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 fingerprint-based background check on each new license 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 activities. Quantitative data is collected from licensees on an annual basis for trend analysis by Department staff.
This rule makes necessary and statutorily required changes to fees. The rule adds a fee increase of $29 for new license applicants to account for the increased cost of conducting a fingerprint-based background check utilizing the Federal Bureau of Investigation. This is a new cost for the program, as 2019 Act 68 created a requirement for this type of background check. It is anticipated that up to 600 new licensees would pay this fee during the eleven-month period covered by this fiscal estimate, resulting in $17,400 in revenue. The rule restructures the processor fees to offset the statutorily required initial fee of $150 for new processor licensees by eliminating the $100 annual registration fee for processor licensees in the annual registration year the licensee first obtains a processor license. It is anticipated that during the eleven-month period covered by this fiscal estimate, approximately 300 new licensees would pay this additional $50 resulting in total fees of approximately $15,000. 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 $1,232,000. Consistent with the increased revenue is a corresponding increase in program expenditures to provide the services to the larger group of program participants. In fiscal year (FY) 2020, there were 1,852 licensed and registered participants and a total revenue of $1,171,742.
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. For FY2020, program revenue was $1.171M and program expenditures were $1.186M, reflecting a program operating deficit of $14,326. 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, one Project Plant Pest and Disease Specialist, one Project License Permit Program Associate and one Project Chemist. In addition, there are three Limited Term Employee (LTE) Licensing Staff and up to 14 LTE inspectors to collect hemp samples and deliver the samples to the Bureau of Laboratory Services Laboratory (BLS Lab). Hiring LTEs for this short-term (approximately three months), high volume field sampling work is most cost effective for program operation and can be adjusted annually based on program participation. Additional departmental resources provided to the program include legal, managerial, and accounting services.
Based on sample volumes from the previous seasons, the BLS Lab expects to utilize 10-12 full time permanent staff members as well as 6-10 LTE staff members to process and test the volume of hemp samples collected each year. Duties will range from sample log in and preparation, to performing tests, to reviewing data, oversight, and quality assurance activities. Staff will include lab technicians, chemists of varying levels, supervisors, and management. The 10-12 permanent BLS Lab staff members will be reassigned from their regular testing duties, based on program determined priorities, for conducting hemp testing. The 6-10 LTEs will be hired annually for support of the Hemp Program in June of each year. Sampling and testing is required to determine whether the THC content of hemp sampled that meets the definition of lawfully produced hemp; 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, there were 1,852 licensed and registered participants in the program. Total program revenue for FY2020 was $1.171M and program expenditures were $1.186M, resulting in a $14,326 operating deficit. However when factoring in the cash balance carryover from FY2019, the program ended FY2020 with a cash balance of $292,680.
Analysis of Supporting Documents used to Determine Effect on Small Business
Because this rule continues the existing regulatory framework of the 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 rule continues the regulatory framework of the Pilot Program as it existed under the previous emergency rules with minor changes to ensure consistency with state law and to clarify rule language to reflect program practice. Therefore, the rule will not negatively impact small business as this rule does not make significant modifications to the regulation of the hemp industry as it currently exists.
The regulated industry is required to comply with the updated regulations. The Hemp Program is a voluntary program, so no business is compelled to participate. If a business chooses to participate, it is a fee-for-service program where the Department charges fees to cover the cost of program operations. Thus, while there are statutorily driven fees and fee increases for a few items in this rule, the fees are limited to the costs necessary to cover program operations related to the services provided.
Consistent with the Pilot Program, new licensees to the Hemp Program will be required to pay a one-time license fee. This rule adds a statutorily required initial license fee for new processor licensees, whereas previously only new grower licensees were required to pay the initial license fee. The rule adds fees for costs necessary to conduct statutorily required background checks of new licensees. These new fees are necessary to comply with the statutorily required components of the program, and thus less-stringent standards cannot be created. Licensees who plan to operate during the calendar year will continue to be charged an annual registration fee. To offset the impact of the new statutorily required initial license fee for new processor licensees, there is no fee for processors to register in the annual registration year in which they first obtain a processor license. Because this rule converts licenses and annual registrations issued under the Pilot Program to licenses and annual registrations issued under this Hemp Program, current licensees will not have to pay any additional license or background check fees. Annual registrations will expire December 31, 2020.
There are some costs of compliance associated with program participation such as sampling, testing, and recordkeeping. However, because hemp is regulated at the federal level, these costs are unavoidable in order to allow Wisconsinites the opportunity to participate in hemp activities. By continuing to operate the Hemp Program pursuant to the 2014 Farm Bill, instead of transitioning to the 2018 Farm Bill, this rule allows participation while reducing required costs of compliance to the greatest extent possible.
Federal and Surrounding State Programs
The current Pilot Program operates under the authority of Section 7606 of the 2014 Farm Bill, 2017 Wisconsin Act 100, 2019 Wisconsin Act 68, and Section 7605 (b) of the 2018 Farm Bill. The Hemp Program implemented by this emergency rule continues the regulatory framework established by the Pilot Program, and operates under the authority of Section 7606 of the 2014 Farm Bill, 2019 Wisconsin Act 68, and Section 7605 (b) of the 2018 Farm Bill. 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 research programs. Hemp varieties that test above 0.3 percent 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 or tribal plan for approval that meets the requirements outlined in the IFR, 7 C.F.R. Part 990, published on October 31, 2019. Currently, 38 tribes and 25 states have USDA-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 research program established under the 2014 Farm Bill, until the program expires, at which time states must have a USDA-approved state plan in place to continue administering a state-operated hemp program. The USDA-approved state plan must be compliant with the 2018 Farm Bill and the IFR. The 2018 Farm Bill sunsetted the 2014 Farm Bill’s authorization of states to operate hemp pilot research programs, effective one year after the USDA established an approval process of state and tribal plans to produce hemp. USDA issued Interim Final Rule (IFR), 7 C.F.R. Part 990, effective October 31, 2019, and thus all hemp pilot research programs were set to expire pursuant to Section 7605 (b) of the 2018 Farm Bill. However, Section 122 of the Continuing Appropriations Act, 2021 and Other Extensions Act extended the authority of states to operate hemp pilot research programs under the 2014 Farm Bill until September 30, 2021. In order to continue primary jurisdiction over hemp programs after that date, states and tribes now must have a plan approved by USDA by September 30, 2021. Wisconsin, along with 16 other states, notified the USDA that for the 2020 growing season, it would continue to operate a pilot research program under the 2014 Farm Bill. With the extension of the expiration date of the 2014 Farm Bill, Wisconsin will continue to operate a program under the 2014 Farm Bill.
Surrounding State Comparison
With the exception of Iowa, which did not have a 2014 Farm Bill pilot research program, the surrounding states are continuing to operate pre-established 2014 Farm Bill hemp pilot research programs. Like Wisconsin, these states are taking advantage of the flexibilities of a program operated pursuant to the 2014 Farm Bill, versus a program operated under the stricter 2018 Farm Bill and IFR. Some states have chosen to continue operating under the 2014 Farm Bill only until the end of the current growing season (license year). However, Wisconsin is operating under the 2014 Farm Bill as it provides Wisconsin participants the greatest opportunity to engage in hemp activities.
Minnesota
Minnesota’s pilot program began in 2016 under the 2014 Farm Bill. USDA approved the Minnesota State Hemp Production Plan on July 14, 2020. Minnesota will continue to operate a 2014 Farm Bill research program until December 31, 2020, before transitioning to their federally approved state 2018 Farm Bill hemp program. This date was chosen to coincide with the beginning of Minnesota’s licensing period, and eliminates the need for a transitional license between the two programs.
Operationally, the Minnesota 2014 Farm Bill hemp program is very similar to the Wisconsin Pilot Program and Hemp 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 of $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.
Minnesota’s 2018 Farm Bill hemp program adopts all necessary regulatory changes to comply with the IFR and 2018 Farm Bill. This includes adopting the new definition of acceptable hemp THC levels. Under the new hemp program, Minnesota will estimate and report the MU with all test results. This will result in a narrower range in which a participant can produce hemp with acceptable THC content than in Wisconsin.
Illinois
The Industrial Hemp Act was passed in Illinois in 2018, at which time the pilot program became available to commercial hemp growers. Illinois submitted a 2018 Farm Bill state plan to the USDA, which was recently approved. Illinois is currently operating as a pilot program under the 2014 Farm Bill and will continue to operate that program. They have not determined how long they will continue to operate under the pilot research program based on the extension of the authority to operate a 2014 Farm Bill program, before transitioning to a 2018 Farm Bill hemp program.
Components of the Illinois 2014 Farm Bill 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 percent for an initial test, and a retest is allowed if the initial test is between 0.3 percent and 0.7 percent THC. If the retest exceeds 0.3 percent THC, the crop must be destroyed. Illinois allows licensing periods of one, two, or three years at $375, $700, or $1000 respectively.
Illinois’s approved 2018 Farm Bill state plan does not have regulations that go beyond the IFR; the state plan has similar language and regulations to the IFR and other state plans implementing the IFR. This includes the addition of a MU and the requirement to harvest within fifteen days of the collection of the regulatory sample. While Illinois has not decided when to transition from the pilot program to a program operated pursuant to the 2018 Farm Bill, growers will face stricter regulations after the transition.
Michigan
The Michigan hemp pilot program began in 2019 under the 2014 Farm Bill. Michigan’s 2018 Farm Bill state plan has been resubmitted to USDA and is under review as of October 15, 2020. However, they plan to continue to operate under a 2014 Farm Bill research program until the end of their 2020 licensing year on November 30, 2020, then transition to a federally approved state hemp program operated pursuant to the 2018 Farm Bill and the IFR.
The Michigan 2014 Farm Bill 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.
Under the 2014 Farm Bill, Michigan allowed hemp growers to sample their own crops and transport that sample to the state laboratory for testing. When Michigan’s 2018 Farm Bill Program is federally approved pursuant to the 2018 Farm Bill, its state hemp program must comply with the IFR and growers will no longer be allowed to sample their own hemp. When implemented, Michigan’s new 2018 Farm Bill hemp program will have stricter regulations than its pilot program.
Iowa
Iowa Senate Bill 599 was signed into law in May 2019, which authorized the production of hemp pursuant to the 2018 Farm Bill and the IFR. Iowa began accepting applications for its hemp program on April 1, 2020. As of October 15, 2020, Iowa had 85 licensed growers. Iowa charges licensing fees of $500 plus $5/acre (0-5 acres), $750 plus $5/acre (5.1-10 acres), and $1,000 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.
Department Contact
Questions and comments related to this rule may be directed to:
