, inclusive, of total canopy size on one premise.
(3) Type 5B, or “mixed-light,” means for cultivation using a combination of natural and supplemental artificial lighting at a maximum threshold to be determined by the licensing authority, greater than 22,000 square feet, inclusive, of total canopy size on one premise.
(c) No Type 5, Type 5A, or Type 5B cultivation licenses may be issued before January 1, 2023.
This law seems to indicate that until January 1, 2023, people cannot obtain Type 5 licenses, so the maximum amount of land an individual or organization can use for the cultivation of cannabis is the limits proscribed by the medium (type 3) license delineated in SB 94 which only allows a maximum growth of 22,000 square feet.
The Cannabis regulations that were released on November 16, 2017 reconfirmed that only small and medium-size grow licenses will be issued between 2018 and 2023 (for up to quarter-acre and one-acre grows, respectively). This statement should be of no surprise to anyone because state regulations cannot overturn state law; such regulations can only clarify state law.
However, according to the article; “California’s Limit on Big Growers Just Vanished. Here’s Why” published by Leafly on December 8, 2017, (https://www.leafly.com/news/politics/californias-limit-on-big-growers-just-vanished-heres-why) asserts that the regulations did say that while medium-size licenses are limited to one per person or organization, there is now no limit to the number of small-size licenses any person or commercial entity may obtain. In other words, you can only apply for one medium sized license (or type 3 license) which will allow you to grow up to 22,000 square feet and are prevented from obtaining a large (Type 5) license which would let you grow beyond 22,000 square feet. However, according to this article, you can apply for more than one small (Type 2) license that allows you to grow up to 10,000 square feet. Therefore, if you apply for ten small (Type 2) licenses, you could theoretically develop 100,000 square feet of Cannabis.
This situation begs the question: why have medium (Type 3) or large (Type 5) licenses at all, when you can simply apply for multiple small licenses that would allow you to surpass any size restrictions medium (Type 3) or large (Type 5) license could place on your grow. In addition, the limitations of just being able to obtain one medium (Type 3) license and no large (Type 6) licenses until 2023 are absurd because you can get as many small (Type 3) licenses as you want. Under this system why would anyone ever even apply for a medium (Type 3) or a large (Type 5) license at all?
There is clearly something rotten in the State of Denmark (or California in this case). If what the above quoted article is saying is accurate, then medium (Type 3) licenses and large (Type 5) licenses should be eliminated because they serve absolutely no purpose.
What is the Difference Between Proposed and Binding Regulations
One issue that I think keeps everyone concerned is what is the story about these new cannabis regulations? Are they binding or not? Some Regulations, unlike laws, can merely be issued by a regulatory body and have the force of law although they have never gone through the legislative process. As most people are aware, on November 19, 2017 three California regulatory bodies came out with three sets of regulations concerning cannabis that are scheduled to go into effect on January 1, 2018. Here they are:
Bureau of Cannabis Control regulations
What people should keep in mind is that these regulations are binding in that they will have the full effect of law come January 1, 2018. In other words, if you don’t comply with them, such non-compliance will have the same repercussions as violating the law.
Lori Ajax, the Chief of the BCC, says that these regulations will be reviewed and adjusted depending on how the regulations fair through the licensing scramble and legalization of recreational cannabis that the whole state is about to face. If all goes smoothly, she may adjust them slightly and if the next month proves totally disastrous there will probably be major changes to the regulations.
But don’t let this discussion make you think that these regulations are not binding. Even though they can be changed rather quickly, don’t think they are not binding. These are not proposed regulations as many in the press have called them. The people in the press and on the blogs referred to them as “proposed regulations” because they can be changed rather easily. However, most of these bloggers, reporters and even lawyers are wrong because the November 19, 2017 regulations delineated above are binding regulations. Proposed regulations are regulations that have been proposed for further discussion but are NOT BINDING. Therefore, unless a regulatory body that has issued a “proposed regulation” turns such regulation into a binding regulation, the proposed regulation will never have the force of law. To be clear, as stated, the regulations issued on November 19, 2017 by the three agencies of the state of California are binding regulations.
Much of the confusion surrounding this issue is that most of us were taught in civics class that in order for a bill to become a law, at the federal level at least, the bill would have to pass the U.S. House of Representatives, the U.S. Senate and then be signed by the President. On the state level, for a bill to become a law, it would have to pass the California State Assembly, the California State Senate and then be signed into law by the Governor. Those statements are true but there is another way for a proposed rule to become an enforceable rule. That is when the State legislature creates a law that has vague portions and then the legislature delegates their law making power to a state regulatory agency to clear up the vague sections of the state law. In these situations a law is passed and then the regulatory agencies must pass regulations that fill in the parts left vacant or vague by the original law.
As an example, if under state law it states that cannabis products are not to be enticing to children, then it is up to a regulatory agency to decide what enticing really means: does it have to look like candy, does it have to have a name similar to a piece of candy already on the market etc. etc. etc.
The most important point to remember here is that these state regulatory agencies can never pass a regulations that violates state law. The people of California have already decided that cannabis should be legal. Therefore no regulatory body can ever overturn that law.
The bottom line is that even though Lori Ajax says these current regulations will be discussed and changed in the upcoming months; don’t forget that these regulations issued by the three state agencies delineated above will be binding and enforceable come January 1, 2018.
The Federal Anti-Cannabis Laws Can be Viewed as a Blessing to California Cannabis Entrepreneurs
Most people will tell you that the fact that marijuana and cannabis are illegal under federal law is a real problem for most California cannabis entrepreneurs. However, I would argue the federal laws are a blessing in disguise for most California cannabis entrepreneurs. There is no question that the fact of federal cannabis illegality makes life difficult for anyone involved in the cannabis business. This illegality makes it difficult for cannabis companies to find a bank (as most banks are registered with the federal government and don’t want to get involved with a federally illegal product), find insurance (as with banks most insurance companies are federally regulated) and many other services that are regulated by the federal government. There is also the fear, no matter how remote, that the DEA or some other federal agency could swoop in any time and shut down your business because it violates federal law.
However, I feel all these negative issues attached to federal illegalization are far outweighed by the fact that federal illegalization seriously cuts down on the competition. Just imagine if Archer Daniels Midland, General Mills or something other food or agribusiness conglomerate entered into the recreational cannabis market in California? With their resources and experience in the market, they could crush any recreational cannabis company in the market today. So why don’t they? Because all these companies are listed on national stock exchanges which are regulated by the federal government.
Mark Herrick on the Ever Changing World of Legal Cannabis in California
Confessions of a California Cannabis Attorney
Mark Herrick on the Ever Changing World of Legal Cannabis in California
CBD Payment Processing
In the CBD and Hemp sector finding a processing company that will accept your processing business and retain your business is very difficult.
There are few situations more tragic than having a deluge of orders, and then having them fall through or cancelled because you are suddenly dropped by your Payment processor.
You want to work with the largest payment processors because they have the resources to deal with the risks associated with CBD. They also have the gravitas to deal with nervous credit card companies because the credit card companies want to keep their business with large payment processors because they bring them so much other business.
It is also expensive to properly vet CBD companies so most financial institution don’t have the funds to properly investigate CBD companies that if not properly checked out can bring many headaches to the processor down the line.
You can operate your business on a cash basis, but at point of sale it can get complicated and confusing if you use only cash. A large percentage of customers don’t like to use cash, and cash can be difficult because of the security and other infrastructure needed to move cash around.
Because CBD payment processing sits in such a gray legal area most financial institutions charge a premium for doing CBD payment processing.
Areas where they can charge extra because you use CBD are:
•They increase the costs for transaction fees
•They can require escrow or reserve accounts that demand a significant amount of reserve capital in the account. .
•And as stated before there is the constant risk, they will change their minds and shut you down.
•Some CBD organization’s use foreign banks to process their payments. Using foreign banks is risky because they are not under U.S. jurisdiction so if they act in bad faith and do something unsavory like keep your money your avenues for redress will be limited because they are foreign.
Future of FDA and FTC Enforcement.
Will the FDA Act against cannabis or cannabis-related products that are in violation of the FD&C Act?
Officially from the FDA: “When a product is in violation of the FD&C Act, the FDA considers many factors in deciding whether or not to initiate an enforcement action. Those factors include, among other things, agency resources and the threat to the public health. The FDA also may consult with its federal and state partners in making decisions about whether to initiate a federal enforcement action.
Bottom Line: At this point it has taken no action beyond enforcement letters. And it doesn’t seem to have the resources to enforce its existing regulations so some compromise will probably have to be reached.
What is the FDA Doing now: Not Much
After hemp and its derivatives were federally legalized under the 2018 Farm Bill, the FDA was mandated under separate appropriations legislation passed late last year to provide an update on its regulatory approach to CBD within 60 days. That deadline passed early last year, but eventually the report and a supplementary notice were made public in the middle of last year.
The agency reviewed what’s known about CBD—acknowledging that data was limited “because cannabis-derived CBD was a Schedule I controlled substance” prior to hemp legalization. The roadblocks to research caused by marijuana’s ongoing restrictive Schedule I status is something legalization advocates have long pointed out.
Future of FDA Regulations: Now We Have Silence
On November 1, 2019 Dr. Stephen Hahn was nominated as the Commissioner of Food and Drugs at the Department of Health and Human Services. Dr. Hahn was confirmed as Commissioner on December 12, 2019.
At this point he has made no strong indications of any more significant future enforcement measures.
Future of State Enforcement on Behalf of FDA: Don’t Bet the Farm on it
The FDA admits; “While the states have their own enforcement programs, as the regulating agency FDA is much more capable of consistent enforcement across the board. State enforcement, for the most part, consists of a patchwork of regulations that are inconsistent across the country and enforcement is generally under-funded and minimally effective. The varying legality of hemp and marijuana products across the country also means that various states will enforce their laws differently. While states have a strong interest in protecting their citizens, it is challenging for them to establish standards for products that are distributed nationally. Thus, federal enforcement is likely to be the most effective in curbing the proliferation of unlawful CBD products.”
The California State Legislature Continues to Show its Incompetence When Dealing with Creating a Competent CBD Regulatory Framework: CA-AB 228
California Assembly Bill 228:
This bill was passed by the California Assembly in May of 2019 but not enacted into law . If it had been passed into a law, foods containing CBD wouldn’t be considered “adulterated” and would not have to be labelled so.
In March 13, 2019, the bill was amended to say not only would food and beverages with CBD be considered unadulterated, but it would also say that it would be fine that foods and beverages containing industrial hemp or Hemp CBD are safe for human and animal consumption.
If passed into law, the new law would have stated:
The sale of food or beverages that include hemp or cannabinoids, extracts, or derivatives from industrial hemp shall not be restricted or prohibited based solely on the inclusion of industrial hemp or cannabinoids, extracts, or derivatives from industrial hemp.
(a) This division does not prohibit an entity licensed pursuant to its provisions from cultivating, manufacturing, distributing, or selling products that contain industrial hemp, as defined in Section 11018.5 of the Health and Safety Code, or cannabinoids, extracts, or derivatives from industrial hemp.
(b) A product containing industrial hemp-derived tetrahydrocannabinol (THC) in concentrations above 0.3 percent by product weight is subject to this division.
If passed into law, these changes enacted by 228 would have allowed CBD derived from Hemp into the licensing chain also know as the metrc track and trace system that makes sure all Cannabis in California is tracked as licensed from “seed to sale”.
Therefore, if CA AB-228 had passed, CBD could have been part of this regulatory system along with marijuana and THC and therefore be legal to sell if the CBD in questions was in compliance with this metrc track system.
As stated, if passed it would move the “adulterated” label from products that contain CBD.
Require labeling of CBD and hemp products that are added to cosmetics, food, and beverages.
Food and beverage manufacturers would need to be registered and demonstrate that their sourced hemp meets all federal requirements.
Require raw hemp to be lab-analyzed and certified before being sold for product use.
The main opponents to the bill made this argument: “In addition to being a public health threat, this bill would have encouraged the recent phenomenon of CBD shops to open and continue to serve as loop- holes in current cannabis regulations. These CBD shops can compete unfairly with the regulated cannabis market by selling similar products without any of the tax revenue benefits to state and local jurisdictions. In addition to that, we have seen these CBD store act as fronts for illicit cannabis shops making it difficult for law enforcement to differentiate between products.”
“These changes would allow CBD derived from Hemp into the licensing chain from “seed to sale” also know as the metric track and trace system that makes sure all Cannabis in California is tracked as licensed from seed to sale. If CA AB-228 had passed this would have been a possibility.”
The main opponents also said “The bill was held in discussion and time ran out for it to be voted on in the 2018 legislative session. We anticipate the author, Assembly member Aguiar-Curry, attempting its return in 2019 and welcome continued discussion with the Assembly member in hopes of finding a solution that would at minimum require equal safety testing requirements as cannabis CBD products.”
“We remain puzzled why the Assembly member refuses to do so, but hopeful she has learned from the recent vaping crisis which the Associated Press attributes in part due to the unregulated CBD market.”
As of this time, this bill has not passed.
I meticulously spelled out the opposition’s reasons for defeating the bill because their logic made absolutely no sense to me. By defeating this bill, they are preventing CBD from legally entering the California state market alongside THC, when CBD clearly has less to no mind-altering affects known to be caused by THC, and there is very strong evidence that CBD has multiple therapeutic benefits.
By defeating this bill, they have left the legal status of CBD in a fog of uncertainty which will discourage well intended individuals from selling and providing a drug with many proven therapeutic benefits to the people that need it. And in addition, they have made it very difficult for people that need CBD to have the regulatory enforcement in place that will insure they are buying the CBD they may really need and not some fake or dangerous product that may contain no CBD at all.
This saga is just another example of our “Pro-Cannabis legislature” bowing down to special interest and endangering the health of the California public. The lack of interest in the welfare of the California public by our state legislature is astounding.
California’s Hostility Towards CBD Part 2: California Department of Public Health’s Answers to CBD Legality Questions
1. What forms of Industrial hemp derived products will and will NOT be allowed in food in California?
Will be allowed in food (without any claim for health benefits): •
Seeds derived from Industrial hemp.
Industrial hemp seed oil or hemp seed oil derived from industrial hemp.
Will NOT be allowed in food:
Any CBD products derived from cannabis. Any CBD products including CBD oil. derived from industrial hemp.
Hemp oil that is not derived from industrial hemp seeds.
Industrial hemp seed oil enhanced with CBD or other Cannabinoids.
2. Is hemp seed oil the same as CBD oil?
•Industrial hemp seed oil and hemp-derived CBD oil are two different products. Industrial hemp seed oil is derived from the seeds limited to types of the Cannabis sativa L. plant and may contain trace amounts of CBD (naturally occurring) and other cannabinoids. Food grade Industrial hemp seed oil is available from a variety of approved sources. However, CBD or CBD oil derived from industrial hemp is NOT approved for human and animal consumption by the FDA as food and therefore cannot be used as food ingredient, food additive, or dietary supplement.
3. What is the difference between industrial hemp and cannabis (marijuana) derived cannabidiol (CBD/CBD oil)?
CBD can be derived from both hemp and cannabis. CBD derived from hemp and cannabis is a federally-regulated controlled substance. CBD derived from cannabis is regulated within California as a cannabis product and may only be sourced from, produced, and sold by those with commercial cannabis licenses. CBD derived from industrial hemp is not an approved food additive, and therefore it cannot be added to human or animal foods in California. •CBD derived from cannabis is a prohibited food additive. Cannabis cannot be sold in food retail •CBD derived from a licensed cannabis cultivator, per MCSB regulations, is an allowed additive in cannabis products only.
4. Does California consider food products that contain CBD or CBD oil from Industrial hemp a cannabis product?
Although in California, foods containing industrial hemp are not considered cannabis products (products that are subject to Proposition 64), CBD is an unapproved food additive and NOT allowed for use in human and animal foods per the FDA, and thus it is not approved in California.
5. Can industrial hemp-derived CBD oils be approved as a food ingredient, food additive or dietary supplement to be added in food?
Currently Industrial hemp derived CBD Oil and CBD products are NOT an approved food, food ingredient, food additive or dietary supplement and therefore cannot be used in any human and animal food
6. If CDPH, MCSB regulates and licenses cannabis (marijuana) derived product manufacturers, which agency oversees CBD oil produced from industrial hemp?
There is currently no regulatory agency that provides oversight over the production of CBD oil from industrial hemp. However, CDPH-FDB has authority oversight over food additives, dietary use products, food labeling, and good manufacturing practices for food. Industrial hemp used as a food additive or dietary supplement falls under the authority of CDPH-FDB.
7. Can industrial hemp derived CBD products be allowed for sale in California if they come from other States? For example, if industrial hemp derived CBD oil is manufactured in another state and sold to customers in California via distributors and retailers?
No, CBD is an unapproved food additive and NOT allowed for use in human and animal foods in California regardless of where the CBD products originate.
At this point, it’s legal for state-sanctioned California companies to grow and produce THC marijuana extracts, but it isn’t legal for these producers to make CBD-rich hemp extracts.
The answers to these above questions clearly show that there is deep seated incompetence in the Government of California.
The State Assembly, The State Senate and Governor Newsome have all demonstrated to the world that when it comes to CBD they are all too competent to be holding office.
There is just no excuse for this type of incompetence when progressive Democrats control all three branches of government by overwhelming numbers and they are all supposed to be Cannabis friendly yet they allow this ridiculous situation with CBD to continue indefinitely.
We would be better off having random people chosen from the phone book populate our government than these bozos. And that goes double for Governor Newsom. He has always touted how pro-Cannabis he is, yet he has let this CBD regulatory disaster continue under his watch for almost two years.
California’s Hostility Towards CBD
The State of California’s position is made very clear by the California Department of Public Health FAQ for CBD (Frequently asked Questions for Industrial Hemp and Cannabidiol (CBD) in Food Products)
The California Department of Public Health (CDPH), Food and Drug Branch (FDB) has received numerous inquiries from food processors and retailers who are interested in using industrial hemp-derived cannabidiol (CBD) oil or CBD products in food since the legalization of medicinal and adult-use marijuana (cannabis) in California.
In California, the CDPH Manufactured Cannabis Safety Branch (MCSB) regulates medicinal and adult use manufactured cannabis products. However, food products derived from industrial hemp are not covered by MCSB regulations. Instead, these products fall under the jurisdiction of CDPH-FDB.
California defines “food” as follows: (a) Any article used or intended for use for food, drink, confection, condiment, or chewing gum by man or other animal. (b) Any article used or intended for use as a component of any article designated in subdivision (a).(1)
In California CBD does not fall under the jurisdiction of one of the special departments in California set up for Cannabis which is The California Department of Public Health’s Manufactured Cannabis Safety Branch but falls under the jurisdiction of the old Food and Drug Branch that was created before Cannabis was made legal.
Therefore all the new regulations enacted by the Manufactured Cannabis Safety Branch to legalize and regulate THC in California does not apply to CBD.
The Farm Bill Act of 2018 created a new legal product called “Hemp.”, however this new product of Hemp was created AFTER the state of California made Cannabis legal. So this new product HEMP has not been addressed or recognized by the state and therefore anything derived from this new product is considered a new drug and not yet been recognized or covered by California law.
The Federal Agricultural Act of 2014, also known as the Farm Bill, only legalized the growing or cultivating of industrial hemp by state departments of agriculture and institutions of higher education (as defined in Title 20 of the United States Code section 1001) for purposes of research under a state pilot program or other agricultural or academic research. In addition, growing or cultivation is only permitted under the Farm Bill if growing or cultivating is allowed under the laws of the State in which such state department or institution is located in, and where such research occurs. In California, the cultivation of industrial hemp is regulated by the CDFA
“Industrial Hemp” is defined as follows by the CDFA: “a fiber or oilseed crop, or both, that is limited to types of the plant Cannabis sativa L. having no more than three-tenths of 1 percent tetrahydrocannabinol (THC) contained in the dried flowering tops, whether growing or not; the seeds of the plant; the resin extracted from any part of the plant; and every compound, manufacture, salt, derivative, mixture, or preparation of the plant, its seeds or resin produced therefrom.”
California incorporates federal law regarding food additives, dietary use products, food labeling, and good manufacturing practices for food. The Controlled Substances Act of 1970 classified all forms of cannabis as a Schedule I drug, making it illegal to grow it in the United States.
Currently, the FDA has concluded that it is a prohibited act to introduce or deliver for introduction into interstate commerce any food (including any animal food or feed) to which tetrahydrocannabinol (THC) or CBD has been added. This is regardless of the source of the CBD – derived from industrial hemp or cannabis.
Therefore, although California currently allows the manufacturing and sales of cannabis products (including edibles), the use of industrial hemp as the source of CBD to be added to food products is prohibited. Until the FDA rules that industrial hemp-derived CBD oil and CBD products can be used as a food or California makes a determination that they are safe to use for human and animal consumption, CBD products are not an approved food, food ingredient, food additive, or dietary supplement.
THUS, UNDER CALIFORNIA LAW IT IS ILLEGAL TO SELL CBD AS A FOOD INGREDIENT, FOOD ADDITIVE OR DIETARY SUPPLEMENT.
THC and CBD: Not the Easy Path to Riches Most Expected
Unfortunately for people in the Cannabinoid world there are a few more bumps on the road to success than most entrepreneurs expected.
I am a California lawyer, so I will concentrate on Cannabis in California. California is now run by progressives, which is great for THC because the State of California is one hundred percent behind legalization. Our governor, Gavin Newsome, was one of the leaders in the marijuana legalization movement. The problem is that the progressives that now run California do not understand or have a good grasp of how to create a positive environment for business growth.
Charlie Manson is almost more popular than Trump in California, and Trump has, for all intents and purposes, become the face and image of the Republican Party all in every state of the Union. Republican Registration is at an all-time low in California, with Decline to state voters out numbering Republican voters in the Golden State. In the City and County of San Francisco Green Voters now outnumber Republican voters. The Republicans have less than a third of the vote in both the State Senate and the State Assembly. The bottom line is that Republicans are irrelevant in California. The Kiwanis club in Fresno has more political influence in California than the Californian Republican Party.
So what is the problem with THC in California? Traditionally in most states the Republicans have been the pro-business party. They often insure that the democrats/liberals/progressives across the aisle don’t overregulate and overtax business. The U.S. Supreme Court in McCulloch v. Maryland said the power to tax is the power to destroy. I would add to that the power to regulate is also the power to destroy. Progressives in general don’t have a good grasp of those prior two concepts. And as a result, California has over taxed and over regulated the legal Cannabis business to where consumers are returning to the black market because obtaining legal weed is increasingly cheaper and less of a headache.
California has three regulatory bodies, the California Cannabis Bureau, the Manufactured Cannabis Safety Branch, and the CalCannbis Division of the Department of Agriculture. These three regulatory production facilities are overwhelming the California weed entrepreneurs with a constant deluge of new regulations. This matrix system, where the state of California wants to track every Cannabis product from “seed to sale” is harder to navigate than the straights of Magellan.
And the taxation has gone to comical levels. Every state, county, city, water district or local municipality has a myriad of separate agencies with taxing power that are soaking up every ganja dollar that can get their hands on.
It has become the opinion of many businessmen in California, if you are completely legally compliant and pay all your taxes it is next to impossible to return a profit. Normally when this type of situation develops the overregulated and overtaxes businesses turn to the Republican Party to stave off the regulatory and tax feeding frenzy. But in California there are no Republicans to turn to for help. They have gone the way of the Dodo bird.
Hemp and CBD face the opposite problem of the THC world. After the USDA legalized hemp in 2019 there was no effective regulatory body. The State of California considered any plant that has less that .3 percent THC as not covered by the THC regulations. Everyone concluded that if Hemp is now legal then any product produced from hemp should be legal. Generally this has been true. No US Government agencies have tried to regulate Hemp. The sole exception is the FDA. In 2018, before Hemp was legal, it approved a drug called Epilodix that contained CBD from Hemp.
After the legalization of Hemp, as stated, everyone thought that CBD products derived from Hemp were legal, but the FDA got territorial. They stated even though Hemp is legal, CBD products are still considered a drug and they have to approve it before it is legal. But they are like a lone voice in the wilderness.
However, as of the date, no Federal agency, including the FDA has taken any concrete legal action against Hemp or CBD products. Unless someone can correct me, in the past year no Federal officers has fined, arrested or seized any hemp or CBD products.
Everyone has gotten into the Hemp and CBD business. Kush.com reports the average price per percentage point of $3.94 on 10% raw CBD biomass in July was expected to drop to $2.30 for early harvests and could sink even lower in the fall (which is exactly what has happened). At the beginning of May 2019, the cost of a single kilo of CBD isolate was $6000 a kilo. This dropped to an average price of $5000 / kilo. Spot prices for kilos from smaller labs continue to drop into the $4000’s and upper $3000’s.
I get constant calls from people claiming to be hemp brokers who then seem to disappear into thin air. Many people claiming to represent hemp sellers will find a buyer, and once they get a purchase agreement will take that agreement to try and find an actual buyer. Brokers also play this scam from the other direction. I have been personally contacted about situations where a broker pretending to represent a buyer has hooked up with a person pretending to represent a seller. Negotiation and commence and the whole project is doomed to failure because there is actually no real buyers or sellers involved. Both the THC business and the CBD businesses having gone through serious growing pains but I believe that those that are able to stick it out to the end will find that there is actually gold in them there hills.
USDA’s New Legal Advice on Hemp Production
Legal Opinion on Authorities for Hemp Production
The Agriculture Improvement Act of 2018 (2018 Farm Bill) authorized the production of hemp and removed hemp and hemp seeds from the Drug Enforcement Administration’s (DEA) schedule of Controlled Substances. In response to questions raised concerning provisions pertaining to the interstate transportation of hemp and who may obtain a license to produce hemp, the U.S. Department of Agriculture’s Office of the General Counsel (OGC) has concluded the following:
- As of the enactment of the 2018 Farm Bill on December 20, 2018, hemp has been removed from schedule I of the Controlled Substances Act and is no longer a controlled substance.
- After USDA publishes regulations implementing the new hemp production provisions of the 2018 Farm Bill, States and Indian tribes may not prohibit the interstate transportation or shipment of hemp lawfully produced under a State or Tribal plan or under a license issued under the USDA plan.
- States and Indian tribes also may not prohibit the interstate transportation or shipment of hemp lawfully produced under the 2014 Farm Bill.
- A person with a State or Federal felony conviction relating to a controlled substance is subject to a 10-year ineligibility restriction on producing hemp under the Agricultural Marketing Act of 1946. An exception applies to a person who was lawfully growing hemp under the 2014 Farm Bill before December 20, 2018, and whose conviction also occurred before that date.
An executive summary and a complete legal analysis are available on the Agricultural Marketing Service (AMS) website.
Federal Enforcement Action on CBD
I am sure many of you have seen a document similar to the one that I have attached below. The FDA has been sending reams of warning letters to companies that are involved in someway with CBD. Of the letters I have seen most were sent to individuals operating websites that were offering CBD products on line. Although I have seen other types of letters where the FDA, after a plant inspection, accuses the maker of CBD products of manufacturing unapproved drugs.
However, at this point in time I have heard from no one that has been able to confirm that the FDA has taken any concrete steps to enforce the warnings in these letters.
I am well aware that there are scores of arrests, seizures and detentions occurring across the U.S, with regard to CBD. But as far as I know they have all have been done only by state or local law enforcement . I have been told by many people about FDA or other Federal law enforcement actions against CBD manufacturers and operators but all such claims have been apocryphal. I have seen no positive evidence that even one such action has actually occurred.
If any of you are aware of the FDA or any other federal law enforcement agency bringing any sort of enforcement action against anyone or organization that involves cannabinoid prodcuts that are below .3 percent THC level please let me know.
Any information would be much appreciated.
2018 Farm Bill Listening Session on Domestic Hemp Production Program (March 13, 2019)
Enclosed are the comments I promised on the USDA three hour webinar on Hemp and CBD products derived from Hemp that occurred on March 13, 2019. Sorry for the delay. Like everyone else connected to the Cannabis industry there just does not seem to be enough time in the day. I listened to the entire Webinar last week put on by the USDA that concerned the issue of Hemp cultivation. Unfortunately, the webinar for me created more questions than it answered. Many of you may want to ignore this post and wait until I can get some more definitive answers from the USDA. I did send the USDA a slew of questions, however, at this point I have heard nothing, and I don’t know if I ever will. If I do get answers I will post them promptly.
If you are interested in the webinar I have summarized my findings below. These comments are for people that have a strong pecuniary interest in having an accurate and comprehensive understanding of all the legal issues surrounding Hemp and CBD. This post is not purely altruistic. As the readers of this post have a strong interest in the subject, I am hoping some of you reply to me with any pertinent information you may have. As I suspect is the case with most of the people viewing this post, I have a lot of people depending on me for accurate information on this issue, so any comments would be much appreciated.
I also have a few points to make about my summary of the webinar. You will see that I include some extensive direct quotes of people asking questions in the webinar. I include these quotes because many people that participated in the webinar ask questions that include assumptions. It is these assumptions I found important because they help illuminate what the conventional wisdom among those “in the know” are at this time. In other words, it is these assumptions that are telling as to what the current accepted norms are as to legal hemp and CBD. The questions also illuminate what areas of the law are clearly in the grey and which areas as of yet seem to be decided.
I realize I am using what seem to be massive quotes. I use these quotes because sometimes I am not sure exactly what the speaker is trying to say, so I am more comfortable in quoting them directly so I don’t misrepresent what they have said. Please believe me when I say I have cut out most of the verbiage of the meeting. Believe it or not I have erred on the side of exclusion. I have cut out so much I am afraid I may have missed something important.
In any event, here is my summary of the three hour webinar.
Here is a direct quote from the beginning which I believe is important:
“President Trump signed the Agriculture Improvement Act of 2018, better known as the 2018. Farm Bill on December 20th. In it were provisions allowing USDA to approve plans submitted by states, territories, and Indian tribes for the commercial production of hemp.
The Farm Bill also tasked USDA to establish a program for producers located in the states or in the territories, or controlled by tribal governments that does not have a USDA-approved plan. We’re currently formulating our plans here at USDA for how will implement these Farm Bill provisions for him.
The 2018 Farm Bill also extends the provisions of the 2014 Farm Bill allowing institutions of higher education and State departments of agriculture to grow or cultivate industrial hemp at certified and registered locations for 12 months after USDA establishes the plan that we’re beginning to work on now.”
The take away from this statement is that states need to submit a plan to the USDA, and the USDA must accept this plan before private individuals can grow hemp for profit in that particular state. This statement also seems to imply that the USDA at some future date will provide a program for private hemp growers to grow hemp for profit if their state or other controlling jurisdiction even though such jurisdiction or state does not have an approved plan.
However, from some of the statements you will see later it seems that some states are allowing people to grow hemp for profit in their state. I am not sure why this is happening, and why people responsible for overseeing hemp cultivation in their states are openly admitting that they are letting individuals produce hemp for profit in their state in front of officials from the USDA.
Another important point to add to the confusion is that certain individuals and entities were allowed to grow hemp under special licensing programs starting in 2014 and such licenses will be extended and further granted under this licensing program. What is unclear is whether such hemp can be used for commercial purposes. It seems to me the answer to this question should be readily available but at this point I have not been able to determine if hemp grown under these special licenses can or cannot be used for commercial purposes as of the first of this year. My instincts tell me that hemp grown under the licensing program cannot be used for commercial purposes but I have been given conflicting answers to that question from people whom I respect.
The next important direct quote is:” It is USDA’s intention to issue regulations in the fall of 2019 and accommodate and hopefully to accommodate the 2020 planting season.”
So the USDA is trying to get its act together so that commercial hemp can be grown in the 2020 growing season. This statement seems to imply that all hemp grown prior to the 2020 growing season cannot be used for commercial profit.
Pennsylvania was the first state to weigh in on the conversation. Sonia Jimenez, who is the Deputy Administrator for Specialty Crops (which is a Division of the Agriculture Resource Management at the Wisconsin Department of Agriculture, Trade, and Consumer Protection), said the following:
“We had only 245 grower licenses last year, and obviously that’s jumped up to over 1400, so we do anticipate some challenges related to the sampling season.”
I have to believe that many of these 1400 licensees are selling their hemp commercially but that issue was not discussed in the webinar.
She continued to state that: “The Pennsylvania Department of Agriculture submitted its state plan for hemp regulation to USDA on January 22, 2019 as required by the 2018 Farm Bill. Using authority from Pennsylvania’s law concerning Controlled Plants and Noxious Weeds the department is seeking to classify hemp as a controlled plant, which will require all growers to register and obtain a growing permit.”
Looks like Pennsylvania is ahead in the game.
She went on to say that Pennsylvania “encourages USDA to quickly provide national standards for laboratory testing procedures, including plant sampling and certification of laboratories. This is imperative for interstate commerce, as well as consumer protection and confidence in hemp products. Growers are planting in multiple states and need consistency, especially when shipping product to processing facilities that may require transport across state lines. USDA’s inspection, sampling, testing, and record keeping provisions have been developed through consultation with other states.”
The sentiment in this statement seems painfully obvious and I only included it because this sentiment was echoed again and again by other speakers in the webinar. What this statement shows is that the USDA has not addressed any of the issues stated above and everyone desperately wants them to.
The next issue she brings up is the THC content. Another critical issue that USDA seems to not have addressed by the date of this webinar, and not surprisingly, it seems critical for everyone that they do:
She stated: “for growers in good standing who agree to process hemp found to be higher than 0.3 percent THC for industrial purposes only. Pennsylvania strongly urges USDA to work quickly to provide critical federal guidance for consistency for growers and processors. This includes working with sister agencies to assure the provisions of the 2018 Farm Bill are realized and implemented by the DEA, FDA, DOJ, federal banking entities, crop insurance providers, and others. Does USDA plan to regulate hemp processors and will federal guidelines be provided to states?”
This is quote is a double edged comment. First she wants the FDA to solidify the .3 percent guideline for THC whereby everything below that is legal. And in addition, she would like to see it so that if the THC level is above .3 percent such hemp can still be used for Industrial purposes.
Agriculture Commissioner Doug Goehring of North Dakota weighed in “North Dakota has been a leader and pushing for the ability to grow industrial hemp for many years. The new legislation eliminating the gray area between hemp and marijuana, and also providing other clarification on what is legal and what is not, will greatly improve state programs and put all states on a level playing field.”
This statements seems to imply that .3 guideline is now the standard.
“Additionally, USDA could be extremely useful in establishing consistent protocols for states to use and destroying products that are above THC levels. An area that could be improved is the current system for importing hemp seed into the United States.
So if it is above .3 North Dakota assumes it must be destroyed on not available for industrial use.
North Dakota goes on to say: “This system currently requires a DEA import permit and will likely cause many issues with commercial growers. We have utilized many Canadian seed varieties throughout the pilot program years and have seen no issues with high THC levels in these varieties. We would recommend that the restrictions on importing hemp seed be changed now for the 2019 growing season, to allow better import of those seeds rather than waiting another season for the USDA to generate rules.”
I have included this clause because you can import seeds from Canada. But this begs the questions about importing hemp from other nations that are under (and over) the .3 requirement.
Next Paul Bailey, the Director of the Plant Industries Division at the Missouri Department of Agriculture, weighed in:
“Missouri General Assembly created an industrial hemp pilot program to be administered by the Department of Agriculture and hopes to give out licenses this fall.”
So Missouri looks like it is at least in the game.
Next Kate Greenburg of Colorado weighed in. As a side note, Colorado seems to be miles ahead of everyone else on this issue and seems to be already allowing hemp to be grown for commercially profitable uses.
Greenburg states (edited for the important parts): “Colorado has been and will remain a leader in hemp production. Colorado accounted for more than half of the nation’s industrial hemp production. As of 2018, Colorado’s home to 835 licensed producers, 1200 registered land areas, and over 31,000 outdoor acres and 100 indoor acres of license cultivation space.
We also launched the first certified hemp seed program in the US and hire the first industrial hemp-certified seed specialist in the country, to give growers a great deal of confidence in the quality of their seed.
In addition, we need nationally accepted transportation solutions for the safe and efficient movement of hemp and hemp products. It is critical that our agencies and law enforcement work together efficiently on this matter.”
Colorado is already fully engaged in hemp production and doesn’t seem to be waiting for the USDA to catch up. They seem to be saying we want the USDA to settle these issues but we are not going to wait.
Another important speaker was Courtney Moran, who is a founding principle of EARTH Law, LLC and Chief Legislative Strategist for Agricultural Hemp Solutions, LLC. I only include her comment because she worked with Senate Majority Leader Mitch McConnell and Senator Ron Wyden to draft the Agricultural bill. Not surprisingly she seemed very knowledgeable about the subject.
She states “Section 101.14 provides that nothing in the horticultural title of the 2018 Farm Bill prohibits the interstate commerce of hemp or hemp products.
It further prevents states and tribal governments for prohibiting the transportation of hemp or hemp products through the state or the territory.
However, we continue to learn of hemp crop and product seizures by law enforcement for simple transportation of the commodity. As a result, many trucking and shipping companies are not offering hemp business owner shipping services. While the US Postal Service has created a pathway, the industry needs USDA to develop clear guidance for the transportation of hemp to discourage states and local law enforcement from interfering with shipments of hemp and hemp products that were legally produced in another state.”
Correct me if I am wrong, but she seems to be implying that it is not legal to transport duly licensed hemp across state lines, and any law enforcement agency that impedes the transportation of such hemp is in violation of federal law. Please correct me if I am wrong.
She goes on to state: “Another issue that needs immediate attention is access to banking with financial institutions. The industry requests the USDA to work in collaboration with the Department of Treasury and issuing guidance to alleviate issues regarding access to banking for legal hemp businesses.”
Hopefully the USDA will listen to her.
Another issue she brings up: “With regard to the 2018 Farm Bill felon ban, it was Congress’s intent to restrict only the applicant from growing hemp and not for the restriction to extend to employees.”
Important issue. Hopefully everyone will adopt her interpretation of the farm bill.
Now the next topic she discusses went way over my head so I will just quote her:
“And one critical topic that many have submitted comments on, testing a Delta-9 Tetrahydrocannabinol levels of hemp plants in the field with a reliable testing method. The federal definition for hemp specifically refers to Delta-9 THC. The use of high performance liquid chromatography mass spectrometry is recommended. Under the 2014 Farm Bill agricultural pilot program, pre-harvest testing of the crop has been conducted using methods that specifically call for not decarboxylating the sample. A change now to testing both decarboxylations for total THC will have significant financial negative impacts on domestic breeders favoring foreign varieties, rather than the varieties farmers across the US have bred and have grown for the past four production seasons. The industry encourages USDA to explore options for destruction of non-compliant crops, for example, for the use of non-consumable fiber products.”
If anyone can translate that for me I would very much appreciate it.
Next, the Kentucky Commissioner of Agriculture, Ryan Quarles, weighed in:
“When you look at the beginning of 2019, we have expanded to over 1,000 licensed growers to cultivate up to potential 50,000 acres this year. For context, last year we approved 12,000 acres and about half of that was planted. Economic data for 2017 showed us that hemp has economic potential. We don’t know if it can replace tobacco, but we know that it’s becoming part of our greater agricultural portfolio. And to prove this, here are some numbers from 2017; $7.5 million dollars were paid to Kentucky growers, $16.7 million of gross domestic product sales drive our Kentucky count and $26 million was invested in capital improvements. These numbers show that hemp is a viable economic crop. Even with that story of success, industrial hemp has several concerns as we begin to move towards commercialization.”
Kentucky like Colorado is clearly ahead of the game. Kentucky or Colorado right now seems to be the “go to” states for hemp. Next Quarles states what many other speakers weighed in on. I will just include what Quarles said and not quote others. But the following was said over and over again:
“First, it is a concern that involves with the financial sector. Too often we hear that lending institutions are fearful of granting a loan to a hemp-related entity for fear of liability. We should work to correct that misperception. These farmers and companies need access to capital, just like any other farmer or agribusiness. The second concerns involvement with the FDA. We need clear common sense guidance from the FDA (and maybe even Congress) about what the FDA plans to do about CBD and other derivatives of industrial hemp. This is where Kentucky’s hemp program has been focused, in generating these nutraceuticals, supplements and oils. If the FDA regulates too hard against CBD, It would really harm small Kentucky family-farm farmers. We’ve got to develop rules that allow our farmers an opportunity to continue exploring this crop and benefiting economically from it, especially during a period of depressed farm cash receipts. The last thing I would like to say is that we would recommend USDA develop uniform THC testing standards and background checks that are consistent on a national level. We appreciate the opportunity to participate and look forward to continuing this discussion.”
At this point it is clear the FDA has not clearly addressed the issue of CBD derivatives from legal hemp. And right now that is the most important issue to most of the people reading this email. If anyone has any answers to the questions Ryan Quarles poses to the USDA I would love to hear about it. Otherwise it seems that right now the FDAs position on products derived from legal hemp is unclear. And unfortunately, until the FDA says otherwise, it seems the safe position is to assume all CBD products that are smoked or consumed (topical products are also in the grey zone as far as I know) need FDA approval.
The next speaker with pertinent information was Collin Mooney, who serves as Executive Director of the Commercial Vehicle Safety Alliance. He states:
“The industrial hemp plant looks like the marijuana plant and cannot be distinguished by appearance or odor. Currently available field kits only measure whether THC is present in a sample, regardless of concentration. As a result, there is not yet a way to credibly measure the amount of THC present quickly and accurately at roadside in order to verify that the hemp material being transported is below the allowed .3% THC threshold. Furthermore, since the state drug labs that can make this distinction already have a backlog of work, this could lead to unavoidable delays and traffic stops and maybe even mistaken arrests. Additionally, currently there is not an established process in place to verify that the hemp has been produced under an approved federal or state regulatory plan. There are serious concerns within the law enforcement community that the transportation of industrial hemp will be used to mask movements of illegal drugs including marijuana.”
Mr. Mooney points out a very serious issue about the transportation of hemp. At this point law enforcement has no idea if shipment contains marijuana, illegal hemp, or licensed hemp. It seems to me, until this issue is resolved; transporting hemp will always be a very risky venture.
The next speaker with something interesting to say was Peter Matz of the Marketing Institute.
“We are the trade association representing the supermarket industry and my membership includes the entire spectrum of retail venues. Single owner grocery stores and large multi store supermarket chains as well as those that are mixed retail stores. We represent a total number of companies operating roughly 33,000 grocery stores and 12,000 pharmacies, including nearly 5 million workers and customers all across the country.
There is overwhelming consumer interest in products made from hemp and hemp-derived ingredients. From foods and beverages to supplements and topical products like creams and lotions, the demand for these products for both human and animal use is already pretty staggering and we know that it’s growing. As a result of the growing consumer interest in this emerging market, we are fielding more and more questions from FMI member companies all the time. In short, they’re confused about the current regulatory landscape around the sale of hemp and hemp derivatives; I suspect we can all agree their confusion is pretty understandable. Now FMI understands that the farm bill did not preempt city hemp laws and also that the FDA still has authority over the use of hemp and hemp derivatives and FDA regulated products. But the fact remains that our members are seeking clarity about everything from which kinds of products can be sold legally and where, As well as the labeling requirements, all the way to how to go about sourcing and transporting the hemp and/or hemp derived ingredients.”
I included Mr. Matz’s comments because it demonstrates the huge interest and demand for CBD products. His organization, which represents massive chains all across the nation are all interested in CBD. Whoever is able to bring CBD legally to the market will confront a massive demand and thusly unbelievable potential profits. At least that is my humble opinion.
The next pertinent speaker was Wendy Mosher, the CEO of New West Genetics. There was a lot of incessant wining that I have bypassed but Ms. Mosher made some cogent comments. .
“New West is a leader in hemp genetics. We’re located in Colorado and began our breeding program in 2014. We use modern genomics and traditional breeding to create proprietary, stable, and most importantly compliant hemp seed genetics. Especially in regard to THC level testing and validation, the state of Colorado has an exemplary protocol for testing THC that we hope will be adopted nationally.”
So it seems that Colorado has developed an effective and practical testing protocol that possibly could be adopted federally and enable the Feds to address the transportation enforcement issue delineated above. It also looks like New West Genetics may be the go to place for Hemp seeds.
The next interesting speaker was Jessica Wasserman, an attorney at Greenspoon Marder, She states:
“One of the key issues is the testing of hemp for being at or below .3 THC percent on a dry weight basis. Hemp is a biomass and testing results will vary according to when the hemp is tested.
USDA must set a testing date that is reasonable, so that once the product is certified on that date, certification is final without retesting. Congress, in the 2018 Farm Bill, recognized this reality about hemp testing when it sent out that any negligent testing variation calls for an opportunity for corrective action and shall not result in any criminal enforcement action by the federal government or any state government, tribal government or local government. Clearly, Congress intended that minor variations are to be expected and cannot be criminally enforced. For example, Oregon tests hemp no more than 28 days prior to harvest and Washington is leaning toward a post-harvest testing standard based on the ground whole sample without heat applied. Once the hub is tested and certified the product cannot be subject to retesting because otherwise the grower would be subject to a moving target approach that would lead to confusion and not be in accord with the 2018 Farm Bill and congressional intent.
Another issue of concern is the deviation in lab testing. Three different labs will yield three different results for the same product. We note that setting a firm testing date and certification protocol will prevent the situation of Oregon biomass being inappropriately stopped when transshipped across neighboring states, a situation in direct contravention of the plain meaning of the 2018 Farm Bill and the intent of Congress. When issuing its regulation and reviewing state plans, we request that USDA & AMS keep in mind the business realities of hemp production and the expenses that will result from over regulation. The goal of any regulation should be to make hemp an agricultural commodity treated similarly to any other agricultural commodity. Complicated testing and record keeping requirements will add expense and stifle what is now a promising new agricultural crop. In general, we request that USDA play the role of moving toward a dynamic, profitable and job-creating national agricultural product, taking into account the many uses of hemp for food, fiber and wellness products. Under the new farm bill program, USDA has the role of approving state plans and establishing a federal plan. As such, USDA can drive national standards for this exciting new opportunity for America’s farmers. Thank you so much.
Some of that went over my head, but clearly the issue of testing is a complicated one and full of mines. We are clearly a long way from when intrastate transportation of legal hemp is safe. It won’t be safe until local law enforcement will be able to understand simple uniform regulatory standards and have a convenient and efficient way to test the hemp or have a way to determine if the hemp is from a legal source.
Eric Wendt, the Chief Science Officer for Green Leaf Labs was the next to weigh in on the testing issue. He brought up some important points.
“We are an accredited and licensed cannabis and hemp testing laboratory located in Portland, Oregon. We have been working with the Department of Agriculture and performing in-field clients testing as well as finished product testing as required by the Department of Agriculture. One of the biggest points of confusion that we’ve seen here in Oregon is the discrepancy between the amount of Delta 9 THC versus the total THC found in both plant material as well as finished product. The total THC calculation assumes a complete transfer of THC A into Delta 9. THC A is what the plant produces in the field, whereas Delta 9 is generally a degradation byproduct produced in low concentrations in the plant.
One of the difficulties with this is that while the plant in the field may have low and legal levels of Delta 9, the total amount of THC that the plants producing could be significantly greater. Upwards of 30% of the legal cannabis in Oregon would have the potential to be classified as hemp under the only Delta 9 rule as currently incorporated. One of the main issues with that is that as storage and transport of hemp begins to occur, the degradation of THC A into Delta 9 would result in a legal product leaving the state, and by the time it arrives at a destination it could be illegal as a result of this degradation process. And additionally, the plant material is processed in an effort to concentrate and isolate CBD; you generally also concentrate any THC present. While it’s possible to remove the THC from the finished material, it’s an expensive process. So you likely will end up with concentrates or extract material that is significantly above the legal limit of .3%
Additionally, we’ve run into issues regarding the importance of representative sampling of hemp material. And the variability of plants within a field, as well as testing the finished harvested material post-harvest. Also, we’d like to emphasize the importance of standardized methodology for hemp testing both equipment, the extraction sample preparation process, the procedures and the instrument calibration. A number of speakers have talked this morning about the discrepancies from lab to lab, and I believe that implementing a universal consistent methodology to require the testing would greatly reduce that variability we’re seeing.”
Again, more information, if you can decipher, if the legal issues present when you try testing samples. At this point it seems to me that the testing issue is and will continue to be a legal quagmire.
Ben Fenner Fredericks of Peebles & Morgan brings up the issue of the 2014 licensing procedure and how that is affected by the new bill:
Just as a general overview, because my comment is somewhat broad as the law stands today there are three definitions for the plant cannabis: one for marijuana under the CSA and two of which are definitions for hemp. First, being industrial hemp under the Ag Act of 2014 and the second being hemp under the 2018 Farm Bill.
Now, although the 2018 Farm Bill indicates that the industrial hemp pilot research program is to be repealed one year after the date on which the Secretary of Agriculture establishes a plan to implement the 2018 Farm Bill, in a very broad sense how does the USDA intend to guide states in the transition from industrial hemp to hemp?
On a much more narrower sense and kind of subsumed within my question, does USDA intend on providing guidance on how local authorities and even local law enforcement can verify if interstate shipments of hemp under the new program is hemp and not marijuana?
I think it’s worth noting that some states are already in the process of making the necessary changes in their legislation to go from industrial hemp under the pilot research program, to hemp under the 2018 Farm Bill, but we really see this more in those states that we’re in the early processes of establishing pilot research programs.
Most states are currently waiting for guidance from USDA, especially in those states that have established research programs with dozens, if not hundreds of licensees. In some, given the protections under which the industrial hemp pilot programs will inevitably be repealed, it has become the duty of the USDA to establish a plan to help transition states from their current programs to the future plan that’s to be established, including guidance towards interstate commerce on the different definitions and qualities of marijuana and hemp, as well as the potential for organic certification and guidance as to what the options are for states with current licensees under the old program, such as the potential for grandfathering in those licenses.”
More important points on the issue of legal hemp.
Dr. Cebert from Alabama (I have no more information about him) makes an important point.
“And also one that’s been addressed many times that 0.3% level. This is something that definitely we have to revisit because that number is simply used as a default. No one truly knows where it came from. It came from the Europeans when they first began to set up their own industrial hemp program. So a lot of people are going to get penalized unfairly with that level”
He seems to imply that there may be some legal wiggle room with the .3%. However, again, I am ignorant as to the intricacies of what is clearly a very important issue.
Next was Steve Bevan, President of GenCanna Global in Winchester, Kentucky. It sounds like his company has produced a pot of gold.
‘We have been a participant in Kentucky’s hemp pilot programs with KDA since 2014. We are an example of the success of the program. We’re now growing rapidly, have five facilities and employ 200 people in rural communities. We’re aiming to grow over 10,000 acres with our family farming partners in Kentucky in 2019. We champion American hemp genetics and recently announced 0.0% THC patentable hemp with our partners at the University of Kentucky. We also count family farming partners in New York, Pennsylvania, California, Tennessee and other states to come. We believe that hemp is food – treating hemp like any other proper food product.”
The main take away here is the 0.0% THC patentable hemp. If they do patent that hemp it seems to be that they are going to be well positioned in this game, and that their hemp will be the hemp to have because it will test zero avoiding all sorts of testing issues.
The second to last speaker I found with relevant information was Julie Doran of Meigs Fertilizer.
“I manufacture fertilizer for cannabis. I’m in Ohio, so we don’t have legislation on hemp. I’m actually going to speak at a senate meeting this afternoon. So I’m just going to run through this list, real quick. I started with two questions, but I’ve got quite a bit more:
One issue is what do we do with the plants above the .3% THC? Are we going to be laying out groundwork with that? I think that we should not be wasting or burning these plants. I think that we should go up to a minimal maybe 2% THC and use it as an alternate end-use product, not for human or animal consumption, but we should still be able to use some type of that plant.
My other issue is license fees and the affordability. I don’t know if these are going to be yearly license fees or if they’re going to be good for, you know, three to five years. I just want to make sure that everyone tries to keep it on an even playing ground through different states. Some states are charging up to $1,000 or over. Most states that I see around are charging around $250 per year. I think we should try to have a level field with the license fees to make it even and fair throughout the US.”
Her statements on THC percentages are self-explanatory. The other issue of licensing, her questions assume that people are already growing hemp under state licenses in many states. Again this seems to imply that many states are allowing commercial utilization of hemp even though the federal government has not allowed it. Whether this hemp from the 2014 USDA licensing program I am unsure.
She goes on to state:
“I strongly believe in the next year or two, we are going to be declassifying and taking marijuana off of the Controlled Substance list. So we need to what is going to happen to the hemp program after that? What about this .3% THC. No one really does know where that .3% THC came from. There really (before it was illegal in the 30’s) wasn’t a difference between marijuana and hemp. It was all just considered cannabis. So I don’t know where that separation came from. And that’s a very low percent to try to hold these farmers to in such a new industry. There are so many new strains and seeds and breeding out there and we need to encourage that to try to improve the breeding program of the hemp seeds.
So we need to be open to that and see, you know, what we’re going to do with that. The decarboxylation before testing…when you decarboxylate something the THC percent does move within the plant. Other things that can stress the plant out, such as heat or water stress, any type of stress can make that THC percent fluctuate. I believe we should be just testing the dried flower post, or during, harvest. You know, if you’re in the middle of, you know, August or something and it’s really hot and dry that THC percent could fluctuate from .2 to .5 or even bearing over that.
So I believe we need a common place where the US and all states are testing the flower, in the same way”
Again, she summarizes many speakers feeling about the hemp percentage and shows where the debate and regulations are currently at.
That the last speaker who I think had something relevant to say was Garrett Chojnacki
“I am a hemp advisor in California. I’m also a hemp production formulator, so I formulate products that help hemp products get to market. I represent 40 California farmers and a few people in the state of Oregon as well. Are we just testing flower or are we going to also include the rest of the biomass? For the .3 percent. Big issue. Everyone thinks it is arbitrary.
It also sounds like what you’re saying is that you’re not going to really have anything in place before the 2020 crop year. So it would be appropriate, we think, if you could issue some guidance laying out the groundwork for what will happen if producers try to grow hemp in 2019.
In addition, it is my hope today to encourage the USDA to look into difficulties that a farmer might face if he or she is in a southern portion of the United States. So what we know about Type 3 phenotypes (which is the hemp variety), we know that the specific phenotype prefers a geographical position north of latitude 30. However, the closer we move to 30 degrees of latitude position, we actually have difficulty keeping the plant suppressed under .3% of THC. So my concern is how is the USDA going to administer their guidelines for farmers in the testing protocols? So my major concern is. Are we just testing flower or are we going to also include the rest of the biomass?
I believe if we include stock, stem, sticks that would be a more beneficial and better sample of our test. If we are going to concentrate by just using flower or just using tissue vegetation, I believe that we’re actually concentrating that test sample. So currently, I work with a team of biochemists and we’ve discovered a root drench that actually suppresses THC production within the plant. Not all farmers have access to formulations like these, yet this brings some concern for the majority of the population that desires to grow hemp as a cash crop. So today, I ask the USDA that they continue their path of due diligence for the farmer’s sake and for the economic benefit of our country.
The USDA and any other agency that they would like to look into this in a more in-depth position at suppressing THC in the plant, I would be honored to elaborate and can be reached on my website spenceragconsulting com.”
The issue of the .3% comes up again and again. There seems to be significant questions as to whether this is a good measurement to use, and if it, there seems to be a ton of issues of when and how you can test for such amount to make the regulations consistent. Unfortunately none of these issues at this date seem to have been worked out.
Well that is my summary. I hope this has been helpful to some of you. Please send me back any thoughts or opinions you have on this issue.
APPLY FOR YOUR CULTIVATION STACKING LICENSES NOW
As stated earlier in my blog posts, there are three types of cultivation licenses that allow one different size lots on which one can cultivate cannabis. The small license is a (Type 2) license that allows one to grow up to 10,000 square feet (close to a quarter acre). That license is the smallest license. The next sized license (or type 3 license), also known as a medium license, allows you to grow up to 22,000 square feet (around a half acre). The Type 5 license which would allow one to grow more than 22,000 square will not be issued before January 1, 2023.
However, as I explained before, the loop hole (which is so large you could drive a Mack Truck through it) is there is a limit to the amount of type three licenses you can obtain; (only) one. However, there is no stated limit in the regulations for the amount of type 2 two licenses one can apply for. Therefore, if you apply for ten small (Type 2) licenses, you could theoretically develop 100,000 square feet of Cannabis. This acquiring of multiple Type 2 licenses is called stacking and the state has allowed some growers to stack as much as thirty type two licenses. This stacking system is how the big growers can cultivate multiple acres for cannabis at this time.
The California Growers Association’s civil litigation filed in the Sacramento County Superior Court on January 20, 20018 claims that Proposition 94 clearly spells out the intention to limit the regulated pot market to small- and medium-sized farms — which the group claims are grows of 1 acre or smaller — until 2023.
If this lawsuit is successful all of a sudden these stacked licenses will be illegal and these large growers will be in a nightmare situation. The court could say that all stacked licenses are now invalid and these people are only entitled to one type 2 licenses which would leave them with the ability of cultivation only a ¼ acre lot.
The fact that California’s new regulations issued by the CDFA CalCannabis Cultivation Licensing Department by allowing marijuana cultivation to favor large corporate farms despite a promise in Proposition 64 that small growers would be protected, makes a strong argument for closing the loophole that allows the stacking of type 2 licenses.
THE PROBABLE VERDICT
I have been a lawyer for twenty five years, and it is my opinion that the Court will rule in favor of The California Growers Association and close the loop hole so grows will be limited to one half acre licenses until 2023.
Their argument that the founders intent was to limit large grows so as to allow the small farmers to compete and adapt is a very compelling argument. It is very clear in the language of Proposition 94 that its intent was to protect small cannabis farmers. The CDFA CalCannabis Cultivation Licensing Department when issuing its regulations was clearly supposed to conform their regulations to Proposition 94 in that their regulations were supposed to help protect the family farm CalCannabis seemed to be setting up a regime that on its face limited massive cultivations because that regime created licenses for quarter acre and half acre lots and won’t allow grows that are larger than twenty two thousand square feet until 2023. Why else would they have structured the law this way if not to protect the small farmer? However, the 1/4 loophole of stacking licenses completely defeats the purpose of making people wait until 2023 to apply for large licenses, when they can get all the cultivation acres they need with stacking type 2 licenses.
THE POSSIBLE CATASTROPHE
It is clear that the CDFA CalCannabis Cultivation Licensing Department was attempting to look like they would protect small farmers when in fact; through the ¼ loophole they were doing just the opposite. If the California Courts rule against the California Growers Association they will have to go through some serious legal calisthenics to justify their ruling. The obvious ruling would be to agree with the California Growers Association and close the stacking loophole but the practical effect would be catastrophic. All the large multiple grows that exist or are being planned would immediately become illegal. That would obviously create a lot of law breaking cultivators in one stroke and seriously reduce and hamper the availability of legal Cannabis in California.
THERE IS STILL HOPE
However, there is hope for the large cultivator. In my opinion, if the court rules in favor of closing the loophole, they will grandfather in all the grows that are larger than a ½ acre that were licensed before the court’s ruling. Why would The Court do this? Because when these growers applied for the stacked licenses such licenses were legal. There is a strong precedence for this type of court ruling. California used to use what was called the blanket primary. I won’t go into to the details but basically the blanket primary put all the candidates, Republican, Democratic or other party candidates on the same primary ballot (this blanked primary system is actually different than an open primary, and if you are interested in the details of why please contact me). Many candidates, who would not have been elected under the old election system in California, won their seats because of the blanket primary. In other words, if not for the open primary, they would have not won their seats. California used the blanket primary in a few election cycles before the U.S. Supreme Court struck down the open primary system as Unconstitutional in the year 2000 in California Democratic Party v. Jones which was a 7-2 opinion.
IT’S GOOD TO BE A GRANDFATHER
After the Supreme Court reached this decision the big question was: what to do with the candidates who would have lost their elections but only won because of the blanket primary system that was in place until the Supreme Court stated it was Unconstitutional. The court decided to let the candidates who won under the now illegal open primary system retain their seats, instead of giving their seats to the candidates that would have won if the primary system was not in place. In other words, the Supreme Court ruled that the candidates that won in a blanket primary system that would have otherwise lost in a normal system could keep their seats. The court’s reasoning was that the candidates that won before the US Supreme Court declared the blanked primary unconstitutional could keep their seats because the blanket primary was the valid law of the land before the US Supreme Court declared the system unconstitutional. The court realized that going back and kicking candidates out of their seats was completely unpractical and would lead to too much chaos and uncertainty.
THE PROBABLE OUTCOME
Following this precedent, it is my strong opinion that if the courts rule that the stacking loophole violates the parameters set down by Proposition 94 the courts will rule just like they did with the open primary. In other words, the cultivators that received stacked licenses before the court decision to close the stacking loophole would get to keep their licenses but courts would not allow future stacking licenses to be issued in the future.
Like the Supreme Court when faced with the chaos of declaring the blanket primary unconstitutional, and to avoid such chaos, the California courts should grandfather in the stacked licenses in existing. The courts could choose to do noting and keep the status quo. The court could completely close the stacking loophole and then everyone that has either a licensed large grow or planning on cultivating and a large grow is screwed. But if the court chooses the third path and closes the loophole but lets the people who currently have stacked licenses keep them that will give the people or organization with existing stacked licenses a huge advantage.
BOTTOM LINE: APPLY FOR AND STACK YOUR LICENSES BEFORE THE CALIFORNIA COURTS CLOSE THE STACKING LOOPHOLE.
Mark Herrick on the Ever Changing World of Legal Cannabis in California