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Taking a page out of alcohols playbook, a new bill on Capitol Hill intends to regulate cannabis through the Alcohol and Tobacco Tax and Trade Bureau (TTB) while relegating hemp oversight duties to the FDA.

The States Reform Act (SRA), sponsored by U.S. Rep. Nancy Mace, R-S.C., would end federal cannabis prohibition, implement a 3% cannabis excise tax, regulate interstate commerce and provide automatic expungement for non-violent cannabis convictions, among other provisions.

The legislation also aims to assign different primary oversight bodies to cannabis and hempkeeping one plant divided based on THC potency.

But with recent collisions between hemp industry stakeholdersspecifically those with ties to the CBDmarketplaceand the U.S. Food and Drug Administration, regulatory assignments have become a top dialog in federal policy discussions.

Many cannabis advocacy organizations publicly opposed the idea of their segment of the industry being regulated by the FDA following the introduction of the Cannabis Administration and Opportunity Act (CAOA), another legislative proposal to end federal prohibition that is sponsored by Sens. Chuck Schumer, D-N.Y., Ron Wyden, D-Ore., and Cory Booker, D-N.J.

RELATED: Industry Organizations Submit Feedback on Cannabis Administration and Opportunity Act

And if the cannabis industry can avoid the FDA as its primary regulator under federal legalization, then the question arises: should the hemp industry steer clear too?

Vicente Sederberg | vicentesederberg.com

Shawn Hauser, a partner at Vicente Sederberg LLP, who co-chairs the law firms hemp and cannabinoids department, compared the possible regulatory split in the SRA to the alcohol industry, where beer, wine and liquor are regulated by the TTB, while drinks like kombucha, that fall below the 0.5% alcohol by volume threshold, are regulated under the guidelines of the FDA.

As it pertains to cannabis and hemp, the differentiating threshold is 0.3% THC, as defined in the 2018 Farm Bill.

Generally, for hemp, [industry stakeholders] are concerned about FDA oversight now, and theyre concerned about it going forward, especially if cannabis is under this TTB structure, and maybe theres a benefit to regulating the whole plant that way, Hauser said. I think thats an important discussion that needs to be had. Whats the right approach for the whole plant?

In relation to TTB and FDA authority, whether the low-THC and high-THC versions of the plant should be treated differently is a question that needs to be considered, Hauser said.

The hemp industry has been in a lot of regulatory purgatory with the FDA since the 2018 Farm Bill legalized the production of hemp, she said.

It deferred to FDA the regulation of finished products, which it has yet to finalize, Hauser said. And thats been a real obstacle for the hemp industry. And one of the things that the Mace bill kind of does differently from the [CAOA] is really regulate cannabis like alcohol by giving TTB the primary regulatory authority over cannabis. (The CAOA would give primary authority to the FDA, TTB and the Bureau of Alcohol, Tobacco, Firearms and Explosives.)

Perhaps mostly notably, Maces SRA would waive drug preclusion language in the Federal Food, Drug and Cosmetic Act (FD&C Act) from applying to cannabis or hemp.

The drug preclusion provision, as currently applied to CBD, asserts that once a substance is studied or approvedfor use in a drug, that same substance cannot be used as an ingredient in a food or dietary supplement, Hauser said.

That provision is, in part, where the collision lies between CBD stakeholders and the FDA. Citing its own approval of CBD as an active ingredient in Epidiolex, a pharmaceutical epilepsy drug, the FDA has ruled that non-pharmaceutical CBD cannot be marketed as or in a dietary supplement based on drug preclusion language.

That provision is the reason why the FDA takes the position that CBD is illegal in food and dietary supplements, Hauser said. The States Reform Act would waive the preclusion for cannabis and for hemp, but it would still regulate hemp products under the FDAs purview as food and dietary supplements, while cannabis products would be regulated largely by TTB, like alcohol.

More focused efforts to remove drug preclusion language from the FD&C Act are included in current legislation in Congress.

In the House, U.S. Reps. Kurt Schrader, D-Ore., and Morgan Griffith, R-Va., reintroduced the Hemp and Hemp-Derived CBD Consumer Protection and Market Stabilization Act (House Bill 841), which would waive drug preclusion language for CBD in dietary supplements only, Hauser said.

And U.S. Sens. Ron Wyden, D-Ore., Rand Paul, R-Ky., and Jeff Merkley, D-Ore., filed the Hemp Access and Consumer Safety Act (Senate Bill 1698), which would waive the drug preclusion for CBD in both food and dietary supplements, she said.

SRA also would waive the language for CBD in food and dietary supplements, as well as for all cannabis products, Hauser said.

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Jesse Mondry, an attorney with Harris Bricken who represents clients in the cannabis industry and regularly writes on litigation issues involving hemp and CBD, also talked about FDA implications in SRA.

I think we all, in the hemp industry, know that the FDA has dragged its feet on giving the industry any guidance on CBD, he said. That has had a real chilling effect on the growth of the industry. And hopefully, if this were to pass, and the FDA is authorized and even directed to promulgate regulations, that the FDA will get that sorted out faster.

In addition to TTB and FDA regulatory indications, SRAs potential impact on requirements revolving around the U.S. Department of Agricultures (USDA) relationship to the hemp industry, as well and opening the doors for new players and industry growth, are other examples of the legislations reach, Mondry said.

In theory, [SRA] should allow the USDA to eliminate or reduce the number of regulatory requirements in the licensing process, because many of those are designed to disincentivize and penalize persons who may seek to grow marijuana under the guise of a hemp license, he said.

Mondry is based out of Oregon, where law enforcement officials and regulators have recently been cracking down on illicit cannabis operations masquerading under hemp licenses.

RELATED: Hemp Field Inspections in Southern Oregon Reveal Staggering Number of Illicit Cannabis Operations

The USDA expressly states that a number of its reporting requirements are so bad the Farm Service Agency may provide accurate and real-time information to law enforcement, particularly federal law enforcement, Mondry said. That sort of need and that impetus should be substantially eliminated, and it should have the effect of lessening the regulatory burden on hemp farmers.

Also a potential domino effect of cannabis being removed as a Schedule I drug from the Controlled Substance Act would be protections for hemp labs that still fall under the U.S. Drug Enforcement Administrations (DEA) authority, Mondry said.

DEA officials maintain that any material containing more than 0.3% delta-9 THC on a dry-weight basis is still classified as a Schedule I substance, and therefore certain stages of hemp extraction can be viewed as non-compliant. During certain stages of refinement, the THC levels of intermediary hemp materials are concentrated, meaning they are above the legal THC limit, before they are remediated further to a final, THC-compliant product in the extraction process.

As it stands, the DEA maintains some jurisdiction over hemp. Under the USDAs final rule, which went into effect in March, hemp testing labs are required to obtain DEA certification by the end of 2022. So far, labs all across the country have obtained this certification.

The USDA has incorrectly, in my view, sought to impose this DEA certification program on hemp testing labs, Mondry said I think ending that requirement would help end the bottleneck at this testing level and allow the hemp CBD industry to scale up. Thats just one way to do that.

In the broader reform picture, Mondry said an end to federal cannabis prohibition might result in an increased entry of participants into the hemp market.

[That includes people] who previously stayed on the sidelines and refrainedfrom entering the hemp market because of the connection and association with marijuana, he said. And Im thinking here, Wall Street investment firms, banks, large agribusiness, major manufacturers of food and beverage products. So, I think if the States Reform Act were to pass, we could see the hemp market really pick up and really grow rapidly. Thats sort of my take on it.

Mondry said he was more pleased than surprised when Mace, a Deep South Republican, introduced federal cannabis legislation. SRA represents a growing corps of voicesfrom both sides of the political spectrum to end prohibition, he said.

Hauser said much of the same.

I thought it was really positive, she said about Maces SRA introduction. I think the bipartisan support will really move the needle, and its representative of where the public is as far as supportive regulation, and theres a need for reform and a tax-and-regulate system, and thats something both sides of the aisle agree on.

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What Does Rep. Mace's States Reform Act Have to Do With Hemp? - Hemp Grower