Hempspert: Keeping You Informed of Legal Hemp Decisions

Hemp Banking Access, California Hemp Law Update

and Good News in Nevada

The regulatory process continues to move forward but at a pace that can’t quite keep up with the entrepreneurial spirit of so many businesses working to stake their claim in the market. Within the ever-changing landscape, the requirements and opportunities continue to become clearer and we are pleased to provide this update to help keep you on track as you are planting seeds and growing your hemp business. In this Hempspert ^TM bulletin we provide an update on the status of California’s USDA Hemp Plan, hemp farmers in California, proposed hemp-related legislation, banking updates and exciting proposed changes in Nevada law regarding CBD consumables!

IN CALIFORNIA, THE CROPS ARE PLANTED.

California has planted 37,770 acres of registered hemp! As of May 2020, there are 596 registered hemp growers and 110 registered seed breeders. The hemp hotspots are Kern, Riverside, and San Diego County. ^{1 (pdf)}

STILL, CALIFORNIA DOES NOT HAVE AN APPROVED PLAN FOR CULTIVATION.

The California Secretary of Food and Agriculture was required by the state legislature to submit California’s state plan to the United States Department of Agriculture (“USDA”) by May 1 ^{2 (link)} and is behind schedule. Until this plan is completed, operators in California will continue to face a high degree of regulatory uncertainty. The California Department of Food and Agriculture (“CDFA”) is currently seeking comments from the California Attorney General’s Office and the Governor’s Office on their draft plan. It is unclear when exactly the plan will be submitted to the USDA ^{3 (pdf)} . Upon receiving the plan, the USDA will have 60-days to review and approve or deny California’s plan.

HEMP MANUFACTURED PRODUCTS ARE ONCE AGAIN A FOCUS IN THE STATE LEGISLATURE.

California’s Department of Public Health, Food and Drug Safety Branch currently prohibits CBD as an ingredient in human and animal food. ^{4 (pdf)} Hempspert ^TM has been tracking AB 2827, which proposes to amend California law to provide that hemp derived CBD is not considered an adulterant in food and such hemp products cannot be prohibited merely because of the inclusion of hemp derived CBD as an ingredient. AB 2827 ^{5 (link)} is a new version of AB 228 which was introduced into the state legislature last year by Assemblymember Aguiar-Curry and was held in the Senate Appropriations Committee. Hempspert ^TM is tracking the development of this bill and will keep you informed as it progresses. Given the pandemic, the legislature has slowed down, which makes it more challenging for bills to progress this year.

NEW REQUIREMENTS FOR LABELING HEMP MANUFACTURED PRODUCTS.

The Safe Drinking Water and Toxic Enforcement Act — aka Proposition 65 or “Prop 65” — was approved by California voters in 1986. It requires businesses to disclose exposures to various naturally occurring and synthetic chemicals that are known to cause cancer, birth defects, or other reproductive harm. Click here for more information on Proposition 65. California hemp CBD companies should be aware of their disclosure requirements under Proposition 65. Last year, THC was added to the list of chemicals on the Proposition 65 list. As such, any products that contain THC must include on their label a Proposition 65 warning for THC. The new rule for THC becomes effective on January 3, 2021 and companies are already starting to make the transition on their labeling. Below is a table containing a non-exhaustive list of chemicals that require a Prop 65 disclosure warning.

Hemp CBD companies that sell smokable hemp products will be required to include a warning for marijuana smoke, because Prop 65 requires disclosure if there is any detectable level of THC. Additionally, rolling papers can contain chemicals on the Proposition 65 list, such as lead. Hemp-CBD beauty products may contain beta-myrcene, a terpene commonly found in the cannabis plant. CBD products may contain small amounts of THC, unless they are produced using a CBD isolate. There may be other chemicals of concern, including lead, or myclobutanil (a pesticide). If a product contains these chemicals, then the manufacturer must provide a Proposition 65 warning on their label. Companies with less than 10 employees are exempt from this requirement.

INCREASED PENALTIES PROPOSED FOR ENVIRONMENTAL DAMAGE CAUSED BY HEMP CULTIVATION IN CALIFORNIA.

SB 1429 was introduced by Senator Monning earlier this year. AB 1429 is an environmental related bill that would seek to impose the same penalties on hemp operators that already exist for cannabis operators. Existing law imposes additional civil penalties on cannabis cultivators who violate laws designed to protect fish and wildlife, water, or other natural resources. For example, if a cannabis cultivator is diverting water illegally from a protected watershed, they can be fined in addition to the typical fines they would receive if the activity was not cannabis related. If passed, SB 1429 would bring hemp cultivators under the same rules that apply to cannabis cultivators for environmental violations.

FEDERALLY, BANKING ACCESS FOR HEMP BUSINESSES CONTINUES TO EXPAND.

Hemp is federally legal, and as such hemp business may obtain a bank account. Nevertheless, many banks are still hesitant to bank hemp businesses and many hemp operators struggle to find reliable financial institutions to work with. To provide more certainty, the Financial Crimes Enforcement Network (FinCEN) has issued guidance to help financial institutions understand their obligations in regard to hemp customers. The guidance, which follows up on earlier guidance last year, explains how financial institutions can conduct due diligence for hemp-related businesses and identifies the types of information that banks need to collect and the due diligence they should conduct on hemp operators.

Banks are advised to request identifying information about hemp-related businesses, including beneficial ownership. They may confirm that a hemp grower is compliant and lawfully operating by obtaining a written attestation by the hemp grower that they are validly licensed, or a copy of such license. In California, a hemp cultivator could provide a financial institution with a copy of their registration form with their county agricultural commissioner. A financial institution could seek additional due diligence information from a potential hemp business customer, including crop inspection or testing reports; license renewals; updated attestations from the business; or correspondence with the state, tribal government, or USDA.

This new FinCen guidance should make it easier for hemp operators to obtain a bank account and provides clear steps for conducting due diligence on hemp businesses.

PROPOSED HEMP REGULATIONS IN NEVADA.

Despite the FDA’s ban on hemp CBD as an ingredient in human-consumables such as food and dietary supplements, some states are forging their own path forward and are regulating these products in lieu of guidance from the FDA. On June 1, 2020, the Nevada Department of Health and Human Services shared its proposed regulations to govern the sale of consumable hemp and CBD products. Under the draft rules, hemp CBD products may be sold or manufactured if: (1) they have been tested by an independent testing laboratory; (2) the product is manufactured in accordance with all applicable federal and state law and regulations; and (3) the product is labeled in accordance with all applicable federal and state law and regulations. Additionally, the proposed rules provide a set of examples of when a hemp or CBD product is deemed “adulterated”. A product would be adulterated if: (1) the THC concentration exceeds the maximum THC concentration established by federal law for hemp (currently 0.3%); (2) the product exceeds allowable pesticide limits; (3) a pesticide that is not approved for use on hemp is contained in the product; and (4) the product meets any other condition for adulteration prescribed by federal or state law or regulations.

Hempspert ^TMis tracking the development of each state’s regulation of CBD hemp products and comparing the approaches in each state. For legal services regarding cultivating hemp or starting a hemp business in California, please contact us at 877-257-2442.

HEMPSPERT™ WEBINAR

Please join Elizabeth Barket Kremser and Joanna Hossack for an educational webinar to discuss hot topics in hemp law on August 28 from 1-2:30pm. This webinar will explore some of the common misconceptions that hemp entrepreneurs have when entering the industry and the risks associated with starting a hemp business.

We will discuss hemp law 101, banking, impact litigation and high profile hemp raids and seizures.

If you have any questions about how the above or would like to discuss how it could impact your business, please contact your attorney directly or call our main line at 877-257-2442.

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