Federal Spending Bill Targets Intoxicating Hemp Products: What Cannabis Businesses Need to Know
Recent federal spending legislation includes a provision that significantly affects the hemp and THC product landscape. This development warrants careful attention from state-regulated cannabis companies, including dispensaries and licensed operators.
Key Provisions of the Hemp/THC Language
The spending bill includes language that effectively closes what has been termed the “Farm Bill loophole” for intoxicating hemp products. Specifically, the legislation:
- Redefines “hemp” to exclude intoxicating derivatives such as delta-8, THCA flower, and hemp-derived edibles and beverages.
- Establishes a THC cap of 0.4 mg per container for intermediate and finished hemp products, which will eliminate nearly all commercially viable “hemp THC” consumer products currently sold in convenience stores, liquor stores, vape shops, and online retailers.
- Includes a ramp-up period of one year before the provision takes effect.
The practical result of this amendment represents a significant contraction, if not outright elimination, of the intoxicating hemp market as it currently exists.
Impact on State-Licensed Cannabis Operations
Licensed cannabis operators should understand that this federal hemp amendment does not impact state-regulated cannabis businesses.
These changes apply to hemp-derived intoxicants and do not alter the regulatory frameworks governing state-licensed cannabis operators. Regulated cannabis businesses operate under comprehensive state licensing regimes, state testing protocols, seed-to-sale tracking systems, and established cannabis-specific THC potency and formulation standards.
The federal hemp amendment does not modify or interfere with state cannabis license regimes, and it imposes no new compliance burdens on licensed operators. State-regulated cannabis businesses will continue to operate under their existing regulatory frameworks without disruption.
Valuation Considerations
Some market participants may attempt to leverage this development to argue for higher valuations of state-licensed cannabis operations, claiming that eliminating gas-station hemp THC products will increase their market share and justify valuation premiums.
However, several factors suggest caution regarding such arguments:
- Modest demand impact: The effect on regulated cannabis demand is expected to be limited at best.
- Product differentiation: Hemp-derived intoxicants have functioned primarily as lower-quality substitutes rather than true competitors to regulated cannabis flower, vapes, and edibles.
- Lack of empirical support: The product segments operate in fundamentally different markets, and claims of significant market share capture lack supporting data or established precedent.
- Inconsistent benefits: Any potential benefit would be marginal, vary significantly across different markets, and remain unsupported by reliable data.
Recommended Actions
State-licensed cannabis companies and their advisors should:
- Monitor implementation: Track the one-year ramp-up period and any regulatory guidance issued regarding the hemp provisions.
- Maintain focus on state compliance: Continue prioritizing adherence to state licensing requirements and regulatory standards.
- Exercise caution with valuation claims: Approach arguments about increased valuations due to reduced hemp competition with appropriate skepticism.
- Stay informed: Follow developments as the provision moves toward implementation.
The hemp amendment represents a significant shift in federal policy regarding intoxicating hemp products, but licensed cannabis operators should view this development as largely tangential to their core business operations and regulatory environment.
Questions about this new development? Reach out to Kevin Slaughter or another member of LP’s Corporate Group.