The passage of the Agriculture Improvement Act of 2018 (the 2018 Farm Bill), legalizing hemp on a federal level and requiring states to implement industrial hemp programs, sparked a new “green gold rush” in the states. Entrepreneurs from all walks of life sought to capitalize on this green cash crop and industry that, in 2020, saw approximately $1.2 billion in total CBD product sales according to data compiled by Statista.
A common problem that hemp operator hopefuls often find, however, is navigating through the landmines of (often) conflicting state regulations and figuring out how they may operate their businesses. If they are not careful, hemp companies may face fines from state regulators, legal liability for selling non-compliant products, and even federal enforcement actions from agencies like the U.S. Food and Drug Administration (FDA).
What is the source of the confusion? The farm bill delegated rulemaking on hemp programs to the states (for the most part), allowing them to restrict and even ban the sale of certain hemp-derived products. State regulations vary greatly. Our firm’s tracking indicates that while 18 states have authorized the production and sale of hemp-derived cannabinoid products, other states have sought to ban the sale of certain products (i.e., CBD) for human or pet consumption despite federal legalization.
To further complicate matters, many states have not enacted regulations concerning the sale of hemp-derived cannabinoid products post-production. It is the inconsistency in state laws that leaves many hemp and CBD operators scratching their heads, making operating in multiple states (or any state) a daunting challenge.
Considering the wide range of hemp-derived products available for sale (i.e., edible products, oils, flower, balm, etc.), hemp operators have serious planning, compliance, and legal obstacles to overcome and prepare for before getting into this niche, right down to local levels.
For industry hopefuls, three states you might want to consider are Colorado, Oregon, and Vermont—the three most hemp-friendly states as it pertains to CBD and other cannabinoids. These states have specific laws that allow retailers to sell hemp-derived products and permit consumers to purchase almost every CBD type irrespective of its source of intended use. Consumers in these states also show consistent interest in CBD accordingly to various online surveys.
Colorado is one of the leading pioneers in state hemp regulation. In addition to smokable hemp, legal CBD products include food, dietary supplements, and cosmetic products meeting certain requirements. According to CNBC, Colorado has been breaking records in hemp sales since 2014.
The Colorado Department of Agriculture (CDA) regulates the cultivation of industrial hemp in the state as an agricultural commodity. Interested growers are required to obtain a state-issued certificate authorizing them to cultivate on authorized lands. According to 2020 data collected by Hemp Grower, Colorado allocated 37,841 outdoor acres and 12.9 million square feet indoors to the cultivation of hemp.
For manufacturers, Governor John Hickenlooper further expanded hemp regulations in 2018 by signing SB 18-205, allowing manufacturers to use all parts of the industrial hemp plant as a food ingredient if certain rules were followed.
For example, hemp-derived food manufactures may import hemp for their production, but the imported hemp must come from a state with an established and approved industrial hemp program, or a country that inspects or regulates hemp under a food safety program (or equivalent criteria) to ensure safety for human consumption.
Manufacturers must also comply with state and federal labeling regulations, which dictate that all hemp-derived products, including CBD oil, must be labeled (at the minimum) include:
- Clearly identify hemp as an ingredient.
- Clearly identify CBD and the amount of CBD if added as an isolate.
- Include a statement that the FDA has not evaluated products.
- Contain no therapeutic or nutritional benefit claims.
With significant consumer interest and an established regulatory regime, it is no wonder that Colorado hemp products can be found in markets nationwide.
Oregon was one of the first states to allow the production of industrial hemp following the enactment of the 2014 Farm Bill.
The Oregon Department of Agriculture (ODA) oversees the cultivation and processing of industrial hemp, CBD products and commodities. Any grower or processor (also called handlers) must secure a license from the ODA and comply with comprehensive reporting, recordkeeping and total THC testing requirements. Like Colorado, Oregon permits the sale and marketing of hemp derived foods, non-alcoholic beverages, dietary supplements, cosmetics, and smokables that contain no more than 0.3% total THC and are free of certain chemicals. Labeling also operates under similar guidelines to Colorado’s.
Notably, Oregon hemp law provides an opportunity for ODA-licensed growers and handlers to sell and transfer their products to the state’s recreational marijuana market if certain licensing, testing, labeling, and recordkeeping requirements are met. This allows Oregon hemp operators to participate in a market that, according to the Associated Press, topped $ 1 billion in sales in 2020.
Further, hemp operators in Oregon benefit from the state’s policies regarding the exportation and importation of hemp. ODA-licensed growers and handlers are free to sell, transfer and export hemp and CBD products produced in states outside of Oregon if the products contain no more than 0.3% total THC. For out-of-state businesses, Oregon requires all imported hemp and CBD to comply with its total THC testing standards before the product crosses state lines. Violations will result in a Class C felony charge, so having smart, effective, and proactive legal counsel and testing protocols is a must.
Vermont first passed legislation allowing the production of hemp in 2013. Following the passage of the farm bill, the state’s Agency of Agriculture, Food and Markets now regulates the cultivation, processing and commerce of hemp and hemp-related products in the state.
Like Colorado and Oregon, Vermont has not prohibited the use of CBD as an additive to foods or beverages, choosing instead to tax it (unless it is part of a taxable meal). CBD labeling requirements, however, are somewhat stricter and more comprehensive than these states.
For example, CBD labels must include:
- Name and mailing address of the product manufacturer.
- Manufacturing date, product expiration date, and process lot number.
- A clear statement that the product contains ingredients that are derived from hemp.
- A list of all of the ingredients included in the product, in descending order of quantity.
- The quantity of the content (either in weight, measure, or numerical count).
- The amount of any cannabinoid contained in the product, including CBD, by serving size.
- A statement that the product contains THC (if applicable).
- Manufacturing date, expiration date, and process lot number.
- All hemp or hemp-infused products produced in the state of Vermont must be traceable by their label.
Despite stricter requirements, however, the low licensing fees ($25 for growers) drew significant interest in the state’s program (i.e., 400% increase in growers from 2017-18 under state reporting). But there appears to be a continuing need for hemp processors in the state, which could be an opportunity for growth.
In reality, these are just the beginning of the regulations all hemp and CBD entrepreneurs and operators must understand in order to be prepared to meet compliance requirements. For those who are still interested in entering the field, all hemp-curious entrepreneurs should look to seasoned legal counsel to help navigate the complicated regulatory landscape, especially for those with multi-state ambitions.