Will the Mishmash of Hemp Policies Help Small Farmers?
Patchwork of State and Federal Policies
The USDA’s Interim Final Rule (IFR) on hemp production, and the individual states’ widely varying hemp policies have created a patchwork of hemp law ranging from prohibition to federally compliant to state-protectionist to arguably federally non-compliant. For example, Idaho has not yet legalized hemp, despite federal legalization. New Hampshire has declined to develop its own plan and its growers will apply directly to the USDA for a hemp license. Colorado will continue to operate under the 2014 pilot program and rather than submitting a plan for USDA approval, submitted 32 pages of highly critical comments.
Protectionism in Massachusetts
And then there’s Massachusetts, which has submitted a plan for USDA approval (still pending as of this writing) and had already been operating a pilot program that was largely compliant with the IFR. Although post-harvest activities are beyond the scope of the IFR, Massachusetts has an interesting protectionist policy: requiring licensed processors to only use Massachusetts-grown hemp. New York has a similar policy (NY has not yet submitted a plan to USDA). But this blog’s cursory and incomplete review of state and tribal plans did not uncover any other states that explicitly restrict their processors to using in-state hemp. Many of the state policies appear to be silent on the issue (and thus presumably do not restrict the source), but Pennsylvania, Colorado, Montana, Wyoming, and Georgia all explicitly permit their processors to use hemp grown in other states (even other countries in some cases).
Presumably, such protectionist policies in MA and NY are intended to provide farmers with some degree of certainty that they will be able to process and sell their crop without competing with the Big Hemp operations in other states (we hear that Montana planted 51,000 acres of hemp last year). This kind of protection may be critical for small-farm survival. But how will this kind of barrier to interstate trade play out? Are processors disincentivized from operating in a restricted market?
Green Industries and Budding Conflict
Interestingly, Massachusetts law may help distinguish its hemp crop in other ways. The Commonwealth currently has one of the strictest pesticide policies in the country: no pesticides may be used on hemp. And if the hemp is intended for human consumption, it is to be tested in the same manner and to the same standards as medical marijuana. Other states permit dozens of pesticides to be used on hemp, far beyond the small number of products the EPA has approved. For instance, New York’s Department of Environmental Conservation currently lists 96 pesticides as state-registered for hemp. The EPA has only approved 10 pesticides for hemp (and nine of those are biopesticides).
The federal legalization of hemp and expansion of interstate hemp trade with an overlay of varying state policies will certainly cause complexities in deals and even litigation. For instance, recently in March 2020, a Vermont hemp processor filed suit in US District Court seeking over $400,000 in damages from a Maryland cultivator and a Washington broker, alleging that they had a deal for organic, pesticide-free hemp, but the biomass actually had unacceptable levels of pesticides. Although that court case is based on claims of breach of contract and fraud, not differences in state regulations, it illustrates the kind of diligence needed in such transactions. We, of course, recommend seeking legal counsel when it comes to hemp contracts.
What’s Next?
Massachusetts is sometimes perceived as over-regulating and stifling of small business (exhibit 1 = the recreational cannabis industry). Is it possible that in this instance, the hemp program will benefit? Perhaps, but probably not without some additional changes. The Commonwealth’s restrictions on CBD, the problems with growing hemp on APR land, and the failure to allow Massachusetts-grown hemp products to be sold in cannabis dispensaries will all likely prove to be a handicap for the industry.
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Massachusetts has submitted a draft hemp plan to the USDA. While that plan is still pending approval, the Law Office of Kyle Sosebee has gotten a look at it. We created a brief Preview Report. Get your free copy on our home page.