Texas hemp businesses face hefty new licensing fees and restrictive testing mandates, sparking outrage over proposed health department regulations.
The Republican-dominated state legislature spent most of last year fighting over whether to ban intoxicating hemp products or just regulate them. Last summer, the legislature finally approved a total ban, only to see Gov. Rick Abbott (R) veto that measure. Abbott then twice called special legislative sessions in a bid to find a compromise, but lawmakers were unable to come up with one, so, instead of calling a third special session, Abbott in September issued an executive order imposing restrictions, such as age requirements, on those products but leaving them legal under state law.
After months of uncertainty about hemp's future in the state, Abbott's executive order was initially viewed as a victory by the industry, but the devil is in the details. The order called on the Texas Department of Health Services (TDHS) and the Texas Alcoholic Beverage Commission (TABC) to draft regulations for the new hemp regime, and the TDHS rolled out its proposed regulations on December 26. They are open for public comment until January 26.
The provisional rules would allow hemp edibles, such as gummies and beverages, containing THC, Delta-8 THC, and powerful cannabinoids such as THCP to remain on the market. Such products would need to carry warning labels, dosing instructions, and links to lab tests showing the strength of cannabinoids, as well as the presence of contaminants such as heavy metals and pesticides.
But as far as local hemp operators are concerned, the proposals contain some devilish details indeed. While age requirements and mandatory recalls of contaminated products have industry support, new licensing fees and new THC testing requirements are drawing particular ire.
Under the TDHS proposal, manufacturing licenses would jump from $250 to $25,000 per facility per year and retailer license would increase by a whopping 13,000 percent, from $150 per store per year to $20,000 per store per year.
And the new testing requirements would effectively end the use of hemp flower to make products such as edibles and smokeables because they set THC caps at levels lower than those naturally found in hemp flowers. They do so by including THC-A, a naturally occurring cannabis compound that converts to THC when smoked or headed, in the level of THC allowed. But like federal law, Texas law defines hemp as cannabis containing no more than 0.3 percent THC—not THC plus THC-A.
TDHS got a first taste of the industry's response at a public hearing in Austin last Friday.
In a submitted statement, Texas Cannabis Policy Center director Heather Fazio warned that the proposal could restructure the industry in favor of the largest operators by making it too expensive for small businesses to compete.
"DSHS’s fiscal analysis assumes that nearly all currently registered retailers will pay the proposed $20,000 fee, generating more than $200 million in annual revenue. This assumption is unrealistic. Many small businesses simply cannot absorb this level of cost and will be forced to shut down rather than renew," she said.
Fees should be designed to recover the costs of effective regulation, not generate state revenues and drive small businesses out of the legal market, Fazio said
"The department’s own estimates show that the increased costs of administering these rules are minimal," Fazio said. "In that context, it is unclear why such dramatic fee increases are necessary or justified."
"The proposed rules wipe out about 80 percent of what all shops sell, including ours, which is natural hemp flower, and the total THC rule would definitely just wipe that out," said Scott Stubb, the owner of Sublingwell Cannabinoids and Euphorics in Kehma. "Then you add the fees being $20,000 for each shop, I don’t know, honestly, how we would be able to stay open," he told regulators.
"These proposed fees don't regulate small businesses, they eliminate them," said Estella Castro, owner of Austinite Cannabis Company. "This proposal would force me to close, despite doing everything right."
"A $20,000 fee is dropped in the bucket for multi-state corporations; for a single location shop like mine, it’s a death by 20,000 cuts," said Hayden Meek, owner of Delta Denton.
But the huge fee increase has its supporters, who say it is necessary to protect children from hemp products.
"Cannabis advocates say this is a billion-dollar industry. It’s fair and appropriate for the people who profit from selling a billion dollars in intoxicating products to create fees that help cover the cost associated with the regulation and societal burden of the product," said Betsy Jones, director of policy and strategy at Texans for Safe and Drug-Free Youth, at the Friday hearing.
Several people addressing the panel accused TDHS of operating outside its purview by redefining THC-A as Delta-9 THC.
"Changing Delta-9 to total THC is a legislative function, not administrative," said Jesse Mason, owner of the San Antonio hemp store Reggie & Dro. "By counting THCA prior to heat, you are banning products the legislature legalized."
"Changing which THC molecules are restricted under state law would require a change to the Texas Controlled Substances Act, either through legislative action or through appropriate administrative action grounded in existing statutory authority. Rulemaking alone should not be used to redefine controlled substances in a way that effectively bans products that have been lawful under existing law," Fazio told regulators.
"The practical effect of this change would be to eliminate hemp flower—the most widely used, least processed, and most natural form of hemp—from the legal Texas market," she added. "Removing regulated access to hemp flower will not eliminate consumer demand. Instead, it will push consumers into unregulated markets where there are no testing standards, no age verification, no recall mechanisms, and no systems for tracking adverse effects. That outcome runs counter to the public-health objectives these rules are meant to advance."
Because retail outlets for hemp products include both businesses that sell alcohol and those that do not, TDHS shares regulatory responsibility with the TABC, which has also issued regulations, but not new license fees. TABC regulates some 60,000 alcohol retailers, while TDHS regulates around 9,000 businesses selling intoxicating hemp products, including gas stations, smoke shops, and online retailers.
TDHS could implement its proposed regulations as early as January 25 or it could adopt changes prompted by public comments. Or the department could delay or phase in enforcement of the new rules. The future of the Lone Star hemp industry hangs in the balance.