Texas state health officials have proposed increasing licensing fees by up to 13,000% for some hemp businesses, among a series of changes that many industry members and advocates say will result in small operations being shuttered in favor of larger foreign companies.
Supporters of the change say it is necessary to increase oversight of an industry that they say has spiraled out of control.
Late last month, the Texas Department of State Health Services released a set of proposed rules to strengthen regulations on consumable hemp products, including establishing a minimum purchasing age of 21, as well as age verification requirements and mandatory product recalls, which are measures supported by the hemp industry. However, two of the proposed rules that have caused the most heartburn among advocates and businesses are new testing requirements and increased licensing fees. Manufacturer licenses would increase from $250 to $25,000 per facility per year and retail registrations from $150 to $20,000 per location per year, an increase of more than 13,000 percent.
Industry members say the new requirements for testing THC levels in consumable hemp products would eliminate the use of hemp flower in the manufacturing of products like edibles and smokables because hemp flowers naturally contain THC levels above the new limit. They claim that eliminating the use of hemp flowers would allow more synthetically derived THC, such as delta-9, to flourish.
“The proposed rules would eliminate about 80 percent of what all stores sell, including ours, which is natural hemp flower, and the total THC rule would certainly eliminate that,” Scott Stubb, owner of Kemah-based Sublingwell Cannabinoids and Euphorics, told the public health agency during a public hearing on the rules Friday. “Then when you add in the fees which are $20,000 for each store, I don’t know, honestly, how we could stay open.”
Hemp distributors said the new licensing fees are a fundamental restructuring of who can afford to operate legally in Texas.
“DSHS’ financial 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 close rather than renew,” Heather Fazio, director of the Texas Cannabis Policy Center, said in a statement submitted for public comment.
Fazio said licensing and registration fees should be structured to recover the reasonable costs of effective regulation, not to function as a revenue mechanism that drives businesses out of the regulated market.
“The department’s own estimates show that the increase in costs associated with administering these rules is minimal. In this context, it is unclear why such dramatic fee increases are necessary or justified,” she said.
Supporters of the license fee increase said it is a necessary step to protect children from hemp products and want more enforcement of penalties against hemp stores that operate without a license.
“Cannabis advocates say this is a billion-dollar industry. It is fair and appropriate that people who profit from the sale of billions of dollars of intoxicants create fees that help cover the cost associated with regulation and the societal burden of the product,” Betsy Jones, director of policy and strategy at Texans for Safe and Drug-Free Youth, told the public health agency.
Aubree Adams, director of Citizens for a Safe and Healthy Texas, called for more regulations on the industry, including raising the minimum age to purchase to 25 and requiring hemp companies to also help fund public education, data collection, processing, infrastructure and more.
“The issue before the state is the normalization and promotion of retail teams driven by chemical manipulation and misleading information,” she said.
Several veterans have also spoken out against eliminating products naturally derived from the hemp flower, as many rely on them for sleep or to treat issues like PTSD and anxiety.
“I spent 16 months overseas and used many different pharmaceutical products that were dangerous and caused me to have seizures and physical injuries. These health products gave me my life back and allowed me to return to work,” said Adam Peterson, a veteran from San Antonio. “A total ban on THC would basically eliminate access to good medicine that was actually useful to me.”
Fazio said removing regulated access to hemp flower will not eliminate consumer demand. This will only push people into the unregulated market.
“The result runs counter to the public health goals these rules are intended to promote,” she said.
The Texas Alcoholic Beverage Commission and the Texas Department of State Health Services have both proposed new rules aimed at regulating the consumable hemp market to comply with an executive order from Gov. Greg Abbott.
The two agencies work together because neither has jurisdiction over all retailers that sell consumable hemp products. For example, TABC rules would not apply to the 8,000 licensed hemp retailers that fall under the State Department’s health services, including smoke shops, gas stations and online retailers that do not sell alcohol and likely do not hold liquor licenses. The same can be said for the 60,000 TABC licensees, such as restaurants and liquor stores. TABC has not yet proposed changes to its licensing fees for businesses selling consumable hemp products.
The executive order came after the Texas Legislature spent most of the last year debating whether to ban consumable hemp products or simply impose stricter regulations on the industry. A total ban approved by the House and Senate was vetoed by Abbott last summer. The governor then placed THC regulation on the agenda for two consecutive special sessions, but lawmakers failed to reach a compromise before the end of the second session.
Rather than call a third special session, Abbott issued his executive order, bypassing Parliament. The decision put Abbott at odds with Lt. Gov. Dan Patrick, who has been a vocal supporter of banning consumable hemp products.
After months of uncertainty over whether lawmakers would consider an outright ban, THC industry representatives widely celebrated Abbott’s order at the time, saying it would allow THC to further establish itself as a legitimate industry in the state.
However, some in the industry view the proposed rules as very similar to a ban.
“When the governor vetoed this bill, he was amplifying our voices and adopting the rate structure of this same bill undermines that outcome,” said Hayden Meek, owner of Denton-based Delta Denton. “A $20,000 fee is thrown in the bucket for multi-state companies; for a single location store like mine, it’s death by 20,000 discounts.”
The public comment phase is expected to end on January 26, but it is unclear when these rules will be implemented if approved.
