Interstate Commerce in the Hemp and THC Cannabis Industry

Kim Stuck, CEO and founder of Allay Consulting | Image Credit: © Kim Stuck

The Hemp Industry and Interstate Commerce

The 2018 Farm Bill marked a significant milestone for the hemp industry in the United States by legalizing hemp and hemp-derived products at the federal level. Hemp, defined as cannabis with less than 0.3% tetrahydrocannabinol (THC) content by dry weight, was removed from the list of controlled substances, distinguishing it from marijuana, which remains federally illegal. This legislative change opened the door for the interstate commerce of hemp and its derivatives, such as cannabidiol (CBD) and other hemp derived cannabinoids.

Compliance Requirements

Interstate commerce in the hemp industry is regulated by a combination of federal and state laws. Key compliance requirements include:

1. Hemp Licensing: Farmers and producers must obtain appropriate licenses to grow and process hemp. These licenses are typically issued by state departments of agriculture, which operate under guidelines approved by the United States Department of Agriculture (USDA).
2. THC Testing: Hemp products must undergo testing to ensure they contain less than 0.3% THC. This testing is crucial for maintaining compliance and avoiding legal issues, as products exceeding this threshold are considered marijuana under federal law.
3. Transportation Regulations: When transporting hemp across state lines, producers and distributors must adhere to regulations set forth by both the USDA and individual states. Documentation, such as certificates of analysis (COAs) and transport manifests, is often required to verify the legality of the shipment.
4. State-Specific Rules: Despite federal legalization, states have the authority to impose additional regulations on the cultivation, processing, and sale of hemp. Producers must navigate this patchwork of state laws to ensure compliance, especially when engaging in interstate commerce. Many states also have regulations specifically regarding intoxicating hemp cannabinoids such as Delta-9, Delta-10, Delta-8, THC-O, hexahydrocannabinol (HHC), and more. Every state is different, so you need to understand the state regulations of the state you are not only producing in, but also the states you are selling into.

Challenges and Solutions

The hemp industry faces several challenges in interstate commerce, including:

1. Inconsistent State Regulations: Variations in state laws can create confusion and compliance difficulties for businesses operating in multiple states. To address this, companies often employ compliance officers or legal teams to stay informed about regulatory changes and ensure adherence to all applicable laws.
2. Law Enforcement Issues: Despite federal legalization, hemp shipments have occasionally been seized by law enforcement officials unfamiliar with the nuances of hemp versus marijuana. Clear labeling, proper documentation, and proactive communication with law enforcement agencies can help mitigate these issues.
3. Quality Control: Ensuring consistent product quality and THC levels across state lines requires rigorous testing and quality control measures. Many companies invest in advanced testing technologies and third-party certification to maintain compliance and consumer trust.
4. New Science Everyday: The cannabis industry is constantly changing when it comes to newly discovered cannabinoids causing new regulations to change constantly, and markets to be inconsistent. You can’t stay ahead of everything, but being in compliance with Food and Drug Administration (FDA) current good manufacturing practices (cGMP) and state laws when making a product to sell to another state protects your company no matter what kind of product you are making.

Potential Impact of Federal Legalization of THC Cannabis

The federal legalization of THC cannabis would be a transformative event for the industry, with significant implications for interstate commerce. If THC cannabis becomes federally legal, it is expected that the following changes and developments would occur:

Regulatory Framework

1. Federal Oversight: The federal government would likely establish a regulatory framework for THC cannabis, similar to the existing framework for wholesale food or supplements. This would include licensing requirements, product testing, advertising restrictions, and age limits for purchase and consumption. These would be similar to standards that already exist when receiving a cGMP certification from an accredited third party. Many companies are already getting these kinds of certifications now in order to be prepared in advance.
2. Uniform Standards: Federal legalization could lead to the development of uniform standards for THC potency, product labeling, and testing. This would simplify compliance for businesses operating in multiple states and provide greater consistency for consumers. Many people believe that the federal government will adopt already existing ASTM cannabis standards, the way they have in the past in industries like aerospace and cement manufacturing.
3. Interstate Commerce Guidelines: Clear guidelines for the interstate commerce of THC cannabis products would be established, reducing the current uncertainty and legal risks associated with transporting these products across state lines.

Market Expansion

1. Increased Market Access: Federal legalization would allow THC cannabis businesses to expand their operations across state lines without fear of legal repercussions. This would open up new markets and growth opportunities for companies of all sizes.
2. Investment and Innovation: Legalization would likely attract significant investment to the THC cannabis industry, spurring innovation in product development, cultivation techniques, and distribution methods. Increased competition could lead to higher quality products and lower prices for consumers.
3. Cross-Border Partnerships: Businesses could form strategic partnerships and supply chains that span multiple states, optimizing production and distribution efficiencies. This could lead to the emergence of national brands and the consolidation of the industry.

Compliance Considerations

1. Transition Period: A transition period would be necessary to allow businesses and regulators to adapt to the new legal landscape. During this time, companies would need to update their compliance practices, obtain new licenses, and ensure adherence to federal regulations. This transition period could be 30 days or a year, we just don’t know. Being prepared in advance is a great way to prevent shutdowns and fines, and implementing these standards will take around six months on average, so start now if you want to be prepared.
2. State vs. Federal Regulations: States would retain the authority to impose additional regulations on THC cannabis, similar to how they regulate wholesale foods or supplements. Businesses would need to navigate both federal and state requirements, but the overall regulatory environment would likely be more predictable and cohesive.
3. Interstate Transport: Clear rules for the transport of THC cannabis products across state lines would be established, reducing the risk of legal issues and seizures. Companies would need to comply with federal transport regulations, including proper documentation and security measures.

Social and Economic Impacts

1. Job Creation: Federal legalization of THC cannabis would create jobs in cultivation, processing, distribution, retail, and ancillary industries such as marketing, legal services, and technology. This could provide a significant boost to the economy, particularly in states with established cannabis industries.
2. Tax Revenue: Legalization would generate substantial tax revenue for federal and state governments. This revenue could be used to fund public services, infrastructure projects, and social programs, benefiting communities across the country.
3. Public Health and Safety: Federal regulation could lead to improved product safety standards, reducing the risk of contamination and ensuring consistent products. cGMP certification mitigates risk and is the same as being regulated by the FDA. Many companies are becoming cGMP certified now to ensure their products are as safe as possible and to get ahead of their competitors.

The hemp industry has made significant strides in navigating the complexities of interstate commerce since the 2018 Farm Bill. By adhering to strict compliance requirements and overcoming various challenges, the industry has established a foundation for growth and innovation. If THC cannabis becomes federally legal, the landscape of interstate commerce in the cannabis industry will undergo a profound transformation. Federal oversight, uniform standards, and clear guidelines for interstate transport would create a more predictable and cohesive regulatory environment, unlocking new market opportunities and driving economic growth.

As we move towards a potential future of federal legalization, it is essential for businesses, regulators, and consumers to stay informed and engaged in the evolving legal and regulatory landscape. By doing so, we can ensure that the cannabis industry continues to thrive while prioritizing public health, safety, and compliance.

About the Author

Kim Stuck is the CEO and founder of Allay Consulting. Direct correspondence to: kim.stuck@allayconsulting.com.