CBD Compliance Package

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1 ADDRESS Medterra CBD, LLC 8605 Santa Monica Blvd. West Hollywood, CA CONTACT CBD Compliance Package

2 Table of Contents SEC 1 MOU with the Kentucky Depart of Agriculture for Hemp Pilot Program SEC 2 Section 7606 of the Agricultural Act of 2014 SEC 3 Section 739 from the Omnibus Appropriations Bill SEC 4 Opinion Letter from the Law Firm of Frost Brown Todd (FBT) SEC 5 Kentucky Department of Financial Institutions Guidance on Hemp SEC 6 Kentucky Department of Agriculture s Hemp Pilot Program Guide

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10 F:\GMK\FBCR13\CONFRPT_001.XML SEC LEGITIMACY OF INDUSTRIAL HEMP RESEARCH. (a) IN GENERAL. Notwithstanding the Controlled Substances Act (21 U.S.C. 801 et seq.), the Safe and Drug-Free Schools and Communities Act (20 U.S.C et seq.), chapter 81 of title 41, United States Code, or any other Federal law, an institution of higher education (as defined in section 101 of the Higher Education Act of 1965 (20 U.S.C. 1001)) or a State department of agriculture may grow or cultivate industrial hemp if (1) the industrial hemp is grown or cultivated for purposes of research conducted under an agricultural pilot program or other agricultural or academic research; and (2) the growing or cultivating of industrial hemp is allowed under the laws of the State in which such institution of higher education or State department of agriculture is located and such research occurs. (b) DEFINITIONS. In this section: (1) AGRICULTURAL PILOT PROGRAM. The term agricultural pilot program means a pilot program to study the growth, cultivation, or marketing of industrial hemp (A) in States that permit the growth or cultivation of industrial hemp under the laws of the State; and f:\vhlc\012714\ xml ( ) January 27, 2014 (5:00 p.m.) VerDate 0ct :00 Jan 27, 2014 Jkt PO Frm Fmt 6652 Sfmt 6201 C:\DOCUME~1\MORSI\APPLIC~1\SOFTQUAD\XMETAL\5.5\GEN\C\CONFRP~1.XML HOL

11 F:\GMK\FBCR13\CONFRPT_001.XML (B) in a manner that (i) ensures that only institutions of higher education and State departments of agriculture are used to grow or cultivate industrial hemp; (ii) requires that sites used for growing or cultivating industrial hemp in a State be certified by, and registered with, the State department of agriculture; and (iii) authorizes State departments of agriculture to promulgate regulations to carry out the pilot program in the States in accordance with the purposes of this section. (2) INDUSTRIAL HEMP. The term industrial hemp means the plant Cannabis sativa L. and any part of such plant, whether growing or not, with a delta-9 tetrahydrocannabinol concentration of not more than 0.3 percent on a dry weight basis. (3) STATE DEPARTMENT OF AGRICULTURE. The term State department of agriculture means the agency, commission, or department of a State government responsible for agriculture within the State. f:\vhlc\012714\ xml ( ) January 27, 2014 (5:00 p.m.) VerDate 0ct :00 Jan 27, 2014 Jkt PO Frm Fmt 6652 Sfmt 6201 C:\DOCUME~1\MORSI\APPLIC~1\SOFTQUAD\XMETAL\5.5\GEN\C\CONFRP~1.XML HOL

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13 U:\2016REPT\OMNI\FinalOmni\CPRT-114-HPRT-RU00-SAHR2029-AMNT1.xml SEC None of the funds made available by this Act or any other Act may be used (1) in contravention of section 7606 of the Agricultural Act of 2014 (7 U.S.C. 5940); or (2) to prohibit the transportation, processing, sale, or use of industrial hemp that is grown or cultivated in accordance with subsection section 7606 of the Agricultural Act of 2014, within or outside the State in which the industrial hemp is grown or cultivated. SEC For an additional amount for Animal and Plant Health Inspection Service, Salaries and Expenses, $5,500,000, to remain available until September 30, 2017, for one-time control and management and associated activities directly related to the multiple-agency response to citrus greening. SEC Section 529(b)(5) of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 360ff(b)(5)) is amended by striking the last day and all that follows through the period at the end and inserting September 30, SEC Notwithstanding any other provision of law, for purposes of applying the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 301 et seq.) December 16, 2015 (1:04 a.m.)

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16 January 9, 2017 Update to Hemp Opinion Letter Page 2 and interstate transport is somehow limited - would be violative of federal law. Statement of Principles The above is important context for two much publicized developments on the hemp and CBD front in the past several months. First, on August 11, 2016, a Statement of Principles on Industrial Hemp was issued jointly by the U.S. Department of Agriculture ("USDA"), the Drug Enforcement Administration ("DEA") and the Food and Drug Administration ("FDA"). On the positive side, this document was the first time the federal executive branch confirmed that institutions of higher education and state departments of agriculture could contract out hemp pilot projects to private farmers and businesses, and that as part of marketing research programs, "industrial hemp products can be sold" across state lines. Fmiher, the Statement's declaration that authorized pilot program participants "may be able to participate in USDA research or other programs to the extent otherwise eligible for participation in those programs" represented the first time that duly registered hemp pilot projects have become potentially eligible for loans, grants, crop insurance, certification programs, and the wide variety of other opportunities made available to other farmers and agri-businesses at USDA and its sub-agencies. (Subsequently, USDA's National Institute of Food and Agriculture (NIF A) issued guidance that confirmed hemp pilot projects, particularly for food and post-harvest uses, were eligible for its funding dollars. See: https ://nifa. usda. gov /industrial-hemp.) Other elements of the Statement that discuss the definition of hemp, paiiicularly as it relates to CBD, have raised concerns for the industry. Of greatest concern, the Statement could be interpreted to redefine the term "industrial hemp." The Statement reads that "The term 'industrial hemp' includes the plant Cannabis sativa Land any part or derivative of such plant, including the seeds of such plant, whether growing or not, that is used exclusively for industrial purposes (fiber and seed) with a tetrahydrocannabinols concentration of not more than 0.3 percent on a dry weight basis." However, no executive agency, nor even a combination of agencies, can rewrite federal law, nor legal definitions established by Congress. Perhaps the word "includes" in the first sentence of the Statement provision above is merely an illustration of one of the definitions of industrial hemp. Or perhaps this paragraph provides a definition of industrial hemp when grown outside of the construct of a duly-registered state pilot-program. A number of key congressional leaders, including U.S. Senate Majority Leader Mitch McConnell, have written to these federal agencies to complain about the confusion and restate the clear federal laws they have passed. The agencies have not responded, and we believe that we likely not hear any response until the new Trump Administration takes office and is situated. However, it is important to note that whatever the intent of the Statement, it has no impact on federal law. Indeed, the Statement clearly states that it "does not establish any binding legal requirement." So not only does it not provide authority for government agencies to further 250 West Main Street I Suite 2800 I Lexington, Kentucky I I frostbrowntodd.com Offices in Indiana, Kentucky, Ohio, Tennessee, Texas, Virginia and West Virginia

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19 January 9, 2017 Update to Hemp Opinion Letter Page 5 The legal advice and opinions set forth herein are an expression of our professional judgment and not a guaranty of a result. The federal agencies mentioned above may contest the interpretations we have provided. Additionally, in states without hemp regulatory regimes, local and state laws governing hemp or products containing THC may be applicable. If you have more specific questions about general applications of the new law, or specific issues that you face in its implementation, please do not hesitate to contact us. Sin~ereix, 0)71';:qllire FROST BROWN TODD Lexington, KY 250 West Main Street I Suite 2800 I Lexington, Kentucky I I frostbrowntodd.com Offices in Indiana, Kentucky, Ohio, Tennessee, Texas, Virginia and West Virginia

20 EXHIBIT A!.Fros&-n ill6wn 1odd,LC ATTORNEYS Jonathan S Miller Member (t) (f) jmiller@fbtlaw.com OPINION ON THE LEGAL STATUS OF INDUSTRIAL HEMP Prepared for members of the Kentucky Hemp Industry Council December 21, 2015 On December 18, 2015, President Barack Obama signed the Consolidated Appropriations Act for FY 2016 (the "Omnibus Law"), funding federal government through the end of the :fiscal year. Within this voluminous bill, a provision authored by Senate Majority Leader Mitch McConnell (R-KY) provides a groundbreaking impact on the future of the industrial hemp business. Specifically, as outlined below, the new law provides that authorized state agricultural pilot projects may transport, process, sell, or use industrial hemp within their own states, as well across state boundaries, in most cases. It also provides that federal agencies may not use funding authorized by federal law to interfere with this critical research and commerce during the current fiscal year, which ends September 30, LEGAL BACKGROUND The hemp plant -- although useless as a psychoactive chug like marijuana -- is the same species as the marijuana plant, Cannabis Sativa L. The express language of the federal Controlled Substances. Act ("CSA"), however, provides that hemp stalk, fiber, oil and sterilized seed are not controlled as marijuana. The definition of "Marihuana" specifically excludes "the mature stalks of such [ cannabis J plant, any other compound, manufacture, salt, derivative, mixture or preparation of such mature stalks (except the resin extracted therefrom), fiber, oil or cake, or the sterilized seed of such plant... " 21 U.S.C. 802(16). Accordingly, Congress adopted an express exclusion of hemp stalk, fiber, oil and sterilized seed more than 60 years ago in order to make clear that its intention was only to regulate marijuana -- and that it did not intend to interfere with the legitimate hemp industry. In 2004, the U.S. Court of Appeals for the Ninth Circuit invalidated U.S. Drug Enforcement Administration ("DEA") regulations that would have banned the manufacture and sale of edible products made from hemp seed and oil. Hemp Industries Ass 'n v. Drug Enforcement Administration, 357 F.2d 1012 (9th Cir. 2004). The Court affirmed that non-psychoactive hemp products do not contain any controlled substance as defined by the CSA. It also ruled that "[t]he non-psychoactive hemp in Appellants' [ edible and personal care] products... fits within the plainly stated exception to the CSA definition of marijuana... Congress knew what it was doing and its intent to exclude non-psychoactive hemp from regulation is entirely clear." Id. at For this reason, U.S. companies may import hemp stalk, fiber, seed and oil, to trade in it, and to use it in the manufacture of products. 250 West Main Street I Suite 2800 I Lexington, Kentucky I I frostbrowntodd.com Offices in Indiana, Kentucky, Ohio, Tennessee, Texas, Virginia and West Virginia

21 December 21, 2015 Page2 However, because the industrial hemp plant is the same species as marijuana, until recently, it has been illegal for U.S. farmers to grow the plant itself-which generally was considered a controlled substance under the CSA. As explained in the next section, though, in the federal Agricultural Act of 2014, P.L. No (the "2014 Farm Bill"), Congress specifically exempted from the CSA cultivation of industrial hemp under agricultural pilot programs authorized by state law FARM BILL On February 7, 2014, President Obama signed the 2014 Farm Bill, which included language authored and inserted by Leader McConnell: Section 7606 "Legitimacy oflndustrial Hemp Research." That section reads in whole: (a) IN GENERAL.-Notwithstanding the Controlled Substances Act (21 US. C. 801 et seq.), the Scife and Drug-Free Schools and Communities Act (20 U.S. C. 71 OJ et seq.), chapter 81 of title 41, United States Code, or any other Federal law, an institution of higher education (as defined in section 1 OJ of the Higher Education Act 8 of 1965 (20 US. C. 1001)) or a State department of agriculture may grow or cultivate industrial hemp if- (1) the industrial hemp is grown or cultivated for purposes of research conducted under an agricultural pilot program or other agricultural or academic research; and (2) the growing or cultivating of industrial hemp is allowed under the laws of the State in which such institution of higher education or State department of agriculture is located and such research occurs. (b) DEFINITIONS-In this section: (1) AGRICULTURAL PILOT PROGRAM-The term "agricultural pilot program'' means a pilot program to study the growth, cultivation, or marketing of industrial hemp--- (A) in States that permit the growth or cultivation of industrial hemp under the laws of the State; and (B) in a manner that- (i) ensures that only institutions of higher education and State departments of agriculture are used to grow or cultivate industrial hemp, (ii) requires that sites used for growing or cultivating industrial hemp in a State be certified by, and registered with, the State department of agriculture, and (iii) authorizes State departments of agriculture to promulgate regulations to carry out the pilot program in the States in accordance with the purposes of this section. (2) INDUSTRIAL HEMP.-The term ''industrial hemp'' means the plant 250 West Main Street I Suite 2800 I Lexington, Kentucky I I frostbrowntodd.com Offices In Indiana, Kentucky, Ohio, Tennessee, Texas, Virginia and West Virginia

22 December 21, 2015 Page3 Cannabis sativa L. and any part of such plant, whether growing or not, with a delta-9 tetrahydrocannabinol ["THC"] concentration of not more than 0. 3 percent on a dry weight basis. (3) STATE DEPARTMENT OF AGRICULTURE.-The term "State department of agriculture'' means the agency, commission, or department of a State government responsible for agriculture within the State. The 2014 Farm Bill mandate is both limited in its reach, and sweeping in its impact: It is limited to the extent that the use and production of industrial hemp is strictly restricted to agricultural pilot programs conducted by state departments of agriculture, institutions of higher education, and/or their contractual designees. The Farm Bill provisions do not apply to industrial hemp grown or used outside the context of an agricultural pilot project. It is sweeping to the extent that if industrial hemp is grown or cultivated within the context of a duly-registered agricultural pilot project, all federal laws that would otherwise restrict, regulate or prohibit the use or production of industrial hemp are "not-withstoo'd," i.e., federal laws such as the CSA do not apply to these programs. APPLICATION: In the months following passage of the 2014 Farm Bill, there were conflicting interpretations of the new hemp provision's meaning and application. Most prominently, the DEA initially raised objections to the importation of hemp seed for pilot programs and took the position that such importation, as well as the cultivation of industrial hemp, would remain subject to the CSA and would require licenses (pennits) from DEA. The Kentucky Department of Agriculture brought suit in federal district court to compel DEA to release a shipment of hemp seed without a license. Kentucky Dept. of Agriculture v. U.S. Drug Enforcement Agency, Civil Action No. 3:14cv-372-H (W.D. Ky). That litigation was settled informally in a manner that permitted seed importation and cultivation. In 2015, 125 pilot programs were authorized in Kentucky. Similar settlements have been reached between the DEA and departments of agriculture in other states that have legalized the growth and cultivation of industrial hemp. Unfortunately, this ad hoc negotiation process has produced a patchwork of standards when it comes to federal regulation of industrial hemp. Additionally, other federal agencies -such as U.S. Customs and Border Protection and the Food and Drug Administration - have raised separate concems and restricted the full development of state agricultural pilot programs. OMNIBUS LAW To eliminate the existing confusion and provide clarity with respect to the legal status of the agricultural pilot programs authorized under the 2014 Farm Bill, Leader McCom1ell authored -~-----+anguage that was insmied into the Consolidated Appropriations Act fm: FY 2016 (the "Omnil:ms 250 West Main Street I Suite 2800 I Lexington, Kentucky I I frostbrowntodd.com Offices In Indiana, Kentucky, Ohio, Tennessee, Texas, Virginia and West Virginia

23 December 21, 2015 Page4 Law"). The provision -- Section reads as follows: None of the funds made available by this Act or any other Act may be used- (]) in contravention of section 7606 of the Agricultural Act of 2014 (7 US. C. 5940); or (2) to prohibit the transportation, processing, sale, or use of industrial hemp that is grown or cultivated in accordance with subsection section 7606 of the Agricultural Act of 20.l 4, within or outside the State in which the industrial hemp is grown or cultivated. The sweeping language in the first sentence of this section clarifies that no agency can expend any monies that were authorized by federal law to interfere with duly registered agricultural pilot programs during the current fiscal year. Subsection 2 clarifies that this prohibition on federal interference extends to intrastate and interstate transportation, processing, sales and use of industrial hemp that is grown or cultivated pursuant to the 2014 Fann Bill. LEGAL GUIDELINES Taken together, the 2014 Fann Bill and the Omnibus Law provide the following legal regime for industrial hemp during the current fiscal year, ending September 30, 2016: Industrial hemp is defined as the cannabis sativa plant and any of its products that contain 0.3% or less THC on a dry weight basis. Any product with more THC is not hemp and is subject to the CSA. Industrial hemp that is grown or cultivated outside of a Farm Bill-authorized agricultural pilot program - i.e. grown in a state that has not adopted appropriate regulations, or on a farm that has no contractual relationship with a university or state depa1iment of agriculture -- is not protected by the Farm Bill or Omnibus Law provisions. Federal law strictly prohibits the DEA from using funds authorized by federal law to interfere with state industrial hemp agricultural pilot programs. Accordingly, with regard to duly registered pilot programs, the DEA has no authority to regulate or restrict the importation of hemp seed, the growth or cultivation of hemp plants, or the use or sale of hemp products, from seed to end use. Instead, duly registered agricultural pilot programs arc regulated under state law, with enforcement procedures enacted in state statute and regulation, and administered by state law enforcement agencies. It is the sole authority of state departments of agriculture and state law enforcement to regulate the administration of agricultural pilot programs. Federal law strictly prohibits the U.S. Customs and Border Protection ("Customs") agency from using funds authorized by federal law to interfere with state industrial hemp agricultural pilot programs. Accordingly, Customs agents cannot restrict the importation of hemp seed and/or hemp products that are brought into the cmmtry by a university or 250 West Main Street I Suite 2800 I Lexington, Kentucky I I frostbrowntodd.com Offices in Indiana, Kentucky, Ohio, Tennessee, Texas, Virginia and West Virginia

24 December 21, 2015 Page 5 state department of agriculture under a duly-registered pilot program. Like all other agencies, the Food and Drug Administration ("FDA") is prohibited by the Omnibus Law from using any federally-authorized funds to interfere with state industrial hemp agricultural pilot programs. o o o In May 2015, the FDA issued online guidance, entitled "FDA Questions and Answers." The agency opined that cannabidiol ("CBD") cannot be sold as a dietary supplement because "it has been authorized for investigation as a new drug for which substantial clinical investigations have been instituted," citing the federal Food, Drug and Cosmetic Act ("FDC&A"), 21 U.S.C. 32lff(3)(B)(ii). The FDA, however, did not commit to taldng enforcement action against CBD sales, citing "agency resources and the threat to public health." The FDA' s regulatory authority remains largely in place - the agency still may enforce those provisions of the FDC&A that relate to industrial hemp products, as long as those provisions or their interpretations do not serve to prohibit the sale or use offaim Bill-authorized products. For example, with respect to CBD products derived from industrial hemp, the FDA could prevent the false or deceptive labeling of products that do not contain CBD and/ or the marketing of such products as a drug, unless and until FDA procedures and regulations are met. However, it is our opinion that -- under the plain language of the Farm Bill and the Omnibus Law -- the FDA could not enforce the FDC&A so as to prohibit the sale or use of a hemp-derived product such as CBD cultivated as part of an agricultural pilot project. This is the case even if that prohibition is based on the FDC&A rather than the CSA As discussed above, the Farm Bill not-withstands "any other federal law" - including the FDC&A -- while the Omnibus Law states that "None of the funds made available by this Act or any other Act may be used... to prohibit the... sale, or use of industrial hemp that is grown or cultivated in accordance" with the Farm Bill. ( emphasis added). Industrial hemp that is grown or cultivated pursuant to a Farm Bill-authorized agricultural pilot program is not subject to the CSA. Hemp, in any form -- from seed to final product -- is legal to transport, process, sell, and/or use, as long as it was grown or cultivated under a duly registered pilot program. Fmiher, the Omnibus Law clarifies that as a matter of federal law, such hemp products can be transported, sold, and used in a state other than the state in which it was cultivated, even if the state in which it is sold, used transported does not have Farm Bill-authorized pilot programs. For example, if a hemp product is derived in Kentucky from hemp cultivated in Kentucky in an agricultural pilot project, the DEA could not prohibit the sale of that product in any other state. However, if applicable state law bans the sale, transport or use of a particular hemp product in that state, that state law could still be enforced by the state authorities. For example; if a state definition of marijuana mirrored that of the CSA, a product derived from a non-exempt part of a hemp plant may be unlawful to possess or sell in the sta 250 West Main Street I Suite 2800 I Lexington, Kentucky I I frostbrowntodd.com Offices in Indiana, Kentucky, Ohio, Tennessee, Texas, Virginia and West Virginia

25 December 21, 2015 Page 6. under state law. Before selling or using a hemp product in a state without a hemp regulatory regime, please check applicable state law and consult with counsel as needed. CONCLUSION The Omnibus Law clarifies the sweeping reach of industrial hemp agricultural pilot pro grams that are duly registered in states that have implemented regu1atory stmctures. During the fiscal year, individuals and firms engaged in authorized pilot programs should be permitted to grow, cultivate, transport, process, sell and/or use industrial hemp under the guidelines and regulations of state law, without interference from agencies usij;ig federally"authorized funds. We must emphasize that the Omnibus Law expires at the end of the fiscal year, September 3 0, While we are optimistic that Congress will extend and/or expand these provisions; as a matter of law, we cannot provide that assurance. The legal advice and opinions set forth herein are an expression of our professional judgment and not a guaranty of a result. The federal agencies mentioned above may contest the interpretations we have provided: For example, they may argue that the Omnibus Law's prohibitions apply only to federal appropriations, not all funds authorized by federal law. Additionally, as noted above, in. states without hemp regulatory regimes, local and state laws governing hemp or products containing THC may be applicable, If you have more specific questions about general applications of the new law, or specific issues that you face in its implementation, please do not hesitate to contact us,. Sinc~QL_ ~than Millor, &quire FROST BROWN TODD Lexington, KY Co"signed by /42:or,&~ SANDLER REIFF LAMB ROSENSTEIN >& BIRKENSTOCK Washington, DC zsowest Main SrreeftSTI1fif28llu I Lel<1ngton, Kentue!ty 4osm9ttJS9;23r.uooo-jffllstbrowntodd,com Offices In Indiana, Kentucky, Ohle/, Tennessee, Texas, Virginia and West Virginia

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31 KENTUCKY DEPARTMENT OF AGRICULTURE INDUSTRIAL HEMP RESEARCH PILOT PROGRAM 2017 POLICY GUIDE Last Updated: October 11, 2016

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33 KDA Industrial Hemp Research Pilot Program 2017 Policy Guide TABLE OF CONTENTS Letter from the Commissioner... iii I. POLICIES AND PROCEDURES FOR THE 2017 GROWING SEASON... 1 A. Program Overview... 1 B. Policies and Procedures for Hemp Growers Who Must Apply to Participate as a Grower Applications Deadlines, Key Contents Criteria for Evaluating Grower Applications Appeals Terms and Conditions of Grower Participation Program Fees for Growers Seed Acquisition Planting Site Verification Access to Growing and Storage Sites Pesticide Use Sample Collection Laboratory Testing Transfer of Industrial Hemp Materials Prohibited Activities for Grower MOU Holders Production Report Open Records Failure to Comply with Terms and Conditions of the KDA IHRPP...11 C. Policies and Procedures for Hemp Processors and Handlers Who Must Apply to Participate as a Processor or Handler Applications Deadlines, Key Contents Criteria for Evaluating Processor/Handler Applications Appeals Terms and Conditions of Processor/Handler Participation Program Fees for Processors/Handlers Hemp Material Acquisition Seed Acquisition...18 i

34 KDA Industrial Hemp Research Pilot Program 2017 Policy Guide 9. Site Verification Access to Processing, Handling and Storage Sites Sample Collection Laboratory Testing Transfer of Industrial Hemp Materials and Products Prohibited Activities and Products for Processor/Handler MOU Holders Production Report Open Records Failure to Comply with Terms and Conditions of the KDA IHRPP...21 II. Universities and Colleges Who Must Apply to Participate as an Affiliated University or College Affiliation Requests Deadlines, Key Contents Program Fees for Universities and Colleges Seed Acquisition Planting Access to Growing, Handling, Processing and Storage Sites Harvest/Destruction Notification Form Laboratory Testing Production Report...24 III. Preliminary List of Forms and Documents for the 2017 Program ii

35 Ryan F. Quarles Commissioner Kentucky Department of Agriculture Office of Agriculture Marketing Industrial Hemp Program 111 Corporate Drive Frankfort, KY Phone: (502) , opt. 1 Letter from the Commissioner October 11, 2016 My Fellow Kentuckians, Today I am proud to announce the Kentucky Department of Agriculture s release of our new Industrial Hemp Research Pilot Program 2017 Policy Guide. Today s announcement marks the culmination of several months of diligent work on the part of the Department s dedicated team of industrial hemp research pilot program employees. I thank them for everything they have done, and continue to do, to make Kentucky s Industrial Hemp Research Pilot Program the success that it is. I also want to recognize the pioneering work of the previous administration, led by former Commissioner James Comer, in building Kentucky s research pilot program from the ground up. Thanks to his leadership, in the course of just three years Kentucky s hemp production went from zero to more than 2,300 acres planted in the 2016 growing season. This rapid growth is a tremendous achievement, and I appreciate his team for their work in making it possible. Additionally, I thank the members of Kentucky s Congressional delegation for their continued support for Kentucky s hemp growers and processors. Numerous members of the Kentucky General Assembly have also been instrumental in hemp s success here in Kentucky. As your Commissioner of Agriculture, my strategic objective is to expand and strengthen Kentucky s research pilot program so that if the federal government chooses to remove industrial hemp from the list of controlled substances, the Commonwealth s growers and processors will be positioned to thrive, prosper and ultimately prevail as national leaders in industrial hemp production. This crop is one of many potential alternative crops that KDA is researching as economic development options for our farmers and agribusinesses. If you re interested in learning about our other alternative crops, please visit the KDA website at The application period for the 2017 growing season begins today. Several months ago, I directed a team of Department employees to undertake a complete review of Kentucky s research pilot program. The purpose of this review was to identify ways that we could strengthen our program, and lay a solid foundation for future growth, as we transition into our fourth year. An essential component of this process was the search for lessons we can learn from our experiences in the program s first three growing seasons. At the outset of this review process, I laid down several key principles to guide the review team s work. First, we must do everything we can to support and empower Kentucky s expanding community of industrial hemp growers and processors. This commitment includes allowing our program participants to experiment with all of this versatile crop s components not just the grains and fibers whose utility was known to previous generations so that we may learn as much as we can about its economic potential. iii

36 KDA Industrial Hemp Research Pilot Program 2017 Policy Guide Freedom, flexibility and latitude to try new methods and applications are essential to the success of any agricultural research pilot program. Kentucky s Industrial Hemp Research Pilot Program is no different. Second, the Department must work closely with federal, state and local law enforcement officials to devise and oversee a research pilot program that encourages continued expansion of industrial hemp production while also effectively upholding laws prohibiting marijuana and other illegal drugs. Third, we must look for ways to eliminate redundant requirements and tasks that place administrative burdens on growers, processors and Department staff. Streamlining our policies and procedures also will promote transparency and ensure a level playing field for those who wish to participate in Kentucky s research pilot program. We have prepared this Policy Guide with these three principles in mind. We hope that it will prove useful for Kentucky s growers and processors, law enforcement officials, Department employees, and interested members of the public as we continue to investigate and research a crop that connects Kentucky s past to its future. As always, we welcome your comments, questions and concerns, and we invite you to join us in helping Kentucky and its citizens secure a prosperous future with this promising agricultural crop that connects our state s past to our future. Sincerely, Ryan F. Quarles Commissioner Kentucky Department of Agriculture iv

37 KDA Last Updated 10/11/2016 Industrial Hemp Research Pilot Program 2017 Policy Guide I. POLICIES AND PROCEDURES FOR THE 2017 GROWING SEASON A. Program Overview The Kentucky Department of Agriculture (KDA) is conducting an Industrial Hemp Research Pilot Program (IHRPP) as authorized by 7 U.S.C (also known as Section 7606 of the 2014 Farm Bill). 7 U.S.C defines industrial hemp as the plant Cannabis sativa L. and any part of such plant, whether growing or not, with a delta-9 tetrahydrocannabinol [THC] concentration of not more than 0.3 percent on a dry weight basis. Outside of the KDA IHRPP or another 7 U.S.C program, industrial hemp is listed under 21 U.S.C. 801 et seq. as a Schedule 1 Controlled Substance. As such, it is illegal to grow industrial hemp in Kentucky outside the auspices of KDA s IHRPP. The KDA has chosen to research industrial hemp because of the intense interest and enthusiasm across the Commonwealth for this historic crop. The Department seeks to build a body of knowledge on hemp agronomics that will lay a solid foundation for a thriving industry should hemp be removed from the federal government s list of controlled substances. Kentucky farmers seeking an agricultural crop for inclusion in crop rotation plans or as a replacement crop may find that industrial hemp is a viable option. To date over 40 processors have been admitted into the KDA pilot program and are developing infrastructure with sufficient capacity to process hemp grown by farmers all across Kentucky. In the first year of the program, farmers planted 33 acres and succeeded with a modest harvest. In 2015, over 900 acres were planted and about 500 were successfully harvested. As KDA nears the end of the 2016 season, we have reports of over 2,300 acres planted. KDA will be working closely with University of Kentucky researchers to interpret the 2016 season s growing data. KDA expects the 2017 growing season to be even larger than in previous years. With that growth will come greater demands for staff time and funds for application review, program administration, travel costs, sample collection and THC testing, and other IHRPP-related tasks. As the financial costs associated with the IHRPP continue to rise commensurate with its expansion, it has become very difficult for KDA to cover all of the program s expenses within its current resource constraints. In order to permit sustained program growth, KDA will implement application and participation fees in the new program year. These fees will enable KDA to pay for some program expenses such as site visits, sample collection, THC testing, pesticide residue testing, staff time, and program administration. Industrial hemp has at least three main harvestable components (grain, fiber, and floral material); each of these components is grown with different agricultural models and harvested with different methods. Because participant research is in its early stages, there remains much for us to learn. Given these uncertainties, please be mindful that there is high risk of financial or other loss at this early stage in the program. KDA does not offer any financial assistance to IHRPP participants. Approved participants must either use their own money or raise their own capital to grow or process hemp. 1

38 KDA Last Updated 10/11/2016 Industrial Hemp Research Pilot Program 2017 Policy Guide Of course, those participants that have successfully harvested a crop may sell their harvest subject to KDA IHRPP requirements. Growers may sell to processors in the KDA program, and processed hemp may be sold outside the KDA program. Materials eligible for sale outside the program include denuded whole stalks, bast or hurd fibers, dehulled or crushed grain, and extracted phytocannabinoid compounds (excluding THC) from floral material. For a complete list of harvested industrial hemp components that are eligible for in-program and out-of-program transfers, please see the 2017 Transfer Requirements document on the KDA website at Individuals and companies who wish to be considered for participation in the IHRPP as a grower, processor or handler must submit the KDA Industrial Hemp Research Pilot Program Grower Application or Processor/Handler Application for 2017 prior to the applicable deadline. KDA also encourages universities and colleges to conduct industrial hemp research. Institutions of higher education are authorized by 7 U.S.C to conduct hemp research, but the law also requires that the growing sites at universities and colleges be certified and registered with the state department of agriculture. Therefore, universities and colleges who plan to research industrial hemp are required to affiliate with the KDA pilot program by completing the University/College Affiliation form for The remainder of this guide outlines the current policies and procedures for growers, processors and handlers, and universities and colleges wishing to participate in the 2017 program. These policies are subject to updates and revisions in the sole discretion of KDA. 2

39 KDA Last Updated 10/11/2016 Industrial Hemp Research Pilot Program 2017 Policy Guide B. Policies and Procedures for Hemp Growers 1. Who Must Apply to Participate as a Grower The 2017 Grower Application must be completed by any company or individual (other than colleges or universities) who wishes to participate in the Kentucky Industrial Hemp Research Pilot Program by researching the growth of industrial hemp plants in Kentucky. KDA is proud to offer this unique partnership opportunity for Kentucky farmers. Farmers should plan to complete their own applications, rather than allowing a processor to complete the application on their behalf. Outside of the KDA IHRPP or another 7 U.S.C program, industrial hemp is listed under 21 U.S.C. 801 et seq. as a Schedule 1 Controlled Substance. As such, it is illegal to grow industrial hemp in Kentucky outside the auspices of KDA s IHRPP. 2. Applications Deadlines, Key Contents a. Release Date and Deadline Date KDA will release and post on its website the 2017 Grower Application Packet on October 11, Grower applications must be postmarked or received by the KDA Marketing Office no later than November 14, 2016, at 4:30 PM Eastern Time (ET). Applications postmarked or hand delivered after that time will not be considered. submissions will not be accepted because the payment for the application fee must be attached to the application. b. Application fee Each applicant must submit a nonrefundable application fee of $50 with the applicant s Grower Application. The fee should be in the form of a check or money order made payable to the Kentucky State Treasurer. This fee does not include the cost of required criminal background checks, which is to be paid by the applicant to the Kentucky State Police. c. Application components To be considered as a pilot program participant, an applicant must submit the following information as required on the Grower Application form: Applicant s contact information, including a copy of current driver s license. Full names of each individual who will be primarily responsible for the growing or handling of the applicant s hemp. Research Plan, including a proposed number of acres (or square feet, for greenhouses) to be planted. Declaration of previous farming experience. Seed/Propagule Acquisition Plan, including source of seed/propagules. Address and GPS coordinates of each site (field, greenhouse or building) where hemp will be grown or stored. Map(s) depicting each site where hemp will be grown or stored, and designating entrances, field boundaries and specific points where GPS coordinates were taken. 3

40 KDA Last Updated 10/11/2016 Industrial Hemp Research Pilot Program 2017 Policy Guide Marketing Plan, including a letter of intent from processor(s), if not self-processing. (Note: If processing, a separate Processor/Handler Application is required.) Consent to all statements in the Acknowledgments Section in the Grower Application. d. Criminal Background Check Each person who is designated as a signing authority in the application must undergo a criminal background check. Each person must complete and submit to the Kentucky State Police a background check request. Applicants are responsible for payment of background check costs. Following the completion of the criminal background check, the applicant must either (a) attach a copy of the report to the Grower Application or (b) arrange for the Kentucky State Police to mail a copy of the report directly to KDA Hemp Staff. Criminal background check reports must be received by KDA Hemp Staff on or before November 28, Late or missing submissions shall be grounds to disqualify the application from consideration. e. Conflicts of Interest Policy KDA employees are not eligible to participate in the IHRPP. Family members of KDA employees are eligible to participate, subject to the restrictions imposed by KRS Chapter 11A. KDA employees must not participate in or attempt to influence any decision regarding themselves or their family members. KDA employees may not interview, recommend, or approve family members for participation in the IHRPP. When a KDA employee becomes aware that a family member is making or has made an application to participate in the IHRPP, the KDA employee must submit a written statement attesting that: I am aware that my family member, (family member name/and or business name), has applied to participate in the KDA s Industrial Hemp Research Pilot Program. I attest that I have no ownership interest or other involvement with (family member) s farming or other business interests. I agree that I must not be involved in the KDA s decisions concerning (family member) and that I must recuse myself from any involvement in such decisions. After considering the KDA employee s written statement and other pertinent information, KDA s General Counsel or his designee will determine whether the KDA employee s family member s participation in the IHRPP would constitute a violation of KRS Chapter 11A. If the KDA employee s family member s participation would constitute such a violation, then the KDA employee s family member will not be permitted to participate in the IHRPP. 3. Criteria for Evaluating Grower Applications For each application, KDA s Hemp Staff will perform an evaluation. Conditional approval/denial determinations shall be communicated by or letter. The date of the or letter shall serve as the notification date for purposes of any appeal. The following questions shall be considered for each grower applicant. Did the applicant submit a complete application with all required components and attachments? o Research plan; 4

41 KDA Last Updated 10/11/2016 Industrial Hemp Research Pilot Program 2017 Policy Guide o Seed/propagule acquisition plan, identifying seed source; o Marketing plan, including a letter of intent from processor(s); o Maps, with all required labeling; and o All attachments listed in the Attachments section of the Grower Application. Would the applicant s participation avoid violation of KRS Chapter 11A? If a 2016 Participant, did the applicant submit a complete Production Report for 2016? Did the applicant submit the required nonrefundable application fee? Does the place of residence stated on the application match the address listed on the applicant s driver s license? Does the applicant have sufficient growing experience (i.e., by filing an IRS Schedule F federal tax form at least once within the past three years, having an FSN [Farm Serial Number with the USDA Farm Service Agency], or other sufficient indicia)? Are applicant s growing and storage sites located in Kentucky? Is the applicant s place of residence within 50 miles of the site(s) where applicant plans to grow or store hemp? Does the criminal background check(s) report indicate no felony convictions within the past ten (10) years? Does the criminal background check(s) report indicate no drug-related misdemeanor convictions within the past ten (10) years? Is the applicant s research plan compliant with KDA Program Policies, and state and federal law? Does the applicant have a seed/propagule acquisition plan? Does the applicant have a marketing plan? Is a letter of intent from a buyer or processor included? In the past, has the applicant demonstrated a willingness to comply with KDA rules, guidelines, required reporting, and instructions from KDA Hemp Staff, and instructions from Kentucky State Police and other law enforcement offices? 4. Appeals An applicant who wishes to appeal the KDA Hemp Staff s denial of his or her application may, within 20 days of the notification date, submit a written request for a hearing. Applicants must mail hearing request letters to KDA Industrial Hemp Research Pilot Program, 111 Corporate Drive, Frankfort, KY KDA recommends that applicants use certified mail, return receipt requested, when submitting their written requests for a hearing. The hearing will be conducted by the KDA IHRPP Appeals Panel, a three-person panel whose members will be designated by the Commissioner. The IHRPP Appeals Panel will include at least one person who is a KDA employee and at least one person who is not a KDA employee. The panel will not accept or consider information or documents that were not compliant with deadlines defined in this Policy Guide. The IHRPP Appeals Panel will use the same standards and criteria that were used by the KDA Hemp Staff in the initial application assessment. The IHRPP Appeals Panel will determine if the KDA Hemp Staff acted arbitrarily or capriciously in the initial application assessment. 5

42 KDA Last Updated 10/11/2016 Industrial Hemp Research Pilot Program 2017 Policy Guide Hearings will be open to the public. Hearings will occur at a time and date and location designated by the Commissioner. Appealing applicants must appear in person for their assigned hearing time. Failure to appear on time will be cause for dismissal of the appeal. At the hearing, the appealing applicant will be allowed up to 15 minutes to present arguments for reversing the KDA Hemp Staff s denial. KDA Hemp Staff will be allowed up to 15 minutes to present arguments for affirming the denial. Following the presentations, the members of the IHRPP Appeals Panel will rule on the appeal by majority vote. The decision of the IHRPP Appeals Panel will be final and not subject to additional review or subsequent appeal. 5. Terms and Conditions of Grower Participation Individuals whose applications receive conditional approval will receive a Memorandum of Understanding and a Participant Agreement form from KDA Hemp Staff. These documents set forth terms and conditions governing participation in the research pilot program. Applicants who have received conditional approval should review these two documents prior to attending the mandatory orientation session at KDA s offices. No applicant is a part of KDA s Industrial Hemp Research Pilot Program until these two documents have been executed at the mandatory orientation session. Upon request from KDA Hemp Staff, Kentucky State Police, or other state or local law enforcement officers, participants must immediately produce a copy of their Memorandum of Understanding and Participant Agreement form for inspection. Failure to comply may result in revocation of the MOU. Failure to agree or comply with the terms and conditions set forth in the Memorandum of Understanding, the Participant Agreement form or this Policy Guide will constitute grounds for appropriate action, up to and including a participant s expulsion from the research pilot program. These terms and conditions include, without limitation: Acknowledgment that participants are acting as agents of KDA and must comply with all instructions from KDA Hemp Staff, Kentucky State Police, and other state and local law enforcement. Acknowledgment that participant shall pay all applicable program fees in the amounts specified below. Consent to entry onto all premises where hemp plants or materials are located by KDA Hemp Staff, Kentucky State Police officers, or other law enforcement officers, with or without cause, with or without advance notice, for inspection, sampling, testing or any other purpose. Consent to the forfeiture or destruction, without compensation, of hemp material found to have a measured delta-9 THC content of more than 0.3 percent on a dry weight basis as measured from samples collected by KDA. Acknowledgment that participants must obtain prior written approval from KDA Hemp Staff before implementing any changes to the research focus (e.g., fiber, grain, floral material, or replication) stated in the participant s Memorandum of Understanding. 6

43 KDA Last Updated 10/11/2016 Industrial Hemp Research Pilot Program 2017 Policy Guide Acknowledgment that participants must obtain prior written approval from KDA Hemp Staff before implementing any changes to the growing sites (additional addresses, or changes or additions to field or greenhouse GPS coordinates) stated in the participant s Memorandum of Understanding, and that such changes are subject to a Site Modification Surcharge of $500 per site. Acknowledgment that no pesticides may be used on industrial hemp and that materials bearing pesticide residues may be forfeited or destroyed, without compensation. Acknowledgment that participants must comply with all restrictions on the movement of industrial hemp, as outlined in the 2017 Transfer Requirements document. Acknowledgment that the risk of financial or other loss is borne solely by the participant. Agreement to abstain from all prohibited activities. 6. Program Fees for Growers Beginning in 2017, KDA will assess fees to program participants. These fees will enable KDA to pay for some program expenses such as site visits, sample collection, THC testing, pesticide residue testing, staff time, and program administration. All fees are nonrefundable. a. Participation Fees The Participation Fee for growers will be $350 per address. The Participation Fees must be paid during the mandatory orientation session in the form of a check or money order payable to the Kentucky State Treasurer. b. Post-Harvest Retest or Pesticide Residue Quantification Test Fees As will be outlined in the THC Testing Protocol for 2017 (release date anticipated in spring 2017), post-harvest retests or pesticide residue quantification testing may be required. Initial THC testing is covered by the Participation Fee. KDA covers the cost of initial pesticide residue testing. In the event a post-harvest retest or pesticide residue quantification test is required, the participant should be prepared to pay $150 per instance. Any Post-Harvest Retest Fee or Pesticide Residue Quantification Fee must be paid within 30 days of invoice from KDA in the form of a check or money order payable to the Kentucky State Treasurer. Please refer to the THC Testing Protocol for 2017 for full details on retesting. c. Site Modification Surcharge If a participant elects to grow hemp in a field or greenhouse other than the plot(s) specified by GPS coordinates in the participant s Memorandum of Understanding, the participant will be required to submit a Site Modification Surcharge of $500 for each new growing site (field or greenhouse). A new growing site is defined as any GPS location not listed on the MOU (i.e., any change to or addition of GPS coordinates at an address on the MOU, or for the addition of a new address). The Site Modification Surcharge does not apply to storage-only sites, but notification and approval is required for storage-only sites. 7