Washington Insider -- Wednesday

New Weed on the Block

Here’s a quick monitor of Washington farm and trade policy issues from DTN’s well-placed observer.

China, US Appear on Same Page Regarding Phase One Trade Deal

Attention on the announcement Friday (October 11) that the U.S. and China had reached agreement on phase one of a trade deal continues to garner attention.

Treasury Secretary Steve Mnuchin Monday commented on the situation Monday in an interview with CNBC, telling the news service that the two sides “made substantial progress last week in the negotiations. We have a fundamental agreement, it is subject to documentation, and there is a lot of work to be done on that front.” He said the deal includes “very significant structural issues in agriculture” as well as the promise of buying up to $50 billion of U.S. commodities. China had “some concerns as to whether our farmers can meet those numbers. We think they can,” Mnuchin said. “The next phase is deputy-level calls that will be going on this week,” Mnuchin observed.

Mnuchin and U.S. Trade Representative Robert Lighthizer “will have a principal-level call next week with the vice-premier. My expectation is [that] we will have the deputies meet between now and Chile, and my expectations are that we will be meeting with the vice-premier in Chile before the presidents meet to finish the deal,” the Treasury chief said.

From the Chinese side, Foreign Ministry spokesman Geng Shuang told reporters that what the U.S. said is "accurate" regarding phase one of the deal and that the U.S. and China have the same understanding of the situation.

Mexico’s President Urges Pelosi to Speed Up USMCA Process

Mexico’s president wants Pelosi to accelerate USMCA ratification vote. Mexican President Andres Manuel Lopez Obrador said Friday he sent a letter to House Speaker Nancy Pelosi, D-Calif., asking her to speed up the process of ratifying the U.S.-Mexico-Canada Agreement, (USMCA), according to reports out of Mexico City.

Obrador, in a press conference, said the letter was a follow up to a visiting delegation of House Democrats last week, according to a translation published in the New York Times. “There is agreement, and I took the opportunity to send Mrs. Pelosi a letter explaining that it is in the interest of the three peoples, the three nations, that this deal is approved,” Obrador said.

Meanwhile, indications are that the votes are there for ratification of the trade deal in both the House and Senate. A vote is possible as soon as November, but it may take into December.

Contacts believe Pelosi may not have the majority of her membership that will vote for ratification, but will have enough of them, along with House Republicans, to clear the measure.

Washington Insider: New Weed on the Block

Amid trade wars and rumors of even newer fights, Politico is focusing this week on hemp — the “new weed on the block,” it says. The report follows a group of producers from Kentucky that are looking for a “high-profit alternative to tobacco” and see hemp’s promise in markets for fiber, livestock feed and in food supplements. However, early adopters found both production and marketing “very tricky,” Politico says.

The producers had known that “hemp and marijuana are versions of the same plant: cannabis.” The only difference is that marijuana contains much higher concentrations of the chemical THC, which causes a psychoactive high. Still, cannabis can be used for other purposes and the federal government has decided that cannabis that has only a small amount of THC, no more than 0.3%, is a different crop.

In response, Politico thinks that Kentucky farmers — and others — are experimenting with the creation of a “whole new industry.”

All forms of cannabis used to be illegal to cultivate. But to help early adapters, Congress legalized hemp production nationwide as part of the 2018 farm bill. The crop offers a new source of income for some who have losses because of the trade war with China, dropping commodity prices and a series of natural disasters.

But, the change also is creating new challenges including the need to keep a close eye on crops to make sure that their THC level doesn’t creep above 0.3%. Even where marijuana is legal, farmers who accidentally grow marijuana can’t just sell it — THC levels for marijuana are typically around 15% to 20%, much higher than for hemp.

Also, control of THC levels in growing plants is a delicate, high-stakes task, one of many issues that have popped up as the country grapples with how to grow and regulate this brand new product. USDA is under pressure to replace the patchwork of state regulations on measuring THC with national testing standards the department says it plans to implement this fall, ahead of the 2020 growing season.

And, there is also the problem of market focus. Hemp proponents like those Politico followed in Kentucky try distinguish between policies for hemp and marijuana—but marijuana advocates have made it clear that they want legal hemp to be a step toward legalizing all varieties of cannabis. So far, that doesn’t seem to be happening but Politico thinks it remains unclear how the growing popularity of hemp will factor into that broader debate.

And, across the country, the exploding number of hemp farmers and products containing hemp oil are quickly normalizing consumption of cannabis products “complicating an already complex legal and policy debate,” Politico said.

Hemp has a range of uses, but most farmers grow it to produce cannabidiol, or CBD — a compound that doesn’t get you high but is the key ingredient in trendy new products from lotions to gummy vitamins. Companies claim it can alleviate anxiety, pain and treat other health conditions. It’s also trapped in a regulatory black hole at FDA which hasn’t explained how it plans to regulate these products.

Despite that uncertainty, hemp harvests have exploded. In 2014, the first year of Kentucky’s program, farmers planted just 33 acres. This year, Kentucky approved the planting of 56,000 acres across the state, Politico said.

Politico also thinks “hemp enthusiasm” comes partly from its profitability. It can bring in as much as $2,200 per acre—and has helped farmers feel more comfortable about growing a plant related to marijuana, said Jeff Sharkey, a lobbyist in Florida on behalf of the medical marijuana and hemp industries. Also, the support of Senate Majority Leader Mitch McConnell and endorsement of hemp by the farm bill certainly helps, Sharkey added.

Hemp is hardy enough to grow in many climates and soils: Montana, Colorado and Oregon also rake in sizable harvests and many other states are experimenting with it.

Still, hemp farmers risk more than a failed crop and lost cash if their plants test “hot.” They could also get into legal trouble. A Minnesota farmer in June was charged with two felonies after his crop was seized by authorities and tested at THC levels of 3%—10 times the legal threshold for hemp.

And, when it comes to sampling practices and standards, every state takes its own approach. Holly Bell, the architect of Florida’s hemp market, said the state has learned from other states not to just focus on the farming side of hemp but also the processing, manufacturing and distributing components of the industry.

A USDA spokesperson told POLITICO that the draft rule regulating hemp is under review by OMB and the department intends to have the regulations in effect this fall. “USDA staff are exercising due diligence to address multiple requirements for hemp,” including maintaining records, designing inspections and developing THC testing standards, among other marketing and handling concerns,” he said.

So, we will see. Certainly, the development of a new, profitable ag product is welcome—but some of the steps to understanding both the production and marketing challenges are formidable. The development of equitable and effective rules will be a significant challenge, one producers should watch closely as it proceeds, Washington Insider believes.

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