The Hemp Industry Got High On Legalized Supply. Now States Like Texas Could Kill The Buzz

When the 2018 federal Farm Bill kicked open the door to legal commercial production of hemp, Texas was among the long line of states to walk right through and pass its own enabling legislation, spawning a huge new industry worth billions.

But the legislation also opened the door to what some call a “loophole,” effectively legalizing products containing tetrahydrocannabinol, or THC — the primary psychoactive ingredient in marijuana —  in states that went on to adopt their own hemp programs, even those where possession of the drug is strictly illegal.

The measure turbocharged what has grown into a blockbuster but murky business, which is now valued at about $28B nationally and encompasses hordes of retail outlets, manufacturing plants and large farming operations. 

Now that all may come crashing down in Texas and elsewhere, along with the industry’s associated real estate.

Echoing legislation introduced around the country, Texas Lt. Gov. Dan Patrick earlier this month announced Senate Bill 3, which would reverse the parts of Texas House Bill 1325 that allowed Texans to sell consumable hemp with a THC concentration of 0.3% or less. 

Patrick, who has made the bill a top priority, said industry players misused a loophole and “exploited the agriculture law to sell life-threatening, unregulated forms of THC to the public.” He is vowing that he and other lawmakers will stop that during the next legislative session starting in January. 

“Since 2023, thousands of stores selling hazardous THC products have popped up in communities across the state, and many sell products, including beverages, that have three to four times the THC content which might be found in marijuana purchased from a drug dealer,” Patrick said in a statement.

Those in the hemp industry say they’re not using a loophole, they’re following the law. And they argue that they are all for regulation, but an outright ban would be lethal to their businesses, the Texas economy and the commercial real estate space they occupy.

In Texas alone, around 8,000 retailers have been licensed to participate in the hemp business, and estimated annual sales exceed $8B, including CBD and converted cannabinoid retail sales, manufacturing sales, and wholesale and distribution. A report from Whitney Economics found Texas hemp manufacturers have invested more than $1B in infrastructure to expand operations across Texas.

“If suddenly, overnight Senate Bill 3 were to become law … It would be disastrous, both for commercial real estate, and obviously for the hemp industry,” said Mark Bordas, executive director for the Texas Hemp Business Council, a group that advocates for policy that ensures consumer protection while supporting the hemp industry. 

The 2019 legalization of hemp sales in Texas came after the federal 2018 Farm Bill legalized its growth and sale by removing hemp with less than 0.3% THC, the intoxicating chemical compound in the hemp plant, from the Controlled Substances Act’s definition of marijuana. 

The action allowed for the legal sale of hemp-derived cannabis products and led to an accelerating national green rush that states are still reckoning with.

A December Rice University Baker Institute for Public Policy analysis highlights the mixed bag of approaches states are taking to the exploding hemp-derived cannabinoid market. 

Some states have enacted age restrictions and left potency questions alone, while others have specified milligram caps for total THC in products since the federal weight-based metric still allows for heavily intoxicating amounts of THC. A few have banned hemp-based cannabinoids derived from a chemical process known as isomerization, essentially removing intoxicating compounds from products.

In states where recreational use of marijuana is legal, authorities have clamped down on the hemp market or moved its sale under the legal cannabis umbrella, according to the analysis.

Texas lawmakers said hemp products began flooding into the state following the 2018 Farm Bill, so their 2019 state law added consumer protections while legalizing the growth and consumption of hemp.

Cynthia Cabrera, founding board member of the Texas Hemp Business Council and chief strategy officer for cannabis product company Hometown Hero, is strictly in the “no loophole exists” camp.

“For you to say that U.S. Congress allowed a loophole … That would imply you’ve spoken to 435 legislators to confirm that they didn’t want, or did want, a loophole,” Cabrera said. “It’s not a loophole, because if you look at the language from the USDA, it’s extremely broad and specific. They said it was to spur innovation, which is what happened.” 

Texans jumped on the chance to be part of hemp innovation, and those in the industry hope it has grown too big to fail.

In 2020, the first year the Texas Department of State Health Services registered consumable hemp retailers, nearly 2,000 retailers registered. That number exceeded 8,000 by 2023, and the industry’s growth has continued, often cheered on by lawmakers.

Texas Agriculture Commissioner Sid Miller helped celebrate the opening of a 500K SF hemp processing plant in Wichita Falls this summer, the second-largest industrial hemp production facility in the world and the largest in the U.S.

“Texas will be a leader, the leader in the Americas as far as hemp production,” Miller said in June. “We’ll be number one because of this one plant.”

Texas farmers are licensed to cultivate 3,300 acres of hemp, and the hemp industry supports the employment of about 50,100 Texans, according to the July 2023 Whitney Economics study. The study estimates the entire supply chain that supports Texas cannabinoid retailers, expanding outside of the state, to have an economic impact between $19.1B and $22.4B. 

Hometown Hero is an Austin-based company founded in 2015 that has long advocated for the cannabis industry. The brand switched to manufacturing and selling hemp products after the 2019 law change, and its consumable cannabis products now includes gummies, vapes, cereal bites and drink mixes sold in thousands of stores across multiple states.

“We’ve led the charge here in Texas, because somebody has to lead the charge,” Cabrera said. “We have 60 families living off of this business.”

Kenny Banks applied in the first round of licensing to grow hemp at his row crop farm in Brazoria County, south of Houston. He dedicated half an acre to grow it, then began selling his products, branded HTX Hemp, online and at his hyperbaric oxygen chamber therapy business in Houston, Banks said.

“This year, we’re going to scale up,” he said.

Banks said he’s learning to grow in more controlled environments, which can produce more hemp in a smaller space. He purchased a shipping container that he plans to convert into a hemp-growing space and is aiming to get his products on more shelves.

If Texas outlaws hemp growing in its next legislative session, Banks has a backup plan.

“I also own a farm in Alabama, where my grandfather and father were farmers,” Banks said. “The state of Alabama approved hemp also.” 

But others, like Brandi Townsend, aren’t lucky enough to have an alternative business plan. Townsend just opened her third location of Cozy Cannabis, a meticulously decorated, stylish, colorful store focused on wellness and healing in the Austin area.

After serving a prison sentence for selling drugs, Townsend used cannabis as part of her addiction recovery and opened a vape store to support her five children, she said.

“When the [2019] law passed, it was like the last puzzle piece that I needed to make my offerings complete,” she said. 

Although Austin is a relatively progressive city, it wasn’t easy to open a cannabis-based business. Many landlords were vehemently opposed to the idea, Townsend said. She wrote heartfelt letters and made insistent phone calls to convince them that she should be able to lease their spaces before eventually succeeding.

“We have elevated our spaces so much and our landlords just love us,” Townsend said. “We spent a lot of time and resources turning these spaces into something that feels magical. To lose them would be heart-wrenching.” 

Townsend felt secure in Cozy Cannabis’ success when she opened her location in Georgetown, which tends to have an older, more conservative population, she said.

“They just fell in love with us, and they found a safe place to come and buy their products,” Townsend said.

If Texas were to outlaw hemp sales again, Townsend said all three of her locations would likely have to shutter.

“We have 35 people on staff,” she said. “There’s no way we could maintain it if they took all THC products away. For our demographic of customers, you’re leaving them high and dry. There’s one portion that will go black market, and there’s another portion that will not.” 

Prohibition doesn’t work, but regulations can make the industry safer, Cabrera said. The Texas Hemp Business Council previously advocated for a bill that would add a 21-and-up age limit for buying intoxicating hemp products, she said. There is no age limit now, but most retailers don’t sell to children because it’s not a good business practice, she said. 

“But it is a convenient talking point because as soon as you pull minors into it, you get people all freaked out,” Cabrera said, adding the Texas Department of State Health Services, which oversees the industry, could add an age limit to its rules.

“They could just add the age thing to the existing rules we have right now, and the problem would be solved,” Cabrera said. “So I have to ask myself, why are we defaulting to a ban? What is that about?”

There is a clear demand for cannabis products nationally, and any time a demand becomes illegal to fulfill, an illicit market steps in, said Ryan George, CEO of California-based 420property.com, which describes itself as the world's largest cannabis real estate marketplace.

420 property currently features five Texas properties for sale, including hemp dispensaries and a land acreage. George said that from the outside looking in, he’d be surprised if its legislature passed a law to collapse the industry, given the state's business-friendly reputation.

“When they see the amount of business and commerce involved in this and how sophisticated some of these businesses actually are …  The main argument I've heard coming out of Texas is the job creation aspects, the business and tax revenue creation aspects,” George said.

Banks is familiar with the revenue involved in the industry, considering he helps clients sort out permits, inspections, equipment and real estate space.

“Why would you run that revenue out of the state of Texas? … You have people who started [hemp] inspection businesses, who have put a lot of money into that,” Banks said.

On the federal level, there is some bipartisan support for the 2025 Farm Bill to undo 2018’s hemp legalization, but what, if anything, will happen remains unclear. This leaves state legislatures across the country facing battles like the one expected in Texas starting in January.

Bordas said despite the introduction of Senate Bill 3, he is entering the legislative session with guarded optimism given the size and scale of the industry in Texas. 

“We're going to continue to work with legislators and hope that common sense prevails,” he said.