Assigned to GOV & APPROP                                                                                          AS PASSED BY COW






Fifty-Third Legislature, Second Regular Session





industrial hemp; licensing




Authorizes industrial hemp production, processing, manufacturing, distribution and commerce conducted by licensed growers, harvesters, transporters and processors.




Established in 1990, the Arizona Department of Agriculture (AZDA) promotes: 1) farming, ranching and agribusiness; 2) commerce, consumers and natural resources; and 3) the well-being of people, plants, animals and the environment. According to the AZDA, Arizona's agriculture industry supports 77,000 jobs and generates $17 billion in economic activity (AZDA FY 2016 Annual Report). The Director of the AZDA (Director) ensures agency coordination and cooperation to achieve a unified policy of administering and executing all responsibilities (A.R.S. § 3-107).


The Agricultural Act of 2014, or the 2014 Farm Bill, allows universities and state departments of agriculture to begin cultivating industrial hemp for limited purposes. The law allows universities and state departments of agriculture to grow or cultivate industrial hemp if:

1)      the industrial hemp is grown or cultivated for purposes of research conducted under an agricultural pilot program or other agricultural or academic research; and 

2)      the growing or cultivating of industrial hemp is allowed under the laws of the state in which

such institution of higher education or state department of agriculture is located and such research



The U.S. Department of Agriculture, in consultation with the U.S. Drug Enforcement Agency and the U.S. Food and Drug Administration, released a Statement of Principles on Industrial Hemp in the Federal Register on August 12, 2016, to inform the public on the applicable activities related to hemp in the 2014 Farm Bill. According to the National Conference of State Legislatures, at least 34 states have passed legislation related to industrial hemp. Generally, states have taken three approaches: 1) establishing industrial hemp research and/or pilot programs; 2) authorizing studies of the industrial hemp industry; or 3) establishing commercial industrial hemp programs. Twenty-one states have passed laws allowing research and pilot programs, 16 states have legalized industrial hemp production for commercial purposes and 10 states have approved the creation of both pilot/research and commercial programs.





There is a fiscal impact to the state General Fund of $750,000 in FY 2020. The amount of $250,000 and 3 FTE positions is appropriated to the AZDA Plant Services Division, and $500,000 is appropriated to the AZDA. This bill may also generate additional revenues for the state General Fund from Transaction Privilege Taxes levied on industrial hemp transactions.





Industrial Hemp Legalization


1.      Authorizes the propagation, processing, manufacturing, distribution and market research of industrial hemp in this state under a preapproved agricultural pilot program (program). 


2.      Authorizes commercial industrial hemp production, processing, manufacturing, distribution and commerce outside of the program if authorized under federal law.


3.      Designates industrial hemp as an agricultural product that is subject to regulation by the AZDA.


4.      Requires hemp seed to be certified through the AZDA in order to be authorized for use in the program.


5.      States that unauthorized hemp seed may not be planted.


6.      States that hemp seed derived from previously authorized hemp seed is considered authorized.


7.      Requires the Director to adopt rules for the licensing, production and management of industrial hemp and hemp seed and set fees to recover the cost of licensing, testing, inspecting and supervising industrial hemp production.


8.      Requires the Director to authorize qualified applicants to propagate, harvest, transport or process industrial hemp according to rules adopted by the Director.


9.      Declares the Legislature's finding that the development and use of industrial hemp can   improve the economy and agricultural vitality of the state and that the production of industrial hemp can be regulated so as not to interfere with strict regulation of marijuana.




10.  Requires a grower, harvester, transporter, or processor to apply for and obtain an industrial hemp license (license) from the AZDA.


11.  Specifies that a license is valid for one year, and may be renewed as provided by the AZDA.


12.  Provides for the renewal of a license every two years if a licensee pays twice the amount of the fee schedule as established by rule and complies with any annual reporting requirements.


13.  Allows the AZDA to revoke or refuse to issue or renew a license for a violation of any state or federal law, or any rule adopted by the Director.


14.  Requires applicants to provide proof of a valid fingerprint clearance card to the AZDA for the purpose of validating applicant eligibility.


15.  Requires the Department of Public Safety to conduct fingerprint background checks on license applicants.


16.  Specifies that a member of an Indian tribe may apply for a license, and a member that is issued a license is subject to the same prescribed requirements.


17.  Stipulates that license application and renewal forms will be on a form prescribed by the AZDA and accompanied by a fee set by the Director.


18.  Requires the Director to deposit license fees into the Industrial Hemp Trust Fund (Fund).




19.  Allows the Director to impose a civil penalty of up to $5,000 for a violation of a licensing requirement, term, condition or rule adopted by the Director.


20.  Classifies a violation of a licensing requirement, term, condition or rule adopted by the Director as a class 1 misdemeanor.


21.  Provides an affirmative defense to a licensee, or a designee or agent of a licensee, from any prosecution for the cultivation of marijuana, unless the charge is for possession, sale, transportation or distribution of marijuana that does not meet the definition of industrial hemp.


22.  Exempts a licensee who possesses, uses, sells, produces, manufactures or transports industrial hemp from statute criminalizing the possession, sale, production and transport of marijuana.


23.  Exempts a person who engages in commercial production, processing, manufacturing, distribution or commerce of industrial hemp outside the program from statute criminalizing the possession, sale, production and transport of marijuana if the person's actions are authorized by federal law.


24.  Requires licensees to maintain records that are open to inspection or audit by the Director or the Director's designee.


25.  Allows the Director or the Director's designee to physically inspect an industrial hemp site to ensure compliance and collect samples for analysis by the State Agricultural Laboratory or another certified laboratory.


26.  Allows the AZDA to take corrective action if a sample contains an average tetrahydrocannabinol concentration of more than 0.3% on a dry weight basis or violates any other pesticide law.

27.  Allows the Director or the Director's designee to possess and transport samples of Cannabis Sativa L. for the purpose of testing eligibility as industrial hemp.


28.  Prohibits transportation of industrial hemp from a site by a person that is not a licensed grower, processor, harvester or transporter or the Director or the Director's designee.


29.  Requires a person transporting industrial hemp to carry licensing documents proving the industrial hemp was grown by a licensed grower.


30.  Requires a licensed grower to notify the AZDA of all of the following:

a)      the sale and distribution of any industrial hemp grown under the grower's license;

b)      the name and address of the person or entity receiving the industrial hemp; and

c)      the amount of the industrial hemp sold or distributed.


31.  Requires the Director to adopt rules and orders to address, correct and remediate violations.


32.  Allows the Director to take the following corrective actions:

a)      issue a cease and desist order prohibiting the further sale, processing or transportation of industrial hemp;

b)      issue a stop sale order;

c)      seize and destroy any noncompliant crop, harvested crop or hemp seed; and

d)      take any other action to enforce regulations prescribed by statute and adopted rules and orders.


33.  Allows a person found in violation of prescribed regulations or any adopted to rule or order to request a hearing before an administrative law judge.


34.  Specifies that decision made by an administrative law judge in subject to review by the Director.


35.  Specifies that a request for a hearing does not stay a cease and desist order issued by the Director.


Industrial Hemp Trust Fund


36.  Establishes the Fund, consisting of legislative appropriations, licensing fees and other sources, for the exclusive purpose of implementing, continuing and supporting industrial hemp licensing.


37.  Designates the Director as trustee of the Fund and prohibits commingling of monies other than for investment purposes by the state Treasurer.


38.  Allows the Director to accept and spend federal monies and private grants, gifts, contributions and devises to assist in carrying out licensing activity.


39.  Establishes the Industrial Hemp Program as the beneficiary of the Fund, which includes salaries and fees, and office, administrative, bonding and travel expenses that incurred as a result of the program.


40.  Requires unexpended monies in the Fund at the end of the fiscal year to carry over to the next year rather than divert to the state General Fund.




41.  Defines agricultural pilot program as the industrial hemp program that is designed to research the growth, cultivation and marketing of industrial hemp, hemp seeds and hemp products.


42.  Defines crop as any industrial hemp that is grown under a single industrial hemp license issued by the AZDA.


43.  Defines grower as an individual, partnership, company or corporation that propagates industrial hemp.


44.  Defines harvester as an individual, partnership, company or corporation that is licensed by the AZDA to harvest industrial hemp for a licensed grower.


45.  Defines processor as an individual, partnership, company or corporation that is licensed by the AZDA to receive industrial hemp for processing into hemp products or hemp seed.


46.  Defines transporter as individual, partnership, company or corporation that is licensed by the AZDA to transport industrial hemp for a licensed grower or processor. 


47.  Defines hemp products as all products made from industrial hemp, including cloth, cordage, fiber, fuel, grain, paint, paper, construction materials, plastics and by-products derived from sterile hemp seed or hemp seed oil, but excludes any product made to be ingested except food made from sterile hemp seed or hemp seed oil.  


48.  Defines hemp seed as any viable Cannabis Sativa L. seed that produces an industrial hemp plant that is subject to the rules and orders adopted by the Director.


49.  Defines industrial hemp as the plant Cannabis Sativa L. and any part of such plant, whether growing or not with a Delta-9 tetrahydrocannabinol concentration of not more than 0.3 percent of a dry weight basis.


50.  Defines industrial hemp site as the location in which a grower, harvester, transporter or processor possesses a crop, a harvested crop or hemp seed. 


51.  Defines license as the authorization that is granted by the AZDA to propagate, harvest, transport or process industrial hemp in Arizona.


52.  Defines licensee as a grower, harvester, transporter or processor with a valid license.




53.  Appropriates in FY 2020 the amount of $250,000 and three full-time equivalent positions to the AZDA's plant services division, as well as $500,000 to the AZDA.


54.  Requires the Director to establish an Industrial Hemp Advisory Council (Council) to assist with the following:

a)      advise the Director regarding expenditures from the Fund; and

b)      provide additional assistance as the Director deems necessary.


55.  Requires the Director to appoint five members, including one public member, to the Council.


56.  Exempts the AZDA from rulemaking requirements for one year after the general effective date of the Fifty-third Legislature, Second Regular Session.


57.  Makes conforming changes.


58.  Becomes effective one year after the general effective date of the Fifty-third Legislature, Second Regular Session.


Amendments Adopted by Committee


1.      Modifies the powers of the Director relating to the oversight of noncompliant industrial hemp.


2.      Specifies that the $500,000 appropriation is allocated to the AZDA, rather than the AZDA laboratory.


3.      Establishes the Industrial Hemp Advisory Council.


Amendments Adopted by Committee of the Whole


·         Adds an exclusion to the definition of hemp products.


Senate Action


GOV               1/17/18     DPA     5-2-0

APPROP         2/6/18       DPA     8-1-1

3rd Read          2/15/18                  29-0-1


Prepared by Senate Research

February 15, 2018