August 2018 Compliance Journal: Wisconsin’s Industrial Hemp Pilot Research Program

Wisconsin has implemented an Industrial Hemp Pilot Research Program (Program) through 2017 Wisconsin Act 100 (Act). The Act allows Wisconsin farmers to obtain a permit to grow and sell industrial hemp. The Program is administered by Wisconsin Department of Agriculture, Trade and Consumer Protection (DATCP). Participants that obtain a license, and follow DATCP’s requirements, are exempt from criminal prosecution, and products made from industrial hemp, including CBD, are lawful under Wisconsin law. While the Act provides protections under Wisconsin law, Federal law is another matter that will be discussed later in this article.

WBA expects that Wisconsin financial institutions will begin receiving requests from Program participants for deposit and loan products. While the Act does not place any specific requirements upon financial institutions, it is still prudent to ensure customers are operating within the law, and such accounts should be treated as a greater compliance risk. The following article presents the Act for financial institutions to better understand the requirements placed upon Program participants.

2017 Wisconsin Act 100

The Act was enacted November 30, 2017 and permits participants to plant, grow, cultivate, harvest, sample, test, process, transport, transfer, take possession of, sell, import, and export industrial hemp in this state to the greatest extent allowed under federal law. It directs DATCP to directs promulgate rules regulating such activities. Thus, industrial in hemp in Wisconsin will depend on DATCP regulation. However, it is still important to understand the provisions of The Act.

The Act defines industrial hemp as:

The plant Cannabis sativa, or any part of the plant including the seeds, having a delta−9−tetrahydrocannabinol concentration of no more than 0.3 percent on a dry weight basis or the maximum concentration allowed under federal law up to 1 percent, whichever is greater. “Industrial hemp” includes a substance, material, or product only if it is designated as a controlled substance under the federal Controlled Substances Act under 21 USC 801 to 971 or the Uniform Controlled Substances Act under ch. 961 or both.

The definition, and scope of The Act, refers to the Federal Controlled Substances Act, which will be discussed later in this article.

To that extent, the scope of the Program is primarily one of research, but is broad in its applicability. Its purpose is to study the growth, cultivation, and marketing of industrial hemp. DATCP is to issue licenses and registrations to Program participants. Licensed participants, acting in accordance with the rules, receive safe harbor protections from prosecution when:

  • Growing hemp within 0.7% THC of the 0.3% allowable amount.
  • Buying and selling industrial hemp.
  • Buying, selling, and processing hemp from certified seed.
  • Processing hemp from certified seed.
  • Sampling hemp.

Controlled Substances Act

While the possession, production, and sale of hemp and CBD oil is not illegal in Wisconsin when certain requirements are met, there is still a lack of clarity as to how industrial hemp is regulated on a Federal level. The concern is whether the activities permitted by The Act would conflict with the Federal Controlled Substances Act (CSA). The CSA regulates the manufacture, importation, possession, use, and distribution of certain substances. Certain substances are exempt, but the status of hemp is still unclear. Specifically excluded from the CSA are the:

Mature stalks, fiber, oil or cake from seeds, any other compound, manufacture, salt, derivative, mixture, or preparation of mature stalks (except the resin extracted therefrom), fiber, oil, or cake, or the sterilized seed.

How this specifically applies to the industrial hemp industry in Wisconsin remains unclear. The Agricultural Act of 2014 (Farm Bill) was enacted in February of 2014 and authorizes certain agricultural programs for the period of 2014-2018. Contained within the Farm Bill are provisions relating to State Industrial Hemp Pilot Programs. In August of 2016, the Federal Government released a Statement of Principles on Industrial Hemp (Statement of Principles) in accordance with the Farm Bill.

Pursuant to the Farm Bill and the Statement of Principles the term “industrial hemp:”

Includes the plant Cannabis sativa L. and any part or derivative of such plant, including seeds of such plant, whether growing or not, that is used exclusively for industrial purposes (fiber and seed) with a tetrahydrocannabinols concentration of not more than 0.3 percent on a dry weight basis. The term “tetrahydrocannabinols” includes all isomers, acids, salts, and salts of isomers of tetrahydrocannabinols.

The Statement of Principles discusses how the Farm Bill legalized the growing and cultivating of industrial hemp for research purposes in States where such growth and cultivation is legal under State law, notwithstanding existing Federal statutes that would otherwise criminalize such conduct. The statutorily sanctioned conduct, however, was limited to growth and cultivation by an institution of higher education or State department of agriculture for purposes of agricultural or other academic research or under the auspices of a State agricultural pilot program for the growth, cultivation, or marketing of industrial hemp. 

Practical Considerations

While The Act authorizes the possession, production, and sale of hemp and CBD oil in Wisconsin, and the Farm Bill authorized State departments of agriculture to promulgate regulations to carry out these pilot programs, the status and treatment of industrial hemp under these programs is still in its infancy and financial institutions will want to stay abreast of developments as they occur. DATCP’s current licensure includes limited activities. The Program creates a framework, enough to get growing and processing started, but does not cover everything that’s possible under the Act. For example, while DATCP issues licenses to growers and processors, there is no “sale license” yet. So while The Act appears to authorize the sale of, for example, CBD oil, DATCP has yet to implement rulemaking regulating such activities.

Financial institutions working with customers participating the Wisconsin Program will want to fully understand the scope of those activities, and ensure the customer is in compliance with DATCP’s requirements and remains in compliance. WBA expects that inevitably, growers and processors will seek loan products, which will carry additional considerations. In addition to all of the above considerations, financial institutions will need to make risk assessments based on the activity of the potential borrower. For example, as discussed above there are certified seed requirements, and THC level requirements. If DATCP finds a grower to be in violation of such requirements, it may require the entire crop to be destroyed.

Conclusion

Financial institutions in Wisconsin will want to consider their policies and procedures related to customers engaged in the growing, processing, and selling of industrial hemp and related products. While such activities are permissible in Wisconsin, financial institutions will want to work carefully with their legal counsel to develop appropriate policies and procedures, and likewise work carefully with their customers, and treat such accounts as a greater compliance risk. WBA will continue to monitor and report the developments in the hemp industry to its members.

For additional resources consider:

2017 Wisconsin Act 100: https://docs.legis.wisconsin.gov/2017/related/acts/100.pdf

The Wisconsin Department of Justice notice on industrial hemp: https://www.doj.state.wi.us/news-releases/ag-schimel-and-stakeholders-resolve-questions-surrounding-datcp-industrial-hemp

The Federal Statement of Principles: https://www.gpo.gov/fdsys/pkg/FR-2016-08-12/pdf/2016-19146.pdf 

By, Ally Bates