On October 31, the U.S. Division of Agriculture (USDA) published its interim final guidelines for the production of hemp below the 2018 Farm Bill. Our firm has offered a broad overview of the guidelines and written about the possible influence of the testing guidelines on the hemp sector. These days we address disqualifying criminal history for the objective of participating in the hemp sector.
The interim guidelines outline the needs for States and Indiana Tribes hemp production plans, which should be authorized by the USDA. Amongst these needs is that if the producer is a enterprise entity, the State or Tribe should gather and submit information and facts that consists of:
- The complete name of the enterprise,
- Address of the principal enterprise,
- The place, complete name and title of the “important participants”,
- An e mail address if obtainable, and
- The EIN quantity of the enterprise entity
Applications for a producer license – regardless of whether submitted to the USDA, a State, or a Tribe – should be accompanied by a completed criminal history report for every important participant. This is mainly because the 2018 Farm Bill prohibits persons convicted of a felony connected to a controlled substance below State or Federal law from generating hemp for 10-years following the date of conviction. An exception applies to persons who had been lawfully developing hemp below the 2014 Farm Bill ahead of December 20, 2018 (the date that the 2018 Farm Bill was signed into law), and whose conviction occurred ahead of that date.
Who is a important participant? A important participant is:
- A particular person or persons who have a direct or indirect economic interest in the entity generating hemp, such as an owner or companion in a partnership
- Persons in a corporate entity at executive levels, like chief executive officer, chief operating officer and chief economic officer.
The guidelines expressly state that “key participants” do not contain other management positions like farm, field or shift managers.
USDA is requiring a criminal history records report for important participants mainly because these persons are probably to have manage more than hemp production, regardless of whether production is owned by an person, partnership, or a corporation. What does this imply? It signifies that the USDA considers these persons as accountable for guaranteeing compliance with the regulatory needs. For a corporation, if a important participant has a disqualifying felony conviction, the corporation might get rid of that particular person from a important participant provision – failure to do so will outcome in a denied application or license revocation.
What is unclear from the interim guidelines is how far into a internet of corporate relationships the requirement of identifying and offering criminal history reports for important participants’ extends. Contemplate a situation in which Organization X is applying for a hemp production license. Organization X is owned in equal components by two men and women and Organization Y. Organization Y’s ownership is comprised of 3 men and women and a trust. Study broadly, the requirement to recognize important participants and submit criminal history reports would apply to C-level staff of Organization X, 5 men and women and the beneficiaries of the trust and might contain the trustee. This is a fundamental instance of the sorts of corporate structures that we normally see and which can generate burdensome headaches when it comes to identifying “key participants.”
These of us operating in states that have legalized recreational marijuana are employed to reading the identification as extending by way of the complete corporate household. For instance, right here is a current post on this challenge California. And right here is a post about considerations for foreign providers when investing in US cannabis. As these articles clarify, economic interest disclosure needs can be extremely tricky to comply with and it might not generally be clear who has an “indirect” interest. The target of such regulations is to make sure that the government knows the identity of each particular person who might profit from the recreational marijuana enterprise.
It seems that might also be the case for hemp and there is a great deal much more to say on this and other subjects. So keep tuned as we delve additional into the interim guidelines governing hemp production in the coming weeks and please register for our webinar this afternoon at 12:00 PM.