Wis. Stat. s. 94.55 (3) creates the Pilot Program for the state of Wisconsin. The Department is required under Wis. Stat. ss. 94.55 (3) and (3w), to promulgate rules to create and implement a Pilot Program. Related Rules or Statutes
Wis. Stat. s. 961.32 (3) relates to the Pilot Program as it creates authorized possession of hemp within the Wisconsin Controlled Substances Act and details when referrals from the Department are necessary for criminal prosecution in relation to the Pilot Program. Plain Language Analysis
The Pilot Program is designed to study the growth, cultivation, and marketing of hemp in Wisconsin. Growers and Processors will provide information to the Department related to hemp production. This was the intent of the original emergency rule and continues to be the foundation of this revised rule.
This rule provides the necessary regulatory framework to continue to allow Wisconsin’s hemp growers to plant, grow, and process hemp under the Pilot Program with minimal but necessary changes to align the rule with 2019 Wisconsin Act 68 and the Agricultural Improvement Act of 2018 (2018 Farm Bill). The 2018 Farm Bill extended the authority provided in Section 7606 of the Agricultural Act of 2014 (2014 Farm Bill) for states to engage in hemp research as a pilot program. However, this is a temporary authorization as USDA has issued an Interim Final Rule (IFR) 7 C.F.R. Part 990 which outlines provisions for USDA to approve plans submitted by states and tribes to produce hemp. The IFR became effective on October 31, 2019. All hemp pilot programs will expire on October 31, 2020, pursuant to Section 7605 (b) of the 2018 Farm Bill. States and tribes who want to have authority over a hemp program in their state or territory must have a plan approved by USDA by October 31, 2020. This rule is necessary to maintain the Pilot Program from the expiration of the current rule on July 1, 2020, until the expiration of the Department’s authority to operate the Pilot Program. As such this rule maintains the existing Pilot Program, updates terms and provisions to be consistent with changes in state and federal law, provides more detail to reflect current program practices, and updates references regarding the expiration of licenses to address the end date of the Department’s authority to operate the Pilot Program.
To meet current state and federal law, the definition of hemp is expanded to include all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers. Also required by state and federal law and consistent with the testing requirements of EmR1807 and EmR1808, the updated definition of hemp clarifies that tetrahydrocannabinol (THC) content is tested using post-decarboxylation or similarly reliable methods. THC is clearly defined to include tetrahydrocannabinolic acid (THC-A), and the testing methodology requires the analysis of hemp samples to include THC-A in the regulatory test results. This rule also clarifies the circumstances for revoking or suspending a license, actions the Department may take for persons operating without a license, and enforcement penalties for violations that reflect a negligent or culpable mental state.
Language to reflect current practice clarifies the required annual registration time period and what
activities the licensee may perform once the licensee is registered. Reporting and recordkeeping are similarly updated.
Furthermore, language has been updated to accurately distinguish between a growing location, a lot, and a crop. In addition, this rule clearly explains the Department’s authority to inspect elements of growing locations. The Department’s inspection authority is not changed by this rule.
Regulatory sampling must occur prior to harvest but the testing does not have to be completed before harvest. If the initial regulatory test fails, the grower must destroy the lot within 10 days after service of the order or request a new sample to be taken before the end of the 10-day period.
The updated provisions and new language in this rule do not make substantial changes to the implementation of the program for the 2020 growing season and the regulated industry will not experience significant change. The functionality of this rule remains consistent with the current rule.
Fiscal Impact
This emergency rule creates rules related to growing hemp, and applies to those who wish to participate in the Pilot Program. Individuals or businesses choosing to grow or process hemp must pay all applicable program fees—one-time grower license and acreage ($150-$1000), annual registration ($350), sampling and testing ($250 per lot), and processor license ($100). These program fees generate the program revenue that supports the implementation of the program. The Pilot Program began operations in 2018. Numbers of participants have been similar in 2019 and 2020. In 2019, there were 1251 licensed and registered growers with total fees of $626,000 ($500 per grower) and 560 licensed processors with total fees of $56,000 ($100 per processor). In 2020, as of June 2, there are 1189 licensed and registered growers with total fees of $594,500 ($500 per grower) and 564 licensed processors with total fees of $56,400. In 2019, an estimated 2200 samples were collected and tested at a cost of $250 per sample, generating total fees of $550,000. Based on these grower numbers and samples previously collected, an estimate of 2000 samples collected and tested at $250 for a total of $500,000 in fees may be expected during the time that this rule is in effect. Therefore the estimated economic impact of the implementation and compliance with this rule, as identified in the Fiscal Estimate & Economic Impact Analysis, is $1,150,900. This number is a total cost of licenses and registrations issued to date, and an estimate of expected samples that may be collected and tested during the time that this rule is in effect.
Hemp Growers
This rule will impact persons who wish to grow hemp as part of the Pilot Program. Participation in the program is voluntary, although anyone wishing to grow hemp must participate. This rule will impose fees, recordkeeping, and reporting requirements. This rule will require participants to prepare a research plan and require growers to submit a research agreement. All hemp must meet defined analytical standards before it can be transported from the growing location. This rule provides criteria for pilot participants to obtain and maintain a license. The rule explains the criteria for suspending, revoking, or denying licensure. A hemp grower who successfully plants, grows, and plans to harvest hemp must have the hemp sampled by the Department before the hemp can be harvested. A Fit for Commerce Certificate must accompany hemp that is transporated from the growing location. The Fit for Commerce Certificate is the documentation required by law that verifies that the hemp it accompanies is legally hemp. Sampling and testing must be completed before a Fit for Commerce Certificate can be issued. A Fit for Commerce Certificate will be issued for each lot that tests at or below 0.3 percent THC. A lot is a contiguous area of one variety or strain of hemp growing indoors or outdoors. A grower may have more than one lot and each lot must be sampled separately. The fee for sampling and testing of one lot is $250 per sample.
Local Governments
This rule will not impact local governments. Local governments will not have any major implementation or compliance costs.
Utility Rate Payers
The emergency rule will have no impact on utility rate payers.
General Public
This emergency rule will have no compliance costs to the public as a whole, although there may be some broad economic impact as new business opportunities emerge.
The Department
This emergency rule will have a continued fiscal impact on the Department’s operations. Department staff must review each application and all supporting information, and perform a background check on each applicant. This regulatory program requires a high degree of customer support and education. Department staff will also be responsible for inspections, sampling, laboratory analysis and compliance. Quantitative data is collected from licensees on an annual basis for trend analysis by Department staff.
This rule does not change fees required by the current rule, which has been in place since program inception in 2018. Since this is still a young program, program revenue and expenses have fluctuated annually based on the number of participants in the program. In 2018, the first growing season, there were approximately 258 licensed and registered participants and the program had a total revenue of $114,666. In 2019, there was a substantial increase in program participation with 1,811 licensed and registered participants and a total revenue of $775,917. Consistent with the increased revenue is a corresponding increase in program expenditures to provide the services to the larger group of program participants. Fiscal year (FY) 2019 showed a $361,149 increase in program expenditures over FY2019.
The hemp growing season overlaps state fiscal years. The majority of license and registration revenues are collected during the traditional licensing and registration period from November 1 to March 1, in one fiscal year. Planting and growing of the crop occurs during the spring and early summer and no significant revenue is collected again until the following fiscal year, when hemp lot sampling and testing activities begin in late July and culminate with fall harvest. As growers pay for sampling and testing of their crop for harvest, additional revenue are paid to the Department and the Department incurs additional costs for sample collection and laboratory work to process tests. To date, program revenue and expenditures have been relatively well balanced. Coming to the end of FY2020, the estimated program revenue of $1.130M is fairly well balanced with the estimated program expenditures of $1.182M. It is also worth noting that indoor growing operations operate year-round.
The program is managed within the Department’s Division of Agricultural Resource Management. Currently, this program includes one Program Manager, one Regulatory Specialist (both Full Time Employees (FTE)), one Project and three Limited Term Employee (LTE) Licensing Staff, and one Project Plant Pest and Disease Specialist. Additional departmental resources provided to the program include legal, managerial, and accounting services.
In addition, up to 20 LTE inspectors will collect hemp samples and deliver the samples to the Bureau of Laboratory Services Laboratory (BLS Lab). Hiring LTEs for this short-term (three months), high volume field sampling work is most cost effective for program operation and can be adjusted annually based on program participation. The BLS Lab will have 10-12 full time staff with the addition of six LTE Chemists and five LTE Lab Technicians to provide service on testing, record keeping, and open record reviews. Laboratory staff are added and removed from performing hemp analysis as the hemp season’s sampling expands and contracts. When not analyzing hemp samples, staff are shifted to one of the many other programs to which the BLS Lab provides service. Management staff will provide oversight, review, and additional support. Sampling and testing is required, therefore these costs cannot be avoided.
For the fiscal analysis, FY2019 and FY2020 were used, as there was a significant increase in program participation in FY2019 that was sustained in FY2020. In FY2019, total program revenue was $775,917 and program expenditures were $472,362, resulting in a cash balance of $307,008. In FY2020, year to date, we have 1,753 licensed and registered participants in the program. Estimated total program revenue for FY2020 is $1.130M and estimated program expenditures are $1.182M, resulting in an estimated $52,137 operating deficit. However when factoring in the cash balance carryover from FY2019, the program will end FY2020 with an estimated cash balance of $254,871.
Analysis of Supporting Documents used to Determine Effect on Small Business
Because this rule continues the existing Pilot Program, with minor changes to ensure consistency with state and federal law, the impact on small business remains relatively the same, and thus no substantial analysis was required to determine the effect on small business. The Department reviewed annual and planting reports filed by licensees with the Department from past growing seasons as well as growers’ test results.
Business Impact
This emergency rule continues the existing Pilot Program with no added fees or costs and therefore will not negatively impact small business as this rule does not make significant modifications to the regulation of the hemp industry. This rule continues the Pilot Program as it existed under the previous emergency rules with minor changes to ensure consistency with state and federal law. The fee-based requirements include a one-time license fee which is valid until the Pilot Program expires on October 31, 2020, or unless the license is revoked. In addition, licensees who plan to grow hemp will be charged an annual registration fee. Registered growers who plan to harvest hemp will be charged sampling and testing fees for the collection and analysis of the regulatory samples. The impacts of this rule to the regulated industry do not include changes to the required fees to participate in the program, but do update regulations to meet to current state and federal law. The regulated industry is required to be compliant with the updated regulations.
Federal and Surrounding State Programs
The 2014 Farm Bill authorizes states and institutions of higher education to grow, process, and market hemp for research purposes. States with hemp laws that allow hemp to be grown within their states may operate pilot programs. Hemp varieties that test above 0.3% THC on a dry weight basis are not legally defined as hemp.
The 2018 Farm Bill authorizes the USDA to establish a nation-wide hemp production program. This program requires participating states and tribal nations to submit a state/tribal plan for approval that meets the requirements outlined in the IFR, 7 C.F.R. Part 990, published on October 31, 2019. Currently, 29 tribes and 18 states have approved plans under the IFR. The program also establishes a federal plan for producers in states or territories of Indian tribes that choose not to administer a state or tribe-specific plan, provided also that the state or tribe does not ban hemp production. The 2018 Farm Bill also authorizes states to continue to operate a pilot program established under the 2014 Farm Bill, until the program is discontinued on October 31, 2020, at which time Wisconsin must have a USDA-approved state plan in place to continue administering a state-operated hemp program in Wisconsin. The USDA-approved state plan must be compliant with the 2018 Farm Bill and the IFR. In addition, certain provisions of the 2018 Farm Bill apply to all states whether they are still operating a pilot program or are operating under the IFR. These include the expanded definition of hemp, the free market movement of hemp across all state boundaries whether or not a state has a hemp program, and the inclusion of hemp crops in farm credit banking loan programs and federal farm insurance programs.
Wisconsin, along with 16 other states, notified the USDA that for the 2020 growing season, it would continue to operate a pilot program under the 2014 Farm Bill. The Wisconsin Pilot Program has been in operation since 2018, and will continue for the 2020 growing season (ending October 31, 2020). The IFR was published one day before the Department’s program began accepting licenses for the 2020 growing season. The Department chose to continue with the pilot program in order to finish the pilot at the end of the 2020 season and begin with a new program at the beginning of the 2021 season.
Surrounding State Comparison
Minnesota
Minnesota’s pilot program began in 2016 under the 2014 Farm Bill and will continue to operate a pilot program until October 31, 2020. Operationally, the Minnesota program is very similar to the Wisconsin program with the primary difference in laboratory testing. Prior to 2019, testing was done in a private lab for delta-9 THC, and it did not include THC-A. In 2019, Minnesota switched over to testing for the post-decarboxylation concentration of THC which includes THC-A, and began transitioning to using a Minnesota state regulatory lab. The fee structure includes a grower license fee $150 with a growing location fee of $250, a processor license fee of $250, a license change fee of $50, an additional inspection fee for sampling of $250, and an additional testing fee of $125.
Illinois
The Industrial Hemp Act was passed in Illinois in 2018, at which time the pilot program became available to commercial hemp growers. As of March 30, 2020, Illinois has submitted a state plan to the USDA, and that plan is currently under review. Illinois is currently operating as a pilot program under the 2014 Farm Bill. Components of the Illinois program that differ from the Wisconsin program include specifications for laboratories to be approved for regulatory testing, a minimum growing area of ¼ acres for outdoor hemp crops and 500 square feet for indoor crops, destruction of hemp with a post-decarboxylation THC content of equal to or greater than 0.7% for an initial test, and a retest is allowed if the initial test is between 0.3% and 0.7% THC. If the retest exceeds 0.3% THC, the crop must be destroyed. Illinois allows licensing periods of one, two, or three years at $375, $700, or $1000 respectively.
Michigan
The Michigan hemp pilot program began in 2019 under the 2014 Farm Bill. The Michigan program tests for post-decarboxylation THC concentration. In the event of a failed initial regulatory test, the Michigan pilot program allows up to two resamples and tests, while the Wisconsin program allows one resample and test. The Michigan program is distinctly different in their use of testing facilities licensed under the Michigan Medical Marihuana Facilities Licensing Act, which allows certain licenses to test industrial hemp, or allows a testing facility approved by the department. In addition, growers must post signage at each boundary line of a grow location with state-specified language. Growers must also enter into a seed-to-sale tracking system established under the Marihuana Tracking Act. Michigan has a grower license fee of $100, a site modification fee of $50, and a processor, handler, broker fee of $1350. A $250 late fee applies to both licenses. Michigan continues in 2020 under the authority of the 2014 Farm Bill.
Iowa
Iowa Senate Bill 599 was signed into law in May 2019 and the Iowa hemp program became effective under the IFR. Iowa began accepting applications for its hemp program on April 1, 2020. As of April 28, 2020, Iowa had 18 licensed growers and six additional applications were under review. Iowa charges licensing fees of $500 plus $5/acre (0-5 acres), $750 plus $5/acre (5.1-10 acres), and $1000 plus $5/acre (10.1 – 40 acres). Iowa has a maximum 40-acre limit per license. Each license applies to one location only.
Data and Analytical Methodologies
The Department gathered information from several states and the federal government, related to regulations, sampling and testing protocols, compliance, importation, and other related subject areas. Staff at the Department reviewed this information and the Department’s legal authority, in drafting this emergency rule. The Department also reviewed the operation of the program over the prior growing seasons conducted under the previous emergency rules.
