Explanation of Statutory Authority
Wis. Stat. s. 94.55 (2) requires the Department to promulgate administrative rules to regulate hemp activities. Wis. Stat. s. 94.55 (2) (b) 2. requires the Department to regulate hemp activities only to the extent required under federal law and in a manner that allows “…the greatest possible opportunity to engage in those activities.” Pursuant to Wis. Stat. s. 94.55 (3w), the Department may use the emergency rulemaking procedures under Wis. Stat. s. 227.24 to promulgate rules under Wis. Stat. s. 94.55. Related Rules or Statutes
Wis. Stat. s. 961.32 (3) relates to the Hemp 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 Hemp Program. Plain Language Analysis
The Department currently operates the Pilot Program, a hemp pilot research program authorized by the 2014 Farm Bill. The Pilot Program is designed to study the growth, cultivation, and marketing of hemp in Wisconsin. Growers and processors provide information to the Department related to hemp production. This rule converts the Pilot Program to the Hemp Program, consistent with the parameters of the Pilot Program, and thus provides the necessary regulatory framework to continue to allow Wisconsin’s hemp growers to plant, grow, and process hemp pursuant to the Section 7606 of the Agricultural Act of 2014 (2014 Farm Bill) and Wis. Stat. s. 94.55 (2), instead of transitioning to the more restrictive framework established by the Agricultural Improvement Act of 2018 (2018 Farm Bill). 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. The USDA issued Interim Final Rule (IFR), 7 C.F.R. Part 990, effective October 31, 2019, and thus all state hemp pilot research programs were set to expire pursuant to Section 7605 (b) of the 2018 Farm Bill. However, on October 1, 2020, Section 122 of the Continuing Appropriations Act, 2021 and Other Extensions Act extended the authority of states to operate hemp pilot research programs 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.
The Department’s Pilot Program currently operates under the state authority of Wis. Stat. s. 94.55 (3); this authority is repealed by 2019 Wis. Act 68, Section 87, one year after the USDA published 7 C.F.R. 990. After the repeal of Wis. Stat. s. 94.55 (3), the Department retains authority to operate a hemp program under s. 94.55 (2). Sub. (2) (am) allows the Department to operate a hemp program if federal law requires hemp licenses, and if USDA approves the state’s program. Section 7606 of the 2014 Farm Bill requires licensed hemp production. Section 122 of the Act requires the USDA to approve the continuation of state hemp research programs through September 30, 2021. Wis. Stat. s. 94.55 (2) (b) 2. requires the Department to regulate hemp production only to the extent required under federal law and in a manner that allows “…the greatest possible opportunity to engage in those activities.” Continuing to operate under a 2014 Farm Bill research program provides participants the greatest opportunity to produce hemp. For example, the 2014 Farm Bill allows participants and the Department to schedule sampling and testing at times most efficient for both parties while ensuring lawful production of hemp. In contrast, the 2018 Farm Bill contains strict timelines on the collection of samples and harvesting of crops. Under a 2018 Farm Bill program, regulatory sampling must be completed within 15 days of anticipated harvest. Participants may not have received regulatory test results by the anticipated harvest date and may face the expense of harvesting a crop that they are subsequently required to destroy if it exceeds the acceptable THC content.
In addition, the 2018 Farm Bill requires testing laboratories to calculate and apply a stringent measurement of uncertainty (MU) for THC content testing methodologies. The USDA provides guidance and resources to states to develop and establish an MU. In contrast, the 2014 Farm Bill allows the state to develop its own method to account for testing variabilities. The Department currently rounds down from 0.399 percent to account for laboratory variability. Consequently, the 2018 Farm Bill results in a narrower range in which a participant can produce hemp with acceptable THC content.
Because the current emergency rule was promulgated pursuant to expiring statutory authority, continuing to operate a program after that date requires the Department to repeal and replace emergency rule EmR2016. The updated rule converts the program and incorporates minor changes to reflect updated statutory authority. This emergency rule also incorporates the felony conviction standard disqualifying persons from participating in the program to reflect the standards required for a program operated under Wis. Stat. s. 94.55 (2) versus a program operated under Wis. Stat. s. 94.55 (3). As a result, new participants in the program will not be issued a license if in the 10 years preceding, the person was convicted of a felony relating to a controlled substance under state or federal law. Wis. Stat. s. 94.55 (2p). Conversely, in a program operated under Wis. Stat. s. 94.55 (3), participants were not issued a license if the applicant has “ever been convicted of a criminal violation of the federal Controlled Substances Act under 21 USC 801 to 971, the Uniform Controlled Substances Act under ch. 961, or any controlled substances law of another state, as indicated in the information obtained from the criminal history search.” State law requires applicants to a program operated under Wis. Stat. s. 94.55 (2) to submit to a fingerprint-based background check conducted on behalf of the Department by the Wisconsin Department of Justice utilizing criminal history information from the Federal Bureau of Investigation. Therefore, the emergency rule adds a requirement that applicants shall bear all costs associated with the criminal background check as determined by the Department of Justice, the Federal Bureau of Investigation, and by any agency with authority to charge a fee for fingerprint impressions. These costs are a $7.75 payment to the entity responsible for capturing fingerprint impressions and a $21.25 fee to the Department which is then paid to the Wisconsin Department of Justice to conduct the applicant’s background check.
The rule restructures the applicable fees for processor licenses and registrations as state law requires a $150 initial fee for program participants. The Pilot Program previously had a no-fee processor license, but required the payment of a $100 annual registration. The Hemp Program implements the statutorily required $150 initial fee, but eliminates the processor annual registration fee during the annual registration year the processor first obtains a license to reduce the impact of the one-time initial fee.
The emergency rule includes language clarifying notification processes for licensees voluntarily destroying hemp. The rule provides more detail on the required submission of a destruction notification form and Department approval of voluntary destruction of hemp by licensees, and updates the associated definitions for harvest and destruction, to reflect current program practices.
Similarly, the rule updates the process for obtaining Department approval of hemp varieties to allow participants to grow hemp varieties that have already been approved by the Department. Licensees are still required to pre-notify the Department of the variety the licensee intends to grow, consistent with statutory requirements. The process of obtaining approval of hemp varieties not currently approved by the Department and the associated fit for commerce certificate definition have been clarified to reflect current program practices.
The rule also contains a clarification on the required documentation for transportation of harvested unprocessed hemp from a growing location by a licensee or a person contracted by a licensee. The rule language is slightly edited to clarify that lawfully produced out-of-state hemp may be transported by a licensee, as evidenced by the accompaniment of a fit for commerce certificate issued by the jurisdiction of origin.
In addition, the rule includes updates to the enforcement section. The rule clarifies that Department orders enforcing this rule are subject to appeal pursuant to the long-established Department-appeal process. Also, as required by statute, the rule establishes factors to be considered by the Department when determining whether to refer a person producing hemp in violation of Wis. Stat. s. 94.55 or this rule for prosecution under the Wisconsin Uniform Controlled Substances Act or applicable local Marijuana possession ordinance by a local prosecuting authority or the Wisconsin Department of Justice. Pursuant to Wis. Stat. s. 961.32 (3) (c), a person may not be prosecuted unless they are referred for prosecution by the Department. The Department will consider the following factors: where voluntary compliance cannot be achieved, reliance on progressive enforcement to gain permanent compliance; and for willful or dangerous violations, refer for prosecution to protect citizens and law abiding competitors. Finally, the emergency rule converts the current Pilot Program licenses and registrations to licenses and registrations under this Hemp Program. This no-fee conversion will occur automatically without any action necessary by licensees. If a licensee currently holds a valid license or registration under the Pilot Program, the licensee will hold a valid license or registration under the new Hemp Program created by this rule. If a licensee does not currently hold a valid registration, the licensee will need to obtain a registration under the new Hemp Program in order to participate in the program. Consistent with the operations of the Pilot Program, the licenses will not expire unless the licenses are revoked, but registrations will expire on December 31, 2020.
Fiscal Impact
This emergency rule continues the regulatory structure related to growing hemp, and applies to those who wish to participate in the Hemp Program. Currently, individuals or businesses choosing to grow or process hemp must pay all applicable program fees—one-time grower license and acreage ($150-$1,000), annual grower registration ($350), sampling and testing ($250 per lot), and annual processor registration ($100). This emergency rule adds the statutorily required processor license fee ($150), but waives the annual processor registration ($100) during the annual registration year the processor first obtains a license.
These program fees generate the program revenue that supports the implementation of the program. The Pilot Program began operations in 2018. The number of participants in the Pilot Program was similar in 2019 and 2020. In 2019, there were 1,251 licensed and registered growers with total fees of $626,000 (average $500 per grower), 560 licensed and registered processors with total fees of $56,000 ($100 per processor), and 2,200 samples collected and tested generating total fees of $550,000 ($250 per sample). Total fees for 2019 were approximately $1,232,000.
This rule's economic and fiscal impact was developed assuming an eleven-month duration, because this emergency rule is expected to be in effect for approximately eleven months—from publication through at least September 30, 2021. For the eleven months of fiscal year 2020, excluding October, license and acreage fees ($150 - $1,000) and annual registration fees totaled $571,395 for 1,244 growers. Processor registration fees totaled $60,800 for 608 processors. A total of 1,966 samples were tested at the cost of $491,528 ($250 per sample). Additional fees included licence amendment and late fees in the amount of $5,795. The grand total of all fees for this time period was $1,129,518.
Based on program participation in 2019 and 2020, it is estimated that there will be approximately 1,852 licensees in the program in 2021 and that half of those licensees will be new licensees. The anticipated time period of this rule is approximately eleven months, ending September 30, 2021, assuming no additional extension of the 2014 Farm Bill programs on the federal level. Of the assumed 1,244 growers and 608 processors, 622 new growers and 304 new processors would pay the background check fees ($29 per applicant). All new license applicants are required to have a fingerprint-based background check and pay $7.75 to the entity responsible for capturing fingerprint impressions and a $21.25 fee paid to the Department, which is then paid to the Wisconsin Department of Justice to conduct the applicant’s background check. In addition, the new processors would pay $150 for the license fee. All other costs would remain the same. The estimated costs would be: $26,854 in background check fees for 926 new applicants ($29 each); $571,395 for 1,244 grower license and acreage fees ($150 - $1,000 each) and annual registration fees; $76,000 for processor licenses and registrations ($150 each per first year license for 304 new processors and $100 each for the 304 annual processor registrations for each existing processor); $491,528 for 1,966 samples tested at $250 per test; and additional license amendment and late fees of $5,795.
Therefore the estimated economic impact of the implementation and compliance with this rule, as identified in the Fiscal Estimate & Economic Impact Analysis, is $1,171,572. This number is a total cost of background checks for new applicants, estimates of the number of licenses and registrations, expected number of samples collected and analyzed, and additonal fees that may be incurred during the approximately eleven-month time that this rule is in effect.
Hemp Program Participants
This rule will impact persons who wish to grow and process hemp as part of the Hemp Program. Participation in the program is voluntary, although anyone wishing to grow or process hemp must participate, unless the person is operating under a USDA-approved tribal hemp plan. This rule will impose fees, recordkeeping, and reporting requirements. Participants must pay an initial license fee and an annual registration fee each year the licensee plans to operate. However, licensed processors do not pay an annual registration fee in the annual registration year in which they first obtain a processor license. This rule will require participants to prepare a research plan and submit a research agreement. All hemp must meet defined analytical standards before the Department will issue a fit for commerce certificate and the hemp can be transported from the growing location. This rule provides criteria for 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 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.
