Legislature(2019 - 2020)BUTROVICH 205

02/10/2020 03:30 PM RESOURCES

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         SB 171-INDUSTRIAL HEMP PROGRAM; MANUFACTURING                                                                      
3:31:25 PM                                                                                                                    
CHAIR MICCICHE announced  that the first order  of business would                                                               
be SENATE BILL NO. 171, "An Act relating to industrial hemp."                                                                   
3:31:49 PM                                                                                                                    
BUDDY  WHITT,   Staff,  Senator  Shelley  Hughes,   Alaska  State                                                               
Legislature,  Juneau,   Alaska,  explained   that  Representative                                                               
Shelley  Hughes worked  with  Senator Johnny  Ellis  in the  29th                                                               
Alaska State Legislature to create  an industrial hemp program in                                                               
the state, but the legislation did  not cross the finish line. In                                                               
2016, Senator  Hughes took the  lead on legislation to  create an                                                               
industrial  hemp pilot  program..  She was  able  to establish  a                                                               
feasible  way for  industrial hemp  through Section  7606 of  the                                                               
2014 Farm Bill,  which allowed states to  establish an industrial                                                               
pilot  hemp program.  The U.S.  Department of  Agriculture (USDA)                                                               
gave statements of  principles on industrial hemp  in August 2016                                                               
that  outlined a  path forward  for  the pilot  hemp program  and                                                               
Senate Bill  6 was signed into  law in April 2018.  However, when                                                               
taking  direction from  the  federal  government, things  quickly                                                               
3:33:47 PM                                                                                                                    
MR. WHITT explained that with the  passage of the 2018 Farm Bill,                                                               
the new legislation  removed industrial hemp from  the Schedule I                                                               
Controlled  Substances  [U.S.   Department  of  Drug  Enforcement                                                               
Administration  (DEA)  classification].  The  USDA  released  its                                                               
final rule of  regulations on the 2018 Farm Bill  in October 2019                                                               
which provided  additional information  on the needed  changes to                                                               
the state's statutes to meet federal compliance.                                                                                
MR. WITT  said the  passage of  the 2018  Farm Bill  requires the                                                               
state to make a few changes,  which SB 171 does. The bill removes                                                               
the industrial hemp pilot program  statute and adds the authority                                                               
to  permit   the  manufacturing  of  hemp-related   products  and                                                               
registration, and  the renewal process  for participation  in the                                                               
industrial  hemp  program.  This  authority  resides  within  the                                                               
Alaska Department of Natural Resources (DNR).                                                                                   
He noted  that the  bill adds  that a  registrant could  not have                                                               
been  convicted  of a  drug-related  felony  within the  last  10                                                               
years. Further,  the department  must develop  a program  that is                                                               
compliant with  federal law and  submit those regulations  to the                                                               
USDA for  approval in order  to have an industrial  hemp program.                                                               
The bill also fixes some incongruent language in the statutes.                                                                  
CHAIR  MICCICHE asked  Mr. Whitt  to proceed  with the  sectional                                                               
analysis for SB 171.                                                                                                            
3:35:37 PM                                                                                                                    
MR.  WHITT paraphrased  the following  sectional analysis  for SB
     Section 1    AS 03.05.010(a)    Page 1, Line  3 through                                                                  
     Page 3, Line 8                                                                                                           
     Two subsections  added to this section  authorizing the                                                                    
     commissioner of the Department  of Natural Resources to                                                                    
     include  the   manufacturing  of  products   made  from                                                                    
     industrial hemp,  as well  as registration  and renewal                                                                    
     procedures, in the regulations  for the industrial hemp                                                                    
He  explained that  the two  subsections were  added because  the                                                               
pilot program is being eliminated.                                                                                              
     Section 2   AS 03.05.076(a)    Page 2, Lines through 24                                                                  
     Adds  language that  a  registrant  for the  industrial                                                                    
     hemp  program   is  not  eligible  if   they  had  been                                                                    
     convicted of a felony  involving a controlled substance                                                                    
     within the last  ten years in order to  comply with the                                                                    
     2018 Farm Bill.                                                                                                            
MR. WITT noted  that there is a grandfather  provision, which was                                                               
not in the  2018 Farm Bill, but is in  the federal regulations, 7                                                               
CFR 990.6(e)(1).                                                                                                                
     Section 3    AS 03.05.076(d)   Page 2,  Line 25 through                                                                  
     Page 4, Line 11                                                                                                          
     Adds that  the department  shall develop  an industrial                                                                    
     hemp   pilot  program   that   complies  with   federal                                                                    
     requirements and submit a plan  for the program to USDA                                                                    
     for approval.                                                                                                              
     Section 4  Page 4, Line 12                                                                                               
     Repeals   AS  03.05.077,   the  establishment   of  the                                                                    
     industrial hemp pilot program,  and AS 03.05.079, which                                                                    
     was   the  violation   section   for  industrial   hemp                                                                    
     containing 0.3 and 1.0 percent THC.                                                                                        
3:37:33 PM                                                                                                                    
MR. WHITT explained that AS  03.05.077 established the industrial                                                               
hemp  pilot program  which  is being  replaced  with a  permanent                                                               
program that  resides within and  is regulated by  the Department                                                               
of Natural Resources.  The repeal of AS  03.05.079 eliminates the                                                               
incongruency  between that  statute  and  AS 03.05.076(b)(4)  and                                                               
(d)(4). The department can use  the latter provisions to regulate                                                               
and manage hemp growers who are  acting in good faith to keep THC                                                               
levels in their product at or below the statutory limits.                                                                       
MR. WHITT said  Senator Hughes requests the  committee consider a                                                               
friendly amendment  to change the  "shall" in AS  03.03.010(c) to                                                               
"may" to  align with other  provisions in  the bill that  allow a                                                               
bit of leniency for good actors. Subsection (c) currently reads:                                                                
     The  Commissioner of  Natural Resources  shall issue  a                                                                    
     stop order to  any person who is found  to be producing                                                                    
     a plant  product with THC over  0.3 percent, regardless                                                                    
     of whether the person is registered.                                                                                       
SENATOR  COGHILL noted  that the  proposed  amendment would  fall                                                               
under  section 1.  He mentioned  the stop  order requirement  and                                                               
asked for help understanding the  difference between the stop for                                                               
the product transaction versus the producer transaction.                                                                        
MR.  WHITT   deferred  to  Rob   Carter  with  the   Division  of                                                               
Agriculture to explain what a stop order entails.                                                                               
3:43:14 PM                                                                                                                    
SENATOR  KIEHL  referenced  the criminal  conviction  barrier  to                                                               
participating  in  the industrial  hemp  industry  and asked  who                                                               
would be  subject to the background  check if the applicant  is a                                                               
limited liability  company or corporation. He  also inquired what                                                               
the public safety need is for  a 10-year lookback for some people                                                               
and a 2-year lookback for others.                                                                                               
3:45:01 PM                                                                                                                    
JOAN   WILSON,  Assistant   Attorney  General,   Civil  Division,                                                               
Commercial,  Fair  Business  &   Child  Support  Section,  Alaska                                                               
Department  of Law,  Anchorage, Alaska,  explained that  7 U.S.C.                                                               
1639p sets  out the minimum  requirements that a state  plan must                                                               
have  to  be  acceptable  by   the  federal  government.  In  its                                                               
language, the section says the following:                                                                                       
     In  general, except  as provided  in  clause (ii),  any                                                                    
     person convicted  of a felony relating  to a controlled                                                                    
     substance  under State  or Federal  law before,  on, or                                                                    
     after  December 20,  2018, shall  be ineligible  during                                                                    
     the   10-year  period   following  the   date  of   the                                                                    
MS.   WILSON  specified   that   in  the   case  of   cooperative                                                               
associations, each  person with the  ability to benefit  from the                                                               
association would be subject to that bar.                                                                                       
SENATOR KIEHL commented  that hemp is not marijuana  so the fewer                                                               
barriers the better.                                                                                                            
CHAIR MICCICHE asked if the  federal code would include employees                                                               
or just members of the association who have ownership.                                                                          
MS. WILSON answered that her  reading is the code includes people                                                               
who  benefit financially  from the  association  in an  ownership                                                               
status.  She  said  to  include  an employee  would  be  quite  a                                                               
3:47:28 PM                                                                                                                    
DAVE   SCHADE,   Director,   Division  of   Agriculture,   Alaska                                                               
Department of  Natural Resources, Palmer, Alaska,  testified that                                                               
the division and department support  SB 171. He said the division                                                               
is  trying to  take  a  pilot program  and  make  it a  permanent                                                               
He stated  that the  division analyzed  the bill  and recommended                                                               
changes to give the department  more leeway to allow conditioning                                                               
from  1.0  percent THC  to  0.3  percent thereby  protecting  the                                                               
farmer from changes due to genetics or the environment.                                                                         
3:49:02 PM                                                                                                                    
CHAIR MICCICHE said  he assumed the division will  follow up with                                                               
a letter on the suggested changes.                                                                                              
MR. SCHADE answered yes.                                                                                                        
SENATOR BISHOP  asked for  a brief  explanation of  hemp farming,                                                               
including the  types of  seeds the producers  use, how  the seeds                                                               
are  planted, and  how the  hemp is  harvested. He  remarked that                                                               
neighboring  hemp  crops  with higher  THC  levels  could  impact                                                               
neighboring hemp crops.                                                                                                         
MR.  SCHADE  answered  that  there   are  hundreds  of  different                                                               
varieties of  industrial hemp  that have a  variety of  uses. The                                                               
product  can be  traditionally farming  or grown  in greenhouses.                                                               
The department has  set up the program in  response to industrial                                                               
hemp's many  uses and  has put in  isolation distances  and other                                                               
factors  to try  to  manage the  crop  differences. For  example,                                                               
growing for  fiber is  a variety  that grows tall  with a  lot of                                                               
mass and  growing for  buds might mean  growing in  a greenhouse.                                                               
The department has  developed a program that  morphs depending on                                                               
the different varieties and uses.                                                                                               
3:51:38 PM                                                                                                                    
SENATOR  KIEHL  noted  that  the   fiscal  note  showed  $750,000                                                               
collected  in year  one.  He  asked how  much  the department  is                                                               
currently collecting  in fees,  how likely it  is that  fees will                                                               
increase with  passage of  the bill, the  number of  current hemp                                                               
farmers, and the expected increase in farmers.                                                                                  
MR.  SCHADE  replied the  division  has  not collected  any  fees                                                               
because it is just finalizing  the regulations for the handful of                                                               
farmers  in  the  pilot  program.  The  division  has  identified                                                               
approximately 20 manufacturers along  with 700 to 1,000 retailers                                                               
that are working in the  industry. The industrial hemp program is                                                               
designed   to   have    regulations   for   registered   growers,                                                               
manufacturers,  or  retailers.  A registrant  can  have  multiple                                                               
registration  designations. Fees  for the  grower are  fairly low                                                               
but  testing  fees are  expected  to  amount to  several  hundred                                                               
thousand dollars. The  division expects to register  600 to 1,000                                                               
entities  that will  require departmental  resources in  the $0.5                                                               
million range for the first  months. Should the program grow, the                                                               
division  will  have  the  leeway to  hire  more  people  because                                                               
funding is receipt based.                                                                                                       
3:53:54 PM                                                                                                                    
SENATOR  KIEHL  commented  that  the  cash seems  to  be  in  the                                                               
manufacturing permit language in section 1.                                                                                     
MR. SCHADE answered  yes. He said the farming  is relatively easy                                                               
from a fee and supervision  standpoint, but manufacturing is more                                                               
intense where  each manufacturer  is going to  have to  get their                                                               
product  manufacturing system  approved as  well as  working with                                                               
the Alaska Department of Environmental  Conservation (DEC) if the                                                               
product is  food related. The  final stage is the  retail market.                                                               
He noted  that the system is  designed to track the  product from                                                               
the grower,  to the  manufactures, to the  retail sales.  Part of                                                               
the concern is a lot of  the cannabinoid products can have things                                                               
in them that  the department does not want. The  concern is about                                                               
heavy metals, pesticides, and to make  sure zero THC is zero. The                                                               
division will have a lot  of focus on manufacturing. However, the                                                               
state has a serious amount of  product that is already there that                                                               
the  department must  make  sure is  not  synthetic. The  product                                                               
startup is going to be challenging.                                                                                             
3:55:39 PM                                                                                                                    
SENATOR KIEHL stated his intention  to review the retail piece in                                                               
the bill.                                                                                                                       
SENATOR  COGHILL  asked   how  the  state  is   going  to  manage                                                               
flexibility with the  modified language in section  3 while still                                                               
fitting within the U.S. code on USDA penalties.                                                                                 
MR. SCHADE  replied that  is the dilemma.  He explained  that the                                                               
USDA  provided  an  interim  final   rule  that  set  a  one-year                                                               
expiration for pilot programs. None  of the states are happy with                                                               
the rule but there  is no workaround for parts of  it such as the                                                               
10-year lookback  for felony  convictions relating  to controlled                                                               
substances.  He   said  all  states  are   probably  looking  for                                                               
flexibility on  the THC levels  and testing time and  Alaska will                                                               
argue for rule exceptions due  to its logistical issues. However,                                                               
if the statute says that  the division absolutely must follow the                                                               
federal  guidelines, then  negotiating  and  working through  the                                                               
issues will be more difficult.                                                                                                  
3:57:58 PM                                                                                                                    
CHAIR MICCICHE asked how the  department will pay for the program                                                               
until   there   is   sufficient   participation   from   growers,                                                               
manufacturers, and retailers.                                                                                                   
MR.  SCHADE answered  that the  division  has two  general-funded                                                               
positions in  the current budget  to standup the  receipt -funded                                                               
program. He  assured the committee  that he will not  hire people                                                               
until there is  industry support to build the  program over time.                                                               
He said  he has always been  concerned when running a  program on                                                               
receipts  to  make  sure  there  are  receipts.  The  dilemma  is                                                               
stepping up a program with out the receipts in the first place.                                                                 
3:59:23 PM                                                                                                                    
SENATOR   COGHILL   noted   that  the   requirement   under   [AS                                                               
03.05.010(c)] to  put a  stop order on  product that  exceeds the                                                               
THC levels is  not part of the bill. He  asked how the department                                                               
will deal  with the product  and the  producer if the  stop order                                                               
statute uses the word "may."                                                                                                    
MR. SCHADE  emphasized that producers are  prohibited from taking                                                               
a crop  out of the field  unless the division tests  and approves                                                               
the  crop below  0.3 percent,  or the  division provides  written                                                               
approval to  take the  crop out  of the  field. Even  without the                                                               
stop order  there is no sale  because the division is  in control                                                               
all  along. The  stop order  is more  for a  marijuana-considered                                                               
crop that tests  1.0 percent THC, which is outside  the bounds of                                                               
the industrial  hemp program.  The shall-to-may  revision changes                                                               
the requirement for  the division to issue a  notice of violation                                                               
and a  $500 fine  even if  there was an  unintended error  and an                                                               
intent to  fix. He explained  that the  division did not  want to                                                               
completely  delete   a  notice   of  violation  because   of  the                                                               
possibility of a bad actor.                                                                                                     
SENATOR  BISHOP  asked if  producers  would  grow most  of  their                                                               
industrial  hemp  in hoop  houses  rather  than on  thousand-acre                                                               
fields that use combines for harvesting.  He said he is trying to                                                               
imagine how the  division applies a stop order  after testing for                                                               
a 100 or  200-acre field. He emphasized that he  is not trying to                                                               
inhibit  the  process   but  rather  is  looking   for  a  better                                                               
understanding of where the state thinks the market is headed.                                                                   
4:02:35 PM                                                                                                                    
ROB   CARTER,  Agronomist,   Division   of  Agriculture,   Alaska                                                               
Department of  Natural Resources,  Palmer, Alaska,  replied there                                                               
will be individuals producing on  large acreage if they choose to                                                               
participate  in the  program. The  division has  seen exponential                                                               
growth in industrial  hemp fields across the  nation for biomass,                                                               
fiber, or green  manure. They expect applicants to  grow on large                                                               
scale,   traditional   agriculture  using   traditional   farming                                                               
methods, depending on the hemp variety grown and intended use.                                                                  
He explained  that an  offered notice of  violation or  stop sale                                                               
occurs if  the division's  sample shows  the raw  industrial hemp                                                               
tested above 0.3 percent and  below 1.0 percent THC. The proposed                                                               
regulations  would  have an  option  to  recondition the  lot  by                                                               
blending with another lot. However,  the farmer cannot process or                                                               
move the lot from the farm or the farm's drying facility.                                                                       
4:04:53 PM                                                                                                                    
CHAIR  MICCICHE opened  public testimony.  Seeing  none, he  said                                                               
public testimony will remain open for future meetings.                                                                          
4:05:18 PM                                                                                                                    
CHAIR MICCICHE held SB 171 in committee.                                                                                        

Document Name Date/Time Subjects
SB 171 ver. A.PDF SRES 2/10/2020 3:30:00 PM
SB 171
SB 171 Sponsor Statement 2.6.2020.pdf SRES 2/10/2020 3:30:00 PM
SB 171
SB 171 Sectional Analysis 2.6.2020.pdf SRES 2/10/2020 3:30:00 PM
SB 171
SB 161 ver. A.pdf SRES 2/10/2020 3:30:00 PM
SRES 3/11/2020 3:30:00 PM
SB 161
SB 161 Sponsor Statement 2.4.2020.pdf SRES 2/10/2020 3:30:00 PM
SRES 3/11/2020 3:30:00 PM
SB 161