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Are Industrial Hemp and CBD Products Legal in North Carolina?

With the passage of the 2018 Farm Bill, Congress has authorized the cultivation of industrial hemp. Business and entrepenuers in the industrial hemp and CBD industry that hope to take advantage of this change must navigate a quagmire of federal and state regulations in order to avoid costly civil penalties and potential criminal exposure.

Under the new Farm Bill, industrial hemp is classified as part of the cannabis plant with less than 0.3% tetrahydrocannabinol (THC) concentration, based on the product's dry weight.  If a crop meets this criteria, it may be cultivated legally under a state's applicable agriculature program without being classified as marijuana--a Schedule I controlled substance.  This means that derivative products of industrial hemp, such as cannabidiol (CBD), may be legally produced, possessed, sold, and transported in interstate commerce so long as such action complies with relevant statutes and administrative regulations.

Despite the relaxation in federal law, cultivation of industrial hemp and its derivative products must still comport with the regulations of federal and state agencies.  For example, active derivative products, like CBD, cannot be added to food or dietary supplements without running afoul of the Food and Drug Administration (FDA). The FDA has issued warning letters to violators making unsubstantiated health and medical claims but, to date, has otherwise taken no other enforcement action. Businesses should understand that the addition of active derivatives to food or dietary supplements is prohibited by the FDA. Interestingly, the FDA has concluded on a case-by-case basis that non-active derivatives, such as hemp seed oil that do not contain CBD compounds may meet the classification of Generally Recognized as Safe ("GRAS") and may added to food and supplements.

The Farm Bill also directed state departments of agriculture to establish pilot programs to oversee and regulate industrial hemp.  North Carolina has established its own state pilot program which created and authorizes the North Carolina Industrial Hemp Commission to license growers and processors of industrial hemp. Applicantes must provide the Commission with the exact location of their proposed farming operation.  Prospective growers must also pay the Commission an initial license fee based on the number of acres cultivated; this fee can be assessed up to ten thousand dollars.  After the initial fee, growers will continue to pay annual fees of two hundred and fifty dollars, plus two dollars per acre cultivated. 

In addition to the licensing costs, growers have continuing regulatory obligations. They must maintain records demonstrating their compliance with state law,  and retain these records for a minimum of three years. Most importantly, growers under this program forfeit some of their constitutional search and seizure rights, as the licenses permit the Commission and law enforcement to inspect their farming operations without notice. Along with growers, processors of industrial hemp must also be licensed with the State under the pilot program.

Failure to comply with the Commission's regulations can result in a wide array of penalties, ranging from civil fines to felony charges.  Each compliance violation results in a two thousand five hundred dollar fine.  As for criminal penalties, providing misleading information to the Commission or tampering with an industrial hemp crop can result in a Class 1 misdemeanor.  Finally, any activity involving marijuana--as opposed to industrial hemp--in the designated cultivation area can result in a Class I felony, charged along with any other drug crime available under state law.  While these developments have opened up many new commercial opportunities, businesses should be cautions as they navigate this complex area of state and federal regulation.



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