Texas hemp companies sue over smokable cannabis ban and higher fees

From KUT News:

Texas hemp businesses are asking a Travis County judge to block new state rules that took effect March 31, arguing the regulations adopted by the Department of State Health Services (DSHS) effectively wiped out a huge part of the legal cannabis market.

The lawsuit targets regulations that now prevent stores from selling smokable hemp products like flower and concentrates. It also challenges steep new fees and regulatory requirements that businesses say could force many to shut down.

At the center of the case is a relatively simple question with sweeping consequences: what counts as legal hemp in Texas and who gets to decide?

‘Hemp’ vs. ‘Marijuana’

In 2019, Texas lawmakers drew a line to distinguish between legal hemp and illegal marijuana. The difference: Delta-9 THC, the main psychoactive ingredient. Cannabis with more than 0.3% Delta-9 by dry weight is defined as marijuana. Cannabis with less is considered hemp.

But cannabis contains other compounds that can get people high, including THCA, which converts to Delta-9 when smoked or heated. Even in states where marijuana is legal, most flower and concentrate has far more THCA than Delta-9.

DSHS’s new rules for consumable hemp products, first proposed Dec. 26, included a new “total THC” calculation that counted THCA as 88% Delta-9. Under that formula, more than 9,000 businesses registered with DSHS to sell smokable hemp products can no longer do so.

The lawsuit argues that change effectively replaces the Legislature’s definition of hemp.

Economists say smokeable products make up the vast majority of sales in Texas.

“I estimated that flower is about half the market and smokable products put together including vapes are about two-thirds of the market,” Robin Goldstein, a University of California economist who researches cannabis markets, told KUT News. He said the Texas market had about $4 billion in retail sales annually.

The “total THC” restriction also applies to plants grown in Texas or any products shipped into the state for further processing, something the lawsuit says could shut down manufacturing in Texas altogether.

‘Significant economic barriers’

The lawsuit also takes aim at the cost of doing business under the new rules.

Annual licensing fees for manufacturers jumped from $250 to $10,000. Retailers must now pay $5,000 per location per year, up from $150. There are new fees for ownership changes and sharply higher penalties for late renewals.

Plaintiffs argue those fees aren’t tied to the cost of regulation and instead function as an unconstitutional tax that blocks businesses from operating.

“These provisions function not merely as regulatory tools, but as significant economic barriers not authorized by statute,” the lawsuit claims.

Did regulators go too far?

Beyond the substance of the rules, the lawsuit argues the state didn’t follow the proper process to adopt them.

Texas law requires regulators analyze how new rules affect jobs and small businesses and consider less burdensome alternatives. The complaint says the state acknowledged the rules would have significant economic impacts but failed to do that analysis or fully respond to public concerns.

The lawsuit alleges this demonstrated “arbitrary and capricious rulemaking” and made the regulations invalid under state law.

More broadly, the case argues regulators stepped into the role of lawmakers, imposing restrictions that the Legislature couldn’t enact.

Lawmakers did adopt stricter hemp regulations in 2025, but Gov. Greg Abbott vetoed the bill. The Legislature held two special sessions but reached a stalemate on whether to regulate THC products more strictly or ban them entirely.

Abbott then issued an executive order, directing DSHS to adopt new rules. The lawsuit claims state agencies don’t have the authority to impose the same restrictions as lawmakers.

Not a fight against all regulation

The Texas Hemp Business Council, which is leading the lawsuit, says it has long supported many of the safety rules in the new regulations.

That includes age limits, child-resistant packaging, clear labeling and a ban on selling products near schools.

The council says it opposes policies that function as bans or make it too expensive to operate, pushing consumers towards the unregulated market.

Who is suing and being sued?

The lawsuit was filed by the Texas Hemp Business Council and the Hemp Industry and Farmers of America, along with eight hemp companies from across the state. Those companies are Alchemy TX Consulting, A to Z Investments and Wholesale, Serenity Organics, TexaKana Organics, Elevate Wellness Dispensary, Texas High Council, Salganik Services and Wyatt Purp.

The lawsuit names as defendants DSHS Commissioner Jennifer Shuford, Health and Human Services Commission (HHSC) leader Stephanie Muth and Texas Attorney General Ken Paxton.

A DSHS spokesperson said the agency does not comment on pending litigation. HHSC and the Attorney General’s Office have not yet responded to requests for comment.

What happens next?

The plaintiffs are asking a judge to issue a temporary restraining order quickly that would pause enforcement of the most controversial parts of the new rules.

That decision could come by the end of the week.

For now, smokable hemp products remain off store shelves in Texas. Possession is still legal, but the lawsuit could determine whether Texans will be able to purchase products from Texas businesses or risk buying them from out-of-state.

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