October 23, 2019Client Alert

Avoid Hemp Litigation with Industrial Hemp Production and Extraction Agreements

Industrial Hemp Growing Production and Extraction Contracts are used to manage the relationships between farmers, processors, extraction companies, and other industrial hemp business partners.

These contracts can include a lot of basic information related to growing and supply, and typically specify the production and processing practices to be used and identify the party responsible for supplying the required resources for production. Often they include tolling elements or an exchange of agricultural products for finished goods that can create unique contractual risks.

Common Pitfalls That Could Cost You

Industrial Hemp production and extraction is going to continue to grow and involve a much larger market and scale. As commercialization and production continue to scale, hemp businesses will experience increased risk and challenges. Several of the top concerns that could cost you severely, include:

  • Title of Goods
    • Who owns the hemp biomass during production and extraction? This issue continues to provide complexity, especially as it relates to state and federal regulatory requirements and ensuring the crop’s Δ-9-tetrahydrocannabinol (THC) is below the 0.3% threshold established by the Agricultural Improvement Act of 2018 (Farm Bill).
  • Managing the quality of the crop and the biomass specifications
    • There are several quality issues that should be maintained during the growing season and after. These can include fertilizer, pesticides, watering, harvesting, separating, drying, and much more. Each of the terms for crop management and production should be carefully managed.
  • Third-party testing
    • The quality of Industrial Hemp Biomass can be a critical element of the contract. How and who is responsible for testing the amount of THC and the cannabidiol (CBD) is critically important. There are also several licensing considerations when testing THC and CBD.
  • What to do with all of that waste?
    • There is a cost to disposing of any spent biomass after the extraction process is complete. Some companies are finding ways to use that spent biomass that may provide more value. Additionally, there may be value in solutions that remain after crystallization of the CBD. Ultimately, managing the byproducts is likely important to the production contract.
  • Representations and liability
    • Often in commercial contracts parties will provide representations and warranties about their products. It is difficult to provide these representations and warranties while companies wait on regulatory guidance from the United States Food and Drug Administration (FDA). It is highly important to clarify the business terms and address the changing regulatory market in preparing these commercial contracts.

Commercial Contract Offering

The industrial hemp industry is constantly evolving. Let Michael Best’s Agricultural specialists from our Cannabis team navigate you through this ever-changing landscape, and keep you apprised of up-to-date regulatory changes. We’re here to help and can offer fixed fee or transparent pricing for drafting commercial contracts with your best interests in mind.

The legal landscape for the cannabis industry is an area experiencing explosive growth, but with our firm’s 170+ years of experience and knowledge representing agricultural companies across the nation, we have your back.

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