HEMP INVESTMENT & FINANCING COUNSEL CALIFORNIA
The enactment of the Agriculture Improvement Act of 2018 — the “2018 Farm Bill” — removed hemp from the definition of “marijuana” under the federal Controlled Substances Act, fundamentally changing the legal landscape for hemp investment and financing. Hemp businesses now have access to financing options that remain unavailable to cannabis businesses: federally insured banks may serve hemp businesses that comply with USDA and state CDFA registration requirements, and hemp companies may access federal bankruptcy protection that cannabis businesses cannot. At the same time, the California regulatory framework for hemp — administered by the California Department of Food and Agriculture (CDFA) under the Industrial Hemp Program — imposes registration, testing, and compliance obligations that must be understood before any investment in a California hemp business is made.
The Law Office of Shay Aaron Gilmore advises hemp investors, hemp business operators seeking financing, and lenders providing capital to hemp businesses on the legal structures, securities compliance requirements, and California regulatory framework that govern hemp investment in California. Recognized as one of the Top 20 Cannabis Lawyers in California by the Los Angeles/San Francisco Daily Journal, as a Northern California Super Lawyer and one of the Top 100 Lawyers in Northern California by Super Lawyers® Magazine, and among the Top 200 Global Cannabis Lawyers by the Cannabis Law Journal, Shay Aaron Gilmore provides hemp investment counsel grounded in both transactional experience and deep regulatory expertise. Shay serves on the Board of Directors of the International Cannabis Bar Association and as Chair of the California Lawyers Association Cannabis Practitioners Group.
The distinction between hemp and cannabis — defined by the 0.3% total THC threshold under federal law and California’s corresponding CDFA regulations — creates specific investment due diligence requirements and structuring decisions that differ materially from cannabis investment work.
Recognized By
Super Lawyers® Magazine
Top 20 California Cannabis Lawyers
The Daily Journal
California NORML
Global Top 200 Cannabis Lawyer
Cannabis Law Journal
The Federal and California Regulatory Framework for Hemp Investment
Hemp is federally lawful under the 2018 Farm Bill provided it is produced in compliance with a USDA-approved state or tribal hemp plan or, where no such plan exists, a USDA plan. In California, the CDFA administers the California Industrial Hemp Program under Food and Agricultural Code § 81000 et seq. Any hemp cultivator or processor operating in California must register with the CDFA, and that registration must be renewed annually. Investors acquiring interests in CDFA-registered hemp businesses should confirm that all registrations are current and in good standing before closing.
Unlike DCC cannabis licenses, CDFA hemp registrations are tied to the registered site and the registered individual or entity. A change of ownership in a CDFA-registered hemp business may trigger re-registration requirements. Investors structuring acquisitions of or significant investments in California hemp businesses should consult with hemp regulatory counsel to determine whether the proposed transaction requires CDFA re-registration and, if so, to time the closing accordingly.
The most critical ongoing compliance requirement for hemp businesses — and the most significant due diligence issue for hemp investors — is THC testing. Hemp must test at or below 0.3% total THC (delta-9 THC plus the THC acid isomer, calculated on a dry-weight basis) to qualify as lawful hemp under California and federal law. Crops that test above the 0.3% threshold are “hot hemp” — subject to mandatory destruction — and any inventory derived from hot hemp is potentially unlawful. An investor in a hemp cultivation business must review the business’s COA (certificate of analysis) history and testing protocols as part of pre-investment due diligence.
| Regulatory Dimension | Hemp | Cannabis |
|---|---|---|
| Federal status | Lawful under 2018 Farm Bill if ≤0.3% total THC | Schedule I controlled substance; federally prohibited |
| California licensing authority | CDFA — Industrial Hemp Program (Food & Agric. Code § 81000+) | DCC — Commercial Cannabis Activity (Bus. & Prof. Code § 26000+) |
| Banking access | Federally insured banks may serve compliant hemp businesses | Most federally insured banks decline cannabis accounts; FinCEN SAR obligations |
| Federal bankruptcy | Hemp businesses may access Title 11 bankruptcy protection | Cannabis businesses cannot access Title 11 bankruptcy |
| Tax treatment | § 280E does not apply to pure hemp operations | § 280E disallows ordinary business expense deductions |
| Ownership change | CDFA re-registration may be required | DCC prior approval required for all ownership changes |
| THC testing | Mandatory; crops above 0.3% total THC must be destroyed | Product testing required; different THC thresholds for different product categories |
Hemp Investment Structures and Securities Compliance
Hemp businesses, like cannabis businesses, raise capital by issuing securities — equity interests, convertible notes, SAFEs, and secured loan instruments — and those securities offerings are subject to federal and California securities laws regardless of the hemp company’s federally lawful status. A hemp investor acquiring equity in a California hemp company must confirm that the offering complies with Regulation D under the Securities Act of 1933 (or another applicable federal exemption) and with the California Corporate Securities Law of 1968 (typically through the § 25102(f) limited offering exemption or a comparable qualification or exemption).
Because hemp businesses can access federally insured banking, hemp financing deals have access to a broader range of financing structures than cannabis deals. SBA loans have historically been unavailable to plant-touching cannabis businesses but have been accessible to hemp businesses that meet SBA eligibility requirements and comply with applicable federal and state hemp regulations. Hemp businesses may also access standard commercial bank financing — though many banks remain cautious about the hemp industry due to lingering uncertainty about THC compliance — as well as equipment financing, accounts receivable financing, and traditional venture capital.
Shay’s recent representation of an online retailer of hemp and cannabinoid products, in government relations and legislative lobbying at the California state level, including testifying before the Judiciary Committee of the California State Assembly regarding a bill affecting online cannabis and hemp retail platforms, demonstrated that hemp businesses face not just regulatory compliance obligations but also active legislative risk — a risk that investors in hemp businesses must evaluate as part of their pre-investment due diligence.
Hemp Investment in The Central Coast
The Central Coast — encompassing Santa Cruz, San Benito, Monterey, San Luis Obispo, and Santa Barbara Counties — is one of California’s most productive agricultural regions and a significant area for hemp cultivation. Santa Barbara County has been particularly active in the hemp licensing space, and the Law Office of Shay Aaron Gilmore has handled hemp-adjacent matters in the Santa Barbara area, including the confidential cannabis cultivation restructuring matter in Santa Barbara County that required navigating state license transfer mechanics in the absence of federal bankruptcy protection.
Investors in Central Coast hemp cultivation businesses must evaluate not only CDFA registration and THC testing compliance but also local county agricultural regulations, water rights, and Williamson Act land use restrictions that affect the cultivation site. Santa Cruz County’s cannabis and hemp ordinances, Monterey County’s agricultural land use policies, and San Luis Obispo County’s commercial hemp cultivation regulations each impose local requirements that overlay the CDFA state registration framework. The Law Office of Shay Aaron Gilmore provides Central Coast hemp investment counsel that accounts for the full local regulatory context in each jurisdiction.
Representative Matters
The Law Office of Shay Aaron Gilmore has advised in the following hemp investment and financing contexts:
- Represented Medterra CBD, an online retailer of hemp and cannabinoid products, in government relations work and legislative lobbying at the California state level, including testifying before the California State Assembly Judiciary Committee regarding a bill affecting online cannabis and hemp retail platforms — the first bill of its kind in the United States, with the potential to influence other states and the entire online hemp marketplace.
- The Law Office advises hemp businesses and their investors on IP licensing and investment documentation for hemp brands distributing products across multiple states, including the structuring of distribution agreements and royalty arrangements for hemp-derived products in compliance with federal and California hemp regulations.