North Carolina Eliminates Hemp Pilot Program

After more than four years in operation, the North Carolina Industrial Hemp Pilot Program will be eliminated at the end of 2021. The decision, announced in August, will also wrap up operations for the North Carolina Industrial Hemp Commission which has been responsible for general oversight of hemp compliance within North Carolina since 2016 including application review and approval. By dissolving their hemp program, North Carolina became the first state to discontinue preexisting state-run oversight; a move that may be followed by others, especially in other major hemp markets where operational costs are high, and enforcement implementation is difficult.

Elimination of the program does not impact the legality of hemp within the State, which will remain permissible subject to the requirements of the U.S. Department of Agriculture Rules governing hemp production. Under the USDA rules, which became final on March 22, 2021, states are free to implement their own hemp programs under the same or more stringent regulations than those contained within the rules. Alternatively, states may forego their own programs and elect to let hemp growers seek licensure directly from the USDA, which would then monitor the program within the state in accordance with the rules. North Carolina’s hemp pilot program, which pre-dated the interim and final versions of the USDA’s rules, met the necessary requirements and could have continued to govern hemp production, processing, and distribution within the state had NC lawmakers opted to retain control over the industry.

Current hemp pilot program participants should have received information from the NC Industrial Hemp Commission with notification of the change. According to numbers released by the state under the former pilot program, North Carolina has more than 1,500 licensed hemp growers, which includes more than 6.8 million square feet of greenhouse space and over 14,000 acres of farmland. Additionally, there are almost 1,300 registered hemp processors within the state.

Hemp licenses issued by the NC pilot program will remain valid through December 31, 2021. Beginning in 2022, growers will need to apply directly to the USDA for licenses, and those that want to continue participation next year may begin the application process immediately. While a full review of the USDA hemp rules with the help of an experienced attorney is recommended to ensure compliance, below are a few important highlights which should be roughly similar to the prior NC requirements.

What do the USDA Hemp Rules require?

• Cannabis with a THC level exceeding 0.3 percent is still considered marijuana, which remains classified as a Schedule I controlled substance regulated by the Drug Enforcement Administration (DEA) under the Controlled Substances Act.
• The measure of “total THC” remains defined as the sum of tetrahydrocannabinolic acid (THCA) plus delta-9 tetrahydrocannabinol (delta-9 THC).
• The tetrahydrocannabinol (THC) testing deadline before harvest was raised to 30 days, up from the 15 days previously required under the interim final rule.  
• Hemp samples in advance of harvest must still be taken from the plant’s flowering tops and must be collected by a third party for independent chemical testing.
• “Hot hemp” that exceeds the 0.3% THC limit may be destroyed on-site using common agricultural practices (plowing under, mulching/composting, disking, bush mower/chopper, deep burial, and burning) rather than taken off-site to be destroyed in compliance with federal drug-disposal guidelines. 
• Hot hemp may be salvaged by either destroying the noncompliant flower portion and selling other compliant plant parts or by remediating by combining the entire plant into biomass and re-testing for compliance. 
• While the permissible THC content remains 0.3% or below, the negligence violation standard was increased to 1.0% THC rather than 0.5% as set by the interim final rule. 
• A producer may only be cited for negligence violations once per year which addresses the concern that a farmer growing similar crops in different lots could be unwittingly subject to multiple violations resulting in a five-year loss of their license. 
• The USDA will not certify seeds or genetics.

The change from the NC Pilot Program to federal oversight under the USDA rules may create some challenges for NC hemp growers. Current licensees will want to apply as early as possible to ensure there is no lapse between their current NC-issued license and the USDA license necessary for continued operations into 2022. Special attention should be paid by greenhouse growers intending to plant late in the year under an NC license since a valid USDA license will be necessary for a 2022 harvest. Additionally, under the NC Pilot Program, farmers have been required to work with the NC Department of Agriculture in order to conduct compliance tests. Moving forward, these tests will need to be conducted elsewhere, meaning growers will need to pivot from existing practices and ensure that independent testing regimens comply with USDA rules. As a potential benefit, however, the current fees required under the NC program as well as the bona fide farmer requirement necessitating proof of past years’ farm income will no longer be applicable.

Growers looking to streamline the transition should focus on the following steps to avoid problems and delays:

1. Create and register the necessary online accounts. Before an application can be submitted, applicants are required to create an account with the USDA and register to use the eManagement Program.
2. Obtain a qualifying background check through the FBI. Felony drug convictions within the last ten years will disqualify applicants.
3. Prepare and submit the necessary application. If you have not yet formed and registered the business under which you intend to grow, you will need to do so and obtain a Federal Employment Identification Number.

After obtaining a license, growers are obligated to follow strict agency rules including lot designation (may be greenhouse space or outdoor acreage), accurately reporting acreage to the USDA Farm Service Agency, independent sampling and testing, and ongoing reporting requirements. Failure to comply with important requirements can subject offenders to liability including crop forfeiture, civil penalties, program disqualification, and even criminal charges in the event that growers find themselves in violation of the federal or North Carolina Controlled Substances Acts. If you have questions about seeking or maintaining a hemp grower’s license, implementing an effective compliance program, or are considering participating in the hemp business for the first time, contact an experienced attorney to assist.