Tax Law Insights

With the adoption by Congress of the 2018 Farm Bill, which decriminalized the cultivation and growing of industrial hemp and related products, states now, including South Carolina, have adopted and expanded programs authorizing the growing of industrial hemp and also the processing of products from the plant, most notably CBD oil.

The South Carolina Hemp Farming Act, adopted in March 2019, authorizes state residents to apply with the SC Department of Agriculture (SCDA) to grow and/or process industrial hemp in the state; however, under the present status of the law, only applicants that were granted licenses in 2018 and early 2019 (before the Hemp Farming Act was adopted), or who had applied under the 2019 program in effect at the time but were not granted licenses due to limits on the number of available licenses, are eligible to participate in the program.

The Hemp Farming Act and the SCDA regulate both hemp and hemp-products in South Carolina.  “Hemp” or ‘industrial hemp’ is the plant Cannabis sativa L. and any part of that plant, including its nonsterilized seeds, derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with the federally defined THC level for hemp.  The federally-defined THC level for hemp is a “delta‑9 THC concentration” of not more than 0.3 percent on a dry weight basis, or the THC concentration for hemp as defined under federal law, whichever is greater. Hemp, as so defined, is considered an “agricultural commodity” by the State of South Carolina.  “Hemp products” are products with the federally defined THC level for hemp which are processed hemp plants or hemp plant parts, that are prepared in a form for commercial sale, and include cosmetics, personal care products, food intended for animal or human consumption, cloth, cordage, fiber, fuel, paint, paper, particleboard, plastics, and any other product containing one or more hemp‑derived cannabinoids, such as cannabidiol (CBD). Unprocessed or raw plant material, including nonsterilized hemp seeds, is not considered a hemp product.  However, under the present Federal Food and Drug Administration guidelines, CBD cannot be legally added to any human or animal food products for sale.  SCDA has warned South Carolina hemp growers and processors of these federal limitations.

Under the 2019 South Carolina Hemp Farming Act, application and license fees are due, and which cannot exceed $1,000 for cultivation.  For processing, additional application and license fees are due and where, under the Hemp Farming Act, these fees are not to exceed the cost of the total processor program (presumably allocated among the individual licensees).  The SCDA has issued regulatory guidance that, for the most recent 2019 Hemp Program, the cultivation license application fee is $100 and the license fee is an additional $500 per applicant.   Separate fees are applicable to processors, and where the application fee is $100 and the related license fee is an additional $3,000.  Also, for processors, a separate $30 license fee is due for the required “Dealers and Handlers” license, and a $50 fee is due for the additional and required “Public Weighmaster’s” license.  Total application and license fees for processors are therefore $3,180.

Under the Hemp Farming Act and the present SCDA 2019 Hemp Program, there are no annual fees above the initial application and registration fees.  Also, South Carolina has not (yet) adopted any separate “excise” or other special taxes applicable to hemp cultivation and processing.  With hemp being treated now as an “agricultural commodity” under the Hemp Farming Act, the cultivation, processing, and sale of hemp and hemp products should be subject to regular federal and South Carolina taxes applicable to the sale of other agricultural products.    However, states other than South Carolina may tax hemp and hemp products differently.

The Hemp Farming Act and the present 2019 SCDA Hemp Program do not impose civil fines for non-compliance.   A licensee who violates the Hemp Farming Act may have his/her license revoked, but, for negligent acts, neither criminal or civil enforcement will apply.  Criminal violations of the Hemp Farming Act can result in criminal prosecution, however, and where a guilty party will be subject to a misdemeanor, up to three (3) years in prison, and a $3,000 criminal fine.  Criminal sanctions under the Hemp Farming Act are in addition to other applicable penalties provided by law.

Hemp cultivation and processing are a “growing” industry in South Carolina.  However, these are new laws and regulatory areas, and there may be a conflict with applicable federal laws and related hemp laws in other states.  Persons seeking to begin hemp growing and/or processing should first consult with legal counsel.