Industrial hemp – and the CBDs derived from it – will soon become legal. Congress has just passed the 2018 Farm Bill, which contains important provisions that legalize hemp. The Farm Bill now awaits the President’s signature. However, there will be a one-year period during which the hemp treatment from the 2014 Farm Bill will remain in effect. Consequently, those state-based pilot programs will remain a requirement during 2019.

The Farm Bill maintains the current definition of industrial hemp, as parts of the cannabis plant with less than 0.3% THC on a dry weight basis. Hemp with higher concentrations of THC will be considered marijuana, and will be classified as a Schedule I substance. As part of the new legislation, however, the Controlled Substances Act will explicitly exempt hemp from the definition of marijuana. This should make it easier for industrial hemp and hemp-CBD companies to obtain access to financial services, bankruptcy court, trademark protection, patent protection, and federal crop insurance.

Another important implication for industrial hemp and hemp-CBD companies is that, once hemp is no longer classified as a Schedule 1 substance, Section 280E of the Internal Revenue Code will no longer apply. Section 280E prevents companies from taking most business expense deductions related to trafficking in Schedule I and II controlled substances. Consequently, industrial hemp and hemp-CBD companies will be able to take business expense deductions for things like employee pay, rent, supplies, equipment, etc., the same as any other conventional business. This will provide a significant boost to their profitability.

The new Farm Bill will also prohibit states and Indian tribes from interfering with the interstate transportation of hemp and hemp products like CBDs. Currently, there is legal uncertainty about transporting hemp and hemp-CBDs from a state that has an agricultural pilot program into a state that does not have such a program. Some non-pilot program states look the other way, while others take a more aggressive stance.

The US Department of Agriculture will have regulatory authority over industrial hemp.