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.
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.
