Chapter Four
The Immediate Repercussions of the Marihuana Tax Act of 1937

This chapter deals with the immediate repercussions of the Marihuana Tax Act of 1937. It is composed of an array of classified historical correspondence and reports held by the Drug Enforcement Agency. This correspondence and these reports shed new light on the Federal Bureau of Narcotics' true role in the prohibition of marihuana. By the end of this chapter it should be apparent that the Bureau had more than just a corollary interest in the new hemp industry.

After the passage of the Marihuana Tax Act of 1937, the Federal Bureau of Narcotics expressed a very specific concern regarding the new hemp industry. Evidence of the Bureau's anxiety can be witnessed in a Departmental memorandum which was circulated during the month of December, 1937. The basic premise for the memorandum was that the Bureau lacked a real understanding about marihuana as a drug and as a legitimate crop. Now, since the Bureau had been given jurisdiction over all facets of marihuana's usage, both legal and illegal, it had become imperative for them to learn about the hemp plant. In principle, this new desire to learn about the hemp plant seems highly suspect, since Commissioner Anslinger was basically admitting to the Bureau's general lack of knowledge regarding marihuana, even though they had previously serenaded the media and public with their self-acclaimed expert knowledge on the topic. The memorandum requested information on marihuana in six distinct areas: agricultural, chemical, pharmacological, sociological, economic, and industrial. Information from the last two phases of the inquiry pertained to the hemp industry. Among the topics of interest concerning Commissioner Anslinger were the commercial uses for the hurds and the cellulose products that could be made from the fiber. He also wanted to know the advantages of using hemp over other raw materials and the prospects for hemp's use in the future.

There was not a direct response to this memorandum; however, it appears to have been in the possession of Dr. H. J. Wollner, the Bureau's consulting chemist, who presented another memorandum of the inquisitive sort back to Commissioner Anslinger on February 14, 1938. In this document, Dr. Wollner expressed some concern over the Bureau's new task of regulating marihuana. Specifically, he discussed three topics. The first topic dealt with marihuana's unknown drug properties and the fact that no one had developed a test which could accurately determine whether or not the active principle was present. Skipping to the third topic, Dr. Wollner noted that marihuana was a domestic plant unlike the drugs of foreign origin, such as opium and cocaine with which the Bureau was familiar. Returning to the second topic, Dr. Wollner observed: "That the agriculture of the plant marihuana caters to a legitimate industry." With regard to his second point, Dr. Wollner noted that there was good chance that the cultivation of hemp for various industrial purposes could be beneficial and that it could expand. He recommended that the Bureau proceed with research to discover whether or not a drug free hemp plant could be produced for industrial use. There is no record of this research ever having been conducted.

Shortly after the passage of the Marihuana Tax Act of 1937, the potential industrial advantages of cultivating hemp came to the attention of Henry Morgenthau, Jr., the Secretary of the Treasury, who promptly contacted Henry A. Wallace, the Secretary of Agriculture. Apparently, Secretary Morgenthau had become aware of the interest of certain unidentified paper manufacturers who were considering hemp as a potential raw material for the production paper. The Secretary mentioned some experimentation which the Treasury and Agricultural Departments had jointly conducted over the summer of 1937. These experiments revealed "that there was a tendency on the part of some of the Cannabis plants to be lower than others in narcotic content." On the basis of this discovery, Secretary Morgenthau suggested that it might be possible to breed a strain of cannabis that was totally free of the drug. Such a project would be beneficial to agriculture and industry. In order to facilitate this avenue of research, the Secretary proposed that the Treasury Department and the Department of Agriculture should consider utilizing the appropriations that were available under the provisions of the Agricultural Adjustment Act of 1938, Title 2, section 202. This law provided for four million dollars to be devoted to the development and use of national crops. He concluded by stating that hemp would cease to exist as an agricultural commodity unless action was taken to insure its legitimate industrial usage.

Secretary Morgenthau received a reply from Secretary Wallace's Department on May 3, 1938. It was not positive. Acting Secretary W. R. Gregg did not think that it was feasible to expend any of the money appropriated by the Agricultural Adjustment Act of 1938, Title 2, Section 202, because the Act only allowed for the money to be spent on regular or seasonal crops in which there were surpluses. The Acting Secretary of Agriculture did express a degree of sympathy and agreed that the research which had already been started the previous summer should be continued, but there was one problem which promised to hold up the research. In 1938, the researchers were still searching for a satisfactory method of testing for the drug; therefore, further experimentation with respect to the production of a drug free variety of hemp would have to wait. Acting Secretary Gregg even went as far as to suggest that the Treasury Department take up the matter of developing a satisfactory method of testing for the drug. Despite the overall negativity of the response, Acting Secretary Gregg knew of research that was being conducted into the utilization of hemp hurds toward the production of cellulose at the Department of Agriculture's by-products laboratory in Ames, Iowa. The records of these experiments do not seem to exist anymore in the Department's annual reports regarding these experimental projects.

Around the time of the previous correspondence further concern regarding the future of the hemp industry was expressed by Secretary Helen Moorehead. She interviewed Dr. M. A. McCall, Chief of the Bureau of Plant Industry, Dr. H. W. Barre, Principal Pathologist in Charge, Division of Cotton and Other Fiber Crops and Diseases, and Dr. Brittain B. Robinson, Agronomist, Division of Cotton and Other Fiber Crops and Diseases. Secretary Moorehead sought information pertaining to the research regarding a drug free strain of hemp. The Department of Agriculture's men explained to her that the research could not proceed until Dr. H. J. Wollner, the Federal Bureau of Narcotics' chief chemist, had perfected a method of detecting the drug. They also explained that the pressure from commercial interests to use hemp as a base for cellulose was impractical from an economic standpoint unless it could be produced for less than the present source, wood pulp, which sold for around three cents per pound. None of the men had seen any evidence that hemp could be used to produce cellulose competitively on the market against wood pulp. Furthermore, the men said that in the past their experience with hemp growers had been that they were promotional schemes designed to sell patents or stock. There was no evidence that this time around it would be any different. This opinion was no different from the one which the Bureau of Plant Industry had expressed in 1931, with regard to the initial efforts to promote the cultivation of hemp in 1930. In addition, the men also believed that the Tax Act would not interfere with the "honest growth of hemp." According to Secretary Moorehead, all three men did express an interest in the matter and asked to be contacted if they could be of any further assistance.

The next event of consequence toward defining the Federal Bureau of Narcotics' marihuana policy occurred on December 5, 1938, when the Bureau convened the Marihuana Conference. Commissioner Anslinger and Dr. H. J. Wollner presided over the meeting of 23 government selected specialists. There was no one present from the various commercial interests. Instead, Commissioner Anslinger allowed Dr. Andrew H. Wright of the University of Wisconsin and Dr. Brittain B. Robinson from the Bureau of Plant Industry to represent the commercial interests in the discussions. The meeting opened with Commissioner Anslinger submitting the agenda. He began with a brief update as to the proceedings of the 1938 SubCommittee on Cannabis, of the Advisory Committee on the Traffic in Opium and Other Dangerous Drugs of the League of Nations, which convened in Geneva, Switzerland. The majority of his synopsis dealt with foreign research into the health hazards and the identification of the active intoxicant principle. With regard to the commercial uses of hemp, the SubCommittee was severely lacking in data; however, he did report that there was a rumor about a variety of hemp which was grown in the Anatolian highlands of Turkey that had too low a resin content to be used for any type of illicit purposes. The Commissioner concluded by explaining that the SubCommittee had decided that the information which they had compiled was too incomplete for them to make any definite recommendation regarding the perceived problem with cannabis.

Following his summation, the Commissioner introduced Dr. Andrew H. Wright, who was to explain the agricultural aspects of the domestic hemp industry. The only point worth mentioning in Dr. Wright's testimony was the humble grievance which he registered for the absent commercial interests. Specifically, he referred to the negative public opinion that had grown up with regard to the cultivation of hemp for whatever purpose, legal or illegal. In his own words, he stated, "What they are concerned about is the public position, that indefinite intangible thing, public feeling about growing hemp at all." He continued and informed the committee members that some of these commercial interests had "already been subjected to some rather embarrassing situations." Along the same line of thought he expressed further fear that this negative public opinion could lead to hemp being placed on the weed eradication list. Neither Dr. Wright nor the growers favored such a development. These perceived problems concerned Dr. Wright, who feared that they could adversely effect the legitimate cultivation of hemp in the future. Again, in his own words, he stated, "Those in the industry are naturally concerned. They have a stake in that they have what little they have invested in the business."

After Dr. Wright's brief testimony, Dr. Brittain B. Robinson was called upon to discuss some more specific aspects pertaining to the domestic hemp industry. During his turn, Dr. Robinson spoke about the history of the hemp industry and pointed out the traditional usage of hemp. With regard to the recent developments in the industry, he expressed the same skeptical attitude which he had already voiced in an interview with Secretary Moorehead of the Foreign Policy Association. Dr. Robinson's opined that the commercial activity in Minnesota was of a promotional nature. He mentioned that similar activities had occurred before but he was not specific in his allegation. Aside from the activity in Minnesota, Dr. Robinson did not have any further information of relevance.

Despite the skeptical conferences and adverse correspondence, there was still plenty of activity in the hemp industry as the original investors and promoters tried to salvage their dreams. For instance, on October 12, 1937, H. W. Bellrose, the President of the World Fibre Corporation, contacted Supervisor Bass because of his deep concern for the future of the hemp industry. His anxiety stemmed from the passage of the Marihuana Tax Act. In this letter he mentioned the efforts of a Dr. Paul (no first name was given) from California, who had lobbied before the state legislature of California stating "that there were no ill effects from the Hemp Plant where it was grown for Fibre, 'before' it went to flower." Earlier, Frank Ridgway of the Chicago Tribune had described this stage of the hemp plant's development to Supervisor Bass as its "unripened" state. According to Bellrose, the California legislature tested Dr. Paul's hypothesis and found that hemp in its unripened state indeed contained nothing injurious to anyone. He continued and pleaded that the Bureau consider a letter he was drafting which would describe all the commercial advantages of hemp fibers and hemp hurds before they proceeded forward with prohibitive measures.

In this second letter, Bellrose unveiled his grand scheme for the "rebirth" of the hemp and flax fiber industry. He began by explaining that this "rebirth" could only be accomplished through the means of mechanical decortication and that his company had just perfected a machine for this purpose. To bring the importance of this development to the attention of the Bureau, he compared the impact the World Fibre Decorticating Machine would have on the hemp industry to the effect the Eli Cotton Gin had on the cotton industry. It was to be nothing short of revolutionary. Looking to the dismal situation of the American farmer during the 1930s, Bellrose presented an argument reminiscent of the alternative source debate by stating that hemp was a crop for the industry, not for the human stomach and, therefore, it presented a solution to the agricultural problem of overproduction with regard to food crops, because industrial crops always had markets. After this point he began to list the market opportunities for the various raw materials of the hemp. He began with the bast fibers which he claimed could be manufactured into "some four thousand textile articles." Then he moved on to describe the commercial possibilities for the by-product known as the hurds. These contained roughly 78% alpha-cellulose which made them an ideal raw material source for such products as paper, TNT, rayon silk, cellophane, and some 25,000 plastic products. Of these the paper pulp industry was the most promising because it was a billion dollar industry and the United States imported around 80 per cent of its paper and paper stock.

The previous letter was the source for an article which appeared in the February 1938 edition of Popular Mechanics, titled "The New Billion Dollar Crop." In content, this article was practically identical to the letter Bellrose sent to the Bureau in late 1937, pleading for them to reconsider their prohibitive legislation. Interestingly, the "billion dollar" reference pertains to the newsprint market and it may be traced to a bulletin published by the Newsprint Institute. According to this bulletin, the annual earnings of the newsprint industry were one billion dollars. Bellrose used this information to impress the Bureau and the public about the potential for the new hemp industry.

Continuing the previous letter, Bellrose's restated his concern over the passage of the Marihuana Tax Act of 1937. His office was being flooded with inquires regarding the new law and how it would effect the industry. The primary stimulus for all the concern was not the actual passage of the law, which had occurred virtually unnoticed, but an article which was written by Frank Ridgway in the October 11, 1937 edition of the Chicago Tribune. This article spelled out the prospective complications that the new law would create and suggested that it might be more advisable to just burn the crops than to try to persevere through the regulatory measures. The main problem that Ridgway foresaw was the transfer tax. The regulations stated that in order for hemp to be exempted from the transfer tax it had to be free of any foliage that contained the drug. This requirement was totally impractical, since it would mean that the farmer would have to strip the hemp stalk of its foliage before he could transfer it tax free to the processor. In either situation the farmer was stuck without a profit; he would either be taxed or forced to pay for additional labor.

After this last letter, Bellrose brought the problem to the attention of the Attorney General, who notified the Bureau. Acting Commissioner Will Wood responded to Bellrose on November 7, 1937. In his response, he expressed the Bureau's lack of concern regarding the complications of the transfer tax. Acting Commissioner Wood simply stated, that the legislators had taken the trouble to exempt the mature stalks from the transfer tax, and, that it was the Bureau's understanding that the foliage fell off during the retting process. His answer clearly demonstrates the Bureau's ignorance regarding the cultivation of hemp, because the foliage did not completely separate from the stalks during retting. The reason for the Bureau's insistence on maintaining the transfer tax is best stated in the words of Acting Commissioner Wood:

"I am sure that you would agree with me that the transfer of the entire plant could not be exempted from the operation of the act, because although the reputable manufacturers of hemp fiber would have no interest in the foliage of the plant, there are unscrupulous persons who would make use of such a loophole in the law, and under color of a legitimate transfer of fiber stalks, would be able to acquire and harvest all the resin containing foliage."

Before Bellrose abandoned his dream of establishing a hemp industry, he tried one last time to convince Frank Ridgway that the hemp they were cultivating did not contain any of the active drug ingredients. In January, 1938, Ridgway contacted Commissioner Anslinger and proposed that the government conduct an experiment to see if Bellrose's contention was true. Supervisor Elizabeth Bass wrote to Commissioner Anslinger on March 5, 1938. Since Ridgway's letter in January, the Commissioner had responded and requested that Ridgway send several pounds of the hemp to be tested by governmental chemists. Apparently, by March 10, no significant steps had been taken to analyze the marihuana samples and Ridgway was going to postpone any further cultivation until he met with Commissioner Anslinger. According to Supervisor Bass, Ridgway wanted to discuss some new developments regarding the hemp industry. In particular, he wanted to express the rapidly fading enthusiasm of the processors who were "fearing troubles with the government and small and not worthwhile profits." The records of this meeting and the results of the tests are unknown.

Commercial activity continued in Minnesota as well. On October 11, 1937, Frank Holton contacted the Bureau regarding the new legislation and his company's operations. He informed the Commissioner that his company had contracted farmers in Southern Minnesota to grow hemp during 1934 and 1935. According to Holton, they had experienced some difficulty at first since hemp was a new crop with which they had not been totally familiar. Now, though, they were proceeding with plans to utilize the seed, fiber, and hurd to produce oil, textiles, and cellulose. Recently, they had become aware of the marihuana problem because of the publicity it had received in the media and, as a consequence, they had learned of the new Tax Act regulating the growth of hemp. Specifically, Holton requested any information the Commissioner could provide him with about this new development. The Commissioner's response was to send Holton a copy of Regulations No. 1.

During 1936, Holton's main problem had been the hemp crops of 1934 and 1935, which were still lying in the farmers' fields. The farmers were quickly losing their patience with Holton, when Chempco, Inc. and the Central Fibre Corporation had offered to purchase from their crops. Needless to say, the sale was welcomed by both Holton and the farmers who actually sold it for less than the contracted $15 per ton. After these deals, they still had a significant quantify of hemp on hand, which continued to be a bone of contention among the farmers. As a result of the situation Holton found himself in, he decided to reorganize his company. The new firm of Cannabis, Incorporated, was formed on April, 9, 1937, in order to "manufacture and prepare hemp and other fibre from raw material sources, etc., etc." Holton moved the new firm to Winona, Minnesota where he occupied an old woolen mill. Over the course of the spring and summer months of 1937, he conducted experimentation in adapting the woolen mill machinery for the manufacture of hemp products. This endeavor achieved very little success, and, in the end, Holton settled upon producing mops.

In 1938, the Federal Bureau of Narcotics estimated that a total of 11,000 tons of hemp remained in storage on farms and at decorticating plants throughout southern Minnesota. The Bureau sent an agent to inquire into this situation and report back. Specifically, this agent was to ascertain whether or not the Marihuana Tax Act of 1937 was being violated. According to the report produced by Field Supervisor H. T. Nugent, the regulations had been violated in three basic ways. First there was the problem of registering. The commercial interests applied as Class 3, "dealers of mature stalks without foliage." This classification was wrong according to Supervisor Nugent because the foliage was never removed from the stalks and thus they should have registered as Class 1. Second there was the issue of the transfer tax. The regulations allowed for the tax free transfer of stalks that did not have any of the drug carrying foliage. As with the first problem, Supervisor Nugent observed that the stalks were never free of foliage; therefore they were taxable, but the tax was never paid in many instances. Finally, he noted that the crops still in the fields had not been properly safeguarded, which was another violation.

In conclusion, Supervisor Nugent pointed to the dilemma the Bureau faced with the remaining stacks of hemp. There were two parties involved in this issue, the farmers who physically possessed the crops and Holton who legally controlled the crops. According to Supervisor Nugent, Holton's company was in no position to purchase and decorticate the remaining hemp, even though, he was planning to transfer it to Mississippi, where he intended to use it for a textile blend with cotton. Holton's plans evidently did not impress Supervisor Nugent and the only solution seemed to be for the farmers to take Holton to court in order to gain legal control of the hemp. Supervisor Nugent noted that a committee had been formed by the farmers in the Lake Lillian area and that they had elected Ojai A. Lende, Attorney at Law, to represent their interest in the matter. Supervisor Nugent's opined that the just solution was to compensate the farmers and to remove the hemp as soon as possible because of the threat of pilfering.

The earliest record regarding the legal action of the farmers in the Lake Lillian area occurred in a letter from Lende to Senator Henrik Shipstead of Minnesota, dated, January 27, 1938. In this letter, Lende informed the Senator that hemp crops had been raised under contract during the 1934, 1935, and 1936 seasons in Yellow Medicine County, Minnesota. The growing had been contracted by the Northwest Hemp Corporation which had since experienced financial difficulties that had kept it from fulfilling its contractual obligations. As a result, there were now 3000 tons of hemp being stored on the farms throughout the county waiting for a market. This hemp has since been identified as marihuana and federal legislation has been passed to control the traffic of the plant. The law abiding farmers had duly applied for licenses to sell their hemp as was stipulated in the new Tax Act, but they had never received their licenses. In the meantime, the farmers had found a buyer, Chempco, Inc., and they were anxious to sell their hemp. Since Lende was their legal representative, he was contacting the Senator with the hope of getting the matter of licensing speedily resolved for the farmers.

Still, by March 23, 1938, the issue had not been resolved. In another letter, this time addressed to the Bureau, Lende again asked for the necessary authorization to sell the crops. Apparently, all the Bureau had done was send Lende information regarding the Marihuana Tax Act of 1937. From this information, Lende learned that if the hemp was free of foliage it was legally transferable and he expressed the belief that the hemp in question was certainly free of foliage. The Bureau insisted on inspecting the hemp before proceeding with authorization. The inspection showed that there was still foliage, and, based on this observation, the Bureau decided to test it for the drug principle. Late in April, Lende was still awaiting an answer from the Bureau and he proposed that if there was any drug content that the Bureau supervise the shipment of the hemp. May and June passed and still no action had been taken by the Bureau. In July, Lende pleaded for some sort of decision to be made, stating that the depression "fell severely upon the farmers of Yellow Medicine County." After this letter, Commissioner Anslinger personally responded and informed Lende that the Bureau was investigating the matter.

Supervisor Nugent carried out the investigation and presented a report on the matter on August 26, 1938. In the report, he conferred with Lende, and explained that the Bureau would entertain the notion of a government supervised transfer of the hemp, but that first he needed to gather information about the purchaser, Chempco, Inc. Supervisor Nugent discovered that the company was in serious financial difficulty and that it was no longer in the position to make the purchase. The lost opportunity can probably be attributed to the fact that the sale between the farmers and Chempco, Inc. had been proposed over a year prior to this investigation. Given the lapse of time, the market for the crops had been lost and the hemp remained stacked in the fields. There was a degree of sympathy evident in Supervisor Nugent's report toward the farmers' situation and he expressed the intent to find a solution. He also noted that something had to be done because the farmers were violating the provisions of the Tax Act because they had not reregistered, but is that really any wonder, considering the lack of concern the Bureau had displayed toward their predicament.

The situation had not changed by December 1938, when Lende wrote to Commissioner Anslinger to notify him of legal action which he was taking in behalf of many of the farmers to release them from the contractual obligations. Two months later, Lende informed the Commissioner of his successful litigation and stated that he had released a total of 5400 acres from the contract obligations. He also noted that there were another 3000 acres of hemp which remained under the contracts. This acreage belonged to farmers around the Mankato and Winnebago areas who had expressed the desire to continue working with Frank Holton. After divulging this information, Lende dropped a bomb in the lap of the Commissioner, which is apparent from the question mark enumerating the disclosure in the margin of the document. In essence, Lende stated that he was proceeding with plans to seek an adjustment from Congress for the damages that his clients had suffered in the hemp venture. The Commissioner was a bit confused by this abrupt development and he made note of his confusion in a reply to Lende in which he stated, "I cannot understand on what basis it is expected that the Federal Government should pay for these harvested crops of hemp..."

Commissioner Anslinger received an answer to his query indirectly through Senator Shipstead, who was similarly broadsided with this development. In a letter addressed to the Senator, Lende began to explain the rationale behind his decision to sue the government in the following words, "You remember that I stated to you that there was a market for this hemp in processed form but the passage of the Tax Act completely destroyed the market and virtually confiscated this hemp for the growers." Based on this assessment, Lende and his clients felt that Congress should compensate them for the "actual out of pocket money which the growers have sustained in the production of this hemp." Lende informed the Senator that he had contacted Congressman August H. Andersen, Congressman Elmer J. Ryan, and Congressman Harold Knutson, all from Minnesota, about bringing up the matter of compensation during the next session of Congress. Furthermore, he stated that the Bureau of Narcotics possessed the data regarding acreages grown by individual farmers which was necessary to carry out the appropriations.

Senator Shipstead promptly contacted Commissioner Anslinger and requested his opinion regarding both the matter of compensating the farmers as well as regarding their right to sell the hemp they still had on hand. In his reply, Commissioner Anslinger candidly explained that there was no basis for the federal government to compensate the farmers of Minnesota for the damages they had sustained and he also stated that the farmers were free to apply under the provisions of the Tax Act for permits to sell their crop of hemp, "provided that it is substantially free of flowering tops and leaves." At the same time, though, the Commissioner failed to inform the Senator that Lende had already attempted to procure the necessary licensing, and that the Bureau had denied him. As a result, the farmers represented by Lende lost a market for their crops of hemp. Furthermore, the delay probably caused the prospective purchaser, Chempco, Inc., to lose $25,000, and cease operations.

Lende received a reply from Senator Shipstead, who informed him that the Bureau was going to investigate the matter further, but in a letter from Lende to the Senator it is apparent that the Bureau had taken no steps toward such an investigation. In fact, Lende was beginning to become irate with Bureau's lack of concern and he asked for information as to whether or not there might be other districts in the country which were facing similar difficulties. The Senator passed this letter on to the Commissioner, requesting the information which Lende asked for regarding other hemp growing areas.

The Commissioner promptly sent the Senator the information he had requested on March 6, 1939. Without being specific, he informed the Senator that there were approximately 371 producers of hemp registered under the Marihuana Tax Act. He also stated that problems had only arisen in Minnesota with respect to the application of the Tax Act and to the availability of markets to sell the crop. The Senator relayed this information on to Lende, who requested specifics about the locations and names of the individuals involved in the operations cited by the Commissioner. This request was passed on to the Commissioner, who discovered that he may have created a problem by divulging this information. Apparently, the area which the Commissioner had referred to was Wisconsin, where hemp was raised for its fiber. The problem was that the Bureau was never informed as to whether or not the hemp had been free of foliage when it had been transferred from the field to the mill. This situation presented an embarrassing dilemma for the Bureau since they had given the farmers in Minnesota so many difficulties on this point. Regardless of this situation, the Commissioner released the names and locations of the three major commercial interests in Wisconsin: Atlas Hemp Mills in Juneau, Badger Fibre Company in Beaver Dam, and the Matt Rens Hemp Company in Brandon. He also explained that hemp was raised in Kentucky on a small scale for the production of seed.

In his next letter, Lende displayed a certain degree of antipathy toward the Bureau's handling of the matter, and, in particular, he directed his displeasure toward the Commissioner. Quoting from previous correspondence on February 7, Lende noted the Commissioner's opinion absolving the government of any responsibility for the failure of the hemp industry:

"This hemp may be sold under the provisions of the Marihuana Tax Act provided that it is substantially free of flowering tops and leaves without respect to the transfer of the act. Accordingly, the passage of the Marihuana Act of 1937 did not destroy the market for hemp."

He continued and explained that the Bureau had found that the foliage of the hemp stacked in Minnesota did contain the drug principle. Despite this discovery, Lende continued to petition the Commissioner for permission to sell the hemp. He was denied and in the meantime there was no change in the situation. The hemp remained in the fields where it was left unguarded and open for looters. From the context of the letter it was apparent that Lende was becoming impatient. He had never received the information regarding the other producers and manufacturers and no progress had been made toward obtaining permission to sell the crops. Expressing his anger, Lende stated:

"If I can find a market for the hemp I have in mind to dispose of that hemp and tell Mr. Anslinger that he can go to the region below and let him present the country with a spectacle of arresting half a thousand farmers in Minnesota for selling an agricultural crop grown off from their farms which were grown long before Congress ever thought of the Marihuana Act."

In another letter, Lende cited an article about a marihuana arrest which had been recorded in the Minneapolis Journal of April 5, 1939. According to Lende, there was a possibility that this marihuana had been obtained from the hemp stacked the fields of Minnesota. Based upon this assumption, Lende proposed that the Congress should consider the hemp a risk to the public health and that they should confiscate it. The Senator passed this letter and the previous one along to the Bureau. Commissioner Anslinger replied on April 12, 1939. He notified the Senator that he had given Lende the names of three companies in Wisconsin in a previous letter. In defense of the Tax Act, the Commissioner explained that the crops in Minnesota had been harvested prior to the passage of the Act and, therefore, the Act could not have killed the hemp industry. This excuse was extremely naïve. The Commissioner understood the difficulties of establishing a new industry and knew that it was first necessary to have the hemp grown before any further work could be done. Specifically, the industry needed additional time to experiment and perfect the technology to produce cellulose pulp from the hemp. Such an endeavor required investment capital. Commissioner Anslinger was aware of this necessity and used the Tax Act to stop it from occurring.

Finally, with regard to Lende's desire to sell the remaining crops, the Commissioner insisted that Lende provide him with information on any prospective purchaser. Upon the delivery of such information the Commissioner promised to consider the transfer of the crops. This transfer eventually occurred during the Second World War, when the British Government contracted with a new venture, Hemlax Fibre & Company, of Sacred Heart, Minnesota, to cultivate hemp for naval cordage.

In Illinois a slightly different situation developed, but, in the end, the result was the same as it had been in Minnesota. Like the commercial concerns in Minnesota, the Amhempco Corporation of Danville, Illinois, intended to produce fiber for textiles and hurds for paper and alpha-cellulose products. This project is of particular interest because one of the buildings on the land purchased by the Amhempco Corporation was used for the production of paper from cornstalks by a previous venture. The former company, the Cornstalks Products Company, had not survived, but while it was in operation it had been involved in an effort to adapt alternative sources, other than wood, for use in the production of paper. Ironically, this company had also been involved in the previously described conspiracy to suppress alternative source legislation in 1929, which would have appropriated government aid for the development of farm waste industries.

Considering the fact that Amhempco Corporation purchased the site of the original operation, its organizers probably had a similar purpose in mind. However, when the Marihuana Tax Act of 1937 was passed, the principal financial backers of the company filed for bankruptcy leaving about 300 creditors. Closer inspection reveals that the Amhempco Corporation, like its predecessor, the Cornstalks Products Company, was formed as a stock selling racket and as a device to secure a piece of the new market if one developed. Furthermore, both operations were financially connected to the investment banking house of J. P. Morgan & Company. Apparently, the most powerful banking house in the nation also thought that hemp might be commercially cultivated for its cellulose.

After the passage of the Tax Act, the Bureau, in conjunction with the Treasury Department, made a visit to Danville, in order to observe and discuss the operations of Amhempco Corporation with the company manager, M. G. Moksnes. During a meeting, Moksnes explained that Amhempco Corporation had been formed for the production of fiber, which would be shipped to the Massilon Company and used along with wool and hair for the production of rugs. The Amhempco Corporation also intended to utilize the hemp hurds for the production of cellulose, which could be used in the manufacture of plastics and paper.

No further correspondence between the Bureau and Amhempco Corporation occurred during 1937. Then, on February 7, 1938, Moksnes informed the Bureau that the Amhempco Corporation had ceased to do business. Continuing, he informed Hester that he intended to reorganize the business and that he needed to be advised as to the proper procedure of licensing under the Tax Act. In particular, he wanted to know if the growers of the 1937 crop were required to be licensed because they had harvested their crop prior to the enactment of the law. Along with these questions, he informed the Bureau that he intended to produce fiber for the cordage trade, textiles, and the paper industry. There was no record of any reply and the correspondence ceased again for approximately a year and eight months.

The story of Amhempco Corporation starts again in the fall of 1939. A memorandum left by A. L. Tennyson, Chief of the Bureau's Legal Section, recorded the events of a meeting between himself and Arthur S. Nestor, who represented Fibrous Industries, Inc., of Chicago, Illinois. This meeting took place on the afternoon of September 22, 1939. Nestor stated that his company licensed the rights to use a hemp decorticating machine and contemplated licensing this machine to the Illinois Hemp Company of Moline, Illinois, which had been formed for the purpose of buying and decorticating hemp and selling the fiber and hurd on the market. The problem that Nestor wanted to bring to the Bureau's attention involved the matter of a contract that the Illinois Hemp Company had entered into for the purchase of 18,000 tons of hemp which was being held by the Trustees in Bankruptcy for the Amhempco Corporation. He also informed Tennyson that the Illinois Hemp Company planned on continuing its operations once this stock of hemp had been decorticated by entering into grower's contracts with farmers for future crops of hemp.

Nestor stated that he had already discussed these plans with Dr. Brittain B. Robinson of the Bureau of Plant Industry, who had suggested that he present the matter to the Federal Bureau of Narcotics. Responding, Tennyson explained the provisions of the Marihuana Tax Act to Nestor, taking special care to stress the clause referring to the transfer tax, which stated that the tax was applicable to all transfers of hemp that still had foliage attached to it. He continued and described the problems that the Bureau had experienced with the hemp grown in Minnesota. This reference naturally led Tennyson to inquire about the nature of the hemp that the Illinois Hemp Company wished to purchase from the Amhempco Corporation. If the hemp in question still retained foliage, Tennyson informed Nestor that the approval of the Commissioner would be necessary before the transfer could be legally conducted according to the stipulations of the Tax Act. Tennyson further explained that Commissioner Anslinger would require specifics regarding all facets of the proposed business deal and that any additional growing of hemp would require the same type of approval.

At the conclusion of their discussion, Nestor expressed his desire to comply with all existing regulations. He then proceeded to inform Tennyson that the hemp industry had great potential to benefit the American farmer. To support his contentions, Nestor produced letters addressed to the Illinois Hemp Company from the Goodyear Tire & Rubber Company, the Ford Motor Company, and companies manufacturing rope and paper. After displaying these letters, Nestor expressed the belief that the foliage could probably be removed from the hemp at little additional cost to the company and that he would discuss this matter with his engineer once he returned to Chicago. In closing, Tennyson suggested that Nestor should not proceed with any transfers of hemp until the Bureau had been able to conduct a thorough investigation of his proposed plans.

Commissioner Anslinger passed Tennyson's memorandum on to James Biggins, the District Supervisor of Illinois, and requested that he investigate the Illinois Hemp Company and Fibrous Industries, Inc. Evidently, the situation that had occurred in Minnesota was still fresh in the Commissioner's mind because he advised Supervisor Biggins to "carefully inquire" into the identity of the individuals involved in these companies. Supervisor Biggins assigned Narcotic Agent Cornelius J. Kelly to the investigation and Agent Kelly submitted his report on October 6, 1939. In the report, Agent Kelly stated that Nestor accompanied him to Tilton, Illinois, which was in the vicinity of Danville, where the Illinois Hemp Corporation's plant was located. According to Agent Kelly, the old stocks of hemp were stored inside a fenced off enclosure and the total amount was estimated to be 10,000 tons. He also noted that this hemp was not totally denuded of foliage. Agent Kelly emphasized the previous statement to Nestor and to an engineer that had accompanied Nestor. The two men explained to Agent Kelly that another 6000 tons of hemp existed on farms throughout the area and that the foliage most likely also remained attached to this hemp. Nestor expressed his desire to comply with the provisions of the Tax Act and began to confer with his engineer about methods of removing the foliage, to which Agent Kelly responded, that these matters would best be brought up with the Commissioner.

Following his visit to the plant, Agent Kelly conducted a study of the Fibrous Industries, Inc. From Agent Kelly's investigation, the Bureau learned that the Fibrous Industries, Inc., had been chartered on April 19, 1939, as a holding company. Surprisingly, Nestor's name did not appear in relation to this company. Agent Kelly contacted Nestor to ask about this situation. In an attempt to explain his absence, Nestor informed Agent Kelly that he had acquired the exclusive patent rights to the Selvig Decorticating Machine. Nestor continued and stated that the Fibrous Industries Inc. was created after he had secured these rights and that he had assigned the rights to license this decorticating machine to the company. At the moment, Nestor stated that he was not connected to the company except for his role as general manager, however, he informed Agent Kelly that he planned on becoming the president and increasing the capital once he settled some business matters. Nestor then proceeded to inform Agent Kelly that several dummy officers with nominal shares in the company had been listed as the company's management.

After discussing the business of the Fibrous Industries, Inc., Agent Kelly investigated the Illinois Hemp Corporation. He discovered that the Illinois Hemp Corporation had been chartered on January 14, 1939. In addition to this disclosure, Agent Kelly learned that the firm's attorney was Elmer Johnson, a member of the Iowa State Legislature and a prosperous and reputable businessman. Agent Kelly interviewed the Vice-President of the Illinois Hemp Corporation, Wilbur E. Wright, who oversaw the operations of the company's plant in Tilton. According to Wright, the Illinois Hemp Corporation had paid Fibrous Industries, Inc. $6500 for the rights to use the decorticating machine and that his company also contracted to pay a royalty of one half cent per pound on all finished hemp products to the Fibrous Industries, Inc.

During this period of time, the decorticating plant and the hemp had remained in the possession of the creditors of Amhempco. These creditors had come together on April 1, 1938, and hired R. D. Acton to act as the trustee for their possessions. After this action, Acton became the owner of the hemp located at the plant in Tilton and on the surrounding farms. According to Agent Kelly, there was approximately 16,000 tons of hemp in Acton's possession, which he had contracted to sell to the Illinois Hemp Corporation in January of 1939. He also stated that the Illinois Hemp Corporation had been permitted to use approximately 7500 square feet of the plant and parts of certain buildings to place and operate their decorticating machinery and conduct their business. Agent Kelly then reported that no payment was to be made for the hemp until it had been processed and that operations were slated to begin on October 15, 1939. Following this disclosure, Agent Kelly took it upon himself to ask Wright, the Vice-President of the Illinois Hemp Corporation, whether or not his company had registered under the provisions of the Marihuana Tax Act of 1937. Wright replied that he had not and that he would confer with Elmer Johnson, his company's attorney, about registering before they commenced operations.

About a month after Agent Kelly's report had been submitted, Nestor wrote to Commissioner Anslinger. In his letter, Nestor explained that he had conferred with two engineers and traveled to Wisconsin and Danville for the purpose of discussing the problem presented by the foliage on the hemp. As a result of his inquiries he formulated the following conclusions:

1. That the men interested in the handling of hemp in Illinois and Wisconsin are of too high a type to ever remotely be party to selling, or giving away any parts of the hemp plant that could be used for marihuana.
2. That they can be depended upon to do all things needed to prevent any persons from obtaining, from their plants, any of the leaves, flowers or seeds of the plant.
3. That they universally hold the opinion that the real danger of supply does not lie from the production of licensed growers, or operators, but from unlicensed small growers and from roadside growth.
4. That the law is not interpreted alike by any two of them. One understanding that the law allows him to do things a certain way and another construes the law as nearly opposite.
5. That some operators claim that at the time of the hearing by the Committee a meeting was held at which were present representatives of the Treasury Department and the Bureau of Narcotics, also several processors of hemp. That an understanding was arrived at as to the matter of handling the plant—and they contend that they have been following such plan since that time.
6. That there are several individual opinions as to how the foliage problem could or should be handled.
7. That the conditions in Wisconsin are different than the conditions in Illinois, - and Illinois is unlike the conditions in Minnesota or Kentucky. Kentucky, however, for the time being, presents no problem.
8. That they are of a unit in their desire to carry out the intention of the law and to cooperate with the Bureau.
   

In connection with his conclusions, Nestor mentioned that he had contacted Elmer Johnson, the attorney of the Illinois Hemp Corporation, who had suggested that a meeting be convened between the Bureau and the members of the hemp industry to discuss the matters of handling of growth, transportation, possession and disposal of certain parts of the hemp plant. Nestor also stated that he had mentioned Johnson's suggestion to several other parties and to Dr. Andrew H. Wright of the University of Wisconsin, claiming that they all expressed an interest in the proposal of a meeting.

Commissioner Anslinger promptly acknowledged Nestor's letter and stated that he agreed that the matter seemed to justify the convening of a meeting. However, the Commissioner was of the opinion that the meeting should take place in Washington, D.C., where government experts from the Department of Agriculture and the chemical section of the Bureau would be available for questioning. In addition to this suggestion, the Commissioner requested that Nestor grant him some time to gather information regarding the current situation confronting the hemp industry. Simply put, the Commissioner was stalling.

Meanwhile, on December 5, 1939, Commissioner Anslinger contacted District Supervisor James J. Biggins, requesting that he investigate the operations of the Matt Rens Hemp Company of Wisconsin in an effort to discover how they handled their hemp. The Commissioner requested this information for the meeting which had been proposed by Nestor. Apparently, the Commissioner was fearful that the Matt Rens Company was transferring their hemp from the farms to the mill without paying the transfer tax, which would create an embarrassing dilemma for the Bureau for obvious reasons. Once the report was delivered, Commissioner Anslinger informed Nestor that he would arrange for a meeting in Washington, D.C., provided that a sufficient number of commercial concerns were interested in such a meeting. After this communication there is no further discussion of the proposed meeting, the reason being that Nestor had been unable to secure a market for the hemp fiber which he had begun to produce back in October of 1939. No doubt the delays and the hindrance of regulations stifled the original enthusiasm for the venture.

Later in 1939, Dr. Andrew H. Wright of the University of Wisconsin contacted the Bureau and discussed the matter of convening a conference. Dr. Wright claimed that certain promotional people interested in the decortication of hemp from a purely promotional standpoint were responsible for proposing the conference. In connection with this communication, he also sent a letter to Agent Kelly, describing the matter in more detail. Dr. Wright stated that, at present, the regulations and application of the Marihuana Tax Act of 1937 were satisfactory. To date, the enforcement of the law had not inhibited the legitimate commercial production of hemp fiber and it had also served its purpose to protect the public from the illicit use of marihuana. The current pressure for a conference was being created by individuals who were involved with the hemp industry from a promotional standpoint. In his own words, Dr. Wright expressed the following concern, "I seriously question the need for giving consideration to a request from any individual or individuals who have a promotional interest."

The real reasons for Dr. Wright's behavior are apparent in the fact that he was employed by the Matt Rens Hemp Company of Wisconsin. This company was the oldest of the surviving hemp concerns, having been established in 1916. Its operations were conducted on a much smaller scale than the hemp ventures in Minnesota and Illinois. During its history, the Matt Rens Hemp Company had contracted to sell its processed fiber to the United States Navy for cordage and caulking. Dr. Wright represented the interests of the Matt Rens Hemp Company when he was critical and sarcastic in his descriptions of the other commercial concerns, claiming that they were promotional, and, therefore, that they should be ignored. Furthermore, when he stated that the Tax Act had not hindered the commercial cultivation of hemp, he was partially right, because the Bureau never enforced the provisions of the Tax Act in Wisconsin.

Ironically, the Wisconsin concerns were allowed to violate the stipulations of the transfer tax while the Minnesota and Illinois ventures were forced to strictly comply by the Federal Bureau of Narcotics. Why was the Bureau inconsistent? First, the three concerns located in Wisconsin never seriously mobilized to develop hemp as a cash crop for the production of cellulose products like the ventures in Minnesota and Illinois. In addition, the U.S. Navy was the main client of the Wisconsin concerns. If the Bureau had given the Wisconsin industries trouble like they had in Minnesota and Illinois, then they might have faced the indignation of the Navy. On the basis of these two rationale, the Bureau chose to ignore the hemp industry in Wisconsin.

Reviewing the history of the immediate repercussions of the Marihuana Tax Act, the Federal Bureau of Narcotics displayed several alarming discrepancies in its handling of the new hemp industry after the passage of the legislation. First, it stalled on research for the benefit of the hemp industry. Then, the Bureau hampered the conduct of legitimate business by strictly enforcing the stipulations of the transfer tax. And finally, the Bureau displayed a propensity to be selective in its enforcement of the provisions of the Tax Act. Taken as a whole, these dealings effectively put an end to the new hemp industry.