Ask Our Experts 11/13/19: Takeaways from the USDA’s Interim Hemp Rules

 

Q: How will the USDA’s Interim Rules affect the hemp industry?

By New Frontier Data

A: Within the first two weeks of opening a public comment period, more than 500 questions have been submitted regarding the U.S. Department of Agriculture (USDA)’s interim hemp regulations. In a third installment of reviewing those new rules, New Frontier Data adds to reviews shared both here and here.

The USDA intends on creating a comprehensive hemp database

Though the interim rules reiterate that states cannot interfere with interstate hemp commerce, law enforcement officials continue to struggle with their ability to differentiate between hemp and cannabis. While it may take time to develop technology that can discern the difference between hemp and cannabis in the field, the USDA is aiming to create a comprehensive hemp database to will help law enforcement recognize legal hemp shipments.

The database will include a list of all domestic hemp producers, information related to the land used to produce domestic hemp, and the status of all licensees. The information will be accessible to state, local, and federal law enforcement officials in real time, and should go a long way toward assisting police officers in identifying compliant hemp actors.

Benefits and costs of hemp production

Under federal law, the USDA is required to run a cost-benefit analysis for running a federal hemp program. Using data from state departments of agriculture,  surveys by the National Industrial Hemp Regulators, and a working group comprised of industrial hemp program managers from state departments of agriculture, the federal Agriculture Marketing Service (AMS) estimates that roughly two-thirds of total U.S. hemp acreage is for flower, with the remaining third for fiber and grain.

With data from Vote Hemp, the University of Kentucky, the Kentucky Department of Agriculture, and the Congressional Research Service, AMS was able to calculate the potential gross revenue of hemp producers per acre. Depending on the cultivator’s marketing intent, AMS estimates that producers can generate between $2,443 to $25,682 per acre.

To estimate producer returns (not revenue), AMS examined the variable costs of hemp production (see Table 2).

Using the weighted variable cost per acre, AMS subtracted from the low and high estimates of gross revenue per acre under two scenarios: the lowest yield and lowest price received per acre, and the highest yield and highest price received per acre. Assuming that a farmer plants two-thirds of an acre for flower, with the remainder dedicated to grain and fiber, AMS estimates that a farmer would generate somewhere between a loss of $16,978 per acre, or a net return of $6,260 (It is important to note that fixed costs were not included in the estimates).

To determine the gross social benefit of hemp production, AMS investigated potential price ranges for hemp crops. Using data from the 2018 Processor/Handler Production Reports to the Kentucky Department of Agriculture, AMS found that Kentucky farmers generated about $17.75 million from 6,700 acres of hemp for a societal willingness/benefit of approximately $2,650 per acre.

Compliance procedures with hemp producers

State hemp regulatory plans are required to have procedures in place to ensure compliance with producers. In addition to annual inspections and random samplings, the plan must include methods for handling violations. While states are given leeway in determining violations, all state plans must include the following:

• Methods to identify negligent acts;
• Procedures for corrective actions; and
• A requirement for violators to periodically report to state governments on their compliance for no less than two years.

Additionally, producers who have committed compliance negligence three times within a five-year period will be barred from producing hemp for five years from the date of the third violation. While producers who commit negligence will not be subject to criminal charges, anyone who intentionally, knowingly, or recklessly markets hemp over the THC limit will be subject to prosecution.