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North Carolina’s emerging hemp industry faces rapidly evolving laws and regulations. This insight provides an up-to-date overview of the applicable laws, pending/proposed legislation, current licensing requirements, and opportunities within the CBD and Hemp industries in North Carolina.
Hemp production has been legalized in North Carolina, but only as part of the state’s pilot program as allowed under federal law.
The General Assembly passed Senate Bill 313 in 2015, allowing the Industrial Hemp Commission to develop the rules and licensing structure necessary to stay within federal laws. The law was modified in 2016 through House Bill 992. The Industrial Hemp Commission adopted temporary rules for review in February 2017; these were approved by the Rules Review Commission of the Office of Administrative Hearings. The NC Department of Agriculture and Consumer Services began sending letters to businesses earlier this year notifying them that the sale of CBD in food, drinks and animal food violates state and federal law.
Currently, the department states that it is focused on education rather than consequences. The letter states, “Once you place products into the marketplace, you have a responsibility to comply with all federal and state laws. Failure to comply could result in legal action being taken against you, including without limitation, embargo, seizure and injunction.” The state’s Alcohol Law Enforcement is working in conjunction with the agriculture department. However, it does not have a policy on CBD at this time. There are, however, some proactive measures and opportunities for entities to get involved within the hemp industry in North Carolina in its current state.
Applicable Law
A. 2014 Federal Farm Bill
The 2014 Federal Farm Bill introduced a legal path for this industry in North Carolina. The bill authorized institutions of higher education or state Departments of Agriculture to grow or cultivate industrial hemp for research purposes if the laws of the State permitted its growth and cultivation. States were allowed to form industrial hemp pilot programs run through land grant universities.
B. NC Session Law 2015-299
In 2015, the North Carolina legislature recognized the importance and legitimacy of industrial hemp research. It provided for compliance with portions of the 2014 Federal Farm Bill and created the North Carolina Industrial Hemp Commission and guidelines for the State’s pilot program. The Commission can issue licenses allowing a person, firm, or corporation to cultivate industrial hemp for commercial purposes to the extent allowed by federal law.
C. NC Session Law 2016-93
In 2016, the North Carolina legislature further defined the pilot program, requiring licensees to enter a written agreement with a land grant university, in addition to creating civil and criminal penalties for violations. The 2016 legislative modifications allowed selected growers to be licensed to cultivate industrial hemp for research (not commercial) purposes. The legislature also expanded permission for hemp research to include exploring marketplace opportunities for hemp products. The legislature created civil penalties for violating the act or rules adopted by the Commission. It expanded criminal penalties for those who manufacture, distribute, dispense, deliver, purchase, or possess marijuana on property used for industrial hemp production, or in a manner intended to disguise marijuana due to its proximity to industrial hemp. Attempting to disguise marijuana production using industrial hemp is a Class I felony in North Carolina.
Section 4 of SL. 2016-93 details the responsibilities of licensees under the pilot program. Codified in N.C. Gen. Stat. § 106-568.53A, the law requires licensees to do all of the following:
(1) Maintain records that demonstrate compliance with this Article and with all other State laws regulating the planting and cultivation of industrial hemp.
(2) Retain all industrial hemp production records for a minimum of three years.
(3) Allow industrial hemp crops, throughout sowing, growing, and harvesting, to be inspected by and at the discretion of the Commission, the State Bureau of Investigation, or the chief law enforcement office of the unit or units of local government where the farm is located.
(4) Maintain a current written agreement with a land grant university that states that the grower is a participant in the industrial hemp research program managed by that institution.
D. 2017 DEA Schedule of Controlled Substances
The U.S. Department of Justice’s Drug Enforcement Administration (DEA) created a new Schedule I drug category called “Marihuana Extract” in 2017. The category includes extracts containing one or more cannabinoids that have been derived from any plant of the genus Cannabis, other than the separated resin obtained from the plant. This category encompasses CBD oils.
E. 2018 Federal Farm Bill
The 2018 Federal Farm Bill (2018 Farm Bill) exempts certain hemp and hemp products from the Controlled Substances Act (CSA) and eliminates the pilot program requirement allowing for full-scale commercial production of hemp. Covered hemp must be under 0.3 percent tetrahydrocannabinol (THC) concentration and grown under conditions approved by the U.S. Department of Agriculture (USDA) and the state Department of Agriculture. All other hemp remains a Schedule I drug under the CSA. The 2018 Farm Bill allows states to regulate hemp production based on a USDA-approved state plan. However, the bill preserves the authority of the Food and Drug Administration (FDA) to regulate hemp and hemp products under the Federal Food, Drug, and Cosmetic Act (FD&C Act) and the Public Health Service Act.
Pending/Proposed Legislation and FDA Regulations
A. North Carolina Farm Act of 2019
On March 20, 2019, Senate Bill 315 proposed the North Carolina Farm Act of 2019 to implement the state hemp program in accordance with the 2018 Farm Bill that would move North Carolina and its citizens to the forefront of the industry. The proposed legislation’s preable states the following purposes:
- Promote the cultivation and processing of hemp, and open new commercial markets for farmers and businesses through the sale of hemp products.
- Promote the expansion of the state’s hemp industry to the maximum extent permitted by law, allowing farmers and businesses to cultivate, handle, and process hemp and sell hemp products for commercial purposes.
The bill would also maintain the civil and criminal penalties passed in 2016. While the bill previously touted bipartisan support when proposed, it continues to be stalled in the Senate Rules committee after fierce opposition from law enforcement. The bill has a dim prospect of becoming law this session. As a direct result of the current limbo status of Senate Bill 315, it remains unclear what specific products will be allowed under state law pending future proposals. For now, in North Carolina, as reiterated from the N.C. Dept. of Agriculture’s Deputy General: “CBD oil is currently a scheduled substance in North Carolina.”
B. FDA Regulation of Cannabis and Cannabis-Derived Products
To date, the FDA has not approved a marketing application for cannabis for the treatment of any disease or condition. It has, however, approved one cannabis-derived and three cannabis-related drug products. The approved products are only available with a prescription from a licensed healthcare provider.
Of the approved products, one contains a purified form of the drug substance CBD. There are no other FDA-approved drug products that contain CBD. Some CBD products escape FDA regulation depending on the intended use of the product, how it is labeled and marketed, and the type of compound, among other things. The FDA has concluded that CBD products cannot be sold as dietary supplements or added to food for sell. However, it has declared the following hemp seed-derived food ingredients to be safe and legally marketable in human foods for specific uses such as adding them as a source of protein, carbohydrates, oil, and other nutrients to beverages, soups, dips, spreads, sauces, dressings, plant-based alternatives to meat products, desserts, baked goods, cereals, snacks, and nutrition bars. Products that contain any of these hemp seed-derived ingredients must declare them by name on the ingredient list.
The FDA is aware CBD products are marketed to treat diseases or for other therapeutic uses and has issued several warning letters. The agency also believes that companies are marketing products containing cannabis and cannabis-derived compounds in ways that violate the FD&C Act. When it views a product as violating the law, the FDA considers many factors in deciding whether to initiate an enforcement action, including agency resources and the threat to the public health. Currently, the U.S. Food and Drug Administration is working to learn more about the safety of CBD to create a regulatory framework for the non-psychoactive compound. The FDA has expedited its clinical trials to address questions about CBD, with a report on the FDA’s progress expected to be released this fall.
Opportunities in North Carolina
While the 2018 Farm Bill exempted hemp and hemp products from the CSA, North Carolina does not currently have a USDA-approved plan for hemp production as required by the farm bill. This area of the law will continue to evolve. Businesses must remain vigilant in determining the active ingredients in products and comparing them to the DEA’s controlled substance list, remaining mindful of the product’s intended use, labeling, and marketing.
In 2015, the General Assembly created, under the N.C. Dept. of Agriculture, the North Carolina Industrial Hemp Commission. The Hemp Commission is tasked with developing rules and licensing-fee structures for the industry. Additionally, the Hemp Commission oversees the Industrial Hemp Research Pilot Program. This program is perhaps the best opportunity for farmers in NC to get their “foot in the door” within the hemp industry. It should be noted, however, that despite the 2018 Federal Farm Act’s elimination of the state pilot program requirement – the pilot program remains intact in North Carolina due to North Carolina’s failure to obtain a USDA-approved plan (a requirement under the Act for elimination of state pilot programs). Therefore, those who wish to obtain a hemp license must comply with the pilot program requirements and governing statutes.
A. Industrial Hemp License Process and Procedures
Following Congress’ enactment of the 2018 Farm Bill, the North Carolina Department of Agriculture stipulated that the pilot program will continue to be the law in NC, until the USDA develops its hemp program and the state gets approval of their program compliant to the USDA program. Under the existing pilot program rules, farmers are required to apply for a license in order to lawfully plant, harvest and market the crop. Additionally, the 2018 Farm Bill does not interfere with the FDA’s authority over CBD as a human or animal consumable (in food, feed, or as a topical, drug, or supplement). As of now, FDA still does not allow CBD in consumables.
Licenses can be for one or three years. Applications are reviewed and approved or denied by the Industrial Hemp Commission. The Commission does not meet on a set schedule. The Commission usually meets based on how many applications are received by the North Carolina Department of Agriculture and Consumer Services (NCDA&CS). In the spring, they usually meet every other week or even weekly. At other points throughout the year, it can be every other month. Applicants should submit their application at least 7 business days before the Commission meets. If an applicant turns in their application only a few days before the Commission meeting, it will not be reviewed until the following meeting.
Applicants are required to pay an annual fee and provide access to the N.C. Department of Agriculture and Consumer Services’ Plant Industry Division and law enforcement for sampling in the field or in storage. Additionally, as part of the application, applicants must list the GPS coordinates of where his or her industrial hemp will be grown and must show some income from farming on their tax returns. By law, industrial hemp must have less than 0.3% THC. THC is the chemical that produces the euphoric effect or “high” of other cannabis plants. Due to the large number of applications in the winter/spring, applicants should plan to submit samples at least six weeks prior to the planned Industrial Hemp Commission meetings. Applications will be voted on at the Commission meeting immediately following it being processed by NCDA&CS. Click HERE for a copy of the application.
B. Land Grant University Written Agreement / Research Requirement
As mentioned above, N.C. Gen. Stat. § 106-568.53A(4) requires all licensees to execute and maintain a written agreement with a State land grant university – essentially verifying that said licensee is a part of the pilot program. Given the 2018 Farm Bill’s removal of the pilot program, certain requirements have been waived by the NC Department of Agriculture and the Industrial Hemp Commission. Paul Adams, the NCDA Industrial Hemp Program Manager, explained how due to the current indeterminate state of NC and federal hemp laws, the Department and Commission are no longer requiring the “written agreement” provision in N.C. Gen. Stat. § 106-568.53A(4). Additionally, he clarified how the “research purpose is selected as a part of the application process and the research component is ultimately carried out by the applicant/licensee’s participation in the survey that is given at the end of every year. It is not required for you to actually provide or receive a written statement to either university nor does anything have to be specifically executed.” As a result, recent applicants have not been required to submit an executed written agreement with a land grant university or include a research component with an application – despite state law providing otherwise.
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