Can I grow hemp in California?
The 2018 Farm Bill reclassified hemp from a controlled substance to an agricultural product. The hemp-derived CBD or hemp flower is now legal, as long as it contains less than 0.3% of TCH. For regular consumers, it meant the appearance of never seen hemp-derived products. For farmers, it became a new business opportunity.
Currently, there are around 550 registered hemp farmers in California. California’s climate and abundance of acres that could benefit from rotation with hemp, make California the best state for hemp cultivation. San Diego alone has around 90 hemp farms.
On January 15, 2021, USDA came up with final provisions for hemp production and compliance. The guidelines outline how hemp should be grown, harvested, tested, transported, and sold. In California, the USDA regulations are overseen by the CDFA. The CDFA, in its turn, outsources most of its licensing procedures to local counties. The agency allows two types of hemp growing licenses: hemp grower and hemp breeder. The license registration process is relatively stringent. Hemp growers must undergo FBI background checks and let counties know in advance what cultivar they will be growing.
Currently, there are no restrictions on buying and selling industrial hemp in California. Interstate transport of hemp is allowed, even to the states that are not cannabis-friendly. You can sell your hemp to anyone as long as a DEA licensed laboratory tested and approved your product. You are, however, need to comply with all transportation and shipping requirements. This means that DMV and USPS will be in charge of monitoring your hemp business. Can you grow hemp in your back yard? The answer is no, not in California. California allows the growth of personal marijuana but forbids the growth of personal hemp. If you decide to grow hemp at home despite the California law, you will get stuck with a product which is hard to transfer or ship.
The California Department of Health prohibits hemp-derived CBD from being added to food since the FDA has not approved CBD as a safe food ingredient. In its turn, marijuana deprived CBD is allowed as a food additive but only if a. it was produced by a licensed cannabis manufacturer b. strictly used in the cannabis product only. In other words, you cannot grow hemp and sell hemp-derived CBD for food production.
In my opinion, the hemp industry is oversaturated at this point. Hemp farmers do not make too much profit by selling biomass. Too many growers and the market is flooded. It is expensive to grow, process, package, and ship hemp. Besides, hemp has a shelf life, and the farmer needs to make sure that hemp reaches the customer before its shelf life expires. Many hemp growers became vertically integrated and that helped them to stay profitable. Besides growing and processing, they also make their own retail products. So, for a hemp grower who is just starting out, it makes sense to find buyers before heavily investing in hemp farming.
The good news is that hemp growers are not subject to the IRS 280E rule and can deduct all of their operating expenses. This means significantly less money spent on taxes and proportionally much bigger cash inflow. You do, however, must comply with the IRS 471c and maintain a proper cost accounting method. Hemp farmers can also benefit from several farm tax credits that are not allowed to cannabis growers. Bank and credit card processing companies are still wary of hemp businesses since they don’t always understand the difference between federally legal hemp and federally illegal cannabis. But with persistence, everything is possible, and a bank account can be opened.
To summarize the answer: yes, you are allowed to grow hemp in California for industrial use. You will, however, need to research your future buyers and comply with all licensing requirements. You can’t grow hemp in your backyard, even though hemp is legal on the federal level.
Daria Nagal, Cannabis CPA