Thousands of Texas hemp retailers and their employees face looming legal and financial uncertainty after lawmakers approved a sweeping ban on psychoactive THC products, including popular delta-8 and delta-9 edibles, vapes and beverages.
The legislation in Senate Bill 3, passed on the final day of the Texas legislative session, would prohibit the sale and possession of consumable hemp products containing any detectable level of tetrahydrocannabinol, or THC, the psychoactive compound in cannabis.
Hemp retailers and recreational users would be allowed to sell and consume only the nonintoxicating, nonpsychoactive cannabinoids known as cannabidiol, or CBD, and cannabigerol, or CBG.
“I’m personally hopeful that it will be vetoed for business reasons,” said David A. Bell, a partner with Haynes Boone in Dallas. “There are tens of thousands of employees who are directly or indirectly affected, possibly losing their jobs altogether if this is not vetoed.”
Gov. Greg Abbott has stayed neutral on the issue, declining to say whether he plans to use his veto pen or let the bill become law by the June 22 deadline. The measure would take effect on Sept. 1.
The ban would be a potentially devastating blow to a booming industry that emerged after lawmakers in 2019 authorized the sale of consumable hemp to boost Texas agriculture. Industry officials say Texas’s hemp sector has grown into an $8 billion market.
“You’re essentially exterminating a big and thriving industry, with 10,000 licensed retail businesses, 55,000 jobs and $247 million of annual taxable sales tax income,” said Richard Y. Cheng, a managing member of Dallas-based Ritter Spencer Cheng PLLC.
“You’re taking a regulated product in a regulated industry and forcing the public to go to an unregulated market,” added Cheng, whose firm specializes in medical cannabis and hemp issues.
Lt. Gov. Dan Patrick made the legislation a top priority, claiming during a recent news conference that his focus on the ban was to “save an entire generation from being hooked on drugs.”
In a video posted on social media, he said, “I’ve never been more passionate about anything.” He even threatened to call legislators back to the Capitol for a special session if they failed to approve the ban.
Patrick also alleged that hemp retailers are marketing to children by selling products that resemble candy near schools. However, critics argue that the ban is a heavy-handed response.
“This whole thing is like trying to put toothpaste back into the tube,” said Houston attorney Sam Adamo Jr. of Adamo & Adamo Law. “If they took it to a public vote, we wouldn’t have this ban.”
Adamo, whose firm represents hemp-related clients and handles criminal defense, said he has been warning businesses to prepare for the worst. “I’d be surprised if Gov. Abbott doesn’t sign it into law, knowing his relationship with Lt. Gov. Patrick,” he said.
“I know the businesses that I have assisted and represented. They are not selling to 12-year-old kids,” Adamo added. “We don’t have a problem with tighter regulations, [but] there are better ways to handle this than a complete ban.”
Adamo warned that the ban could drive consumers to the black market, creating new safety risks. “Now people will still do it, but get it from who knows where?”
Various attorneys and hemp advocates, including the Texas Hemp Coalition, have begun exploring legal challenges to the ban, including lawsuits and injunctions if the adopted legislation becomes law.
“I tell my clients that if this is signed and goes into effect Sept. 1, there will likely be lawsuits,” Adamo said.
Dallas attorney Chelsie Spencer said she believes a “fairly slim but growing” chance of a veto exists. “My advice is don’t freak out. It’s not immediately effective upon signature, which is a saving grace.”
Spencer, a managing member with Ritter Spencer Cheng PLLC, said that stricter and judicious regulations could have addressed many of Patrick’s concerns instead of resorting to a total ban. She said more than 20 other states have rules that could have been reviewed and enacted to improve industry oversight.
“This is 100 percent purely Dan Patrick,” Spencer said. “We went about it the wrong way. We needed reasonable regulations. There are a thousand things we could have done.”
Spencer said she wrote much of an amended 124-page substitute version of SB 3 that offered tighter regulations and oversight. But, she said, Lt. Gov. Patrick “decided it wasn’t worth exploring and tossed it out.”
With the potential ban, retailers have become concerned about the leases they signed, with business owners betting on long-term viability.
Attorneys had varying advice for their clients, including possible contingency plans.
“If the lease is signed, there may not be an out, unless the landlord is cooperative and agrees to amend the lease,” Bell said. “Some businesses not only have retail locations but also have a warehouse that could be much larger than a small vape shop.”
Spencer said that her firm’s clients will hopefully encounter few issues concerning their leases. She explained that they negotiated contract provisions to enable them to terminate their leases if their products became illegal.
However, even without such provisions, she said landlords may find it difficult to enforce their lease agreements. “If a contract becomes illegal, it becomes void because it becomes impossible to perform,” she said. “Now, will some landlord try to go out and sue somebody? Of course. That’s just the nature of the game.”
Spencer also said she doubted the courts would uphold the lease. “When it is per se illegal, I don’t think there is a court in this state, unless you have an uneducated judge, that would impose some monetary damages,” she said.
If the legislation becomes law, some retailers could decide to focus on selling CBD and other hemp products that don’t contain psychoactive THC.
“I think some businesses will shift and survive with CBD products only,” Bell said. “But unsure of the majority of businesses.”
“One [retailer] is maybe considering moving out of state,” Bell added. “I’ve talked to a different retailer who is considering changing their store to a completely different business while continuing the lease.”
In addition to the nearly 10,000 licensed retailers, there are some 2,000 manufacturers of THC-related beverages and food products.
“They’ll have to move out of state to the tune of millions of dollars,” Spencer said. Several of the largest THC beverage manufacturers are based in Houston.
“These are multimillion-dollar enterprises,” Spencer said. “They have specialized equipment. Hundreds of thousands of dollars of extraction machinery that will have to be recalibrated on the move. This is a specialized industry, and they’ll have to find an entirely new workforce.”
Former Texas Supreme Court Justice Craig T. Enoch stated that banning THC, after it had been legalized in Texas for the past six years, could have repercussions akin to the Prohibition era from 1920 to 1933, when the manufacture and sale of alcoholic beverages were outlawed.
“Seems to me we should learn from history rather than try to repeat it,” said Enoch, who is now with Butler Snow LLP in Austin.
He said the “cost of prohibiting rather than regulating” THC products ignored “uncontrollable demand.”
“I’ve never used drugs,” Enoch said. “But I’ve always thought the worst cost of drugs was the virtually unregulated market.”
“You can end up with a tremendous black market,” Enoch added. “And people fail to take into account the tremendous cost of law enforcement to try and stamp out the black market.”
Enoch expressed concern about drug cartels filling the void left by the ban. He noted that the Mafia, for instance, got its “greatest start during prohibition.”
He also highlighted the expected decline in state tax revenues.
“Certainly, the members of the Senate were well aware of the economic harm that a full ban was going to do,” he said. “So, they were certainly aware of the investments, not just the tremendous amount of revenue the state received from franchise and sales taxes, but also the tremendous investments that businesses had made in Texas.”
Enoch stated that he expected substantial litigation regarding THC company lease and loan contracts due to a potential ban.
Advocates said the ban also takes away Texans’ right to choose alternatives to pharmaceuticals, depriving them of other options to treat chronic pain, anxiety and sleep disorders.
“It is safe to say millions of folks have purchased hemp products,” said Sheila Hemphill, executive director of the Texas Hemp Industries Association. “Yet any consumer who has bought this product that is not compliant with this law is subject to a Class A misdemeanor.”
Besides misdemeanor offenses for possession of noncompliant hemp products, the legislation would make it a third-degree felony for the following:
- Manufacture or sale of banned cannabinoid products;
- Falsify lab results; and
- Selling without proper licensing or registration.
“The governor says we should not be creating barriers to business,” Hemphill added. “How about slitting the throats of thousands of business owners who have invested in this industry over the past six years?”
Attorneys like Spencer also disputed claims that the ban will not disrupt hemp farming.
“They are running around saying this does not ban farming at all. That’s not true. They banned THC. It is impossible to grow a hemp plant without THC. How do you preserve farming when you ban the whole thing?”