U.S. HAS HEMP INDUSTRY AT END OF ITS ROPE

When two London-area hemp processing companies opened their doors and began
signing contracts with growers two years ago, they expected a few bumps
along the road.

They knew there'd be the day-to-day snafus that come with launching any new
business. There'd be law enforcement and Canadian government agencies to
deal with, such as Health Canada, given the novelty of their raw material
and the requirement that the plants they accepted from growers -- as well
as the products they shipped -- were virtually free of THC, the
psychoactive ingredient in marijuana. And there'd be the job of proving to
skeptics that hemp could again be a versatile, viable product in the
international marketplace -- a marketplace it would take time to build.

What they didn't count on was the flip-flopping they've seen by a variety
of regulatory and enforcement agencies in the United States over the past
six months on what's legal for import into America and what's not. The
waffling has produced a big migraine for one of the two firms: Chatham-Kent
processor Kenex Ltd., which manufactures hemp fibre and seed products.

Last year, Kenex and another firm, Delaware-based Hempline Inc., contracted
for about 1,200 hectares of various varieties of hemp to be grown in
southern Ontario -- and there are far more growers willing to plant the
crop than what the two firms have acreage for. Agronomists check the
growing plants in mid-summer to ensure they don't exceed the
10-parts-per-million threshold for THC set by Health Canada. Testers with
the Canadian Food Inspection Agency also do spot checks of fields.

Once the fibrous stalks are harvested, processors such as Kenex and
Hempline turn it into a wide range of fibre products, seeds, meal and oils,
which eventually make their way into auto parts, textiles, animal bedding,
carpets, bird seed and food. In order for the products to enter the U.S.,
they must meet strict standards for THC content.

Following last summer's ideal growing conditions -- plenty of heat, with
periodic rains -- growers took in a bumper crop. Kenex and Hempline cranked
up production and began shipping to both domestic and foreign markets.

The THC in the hemp plant is produced in its flowers. If the resin produced
by the plant isn't completely cleaned off its seeds, those seeds can be
contaminated with trace amounts of THC. Processors such as Hempline, which
deal only with the stalks of certain hemp varieties, have had no problems
with shipments, says company president Geof Kime. For Kenex, however, it's
been a different story, characterized by a kind of moving target for THC
levels.

Late last summer, officials south of the border began to get jumpy. The
U.S. Drug Enforcement Agency (DEA) stopped an 18,000-kilogram Kenex
shipment at the border and ordered the company to recall more than a dozen
additional loads, claiming trace THC levels violated the 0.3-per-cent limit
spelled out in trade agreements. The DEA also threatened the Pain Court
company with penalties of $700,000.

Kenex president Jean Laprise says the "seizure was clearly illegal (under)
U.S. law," which spelled out tolerances for THC and the right of American
companies to import the material, despite the fact it remains illegal to
grow hemp in the U.S.

Kenex was forced to stop shipping until the confusion was sorted out. The
seized load, meanwhile, sat in the U.S. awaiting a decision. DEA and U.S.
Customs eventually backed down, releasing the shipment and providing a
verbal promise not to seize any future shipments of hemp products.

A written agreement Dec. 7 outlined the criteria under which hemp shipments
would be allowed into the U.S. Laprise says the deal was "very reasonable,
by everyone's standards." Part of the agreement, Laprise says, was that
Kenex had to waive whatever right it might have had to sue the U.S.
government for its losses. Fine. Kenex agreed.

Earlier this month, however, the deal was rescinded by the Office of
National Drug Control Policy in Washington. It ordered U.S. Customs to
issue a Jan. 5 memoradum which made all hemp products containing any
measurable amount of THC subject to immediate seizure and confiscation.

"It's the law that keeps changing from one agency to another -- the U.S.
Justice Department, U.S. Customs, the DEA," Laprise says.

U.S. importers, meanwhile, are claiming that according to the federal
Controlled Substances Act, hemp seeds can be legally brought into the
country as long as they are sterilized to prevent growth -- no matter how
much residual THC they contain.

At issue for both Canadian exporters and U.S. importers is the fact the
industry is being hurt by policy changes which are constantly in a state of
flux.

More important, though, is the fact American enforcement agencies -- the
DEA, U.S. Customs and the Office of National Drug Control Policy seem to
have rewritten the law on their own three times over the past six months
without ever involving the U.S. Congress, which, like Parliament in Canada,
makes the laws that agencies then enforce.

Laprise says his company is working with others in the industry to get
Agriculture Canada and the Canadian embassy in Washington to iron out the
wrinkles. And Canadian agriculture officials say they'll stand by their
farmers and processors.

But at the rate American enforcement agencies are rewriting the rules, it's
best to move quickly, before operations like Kenex go up in smoke.