Thursday, April 18, 2024

Executive News: Hemp legalization: Where are we?

The headline above poses a good question. And my answer is, “I’m not sure.”

What I do know is that in April, Gov. Fallin signed HB 2913, the “Oklahoma Industrial Hemp Agricultural Pilot Program,” into law, and that changes the landscape as to what banks may and may not do going forward.

Honestly, I didn’t pay

Photo of Roger M. Beverage
Roger Beverage, OBA President and CEO

much attention at the time the pilot program was enacted because of the attention we were giving to things at the federal level (S. 2155). But I did catch the general drift that what the act did was permit Oklahomans to “cultivate” hemp, (Cannabis sativa L.) for research purposes. And there are three processors of the final products: one in Oklahoma City, one in Tulsa and one in Hollis (fiber).

 

Before HB 2913 became law in April, you were lawfully permitted to bring hemp into our state, but that was it; you were not permitted to grow it here. The pilot program included limitations on what you can do now with hemp. You can’t just grow hemp anywhere you feel like it; you can only grow if you are under contract with an Oklahoma university licensed to conduct research on the plant. (A licensed university was also allowed to cultivate hemp itself.)

(Note: there’s a separate article on the front page that will walk you through the process for participating in the pilot program. And there are several bills that are intended to make growing industrial hemp lawful in Oklahoma. It’s not yet.)

Hemp is said to have limitless potential and will become a great, moneymaking crop. It’s easier on the soil than corn or wheat for example, easier to cultivate and has a number of uses: clothing, rope, building materials, food products and much, much more. For example, the first draft of the Declaration of Independence was written on “hemp paper.”

Then along comes the 2018 Farm Bill in December and the ground rules shifted again. The hemp plant itself – Cannabis sativa L. – is no longer classified as a Schedule I drug under the Controlled Substances Act. That’s a big deal.

De-criminalizing hemp, (removing it from the federal definition of “marijuana”) has created a great deal of interest among bankers andtheir customers. In addition, it has also created quite a bit of confusion, particularly in states like Oklahoma.

What makes hemp “legal” under the Farm Bill and separates it from “marijuana?” It’s the concentration level of delta-9 tetrahydrocannabinol concentration (THC) contained in the hemp plant itself.

But how do you know it’s hemp? If the THC concentration on a dry weight basis is 0.3 percent and below, you’re growing or dealing with hemp. That’s OK. If it’s above 0.3 percent, you’re dealing with marijuana. That’s not OK (yet) for banking purposes. And it’s up to the state to come up with a way to test the product so you know what you’re growing before the seeds go into the ground.

But here’s something I didn’t know before: the Oklahoma Department of Agriculture is still operating under the 2014 Farm Bill and will continue to do so until the end of this year. So – that MAY mean nothing is going to happen until 2020 at the earliest to clarify what you can and cannot do with hemp.

Several bills have been introduced to require the Agriculture Department to develop a plan to implement the production of industrial hemp. HB 2628 has been introduced by Rep. Jon Echols (R-Oklahoma City) and seems to be fairly comprehensive. SB 554 (Casey Murdock R-Felt) would create the Industrial Hemp Production Act that will also force the Department to develop its plan by the end of this year. And there are at least three other bills that are similar.

So, what does the “plan” look like? How is it supposed to work? The Farm Bill mandates a regulatory and licensing process be established to govern production, distribution and the ultimate sale of hemp. Echols’ (majority floor leader in the House) bill (HB 2628) will do that. The plan will be administered by the State Department of Agriculture, with approval by the U.S. Department of Agriculture.

Many bankers have asked when can we start doing this and banking the hemp business? When the state’s plan is ultimately approved, anyone who is a hemp producer, i.e., a bank customer who is actually engaged in growing the product, must have a government-issued license to do so. You can’t start growing hemp legally until you have such a license, and you can’t get a license until the regulatory framework has been finalized. So, it will be a while before the Farm Bill’s provisions on hemp production actually fall into place.

When the state’s plan becomes effective, here’s the key to producing “hemp”: the THC concentration in any part of the plant (including any and all derivatives thereof) cannot exceed 0.3 percent on a dry weight basis. This mandate clarifies for banks that any financial dealings with a hemp-related business won’t trigger anti-money laundering (AML/BSA) statutes. (That is NOT the case with marijuana.)
What does the state’s plan have to include? I don’t know all of the specific things the state’s plan will ultimately include, but these are a certainty:

A practice to maintain relevant information about the land on which hemp is produced in the state or territory of the Indian tribe, including a legal description of the land, for a period of not less than three calendar years;

A procedure for testing, using post-decarboxylation or other similarly reliable methods, delta-9 tetrahydrocannabinol concentration levels of hemp produced in the state or territory of the Indian tribe;

A procedure for the effective disposal of products that are produced in violation of the requirements of the Farm Bill;

A procedure to comply with the enforcement procedures established in the bill;

A procedure for conducting annual inspections of a random sample of hemp producers – to verify that hemp is not produced in violation of the bill, and in a manner that ensures a hemp producer is subject to not more than one inspection each year; and

A certification that the state or Indian tribe has the resources and personnel to carry out the practices and procedures described in the Farm Bill.

I’m betting there will be a flurry of activity in the coming months to align existing state laws with the regulatory standards and enforcement procedures outlined in the Farm Bill. Once compliant state laws are in place, the State Department of Agriculture can apply to the Secretary of Agriculture for approval to serve as the industry’s primary regulator in Oklahoma.

The world keeps on changing and throwing curveballs at us. We’ll continue to follow the ball and duck when necessary. Meawhile, if you have questions or concerns, don’t hesitate to call me. Stay tuned.