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Federal Hemp Regulations Trip Up Vermont Growers

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In 2018, Sam Bellavance decided to take a chance on cannabis. That year, Congress legalized commercial production of hemp, and Bellavance saw an opportunity to diversify his family's dairy farm.

Bellavance started growing hemp — cannabis without the elevated levels of the psychoactive substance THC that produces a high — on 10 acres in Alburgh. He hoped to establish himself in the burgeoning business of CBD, a nonintoxicating cannabis compound marketed as an alternative health product. Bellavance's company, Sunset Lake Craft CBD, created tinctures, topical oils and even dog snacks. Sales increased each year.

So when Vermont legalized the other kind of cannabis — the one with high-inducing levels of THC — Bellavance saw a chance to diversify even further. Last year he planted a large marijuana crop, keeping the new venture separate from his hemp/CBD business.

But in March, Bellavance was contacted by someone in the U.S. Department of Agriculture's hemp production program. In an email, the agency representative wrote that "regulations don't allow for a hemp-licensee to also be producing marijuana, even if licensed to do so by a state program." The email said Bellavance would need to surrender either his federal hemp license or his state recreational cannabis license.

He was flummoxed.

"It's like saying you can grow apples but you can't grow pears," Bellavance said.

While dozens of states have legalized marijuana, it remains illegal under federal law, classified as a Schedule I drug on par with heroin, LSD and ecstasy. That means those growing for Vermont's recreational marijuana industry aren't eligible for federal loans, tax breaks or relief during emergencies such as this summer's flooding.

Since 2013, federal authorities have taken a hands-off approach and have not typically prosecuted people participating in regulated markets in states where marijuana has been legalized. But as the USDA's notice to Bellavance shows, federal regulators are still watching — and are ready to crack down, sometimes seemingly at random.

No one interviewed by Seven Days, including an attorney who specializes in CBD and hemp compliance, had previously heard of a situation similar to Bellavance's. At least two of the 33 Vermont hemp growers registered with the USDA are also licensed by the state to cultivate weed. Neither returned requests for comment. A USDA spokesperson did not respond to repeated requests for comment, even after agreeing to answer written questions.

Vermont regulators, too, were stumped by Bellavance's situation and are seeking clarity as they grapple with a largely unregulated hemp market and unpredictable federal oversight.

"It's not even just confusion amongst the hemp farmers," said James Pepper, chair of Vermont's Cannabis Control Board, which regulates the state marijuana market. "I think there's confusion at the USDA about if this is possible or not."

Travis Samuels, co-owner of ZION Growers, an industrial hemp processor in St. Johnsbury, lamented the lack of clarity. "It is hard for smaller farms to know what they can and can't do and who they can and can't work with," he said. "They can't just operate as a normal everyday business, which is really the whole idea of legalization."

Vermont wasn't the first state to legalize recreational marijuana, but it was a trailblazer in the hemp world. The plant has been legal to grow in Vermont since 2013, before Congress passed the 2014 Farm Bill, which allowed states to set up hemp pilot programs.

"We designed a program that had standards for pesticides, pathogens, potency, mycotoxins, yeast and mold," said Cary Giguere, who spent almost 30 years with the Vermont Agency of Agriculture, Food and Markets. He is now compliance director for the Cannabis Control Board. "No other state in the country was doing this."

In the early days, hemp was a niche crop, and growers had trouble sourcing seeds because the plant was illegal under federal law. But by 2017, farmers were seeing green amid the growing popularity of cannabidiol, aka CBD.

Congress gave large-scale hemp operations the green light in the 2018 Farm Bill. The number of licensed hemp growers in Vermont spiked from 85 in 2017 to 461 in 2018 and peaked the next year at 985.

But an oversupply and drop in demand for CBD caused a glut. The price of hemp plummeted in 2019, and farmers were left in the lurch. Many transitioned to the legal marijuana market in 2022, once Vermont started issuing licenses for the nascent industry.

Bellavance applied for and received the biggest outdoor weed license, Tier 5, which allowed him to grow up to 20,000 square feet of the crop.

By that time, Vermont had relinquished its hemp program in favor of the feds'. That meant that the USDA would license local growers, although the state continues to regulate finished products. Bellavance, who was still making good money off his CBD line, had gotten one of the federal hemp licenses.

Things were fine until the USDA email appeared in his inbox in March. The agency's agricultural marketing specialist wrote that he'd spotted Bellavance's two cannabis businesses while looking at the Vermont secretary of state's website.

A concerned Bellavance contacted Chelsie Spencer, a Texas-based CBD and hemp compliance attorney. Spencer believes the USDA — which in emails referred to Bellavance's THC enterprise as an illegal "associated entity" — is wrongly interpreting the law. The term "associated entity" is never defined in the Farm Bill. And, she argues, Bellavance's two businesses are controlled by separate limited liability companies, in accordance with separate sets of regulations. Therefore, she thinks he's in compliance.

The USDA is "stretching the interpretation [of the Farm Bill] here," Spencer told Seven Days.

There are other confusing elements of that 2018 legislation. Pepper, the control board chair, thinks the federal definition of hemp is "both overly specific and overly broad." It clearly defines what THC levels are allowed in hemp products — no more than 0.3 percent — but leaves out guidance on other potentially intoxicating cannabinoids produced by the cannabis plant.

Many of those compounds can be extracted and marketed, which has led to an influx of unregulated hemp-derived products that can get you high. They're circulating nationally but also ending up in Vermont, potentially undercutting the legal weed market.

"There are no regulations. There are no restrictions," Pepper said. "And [the products] are being shipped through the mail. They're selling them online. We're seeing them here in Vermont."

Regulators in other states with a legal marijuana market are reporting a similar influx of unregulated hemp products, according to Pepper. He and other officials wrote a letter to federal legislators asking for changes in hemp guidelines in the next iteration of the Farm Bill, which is due for an update this year. Given the political chaos on Capitol Hill, it's unclear when Congress will act.

For farmers such as Bellavance who are trying their best to follow federal guidelines, the consequences of the 2018 Farm Bill are being felt now.

"He did everything that one can possibly do," said Pepper, "and he still got caught in the crosshairs."

Others, such as Dan Querrey, co-owner of Pittsford-based Vermont Terps Cannabis, feel misled by discrepancies in federal and state THC regulations. Following federal regulations, Querrey invested millions in his licensed hemp business. He grew plants with a THC content of less than 0.3 percent, as required by the feds. But his final products, which are marketed as containing CBD, had greater than 1.5 milligrams of THC per serving, which is not allowed under Vermont's guidelines.

The Cannabis Control Board fined Querrey $20,000 and required him to apply for a license in the marijuana market, which has made banking and filing taxes significantly more difficult. His expenses have escalated.

"We had so much surplus product from three years of growing — and, with all of the confusion, no ability to market it," Querrey said. "Nobody knows what's going on."

As Querrey experienced firsthand, when hemp growers decide to grow for the legal marijuana market, they forfeit their right to federal support — including USDA loans, Federal Emergency Management Agency assistance, federal grant money and crop insurance.

"It's this huge barrier of entry where you have to basically risk your entire existing farm if you're going into cannabis," Bellavance said. This summer, for instance, Vermont's cannabis farmers didn't have access to federal emergency relief funds in the wake of historic flooding.

Change could be on the horizon. President Joe Biden has recommended that the U.S. Drug Enforcement Administration change marijuana from a Schedule I to Schedule III drug. If adopted, the shift would represent the biggest change in federal cannabis policy in 40 years, although growing weed would still be illegal under federal law. But the recategorization would reduce associated criminal penalties and make companies eligible for standard business tax breaks, thus lowering the costs of doing business in legal marijuana.

For now, though, Bellavance has decided to surrender his hemp license. He didn't grow the crop this summer and has been relying on his stores of CBD oil from last season to keep his business afloat.

Although his hemp operation was significantly larger than his marijuana enterprise, Bellavance said he preferred to stay part of a state-regulated program.

"It's one of the things I love about Vermont, is that you can actually get ahold of regulators," Bellavance said.

Vermont's Cannabis Control Board is debating whether to create a low-THC hemp license, which would mean growers would follow state rules rather than federal ones. But with fewer growers than ever in the CBD space, Pepper said it's unlikely to happen.

Spencer, the Texas lawyer, thinks there's more at stake.

"This is a David and Goliath fight," Spencer said. "Vermont needs to take control of its hemp program, or Congress needs to fix this."


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