Updates on Industrial Hemp: States Submit Hemp Production Plans for USDA Approval and the CARES Act

As covered in our previous article, the passing of the Agricultural Improvement Act of 2018 (2018 Farm Bill) declassified hemp as a federally controlled substance beginning January 1, 2019. Hemp is defined as the plant Cannabis sativa L. and any part of that plant, including the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers with no more than a 0.3 percent concentration of THC on a dry weight basis. The removal of hemp from the controlled substance list allows growers to claim expenses and deductions on their tax returns, provided they follow their state’s USDA-approved guidelines.

The USDA has begun accepting, reviewing, and approving submitted plans from states, territories, and Native American tribes for the domestic production of hemp. It also established a federal plan for states and tribes that elect to not submit a plan. These plans cover the state or tribe’s certification process, sampling manuals, certified laboratories, license applications, submission forms, and waste disposal plans.

As of May 27, 2020, 17 states have approved plans, one state is resubmitting its plan, 24 states will continue to operate under the 2014 pilot program, three states are still in the process of submitting a plan for review, two states’ plans are currently under review, one state is having the USDA issue licenses, and two states are waiting on state legislation. The USDA website contains the status of each of these state’s plans, as well as the plans themselves.

The FDA maintains regulatory control over hemp-derived consumer products including food, pharmaceuticals, cosmetics, and dietary supplements. Currently, the FDA has approved Epidiolex (cannabidiol), Marinol (dronabinol), Syndros (dronabinol), and Cesamet (nabilone) for prescription use. Also, it has recognized hulled hemp seed, hemp seed protein powder, and hemp seed oil as generally safe for human consumption. At this point, the FDA has not approved any other hemp-derived products, but companies can conduct clinical research for hemp-derived pharmaceuticals if they submit an investigational new drug application.

It is also important to note the potential impact of the CARES Act on the hemp industry. The CARES Act allocated $9.5 billion to the Secretary of the USDA to support impacted farmers and ranchers, including industrial hemp farmers. Additionally, the CARES Act appropriated $20.5 million to the Rural Business Program Account to fund loans for rural business development programs under the Consolidated Farm and Rural Development Act. These funds can be used for construction, conversion, expansion, repair, modernization, or development of facilities; the purchase of equipment, machinery, and supplies; startup costs and working capital; and debt refinancing under certain conditions.

Hemp companies should carefully review their state’s plans and follow the certification and compliance processes in place. Following these plans will allow companies to claim federal expenses and credits, including the Research and Development Credit. Additionally, cannabis companies should be aware of the various relief programs available under the CARES Act.

Please contact your McGuire Sponsel representative if you have any questions regarding the Research Credit or CARES Act.