Small Business Administration: Hemp Final Rule Offers More Regulatory Certainty

On Jan. 19, 2021, the U.S. Department of Agriculture’s Agricultural Marketing Service (AMS) published a final rule outlining policies for domestic hemp production. This rule follows and replaces an interim final rule published by the agency on Oct. 31, 2019 and addresses comments raised during two public comment periods for that rule. The Small Business Administration’s Office of Advocacy is pleased with some of the changes that AMS has made to the rule, as they offer more certainty and are less burdensome to small farmers.

Hemp production was legalized by Congress in 2018 under the Agricultural Improvement Act.[1] The legislation removed hemp from the list of controlled substances and tasked AMS with creating a regulatory framework under which businesses could lawfully grow the crop in the United States. Because hemp production had not been legal except for research purposes prior to 2018, the industry is in its infancy, making many hemp farmers small businesses. Rulemaking on hemp production was especially important to Advocacy because the rule made it overly burdensome to even start growing hemp and small businesses would not have been able to participate in what is estimated to be a billion-dollar industry.

Recognizing the keen interest in the rulemaking among small businesses, Advocacy engaged in an extensive outreach effort, traveling to Arizona, Kentucky, and Virginia and speaking with hemp producers in over 20 states about their current experiences, while listening to their comments on the interim final rule. Advocacy spoke at symposiums, held teleconferences and in-person meetings, participated in hemp regulators briefings, and attended site visits to actual hemp farms. Read Advocacy’s blog post about outreach efforts on the rulemaking here.

What was apparent in speaking with small farmers was that the interim final rule, as written, would not allow farmers to participate in the program. Following these outreach efforts, Advocacy identified key parts of the rule that were problematic for small business and on Jan. 29, 2020, filed a public comment letter with AMS on those issues. Advocacy asked the agency to reconsider its requirement that labs be DEA certified due to a shortage in such labs, asked AMS to lengthen the 15-day testing window, asked the agency to allow for remediation and retesting of non-compliant crops, and asked DEA to reconsider sampling requirements that are overly burdensome, among other comments. Read the full comment letter here.

AMS reopened the public comment period on October 8, 2020 to seek further comments and feedback on the interim final rule. Advocacy once again filed a public comment letter in which it reiterated many of the previous points, and described how the interim final rule had stifled industry growth to the point where small farmers chose not to grow until a final rule was published, citing concerns about being able to grow compliant crops given the stringency of the regulations. The full comment letter is available here.

In its final rule, AMS addressed many of the concerns raised by Advocacy and small business stakeholders. Key features of the final rule that have been changed include:

1. Delaying the requirement that labs be DEA certified until 2022, allowing more time for labs to apply and receive certification.
2. Lengthening the testing window from 15 days to 30 days, which allows farmers to account for uncontrollable variables when harvesting, such as weather events and labor and equipment shortages.
3. Allowing for on-site remediation which offers at least one avenue for a non-compliant crop to still be sold into commerce, provided it does not test hot once it has been remediated.
4. Allowing for additional disposal methods beyond burning non-compliant crops.
5. Allowing for performance-based sampling methodologies, which will reduce the overall sampling burdens.

While some concerns remained unaddressed in the final rule, Advocacy is pleased that the agency considered and acted on concerns raised by small business and ultimately hopes that the changes made in the final rule will allow small businesses to be successful in the hemp industry.

Read the final rule here.

[1] Pub. L. No. 115-334. §12619(a)(2)(B) (2018).

Source: Prianka Sharma, Assistant Chief Counsel, Office of Advocacy, Small Business Administration