The art of the compromise: How Noem and lawmakers came together (mostly) on hemp

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PIERRE, S.D. (KELO) — It didn’t seem possible ahead of the 2020 legislative session, but lawmakers and Gov. Kristi Noem (R-SD) have come to somewhat of a compromise over legalizing industrial hemp.

The bill passed the South Dakota House of Representatives on Tuesday afternoon.

KELOLAND News is breaking down the latest version of the bill and how it compares to the previous version of the bill and “guardrails” Noem announced in January if she were to authorize the bill this year, there are four things she requires.

Our analysis finds the bill meets three of the four “guardrails.”

The original House Bill 1008 was pre-filed the day after Noem told KELOLAND News of her change in thought. The bill was “hoghoused,” or gutted, in a House committee last week.

The new bill appears to address Noem’s request
The new bill doesn’t appear to address Noem’s request
It’s unclear if the new bill addresses Noem’s request

Noem’s Guardrails

Reliable Enforcement

Gov. Kristi Noem is looking for four things in this category: growth or possession of hemp is a consent to an inspection and a search.

Original House Bill 1008

In section 38-35-11, of the new bill, law enforcement may collect a sample of the product for the purpose of testing when its being transported. The bill also says in section 38-35-7, the Department of Agriculture may enter on any land or area where hemp is grown, stored, or produced for the purposes of inspections, sample collection, testing, or investigation.

In section 38-35-9 of the amended bill, authority is given to the Department of Public Safety to enter on any land or area where hemp is grown, processed, stored or produced for the purposes of inspections, sample collection, testing, or investigation. This still gives authority to the Department of Agriculture, as it was listed in the original bill.

In the next section, the bill requires every grower to allow inspection no more than 15 days before harvest, in addition to random inspections.

The transportation requirement in the original bill remains but it is stricter. The bill says by transporting hemp, drivers have already given consent to a reasonable search and seizure without a warrant. We’ll explore some other transportation changes below.

Noem is also looking for agency authorization to inspect fields and loads, confiscate or seize, and destroy or dispose of unlawful hemp – without liability – and the actual costs of disposal must be paid by the grower or possessor.

Before the new bill, this section was:

As shown above, the bill gives the Dept. of Ag the power enter on any land or area where hemp is grown, stored, or produced for the purposes of inspections, sample collection, testing, or investigation. In addition, the proposed legislation says any hemp found to be in violation of the law is subject to confiscation and disposal by the department.

“Any costs arising from the confiscation and disposal shall be the responsibility of the grower, producer, or owner of the hemp. The department is not liable for any destruction of hemp or hemp products carried out under this chapter. If a violation occurs, the grower shall be given, in writing, a copy of the results.”

The new version of the bill gives authority to both the Department of Agriculture and the Department of Public Safety.

Similarly to the original bill, costs will be the responsibility of the grower, producer, or owner of the hemp.

Noem wants to ensure the sale or use of hemp and hemp derivatives for smoking is prohibited.

There is nothing in the bill that explicitly bans growers from selling or using hemp to smoke. The bill defines industrial hemp as “all derivatives” of the Cannabis sativa L plant and with a “delta-9 tetrahydrocannabinol concentration (THC) of not more than three-tenths of one percent on a dry weight basis.”

The bill explicitly puts this in section 38-35-21 and makes it a crime:

“The sale or use of industrial hemp for smoking or inhaling is prohibited. A violation of this section is a Class 1 misdemeanor.”

Lastly, in this section, Noem wants an annual statistical report by the Attorney General to the Governor and Legislature as to how this act affects criminal drug prosecutions.

Before the new bill, this section was:

The bill doesn’t have any requirements like this.

Section 38-35-19 in the new bill requires the attorney general to collect survey results and its impact on the criminal justice system. In addition, the bill is required to be reporter annually to the Governor and Legislature by December 1 of each year.

Responsible Regulation

Gov. Kristi Noem wants regulations regarding licensing, reporting, and inspections that are at least compliant with USDA standards.

The new version, however, bolstered compliance with Noem’s guardrail.

The state’s plan will have to be approved by the U.S. Department of Agriculture and outlines a path to do that.

The federal guidelines have a requirement for producers to report acreage to the USDA. The federal agency also outlines requirements for inspections.

The state plan requires producers to be licensed through the state’s Department of Agriculture and follow criminal background checks.

For reporting, the state plan requires each licensee to file with the Department of Agriculture documentation indicating that the seeds planted were of a type and variety certified to have no more than three-tenths of one percent tetrahydrocannabinol. This has to be done in 30 days.

In addition, one line of this bill likely will satisfy Noem’s request that “all applicants and licensees shall abide by the any (sic) rules set forth by the United States Department of Agriculture.”

This requirement is bolstered with the changing of a section to further clarify who is subject to USDA rules.

Licensing: The license may be denied, revoked or suspended if the person violates any rules from the USDA. This was in the original bill as well. The state’s Department of Agriculture will remain the agency issuing licenses.

Reporting: Similarly, reach licensee has to file documentation with the Department of Ag. These reports aren’t public record, but the bill allows them to be released to the Department of Public Safety and law enforcement.

Inspections: The USDA requires states to do an annual inspection and that “a pre-harvest inspection is best to identify suspicious plants and activities, and that the sample should be taken as close to harvest as possible, the time was selected based on what would be a reasonable time for a farmer to harvest an entire field.”

This version of the bill adds to that requirement, and it will be conducted by the Department of Public Safety.

The bill states: “if the land area is to be used to grow hemp, the land area must be at least five contiguous acres.”

The wording was changed in the bill to say: “No application for licensure to plant, grow, or produce industrial hemp may be for less than five contiguous outdoor acres.”

Noem also wants an appropriate fee structure for application, annual license, and inspection.

The bill sets a license fee not to exceed $350. The license is valid for 15 months.

The bill sets an inspection fee not to exceed $250.

All fees will go into the state’s industrial hemp licensure program fund.

The bill sets an annual license application fee not to exceed $50, an annual grower license fee not to exceed $500 and an annual processor license fee not to exceed $2,000.

The grower license is valid for 15 months. The producer license if valid on Dec. 31 of the calendar year it was issued.

The bill sets a grower inspection fee not to exceed $250 and a processor inspection fee not to exceed $500.

Fees will go into the hemp regulatory program fund rather than what it was originally called: the industrial hemp licensure program fund.

The bill also sets a transportation permit fee not to exceed $25.

Safe Transportation

Gov. Kristi Noem is requesting that a permit is required for all transportation of hemp.

The bill follows that and says: “an industrial hemp transportation permit is required to transport industrial hemp.”

The bill also sets the transportation application is valid for 15 months. It has to be filed at least five business days ahead of transportation.

The revision of the bill puts the rules regarding transportation and permits under the Department of Public Safety.

The permit will be required for transportation within or through the state.

When transporting hemp, the person cannot transport with any other plant material that is not hemp.

There will be two types of permits: A grower licensee transportation permit and a general hemp transportation permit. There are several requirements to get either permit.

In addition, it puts in a requirement for a fee to transport.

Appropriate legal consequences for hemp transported without documentation.

The bill says: “it shall be a Class 2 misdemeanor to transport industrial hemp without appropriate licensure or paperwork from a federal or state authority.”

The transporting of an industrial hemp product (a finished manufactured product containing the low THC content – less than 0.3%) or sterilized seeds are exempt from these rules. Traveling without a permit and required documentation will be a class two misdemeanor.

It is a Class 2 misdemeanor to transport industrial hemp, but not industrial hemp product, without appropriate documentation demonstrating compliance with an industrial hemp program of a federal, state, or tribal authority, in addition to (a transportation) permit.

In addition, transporting hemp automatically gives law enforcement the right to search and seizure without a warrant, according to the bill.

Adequate Funding

Total Department of Public Safety Projected Costs:

9 full-time employees for transportation and enforcement, and nine seasonal inspectors.

The one-time cost is anticipated to be: $1,157,517 and on-going costs of $1,044,345.

3 full-time employees for program management.

The one-time cost is anticipated to be $36,586 and ongoing costs of $349,697.

Total Department of Health Projected Costs:

2 full-time employees for lab chemists.

The one-time cost is anticipated to be $705,700 and on-going costs of $198,739.

The bill only establishes the creation of a fund for fees to be deposited. It didn’t include any appropriations.

In addition, the inspectors in the bill worked for the Department of Agriculture, not the Department of Public Safety.

Capitol News Bureau Correspondent Bob Mercer reports this section is going to take a lot of work from lawmakers over the next few months in Pierre.

Mercer analyzed Noem’s funding projections and said South Dakota would need, to break even on the ongoing costs, some 4,000 to 6,000 license holders at $350 apiece, with the number of $250 inspections being the other variable.

Similar to the last version of the bill, it doesn’t include any appropriations. A fund is established with this bill and is more clearly defined than the last bill.

The inspection process was changed to include the Department of Public Safety. In addition, the fees were increased, and more categories were added.

Capitol News Bureau Correspondent Bob Mercer reports this is still a problem point between the Governor and legislature.

“To be clear, nothing in this bill will meet the fourth guardrail of adequate funding to ensure the lasting integrity of this program. The fourth guardrail needs to be addressed however during the budget process,” one of the governor’s lawyers, Katie Hruska testified.

The governor talked with news reporters about two hours after the committee’s vote on the latest version of the bill.

“I didn’t put hemp funding in my budget. It was not included because, for me, it’s not a priority. I’ve been very clear that I still don’t think it’s a good idea,” Noem said.

As Mercer reports, if the legislation becomes state law, South Dakota would need approval from the U.S. Department of Agriculture. One of USDA’s requirements is that a program must have adequate financial support.

What’s next?

The bill will now move to the Senate. If it passes there and is signed by Noem, it will likely go into effect immediately. That’s because the bill contains an emergency clause. Otherwise, it would have been delayed until July 1.

That doesn’t mean producers can plan on planting right away this year.

The next step would be for the State of South Dakota to file an application with the U.S. Department of Agriculture. As Mercer reported, one key element needed for the application is funding, of which there isn’t any.

One note: the Legislative Research Council found there is likely no impact on prison and jail costs with this legislation.

As of this week, there are 22 states and tribal applications under review with the federal agency. They’re also anticipating at least 21 more applications either being drafted right now or in the process of being re-submitted.

The agency will then either approve or deny the application. So far, they’ve already denied eight plans and those states and tribes are adding edits and amendments to fit the federal government’s framework.

The state will need to start up an application process and do the necessary hiring, as outlined by Noem’s cost estimates.

South Dakota’s Flandreau Santee Sioux Tribe was one of the first in the country to be approved by the USDA. Oglala Sioux Tribe also filed. They were denied by the USDA, but have resubmitted. Sisseton-Wahpeton Oyate and Standing Rock Santee Sioux Tribe have filed plans that are under review. The Yankton Sioux Tribe is also working on a plan to submit.

For now, it’s a waiting game to see when farmers will begin to plant industrial hemp.

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