In Texas, the End Draws Nigh for Smokeable Hemp

Under new regulations promulgated by the Texas Department of State Health Services (DSHS), there will be no more legal sales of smokable psychoactive hemp products in the Lone Star State as of March 31.

Most hemp edibles and gummies will still be allowed, but will face stricter packaging and testing requirements. And dramatically higher licensing fees for manufacturers and retailers, even though lower than initially proposed, could drive up prices and/or force some businesses out of the market.

Under the new regulations, DSHS has imposed a new "total THC" rule, which includes the cannabinoid THCA in calculating delta-9 THC. THCA converts to delta-9 THC when heated (smoked), and the new rule will push THC concentrations above the 0.3 percent delta-9 THC allowed under the state's 2019 hemp law.

THCA flower has become wildly popular in the state, accounting for more than half of all psychoactive hemp products sold at some stores, because it delivers that THC high, but it will be gone in weeks.

The changes in the hemp industry are the result of an executive order from Gov. Greg Abbott (R) last fall after the legislature spent most of the year haggling with what to do about hemp products and failed to resolve the issue. Acting on that order, both DSHS and the Texas Alcoholic Beverage Commission, which will control hemp sales at licensed liquor outlets, recommended the new regulations in December.

DSHS finalized its rules last week and set March 31 as the date they would take effect. Although DSHS held public hearings after issuing the preliminary regulations and was told by hundreds of respondents that they opposed counting THCA as delta-9 THC, the department retained the new rule anyway. It was more open to revising its dramatically increased fee structure, dropping a proposed 10,000 percent increase in fees for manufacturers and retailers, but still adopting fees of $5,000 per year for retailers and $10,000 for manufacturers. But those are still dramatic increases—of 33 and 40 percent, respectively—over existing fees.

"It's a high rate, but it would still be feasible, but then we come into the [THCA] regulations," said Estella Castro, owner of the hemp store Austin Cannabis Co. "If you don't have the flower, and the flower is going off completely, I don't think you're going to have the $5,000."

Those fees could be a boon for the black market, said Heather Fazio of the Texas Cannabis Policy Center.

"We know that consumers will be able to still acquire these products either from out-of-state operators who are not restricted by DSHS regulations or from the illicit market, which causes the most concern for us," said Fazio. "The illicit market doesn't have age restrictions. It doesn't have safety mechanisms and consumer protection."

For Mark Bordas, head of the Texas Hemp Business Council, the new fee structure is too high and will spark a legal challenge.

"Our concern is some of these measures are so draconian that you are going to drive people out of the business and then folks' access to the products," Bordas said. "Invariably, we're going to have to bring forth a [lawsuit], and the state has to defend what it's done, and that's taxpayer money, and it's a waste."

Likewise, Shayda Torabi, president of the Texas Hemp Coalition and co-founder of Restart CBD, said that while it was good to finally have settled regulations, the new fee structure is a real burden.

"It’s still in the thousands, compared to the hundreds of dollars that it previously was," Torabi said. "I do think there's going to be a huge impact on businesses because not only are you having increased fees to operate, but there's a multitude of other things."

Those include the new 21-and-over age restrictions and new testing, packaging, labeling, and record-keeping standards.

But for Todd Harris, owner of Happy Cactus and a member of the Texas Hemp Business Council, it's the new fees that really hurt.

"This rule, which is a small language change to convert THCA into total THC, has huge impacts," said Harris, adding that THCA flower accounts for about 70 percent of his sales. "We have two locations. If we don’t get these rules changed and we lose flower and have those fees, I can’t see us keeping both locations at least," Harris said. "Most likely, we would go out of business as well."