Industrial Hemp and Your Real Estate Business

In mid-March 2020, just as COVID-19 started upending life in the U.S., Texas began accepting license applications to grow industrial hemp. The industry has been quietly growing here ever since.

By January 2021, Texas Agriculture Commissioner Sid Miller was touting the Texas “hempire.” More than 1,150 producer licenses had been issued, with 5,000-plus acres of permitted hemp in the ground and more than 15 million square feet of permitted hemp in greenhouses. “I still believe hemp offers Texas farmers a great opportunity and I look forward to continuing to improve our program here in the Lone Star State,” Miller wrote.

Hemp entrepreneurs are buying land to grow crops and leasing commercial space to sell products. That’s where you come in. You, as a real estate professional, need to know what to do if you have clients who work with industrial hemp.

The laws governing hemp are relatively new and still evolving. Congress legalized industrial hemp as part of the Agricultural Improvement Act of 2018, and Gov. Abbott signed related legislation, House Bill 1325, in June 2019. The U.S. Department of Agriculture later approved the Texas rules, which the state put into practice in March 2020.

“My advice to farm & ranch and commercial agents is to learn about the hemp business in general,” says Texas REALTORS® senior instructor Michica Guillory. “There are products like shirts and socks and bags that have nothing to do with tetrahydrocannabinol (THC) limits. But you have to know about these things. We have to be clear about what we’re talking about.”

Know the Difference

The cannabis genus of plant has two famous varieties: hemp and marijuana. Here are a few of the differences between them.

Tetrahydrocannabinol (THC) is the intoxicating chemical that causes psychological or psychoactive effects. Marijuana can contain 5% to 35% THC. Anything that contains over 0.3% THC is legally considered marijuana. Meanwhile, hemp contains not more than 0.3% THC.

Cannabidiol (CBD) is a non-intoxicating chemical that is sometimes used medicinally. Marijuana contains more than 10% CBD, while hemp contains more than 20% CBD.

Hemp is an agricultural commodity defined in Section 121 of the Texas Agriculture Code. Marijuana is considered a Schedule I controlled substance by federal law and is illegal to deliver or possess in Texas under Section 481 of the Texas Health and Safety Code.

Unfortunately for people trying to distinguish between the two, some legal hemp products reference marijuana and cannabis culture in their marketing. An example of this would be companies launching a CBD product on April 20, a day associated with marijuana.

There are also hemp consumables that can be applied or ingested that are not marijuana, based on their THC levels. These can be confused with edibles, the colloquial term for ingested products with levels of THC that are illegal in Texas.

Hemp and Commercial Real Estate

So what makes dealing with hemp industry clients any different than your other clients?

Because hemp rules are new and still changing, clients and their attorneys will need to ensure their businesses are protected.

“In the case of commercial leases, many landlords require businesses to back their written commitments with a personal guarantee,” Guillory says. “That individual is risking their personal credit when agreeing to be a guarantor to the lease. How we assist and guide our clients in completing their lease transactions becomes very important.”

One of the simplest ways to help clients is to ask them to consider offering a product or service or using the property in a way unrelated to hemp and/or CBD. That way the clients can still pay the rent and expenses if their products are found to have illegal amounts of THC or if products are confiscated for testing.

Paragraph 10A of the Commercial Lease (TXR 2101) puts the responsibility on the tenant to not use the property for any activity that breaks federal, state, or local law. Paragraph 10C removes responsibility from the landlord.

Forms and contracts from Texas REALTORS® and the Texas Real Estate Commission do not cover every situation or scenario that may occur with hemp industry clients, Guillory explains. Your clients may hire an attorney to help add language to Special Provisions or addenda to these documents to best suit their needs.

Clients who would like to distribute CBD products or those who make any change to a consumable hemp product, from repackaging to relabeling, will need a consumable hemp product license from the Texas Department of State Health Services. Applications for such licenses require the property’s GIS coordinates, legal description, and a letter from the property owner authorizing state or other law enforcement agencies to enter onto all premises where hemp is processed, or consumable hemp products are manufactured, to conduct a physical inspection or ensure compliance with the licensing laws. Your clients should consult their attorney for any questions regarding the application process.

Hemp and Farm & Ranch Real Estate

The Farm & Ranch Contract (TXR 1701, TREC 25-14) and the Farm & Ranch Listing Agreement (Exclusive Right to Sell) (TXR 1201) contain important provisions related to hemp.

The Farm and Ranch Listing Agreement includes paragraphs on existing crops and who gets them, exclusions, and various land leases, royalties, water rights, restrictions, and zoning.

Knowing about agricultural and timber exemptions is important. Clients can claim tax exemptions when buying items used exclusively for producing agricultural and timber products. “Be sure you’ve consulted with your clients if they plan to alter the current land use, as it may impact taxes,” Guillory says.

The Farm & Ranch Contract also includes paragraphs on who gets existing crops, rights, and interests on the property. Hemp also shines a spotlight on the parameters of oral leases, according to Guillory. Perhaps a family obtained verbal permission from a landowner 60 years ago allowing them to farm the land. Does that oral lease include hemp? Oral leases may not be included in title insurance policies. A scenario like this could require an attorney to sort out.

Clients wanting to produce or handle hemp will need a producer license from the Texas Department of Agriculture. They will also need a permit for each lot where they intend to produce or handle the hemp. There are several other requirements, and clients should consult their attorneys to ensure that all licensing requirements are met.

Additional Resources

There is a wealth of misinformation out there related to industrial hemp. Guillory suggests sticking with official sources like the Texas Department of Agriculture, the National Association of Departments of Agriculture, and the Texas A&M University AgriLife Extension.

TREC rules as well as the NAR Code of Ethics require you to have competency. Guillory says if you don’t have competency, connect with a real estate specialist to help you.

“I tell people that when it comes to the hemp industry, if you’re going to jump into that pool, you had better bring your floaties. Things change very quickly and you need to be ready for whatever happens,” she says.