The Farm Bill 2018
For the US cannabis industry, December 20th 2018 will go down in history. It is indeed the date on which the Agriculture Improvement Act of 2018, also known as the 2018 Farm Bill, was signed into law by the President of the United States, Donald Trump.
Among the many different provisions to be included in the 2018 Farm Bill was the Hemp Farming Act of 2018. As its name suggests, the provision covers the area of hemp cultivation. It removed hemp and its extracts – including hemp-derived CBD – from Schedule I as a controlled substance and confirmed hemp as an ordinary agricultural crop once again.
This legislative sea-change has effectively opened the door to the commercial cultivation of the crop in the USA, which according to experts has the potential to generate billions of dollars in revenue and create thousands of jobs (1).
What is hemp?
Hemp is a variety of the cannabis sativa plant which is defined as containing very low levels of THC or Tetrahydrocannabinol (below 0.3% THC in the USA). It also has the particularity of containing very high levels of CBD (2). For this reason and unlike its scorned cousin marijuana, hemp does not induce a high.
Hemp had historically been cultivated for centuries in what is now known as the USA but previously known as a colony of the British Empire – and for millennia right across the world. As a matter of fact, according to MIT, hemp is likely to have been the first plant ever cultivated for textile fibre (3).
Fast forward to 2019 and hemp has proven to be a highly versatile raw material with over 25,000 possible industrial applications (2). Amongst other things, it can be used to manufacture paper, textiles, rope, animal feed, construction materials, biofuel or even bioplastics. However, it’s the use of hemp for the production of CBD (short for cannabidiol) that’s been grabbing the headlines.
But with so many useful applications, why had hemp been illegal for so long? The answer lies in its highly controversial amalgamation with marijuana for the last 80 years.
A brief overview of the legal status of hemp
In 1937, Congress passed the Marihuana Tax Act of 1937. The act marked the beginning of the decline of the hemp industry. As a result of the act, hemp was unfairly assimilated to marijuana (itself mainly used for recreational and medical purposes, as opposed to industrial applications). Heavy taxation was also introduced on both. The aim was to effectively suffocate the industry and bring about its demise.
This piece of legislation is said to have been pushed through Congress by influential businessmen within the timber industries, namely Randolph Hearst and the Du Pont family. Indeed, technological progress had made the use of hemp fibre a technically viable and economically sound alternative to wood pulp – hence jeopardizing their significant holdings in timber and its by-products.
Whilst the Marihuana Tax Act was deemed to be unconstitutional in 1969 and afterward repealed in 1970, it was immediately replaced with the Controlled Substances Act as Title II of the Comprehensive Drug Abuse Prevention and Control Act of 1970.
This legislation classed hemp as a controlled substance under Schedule I. Since them, hemp had classed alongside the most dangerous narcotic substances – even without the potential to cause a high. Surprisingly, whilst hemp was assimilated to marijuana and therefore completely illegal to grow in the USA, importing hemp from third countries became legal in 1998 – further illustrating the incoherence of the US legal system.
The 2014 Farm Bill (also aka Agricultural Act of 2014) signed by President Obama was a first step towards bringing hemp out of the shadows. The law loosened restrictions on hemp, allowing state agriculture departments and university research centres to grow the crop for research purposes.
The 2014 Farm Bill proved to be crucial in providing data and scientific evidence which helped to justify the reversal brought about by the Farm Bill 2018. Likely spurred on by the potential to unleash a massive wave of investment, innovation, growth and employment (4), lawmakers finally listened to reason.
Likewise, the legalization of hemp also represents a potential Eldorado for savvy entrepreneurs. Indeed, both domestic and international demand for hemp-derived CBD products such as CBD oil, CBD edibles or CBD flower is at an all-time high. However, as we’re about to see, CBD is still in a grey-area and operating a business in the CBD space is still studded with complexity.
The uncertainty around CBD remains
Despite the welcome clarity that now exists around hemp at federal level, the status of CBD as a molecule remains unclear. This poses a significant challenge for CBD businesses, such as those selling hemp-derived CBD food supplements or hemp-derived CBD flower.
Indeed, even though hemp and its extracts (including hemp-derived CBD) have been removed from the list of controlled substances; and despite the fact that, as a result of the rescheduling, the DEA no longer has authority over hemp cultivation, production or commercialization of products containing hemp or constituents of hemp; the Food & Drug Administration or FDA continues to claim that CBD can’t yet be used in food or drinks because it is a pharmaceutical ingredient approved for use in certain drugs.
According to a statement by FDA Commissioner Scott Gottlieb in response to the Farm Bill 2018: “[…] it’s unlawful under the FD&C Act to introduce food containing added CBD or THC into interstate commerce, or to market CBD or THC products as, or in, dietary supplements, regardless of whether the substances are hemp-derived. This is because both CBD and THC are active ingredients in FDA-approved drugs and were the subject of substantial clinical investigations before they were marketed as foods or dietary supplements. Under the FD&C Act, it’s illegal to introduce drug ingredients like these into the food supply, or to market them as dietary supplements.” (5)
So, all the hype about CBD becoming legal as a consequence of the Farm Bill 2018 is totally unfounded. The claim that CBD is now perfectly legal to sell and ship nationwide is just not true!
The challenges of operating a CBD business remain
The reality is that The Farm Bill 2018 has not actually made it any easier for companies manufacturing or retailing CBD food supplements or CBD flower to carry out some of the most basic businesses transactions which ordinary businesses can take for granted. Top of the list feature taking out insurance, securing financing or perhaps most importantly: accepting payments from clients or customers!
Indeed, a business can function without insurance – though it’s certainly not advisable. If it’s successful, a business can even grow organically, i.e. without the need for external funding – albeit perhaps at a slower rate.
However, a business simply can’t survive without taking payments. This holds especially true for online CBD businesses, which for obvious reasons can’t accept cash payments. Then, there’s also a trend towards digital forms of cash. Many clients and consumers prefer to pay electronically for their CBD oil or CBD flower – rather than with cash.
For this reason, it’s still imperative for businesses selling CBD oils, CBD flowers or any other products containing CBD, to secure the services of a reliable CBD flower merchant account.
How to get a CBD flower merchant account
If you’re a business considering entering the CBD space to sell hemp-derived CBD flower or CBD products, it’s important to get your priorities right. Before you invest too much money in developing your brand or sourcing your products, you need to think about getting a CBD merchant account.
Indeed, what’s the point of having an appealing brand and amazing products if you can’t take payments for them? Unfortunately, CBD business owners often find this out at their own expense – once it’s already too late. This applies to all CBD businesses, whether they are selling in a brick-and-mortar shop or via an eCommerce store (and no, PayPal won’t cut it!).
A great CBD merchant account provider can make or break a CBD business. Therefore, it’s very important to find the right one, and build a solid relationship with them.
When contacting a CBD merchant bank for the first time, make sure to inquire about their sign-up fee (if any), rolling reserves (a certain percentage of your business’ turnover which is held for a given period of time to cover any potential disputes or chargebacks) and transaction fees. Transaction fees are generally comprised of a fixed fee and a percentage-based fee, calculated on the total value of the transaction.
An outstanding CBD merchant account and payment gateway provider will offer merchant account services (where the payments received from customers are held), both online and in-store CBD flower credit card payment gateways (which enable businesses to actually authorize and capture the payments) as well as cashless ATMs for the CBD industry – which could prove to become an invaluable asset as the preference for digital forms of cash continues to grow.