Revised TDA Hemp Production Plan Part I: License Requirements

By: Paul Stevenson

To conform with the United States Department of Agriculture’s (“USDA”) hemp production plan, the Texas Department of Agriculture (“TDA”) proposed its own hemp production rules and regulations (the “TDA plan”) to the Texas Register in December of 2019. The proposed rules were then revised and released on Friday, January 10th, and they are open to public comment until Monday, February 10th. Comments are to be submitted to Philip Wright, Administrator for Agriculture and Consumer Protection, Texas Department of Agriculture, P.O. Box 12847, Austin, Texas 78711, or by email to [email protected]. If dissatisfied with any provision of the TDA plan, it is highly recommended to raise and send concerns to the TDA during this window for public comment.

After the USDA’s plan is enacted, and upon approval of the TDA plan, hemp producers may apply to legally grow and cultivate hemp in Texas. The TDA anticipates implementation of its program for hemp production in Texas by April of 2020. However, this may well be an unrealistic goal, as the USDA is still accepting public input on its proposed rules.

In this Blog Series, we will address the additions and/or variations included in the revised rules regarding application and license requirements for hemp producers, methods and regulations for sampling and testing hemp, harvest matters, violations of the TDA plan, hemp transportation rules, and hemp seed requirements.

Part I: License Requirements

Schedule of Fees

In order for a person or business entity to become a licensed hemp producer, they must first pay the mandatory fees imposed by the TDA. For each license application, hemp producers are required to pay at least $100. See 4 TAC § 24.5(a). Hemp producers must annually renew their licenses before they expire since there is no automatic renewal. The renewal fee is at least $100 per application. See id. at § 24.5(b). Thankfully, under the TDA plan, the renewal application process is identical to that of the initial application process. Additionally, the TDA is requiring a “participation fee” of at least $100, which shall be assessed for every facility, lot, and processor registration. See id. at § 24.5(c). Also, if a hemp producer opts to modify the facility where she handles or produces hemp, a minimum of a $500 facility modification fee must be paid.

For the sampling and collection of hemp, the TDA requires a $300 fee. See id. at § 24.6(b). Hemp license holders are responsible for any other fees associated with hemp sampling and collection, for all fees regarding the transportation of the sampled/collected hemp that is sent to the registered laboratory, and for all testing fees incurred by the registered laboratory.

Other fees imposed by the TDA, include the following:

(a) The fee for each Department-issued transport manifest shall be in an amount established by the Department.
(b) The fee for the organic certification of hemp shall be in an amount established by the Department.
(c) The fee to participate in an optional marketing program shall be in an amount established by the Department.
(d) The fee for certification of seed or plants shall be in an amount established by the Department. Id. at § 24.7.

For fees that are to be established by the TDA, it is recommended to monitor the TDA’s website: https://texasagriculture.gov/RegulatoryPrograms/Hemp.aspx.

Ineligibilities Under the TDA Plan

It is important to understand who is ineligible to acquire a hemp production license. Any person under the age of 18 is ineligible for licensure under the TDA plan. Additionally, a person who has had a hemp license revoked is ineligible under the TDA plan for five years from the revocation date. See id. at § 24.9(b). Under the TDA plan, if a person has a felony conviction relating to a controlled substance, they are automatically restricted from participating for 10 years from the time of their conviction. The TDA imposes an additional restriction that a person with a controlled substance felony conviction cannot be a “governing person of a business entity that holds a License . . .” Id. at § 24.9(c). However, an exception applies for a person who was already legally producing hemp under the 2014 Farm Bill, and whose felony conviction occurred prior to passage of the 2018 Farm Bill (December 20, 2018). See id. Furthermore, any person who materially falsifies their license application information will be ineligible to participate in the TDA plan. Lastly, a person is not eligible for a sampler license “unless they have a valid contract with the Department to conduct sampling and collection under the Department’s hemp program.” Id. at § 24.9(e). Termination or expiration of this contract renders the sampler license invalid.

License Application Requirements for Hemp Producers

Now that we have covered who is ineligible for licensure, we can transition our attention to who is eligible and how a person or business entity goes about getting licensed to produce hemp in Texas.

Under the TDA plan, any person or business entity seeking to produce, cultivate, or store hemp must annually submit a completed license application to the TDA and annually pay the required application, renewal or modification fee (see section on Schedule of Fees above). Licenses will not be issued unless the completed applications are sent online to the TDA, all required fees have been paid, there is no falsified information, and “the applicant has completed a Department mandatory orientation course.” Id. at § 24.8(d). For applicants seeking a sampler license, an additional TDA sampling and collection training course must be completed. See id. at § 24.8(d)(4). Moreover, a license shall not be issued unless the applicant’s criminal history confirms that none of the “key participants” covered by the license have been convicted of a controlled substance felony. See id. at § 24.8(d)(6). The TDA plan defines a “key participant” as the following:

[A] sole proprietor, a partner in a general partnership, a general partner in a limited partnership, or a person with executive managerial control in an entity. A person with executive managerial control includes persons such as a trustee, independent or dependent executor or administrator of an estate, chief executive officer, managing member, manager, president, vice president, general partner, chief operating officer and chief financial officer, or their equivalents. This definition does not include non-executive employees such as farm, field, or shift managers that do not make financial planning decisions and that do not vote or exercise control of an entity. Id. at § 24.1(41). 

Additionally, all applicants and key participants must annually undergo criminal background checks and pay the associated fees assessed by the TDA. See id. at § 24.11. If a key participant who was not part of the initial application process is subsequently changed or added, an additional criminal background check must be done and paid for by the license holder. See id. A license will not be issued to an applicant whose license has been terminated or suspended.

The TDA requires strict adherence to its specific license application guidelines. Under the TDA plan, for each license application, the following information is required:

  1. full name, Texas address, telephone number, and email address; 
  2. if the applicant is submitting an application on behalf of an entity, the full name of the entity, the principal Texas business location address, the full names, titles, addresses, and emails of key participants, the full name, title, and email of the applicant who will have signing authority, and the Texas taxpayer ID number;
  3. for a producer or handler license;
    (A) street address and geospatial location including GPS for each facility where hemp will be cultivated or stored; and
    (B) proof of ownership or control over the location where hemp will be cultivated or stored.
  4. for a sampler license, proof of a contract with the Department to conduct sampling and collection under the Department’s hemp program; and
  5. all other information required by the Department. Id. at § 24.8(e). 

Additionally, applicants must be in good standing with the TDA, and they must not have a criminal conviction (as described in the Ineligibilities Section). See id. at § 24.10. It is also important to note that if hemp producers make any material changes to their application’s information (e.g., addition of a new location of hemp cultivation, a change in key participants, etc.), a license modification is mandatory.

Lastly, if a hemp producer’s application is denied, she may appeal the denial to the TDA. If the TDA denies the appeal, the applicant “may request a formal adjudicatory proceeding within 30 days in writing to review the decision [and] [s]uch proceeding shall be conducted pursuant to Chapter 12 of the [Texas Agriculture] Code.” Id. at § 24.12(c).

License Holder Requirements

Hemp license holders must adhere to the conditions and terms required by the TDA to maintain continuing licensure. If a licensed hemp producer fails to comply with the TDA’s procedures and requirements, enforcement action may be imposed, including administrative penalties, mandatory corrective action plans, application denial, license revocation, and/or further civil or criminal action by other state and federal agencies.

Under the TDA plan, hemp license holders must consent to entry and inspection, with or without cause or advance notice, by the TDA or U.S. authority of all hemp locations listed in any application. See id. at § 24.13(a). Additionally, hemp license holders, at their own expense, and in accordance with DEA regulations, must destroy any hemp material in excess of the acceptable hemp THC level, any hemp plant in a location not licensed by the TDA, and any hemp plant unaccounted for under the TDA reporting requirements. See id. at § 24.13(b). Hemp license holders shall not assign, sell, or transfer their licenses nor interplant hemp with any other crop, unless express written approval is given by the TDA. Moreover, they must comply with all the TDA restrictions regarding movement of hemp plants and shall have the appropriate TDA-issued transport manifest available for inspection when moving hemp. If hemp license holders have any interaction with U.S. authority, they must, within 24 hours, inform the TDA of the interaction via phone call and, within 3 days, describe the matter in writing to the TDA. Theft of any plants or materials containing cannabis must also be reported to the TDA. Lastly, hemp license holders shall report to the USDA and/or Farm Service Agency (“FSA”), their license numbers, all addresses and locations where their hemp will be produced, the total acreage and/or greenhouse indoor square footage to be dedicated to hemp production, and “the total acreage or square footage of hemp planted, harvested and if applicable, disposed.” Id. at § 24.13(k). Any changes in facility location, total acreage, or greenhouse indoor square footage dedicated to hemp production must also be reported to the USDA and/or FSA. See id. at § 24.13(k)(3).

Prior to handling or producing hemp, and in addition to the above requirements, license holders must obtain “lot permits” from the TDA. “Lot permits” are documents issued by the TDA “authorizing a license holder to produce or handle a hemp crop within a lot.” Id. at § 24.1(51). Furthermore, the TDA defines a “lot” as

[A] contiguous area in a facility, field, greenhouse, or indoor growing structure containing the same variety or strain of cannabis throughout the area. Id. at § 24.1(46). 

To acquire these lot permits, hemp license holders must submit their “[l]icense number, geospatial location of the lot where the hemp variety will be planted, the facility where the lot is located, and anticipated dates of cultivation.” Id. at § 24.17(a). Any change in the hemp variety lot’s geospatial location will be considered by the TDA to be a new lot.

Under the TDA plan, cannabis plants can be “transplanted” lot-to-lot, but lot permits must be acquired (and the associated fees must be paid) for both the initial cultivation area and for the final transplantation area. See id. at § 24.15(a)(1). The TDA defines “transplant” in the following manner:

[T]o move a fully germinated seedling, mature plant, cutting, or clone from one lot and to replant it in another permanent lot under the control of the same license holder, for later harvest by the same license holder. “Transplant” also means a plant, cutting, or clone that has been moved from its initial lot of germination or cultivation for the purpose being transplanted. Id. at § 24.1(68).

In the lot permit applications, both areas of cultivation must be indicated, along with the anticipated dates for transplant. See id. at § 24.15(a)(2). Additionally, if the cultivation area is not in the same facility as the final transplantation area, then the license holder “must request a transport manifest from the Department before transporting a lot of cannabis plants to a separate facility . . .” Id. at § 24.15(c). According to the TDA plan, a “transport manifest” is defined as

[A] shipping certificate, cargo manifest or transport document developed by the Department or a U.S. authority, authorizing transport of a hemp product within the State of Texas, any other state, the United States of America, or its territories. Id. at § 24.1(69).

The transport manifest will be valid for five days from the date it is issued. See id. at § 24.15(c). Furthermore, if a license holder sells or transfers a lot of cannabis plants to another license holder for transplant, that is to be considered a harvest. See id. at § 24.15(d). Lastly, it is important to note that “no person shall bring into the State of Texas a cannabis transplant that originated from cannabis plants germinated outside of the State of Texas.” Id. at § 24.42. Thus, under the TDA plan, only cannabis transplants originating from germination in Texas can be cultivated by license holders. See id.

License Holder Restrictions and Recordkeeping

The TDA also establishes certain restrictions on hemp license holders. Under the TDA plan, cannabis that is not hemp shall not be produced, and any hemp that is produced, must be on an approved application location. Additionally, the TDA states that “hemp shall be physically segregated from other crops unless prior approval is obtained in writing from the Department.” Id. at § 24.14(c). Moreover, the TDA requires that “[a] person who holds a producer and sampler license with the Department shall not conduct the sampling and collection of their own hemp product.” Id. at § 24.14(g). Uniquely, the TDA mandates that applicants and license holders not include on their applications any real property “that is not owned or completely controlled by the applicant or license holder, to produce hemp.” Id. at § 24.14(d). Under the TDA plan, there is no current definition explaining what “completely controlled” means. Due to the ambiguity of this provision, hemp producers and others in the Texas hemp industry should raise concerns during the window for public comment. The TDA further states the following restrictions:

(e) A license holder shall not produce or handle hemp or other cannabis on real property owned by or leased from:
(1) a person who is ineligible for licensure under the Department’s hemp program; or
(2) a person whose application or renewal application for participation in the Department’s hemp program was denied, or whose license was terminated or revoked. Id. at § 24.14(e).

This provision might create insurmountable burdens for hemp license holders leasing land from an ineligible person or a person who becomes ineligible under the TDA plan. These potential issues appear to be out of license holders’ control, so it is important to reemphasize that hemp license holders and others in the hemp industry seeking clarity on unclear provisions such as this one should address all concerns during the window open for public comment. 

For a hemp license holder who chooses to produce and/or handle hemp in a facility other than the one specified by geospatial location in the original application, she must pay a $500 fee and “register the new facility by submitting a facility addition or modification request form and obtain written approval from the Department for the new facility.” Id. at § 24.16(a). If the geospatial location of a formerly registered facility changes, a hemp license holder must pay a $500 fee, submit a facility addition or modification request form, and get written approval from the TDA for the modified facility. See id. at § 24.16(b). Once a hemp license holder receives approval from the TDA, she may grow, handle, and/or produce hemp at the new or modified facility. See id. at § 24.16(c).

Under the TDA plan, any persons seeking to process nonconsumable hemp products must register with the TDA. Only registered processors are permitted to process nonconsumable hemp products in Texas. See id. at § 24.19.

The TDA appears to adopt the USDA’s regulations on reporting and recordkeeping matters. For a minimum of three years, hemp license holders must maintain and make available for inspection by the TDA and U.S. authorities all reports and records regarding the acquisition, handling, production, sampling and collection, disposal, and transport of hemp and hemp seeds. See id. at § 24.18. The TDA will have access to submitted confidential data and business information and may share this information with applicable U.S. authorities; however, this data and information may be prevented from being disclosed by making a “separate written communication to the Department specifically identifying the information sought to be protected by the license holder.” Id. at § 24.18(c).

Preview of Part II:

In Part II of this Series, we will explore the sampling and testing requirements imposed by the TDA on hemp license holders.

Ritter Spencer, PLLCRevised TDA Hemp Production Plan Part I: License Requirements

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