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Recent years have seen major shifts in the legal landscape governing cannabis use. Nearly all states have passed varying levels of legalization, spanning medical and/or recreational use, resulting in a fast-changing patchwork of state laws and regulations for the growing field of cannabis products. Meanwhile, federal law now classifies hemp, a subtype of cannabis, as a legal agricultural commodity.
Despite these developments, federal law continues to deem hemp’s psychoactive cousin, marijuana, a Schedule I drug, in the same category as LSD and heroin. In addition, some states do not distinguish between hemp and marijuana at all and instead continue to take a hard line on the production and transport of both substances. As a result, cannabis-related businesses still face significant legal exposure related to the financing, production, transport, and sale of all cannabis products.
Learn how businesses, industry associates, and lawyers can better navigate the patchwork of state and federal laws related to cannabis activities.
How does the 2018 farm bill impact legalization of cannabis on the federal level?
Also known as the Agricultural Improvement Act of 2018, the 2018 farm bill removed hemp from the list of drugs under the Controlled Substances Act’s Schedule 1.
This reclassification means that hemp is now legal to grow, cultivate, process, and sell on the federal level. But strict criteria must be met. Under the legislation, a cannabis sativa plant must have less than 0.3% of the psychoactive compound tetrahydrocannabinol (THC) to be classified as hemp.
If this classification is met, hemp-related entities are no longer subject to Section 280E of the U.S. Internal Revenue Code, which forbids businesses that traffic in illegal substances from claiming normal business operating deductions other than for the cost of goods sold. In parallel, funding sources, such as federally chartered banks, no longer need worry about hypothetical money-laundering charges. In a more favorable lending and tax-advantaged environment, freed from federal prosecution risk, the industry is expected to see new public and private investment vehicles, as well as insurance options.
With hemp deemed a legal agricultural commodity, the farm bill moved hemp regulation to the U.S. Department of Agriculture, which is tasked with cementing standards “as expeditiously as possible.” Furthermore, the legislation establishes shared state and federal regulatory authority over hemp production and delineates steps that states must take to develop a plan to regulate hemp production, with final approval granted by the Secretary of Agriculture.
However, conflicting federal and state laws persist related to production and transport, as with Idaho’s Controlled Substances Act, which does not distinguish between hemp and marijuana. As a result, industry participants should closely review state laws in advance of any transport, and where possible, avoid jurisdictions that hold a firm stance on even hemp-related activities.