On December 20, 2018, President Trump signed the Agriculture Improvement Act of 2018, otherwise known as the 2018 Farm Bill (“Farm Bill”). The Farm Bill makes sweeping changes to the legal status of hemp and lays the groundwork for a national market for hemp and hemp-derived products, which we explained in more detail in a previous article. Notably, for tribes the Farm Bill grants tribal governments the authority to regulate the cultivation, processing, and sale of hemp pursuant to a plan approved by the U.S. Department of Agriculture (“USDA”).
The passage of the Farm Bill opens up potentially significant economic opportunities for tribes, as well as allowing tribes to exercise sovereignty through exercise of tribal regulatory powers. Additionally, there may be some advantages for tribes interested in entering into the hemp space. That being said, there is a complex overlay of federal law that tribal governments will have to navigate to take advantage of these opportunities.
Economic Opportunities in Hemp
A wide range of products, including clothing, construction materials, biofuels, plastic composites and CBD infused body care and health products for humans and pets can be produced from the hemp plant. Contingent on the FDA approving the sale of CBD as a dietary supplement and/or food additive, the sales of CBD products alone are estimated to be a $22 billion dollar market by 2022. Even if the FDA does not lift its restriction on the marketing and sale of CBD products, in 2016 such products only made up a third of the overall hemp market. The economic opportunities for tribes and tribal members range from the cultivation of hemp itself to extraction and other value added product production, to packaging and labeling, to marketing and distribution.
The Process for Tribes to Self-Regulate Hemp
While the 2018 Farm Bill authorizes tribal governments to self-regulate hemp, this authority is contingent on the approval by the Secretary of the U.S. Department of Agriculture (“USDA”) of a tribal plan for monitoring and regulating the production of hemp. If a tribe decides not to submit such a plan, then individuals intending to cultivate or process hemp within the tribe’s territory will need to follow any federal regulations that are promulgated pursuant to this law. A tribe can also elect to prohibit cultivation and/or processing of hemp products in its territory altogether, but may not in any instance interfere with the transportation of lawfully sourced products across tribal lands. Similarly, a bordering state would not be able to lawfully prevent the tribe or its customers from transporting hemp and hemp-derived products through the state or across state lines.
The Farm Bill enumerates basic requirements that tribal governments must include in their plans. For example, in broad terms, a tribe seeking to self-regulate hemp would need to show that it has procedures in place to: (1) maintain relevant information regarding land on which hemp is produced in its territory; (2) test levels of THC in hemp produced in the territory; (3) dispose of plants/products containing excess THC; (4) conduct enforcement activities; (5) conduct inspections, including random sampling for any violations of the tribal plan and/or federal law; and (6) submit certain information to the Secretary as required by statute. The law also requires that a tribe provide a certification that it has the resources and personnel to carry out the practices and procedures contained in its plan. Tribes are free to adopt more stringent laws and regulations in this area, so long as they do not conflict with federal law.
Hemp and Hemp Products are Also Subject to Other Federal Regulations
Additionally, hemp-derived products may be subject to other federal laws such as the Food, Drug, and Cosmetics Act (“FD&C Act”) and the Public Health Services Act. More information regarding federal jurisdiction over hemp-derived products is available here.
Possible Advantages for Tribes
There is no question that, as with any emergent market, there is a first mover advantage in the hemp space. Many tribal governments are more operationally nimble than the federal government and state legislatures, which means they could adopt new ordinances and regulations much more rapidly. If a tribe is able to secure approval for a tribal plan to regulate hemp early in 2019, then that tribe could issue some of the very first licenses to cultivate and process hemp legally under the 2018 Farm Bill. The tribe could even position itself as a go-to source for testing or packaging and labeling services for hemp businesses in surrounding states if it chose to invest in the necessary infrastructure to conduct those activities.
Tribes electing to participate actively in this market may be able to preempt various hemp-related taxes depending on the business model. State taxation may be preempted when a tribe generates revenue by adding value to products within its jurisdiction. Value is tribe-generated when the tribe has an active role in the product or service sold, and the measure of the tribe’s role turns on a number of factors such as who owns the land, facilities, and equipment, who owns and operates the business, and who provides the infrastructure and governmental services to support the operations. If a tribe opts in as a hemp regulator under the 2018 Farm Bill, then this can also be cited as an element supporting state tax preemption. The tribe would be allowing hemp to be cultivated on tribal lands and could also provide for the processing and packaging/labeling of products on tribal lands in order to bolster the value being added to the product within its jurisdiction.
In sum, while hemp and hemp-derived products, such as CBD, are no longer a controlled substance, they are still subject to a complicated patchwork of state and federal laws. Violations of the Farm Bill and federal food safety laws carry consequences ranging from prohibitions on participation in the market to jail time. Accordingly, it is critical to fully understand the current status of the law before producing or selling hemp and hemp derived products on tribal lands or elsewhere. For questions about the legal status of hemp and hemp-derived products or about drafting a tribal plan that complies with federal law, please contact Hannah King, Esq. at firstname.lastname@example.org or Malina Dumas, Esq. at email@example.com. You can also call us at 800.727.1941.