Lobbying Affiliate: MML&K Government Solutions

Hemp Will Grow; Will It Sell?

August 2013

Kentucky farmers and politicians eye a new cash crop, but creating a market could take time


Industrial hemp was launched into the limelight less than a year ago when U.S. Sen. Rand Paul, Kentucky Agriculture Commissioner James Comer and a bipartisan group of legislators took to the stage at the Kentucky State Fair and promised to move the industrial hemp initiative forward. And move it forward they did.

Since that announcement, the Kentucky Hemp Commission has been revived; a foundation has been established to regulate industrial hemp production in Kentucky if legalized at the federal level; a key amendment to the federal Farm Bill allowing industrial hemp research at universities passed the House and is awaiting conference committee review; and the industrial hemp discussion has led headlines in papers across the state and nation.

"To be at the point we are today with the initiative has taken the bipartisan work of key individuals at the state and federal levels who recognize that this is an economic issue that could provide opportunities for our farmers and our rural communities in Kentucky," Comer said. "I want to be clear, it isn't going to be a crop to replace corn or soybeans. It will not replace tobacco. But it could be another piece of the agriculture diversification effort here in the state."

Comer believes that to give Kentucky farmers an advantage in the industrial hemp market, Kentucky needs to be one of the first states to allow farmers to cultivate this emerging corp. While it appears that congressional leadership is not yet ready to put production of industrial hemp in the hands of the farmer, there might be another way to open the door for production in the commonwealth as early as this fall.

"Recent developments make me believe that we may have been looking at the federal law the wrong way this entire time" said Brian Furnish, chairman of the Hemp Commission. "It may be legal to produce industrial hemp today, and if that is the case we are ready to move forward."

Opinion: Maybe it's already legal

In May, a legal opinion was issued on the implementation of Senate Bill 50 that excited many involved with the industrial hemp initiative.

"The opinion states that industrial hemp in SB 50 is exempt from the Controlled Substances Act (CSA), so long as the products from the plants grown in Kentucky are not used for human ingestion," Furnish said. "Luke Morgan, the attorney who wrote the opinion, formerly was with the Kentucky Attorney General's Office and served as the general counselor for the Kentucky Justice and Public Safety Cabinet, so he has experience in these issues."

Morgan, now an attorney at McBrayer PLLC in Lexington, centered his opinion upon a 203 Drug Enforcement Agency Final Rule (FR Doc 03-6805) titled "Exemption From Control of Certain Industrial Products and Materials Derived From the Cannabis Plant." This rule exempts certain items derived from the cannabis plant from CSA control, specifically industrial products and feeds not intended for human consumption - even if they contain tetrahydrocannabinols (THC).

"By virtue of the DEA's statement in 2003, there is no need to have that agency grant a waiver for the production of SB 50 compliant hemp, because the DEA has determined that, so long as the product is not absorbed in the body, it may contain unspecified levels of THC," stated Morgan in a memo to the Kentucky Department of Agriculture. "Furthermore, SB 50 authorizes only those hemp plants which have a 0.3 (percent) or lower level of THC for production, thus further reducing the ability of THC to be absorbed by the human from a SB 50 approved plant."

In his memo, Morgan recommends that Commissioner Comer begin the process of drafting state regulations to implement licensing requirements and other measures to assist law enforcement and production. He also recommends that the KDA inform the DEA that it will be in compliance with FR DOC 03-6805 and invite it to participate in the process.

"Our federal delegation asked for opinion of the law from the administration and DEA, and we are still waiting on a response from that request," Furnish said. "It is my intention to ask the DEA for their interpretation of this legal opinion to try to clarify this issue."

IF the DEA does not disagree with the opinion, Furnish said, KDA officials are going to start the process of establishing a licensing program to allow farmers to apply to grow industrial hemp.

"The ball is in the DEA's court at this point, so they need to tell us if this opinion is right or wrong," he said. "If it is not wrong, then we need to move forward."

The political push

The industrial hemp issues has been front page news throughout the spring as Kentucky's leaders on the both the state and federal levels began a legislative push to bring this native crop back into legal production.

State Sen. Paul Hornback, a Shelby County farmer, launches the industrial hemp discussion in the Kentucky Senate when he introduced SB 50 to establish a foundation for the regulation of industrial hemp crops if it were to be legalized be the federal government. The bill was championed by Comer, who worked with U.S. Sen. Paul and others to educate the legislature on industrial hemp.

"Education was critical to the final passage of SB 50. We were not promoting the legalization of marijuana; I do not support legalizing marijuana. This bill was not establishing a regulatory foundation for industrial hemp, a commodity similar to traditional agriculture crops," said Cromer, talking about efforts during the 2013 session. "At the state and federal level we were working together, in a bipartisan effort, to bring yet another economic opportunity to our farmers."

Already going strong in Kentucky, the hemp discussion was launched to the federal level in February when U.S. Rep Thomas Massie and U.S. Sens. Paul and Mitch McConnell introduced bills in Congress for the federal legalization of industrial hemp.

Massie sponsored HR 525, the Industrial Hemp Farming Act of 2013, in the House while Paul and McConnell were two of the four co-sponsors on the S. 359, the Industrial Hemp Farming of 2013. Both bills aimed to allow American farmers to cultivate and profit from industrial hemp. While both bills stalled in committee, their filings brought the industrial hemp debate the federal level.

Paul said by email that neither he nor U.S. Sen. Ron Wyden, D-Ore., the primary sponsors of the hemp amendment, serve on the Senate Committee on Agriculture, Nutrition and Forestry and were unable to offer it for consideration there. Instead they are attempting to build a coalition for floor consideration in the full Senate.

"We've come a long way in terms of education on the hemp issue, but we still have progress to make," Paul said.

"If you look back at those years leading up to the tobacco buyout," said Furnish, "it looked like it would ever happen, and then at the last minute it all came together. I think if the legalization of the production of industrial hemp happens in Congress, it will happen the same way."

Versatile crop, uncertain market

"Kentucky has the perfect climate and soil to produce industrial hemp and the hark-working farmers ready to grow it," Comer proclaimed last August when he announced the initiative.

Canada has industrial hemp production that is processed into fiber and oil. However, while farmers here might be ready to sow a new crop, there is as yet no hard data showing it would be profitable.

"We are doing economic research here at the college looking at the potential markets, cost of production and probability," said Scott Smith, dean of the UK College of Agriculture, Food and Environment. "The problem at this point is that there is very little concrete information that relates to Kentucky markets."

In July, the Agriculture Economics Department at UK released a study that attempted to answer the question: "Would industrial hemp production be beneficial to the overall Kentucky agricultural economy?" Analysis of world trade and production trends in industrial hemp along with an in-depth look at the Canadian industry identified that demand for products made with industrial hemp in the United States is relatively small, but it is growing.

"Industrial hemp is an extremely versatile crop that is growing more and more popular each year," Paul said.

Overseas auto manufacturers use hemp fiber to make body panels, doors and insulation, he said.

"Obviously for Kentucky, with our robust auto industry, there is a lot of potential there," Paul said. "I have spoken with several other manufacturers, and there is interest in producing paper, textiles, biofuel and hempcrete, a concrete-like substance used for construction, all from hemp grown in the commonwealth."

As for the farmer, several factors required to definitively answer whether the crop would be profitable remain unknown. The UK hemp study points out that many aspects of risk for industrial hemp are difficult to determine. It cites production risk from fluctuating yields, price volatility for fiber and seed, and policy risk because of the possibility of changing legal conditions.

Critical to an emerging new industry, the study also points out, would be development of local infrastructure and a local market in Kentucky.

Comer says he and other leaders recognize the need for infrastructure development if industrial hemp is legalized. He said established agriculture businesses in the state are ready to get involved.

"Vaughn Tobacco in Lexington is interested in processing industrial hemp, and Caudill Seed (of Louisville) wants to work on the development of native hemp seed and the processing of the product," Comer said. "We are working behind the scenes to get all the players in place if we are approved to begin legal production of the crop, and when it happens we will be ready."

"We all know there is uncertainty in new markets but as with any new industry, the infrastructure, research, and market will take time to develop," said Furnish. "The fact is we will never know what the potential will be for farmers or how much production the market will bear until we are legally able to produce the crop. That is all we are asking for is the chance, and hopefully soon our farmers will have just that opportunity."

Kara Keeton is a correspondent for The Lane Report. She can be reached at editorial@lanereport.com .

A machine at a Canadian hemp processing facility extracts oil from hemp seeds. The oil has a high content of essential fatty acids such as omega-3 and omega-6, and is used in foods and in cosmetics and other body care products.

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