In Part 1 of our guide to starting a hemp farm in California, we outlined the process for registering as a hemp farmer with the CDFA, as well as the difference between seed breeders and cultivators. This second part of our hemp farm guidance series will provide detail about the importation and movement of industrial hemp; details on manufacturing, processing, and selling industrial hemp; and tips on how to get started in this new market.
Hemp Importation Guidelines from the CDFA
Obviously, the first step in starting a hemp farm (after registering with the CDFA) is to procure hemp seeds. Remember, there are some conflicting laws at the federal level in regards to the legality of growing hemp. It’s not possible to import seeds from outside the US to California, per federal regulation from the USDA. However, California state law does not have any restrictions to the importation of industrial hemp seeds or plants from other states into California.
The CDFA requires all industrial hemp seeds and plants to pass plant pest quarantines, and may inspect your hemp seeds further at their discretion. Likewise, the California Food and Agriculture code requires that registered growers and seed breeders only grow hemp varieties from an approved list of seed cultivars. Of course, this regulation does not apply to seed breeders developing new seed cultivars.
Selling Hemp in California
Where can you sell the hemp you grow on your farm? It’s possible to sell hemp through the California Farmers’ Market (CFM) Program. You must first be certified as producer through the CDFA's CFM Program. You may also be able to sell hemp in a licensed cannabis retail store; however, cannabis retailers are governed by the Bureau of Cannabis Control (not the CDFA). Therefore, you should get in touch with the BCC to be sure you meet the cannabis industry’s strict regulations before adding hemp to a cannabis dispensary.
Starting a Hemp Farm in California
By some estimates, more than 25,000 products can be made from hemp. Hemp is used in everything from the automotive industry to personal care products. California is a leader in the hemp market: California companies earn 77% of nationwide sales of hemp food and personal care products.
Hemp is a plant that thrives in California’s environment. It does well in warm weather, and grows best in well-drained, highly organic soil. Experts recommend planting hemp seeds directly in the ground, rather than starting the plants in a pot and transplanting them later on. You will need a lot of space: for hemp to be profitable, you must plant at least 50 acres. Besides space, hemp has relatively few other needs. It’s resistant to pests and diseases, and grows fast and tall, minimizing the need for hand cultivation. Estimates from a recent Cornell University analysis found that hemp profits ranged from $130 to $730 per acre.
A good way to get started in California’s hemp industry is to go to a workshop by the California Hemp Association to learn about the constantly changing forms, fees, and regulations and other information coming from the CDFA and the USDA.
You should also speak to our experts about the registration process and to get your taxes in order before entering this new market. Click the button below to get started.
The CDFA recently released guidance concerning the industrial hemp market in California.
There has been a lot of confusion surrounding the regulations of this plant.
In this two part series, we’ll break down the state’s policy regarding hemp, as well as give you some insider tips for entering this new market successfully.
What is the difference between hemp and cannabis?
To begin, it’s important to establish the key difference between cannabis and hemp.
Cannabis is a “family of plants with two classifications – Indica and Sativa.” Hemp is a member of the Cannabis Sativa family.
As a result, hemp contains a very low concentration of THC. Marijuana, which is considered a member of either the Indica or Sativa families, has concentrations of THC between 15% - 40%.
The state of California has a very specific definition of what qualifies as hemp vs. cannabis.
According to the CDFA:
“Industrial hemp" means a crop that is limited to types of the plant Cannabis sativa L. having no more than three-tenths of 1 percent tetrahydrocannabinol (THC) contained in the dried flowering tops, whether growing or not; the seeds of the plant; the resin extracted from any part of the plant; and every compound, manufacture, salt, derivative, mixture, or preparation of the plant, its seeds or resin produced therefrom.”
Why should you start a hemp farm?
Unlike cannabis, which is still classified as a Federal Schedule I Controlled Substance (subject to the 280E regulation), hemp is not federally regulated. The Agricultural Improvement Act of 2018 went into effect at the beginning of this year, thereby removing hemp from the list of federally controlled substances. This is a new market that isn’t subject to the same strict financial and tax codes of the cannabis market.
Simultaneously, in September, 2018, Governor Jerry Brown signed and approved Senate Bill 1409 which permits the cultivation of industrial hemp by California growers. Before this bill was signed into law, only growers who qualified under the state’s pilot program and the Agricultural Act of 2014 could cultivate industrial hemp.
The cannabis market is a tightly regulated, highly competitive space. Licensing limits and zoning restrictions make it expensive and difficult for new entrants to gain traction in this billion dollar market. Industrial hemp, however, presents an alternative opportunity for cultivators to participate in the cannabis market without the high barriers to entry.
Commercial Cultivation of Hemp in California
California state law as it relates to hemp cultivation is a little hard to parse. The reason for this is the state regulations don’t align perfectly with the federal regulations that deregulate hemp as a controlled substance.
California may allow for commercial hemp cultivation, but conflicting articles in the 2018 and 2014 Farm Bill do not.
The previous 2014 Farm Bill does not permit the cultivation of hemp for “purely commercial” reasons. However, the 2018 Farm Bill deregulates commercial hemp provided that states submit “hemp production plans” to the USDA.
So, in theory, California’s state plan must be reviewed and approved by the USDA – which would impact hemp cultivators down the road.
In the meantime, California has begun the process of accepting hemp cultivation registration applications – here’s what you must fill out and confirm to begin planting hemp in California.
How to Register as a Hemp Farmer in California
If you wish to become a grower of industrial hemp, the first step is to be approved by your county agricultural commissioner. You can find your county ag commissioner’s office on this map provided by the CDFA.
Unlike the commercial cannabis market, there is no state registration required to grow industrial hemp. Prospective growers only need to complete a county registration to grow industrial hemp. Applications for both seed breeders and growers can be found on the CDFA Industrial Hemp Program website. The registration fee is $900 and registration is valid for one year.
Applications for commercial cultivation and seed breeding don’t vary dramatically. Generally speaking, you will be asked to provide basic information about the business owner, the cultivation site, your business plan, GPS coordinates, and other site information.
Some counties are not accepting hemp applications. These counties include: Amador, Calaveras, Glenn, Humboldt, Lassen, Marin, Mariposa, Mendocino, Merced, Modoc, Mono, Monterey, Napa, Nevada, Orange, Placer, Sacramento, San Bernardino, San Joaquin, Santa Barbara, Shasta, Sierra, Siskiyou, Sonoma, Tehama, Trinity, Tulare, Tuolumne, Yolo, and Yuba.
Hemp Seed Breeders v. Cultivators
There are two potential ways to participate in California’s hemp market: as a hemp seed breeder or as a hemp cultivator.
If you plan to cultivate hemp for commercial purposes, you should fill out the application for growers. If you plan to cultivate industrial hemp for seed development or production, you should complete the application for breeders. If you wish to do both, complete both applications.
In Part 2 of our Guide on How to Start a Hemp Farm in California, we’ll outline more detail about the importation and movement of industrial hemp; details on manufacturing, processing, and selling industrial hemp; and tips on how to establish your hemp business and get started in this market successfully.
To speak to one of our experts with any questions regarding the hemp industry, click the button below to get started.
Cannabidiol (“CBD”) products have emerged on the market in several states with various claims, including the treatment of specific illnesses, reportedly backed by scientific research. CBD is a non-psychoactive component of both marijuana and hemp. While products containing this substance have been permitted in certain states, marketing CBD oils and related products as treatments for specific conditions has been disallowed by the FDA.
For companies that market CBD related products, having an understanding of the federal and state regulations that are applicable to their businesses is crucial. Here is a brief guide on the current regulations regarding the marketing of CBD related products.
The Federal Food, Drug and Cosmetic Act, also known as the FD&C Act, requires scientific information to demonstrate that a drug is safe. The FDA has made it clear that CBD products cannot be sold as dietary supplements because CBD is “authorized for investigation as a new drug,” a classification that disallows products from being sold as dietary supplements while under clinical investigation.
With clinical trials generally lasting several years followed by the FDA’s 10 month goal for standard new drug approvals, it could be several years until the status of CBD is changed from its current classification as a “new drug.” As a result, the FDA has also prohibited the use of CBD in food.
The FD&C Act defines a dietary ingredient as a vitamin; mineral; herb or other botanical; amino acid; dietary substance for use by man to supplement the diet by increasing the total dietary intake; or a concentrate, metabolite, constituent, extract, or combination of the preceding substances. Unlike drugs, dietary supplements are not intended to treat, diagnose, prevent, or cure diseases.
The FDA also requires all companies that plan to market a dietary supplement that contains a new dietary ingredient, and the new dietary ingredient has not been present in the food supply as an article used for food in a form in which the food has not been chemically altered, to submit to FDA, at least 75 days before the dietary ingredient is introduced or delivered for introduction into interstate commerce, information that is the basis on which the company has concluded that a dietary supplement containing the new dietary ingredient will reasonably be expected to be safe.
In addition, the FDA has some stringent requirements for the labeling of products including:    
●The FD&C Act prohibits the listing of a drug as safe and effective for specific uses on product labeling unless it has been recognized by the FDA as such. Until then such drugs are considered as “new drugs.”
●Products may not be labeled for use or with directions for use for conditions that can not be self-diagnosed and treated by individuals who are not medical practitioners 21 CFR § 201.100(c)(2).
●CBD Companies should not try to circumvent these rules by using scientific publications to prove the validity of a product’s use for the treatment of specific medical ailments as this is also disallowed under 21 CFR 101.93(g)(2)(iv)(C).
●Products should include adequate directions for use under which a layperson can follow to use the product as intended   [21 CFR § 201.5]. However, this regulation is being arbitrarily applied to CBD products given the fact the the manufacturers of the products are not permitted to make claims about CBD as treatments for specific illness.
Labeling for CBD Related Products
In the states where cannabis-derived CBD products have been permitted, including Washington, California, Illinois, Connecticut, and New York, the packaging for all CBD products must list CBD as an active ingredient with the amount of CBD that the product contains.
Given the FDA’s stance on CBD as a new drug, it is a good idea to avoid using the labeling of the packaging to make medical claims about the benefits or denoting specific uses of the product. The FDA has already issued warnings to several CBD companies about the mislabeling for violation of FDA regulations.
In addition, many CBD companies are violating FDA regulations by marketing CBD products as dietary supplements when they have not been awarded that classification by the FDA. As a result, while the sale of CBD products have been permitted in certain states, the regulations set forth by the federal government, namely the FDA still take precedence over state laws. This means that the federal government can go after CBD companies even if the state in which the company is located has decided not to.
Things to Consider When Marketing CBD Products
Given the myriad of federal and state regulations that CBD product manufacturers must comply with, CBD companies should take extreme care when marketing CBD products. Most importantly, the product should make mention of the fact that it has not been approved by the FDA.
Secondly, the products should never be labeled for use in conjunction with specific medical conditions, given CBD’s status as a new drug. CBD companies should also review applicable state laws carefully to determine whether or not the labeling for their products are in compliance.
The FDA has also made it the responsibility of the companies to comply with all of the requirements of federal law and FDA regulations. While the FDA may take steps to notify a company that it is violation of the law, it is the company’s responsibility to review the law in order to determine if its products are in compliance and resolve any violations.
For Online Sellers of CBD Products
Online sellers of CBD products need to take special precautions when selling CBD products online. These sellers need to be aware that:
●Cannabis is still illegal under federal law.
●Even in states where cannabis products are legal, it is not legal to ship the cannabis products from state to state, or to leave the state with such a product.
●For CBD products that are the result of CBD extracted from hemp, the sellers should make it very clear to customers that its products come from imported hemp and not marijuana.
●In all cases, online sellers should avoid making claims about the medical benefits of using CBD products.
While this is not an exhaustive list of the regulations that CBD companies face, these findings highlight the fact that many CBD companies are operating in a legal grey area when it comes to the sale of CBD products online.
Cannabidiol (CBD) is one of more than 400 substances that are found in marijuana and it is not psychoactive, meaning that it does not cause changes brain function or result in alterations in perception, mood, or consciousness. Many states have already passed laws that have permitted the use of CBD extract, typically in oil form, often with traces of tetrahydrocannabinol (THC), for the treatment of epileptic seizures in children. CBD has only be legalized in the United States since 2014 and only when it is sourced from the hemp plant and not the cannabis plant. A thorough understanding of the related tax and accounting issues is necessary to running your canna-business.
CBD is also found in hemp, which is a plant that is related to the marijuana plant. Hemp that contains little to no THC (0.3% THC is less) and its products are legal to import and sell in the US, but only in the states that have commercial industrial hemp programs. According to The Agricultural Act of 2014, also known as the 2014 Farm bill, US farmers are not permitted to grow hemp. It is only legal for farmers to cultivate or grow industrial hemp for the purposes of research under a state agricultural pilot program or academic research program. Hemp is also not permitted to be be shipped between states, even in instances where the plant is legal is both states.
In addition, legal CBD can only be obtained from the stalk of the plant, not from the leaves and flowers. Hemp also contains far less CBD than cannabis plants, which means that a large amount of hemp stalks are required to produce only a small amount of CBD.
Despite the fact, that CBD lacks the psychoactive properties of THC, as an ingredient of marijuana, it is still considered illegal under federal law if it is extracted from the cannabis plant. Marijuana is currently regulated as a Schedule I drug per the United States Controlled Substances Act. Even though, CBD does not meet the criteria for Schedule I classification under the law, it is still classified as such because it is a component of marijuana.
Furthermore, Congress created section 280E of the Internal Revenue Code during the height of the War on Drugs in order to prevent drug dealers from claiming deductions for business-related expenses. The current result of this legislation is that state-legal cannabis businesses are now being prevented from claiming most business expenses and are instead limited to cost of goods sold (COGS) deductions to offset their tax liabilities.
The short answer for businesses that provide CBD related products and services is that section 280E still applies. The only case where businesses might be able to claim deductions is if they can prove that the CBD came from an industrial hemp source that is legal per state law. As a result, CBD companies should refer to state laws regarding taxation for CBD businesses given that hemp laws are different in every state.