Intoxicating Hemp Threatens Regulated Cannabis Industry with Growing Competition and Unfair Practices

Though the business around hemp-based cannabis is growing, the lighter regulatory scrutiny of these products is creating challenges for those trying to follow the rules

The rise of hemp-derived cannabis products, such as delta-8 and delta-9 THC, has created a booming market in recent years, largely due to the lighter regulatory scrutiny these products face. However, this emerging market is presenting serious challenges for regulated cannabis businesses that have to comply with stringent laws and regulations. As more consumers turn to these hemp-derived products, businesses within the cannabis industry are finding themselves at a competitive disadvantage, particularly as they must navigate high taxes, licensing fees, and a complex regulatory landscape.

Hemp vs. Marijuana: The Regulatory Divide

At the core of the issue is the difference in legal treatment between hemp and marijuana. Hemp, which contains less than 0.3% delta-9 THC, is federally legal under the 2018 Farm Bill, allowing its cultivation, production, and transport across state lines. This legislation removed hemp from the Controlled Substances Act, enabling a market for hemp-derived products to flourish. In contrast, marijuana remains a Schedule I narcotic at the federal level, despite legalization efforts in numerous states, which creates a stark contrast in how both products are regulated.

Cannabis companies, in particular, are frustrated by the fact that they face strict state and federal regulations—sometimes requiring costly licensing and compliance procedures—while hemp-derived products are often sold with little to no oversight. As a result, these hemp products can look and feel nearly identical to marijuana-based products, leading to confusion among consumers about what is legal and what isn’t.

The Impact of Lighter Oversight on Cannabis Operators

Mike Goral, a tax professional and CPA who specializes in cannabis, highlights how hemp-based products are causing tension within the industry. According to Goral, larger multi-state operators (MSOs) are starting to enter the hemp-derived cannabis market rather than continue competing against it. They are launching their own hemp-derived product lines to maintain their competitive edge, but this shift is causing significant concern.

Despite the regulatory loopholes that currently exist, Goral believes that these products will face tighter scrutiny in the future. “No one in this business should be able to bypass cannabis laws with a hemp workaround,” he adds, indicating that the landscape for hemp-derived products is likely to change as pressure increases from both regulators and established cannabis businesses.

The Public Safety Concerns and Image Crisis

Brenda Bader, the owner of Gold Leaf Accounting in Missouri, underscores the significant public safety concerns arising from the lack of oversight on hemp-derived cannabis products. She recalls stories shared at industry panels about dangerous incidents, particularly involving poorly labeled or misrepresented products. Bader mentions one such case where a convenience store sold delta-9 THC products with a lab report linked via QR code that turned out to be for a completely different flavor, dated more than 20 years ago.

In Missouri, cannabis businesses face strict packaging requirements, ensuring that products are accurately labeled and come with relevant safety information. However, hemp-derived products are not subject to the same scrutiny, and this discrepancy has led to frustration and confusion among consumers and operators alike. As Bader points out, cannabis companies in her state are not necessarily against hemp-derived cannabis products, but they are calling for uniform regulation across the board to ensure consumer safety and fairness.

Bader emphasizes that this lack of regulation not only jeopardizes public safety but also helps perpetuate outdated and negative perceptions about cannabis in general, particularly in more conservative areas like Missouri.

State-Level Efforts to Address the Growing Problem

While the hemp-derived cannabis market has exploded in some states, others are already taking action to curb its growth. Texas, a key market for hemp-based products, is considering a complete ban on intoxicating hemp products. Jeffrey Hoffman, a cannabis attorney based in New York, points out that Texas Lieutenant Governor Dan Patrick is pushing for legislation that would eliminate this industry altogether in the state, marking it as a high priority for the upcoming legislative session.

However, Texas is not alone in addressing the hemp issue. Other states, including California, Nebraska, Florida, and South Dakota, have proposed laws that either regulate or ban hemp-derived cannabis products. Tennessee has already proposed regulations to better manage the market, while Arkansas, Alaska, and Virginia have moved forward with laws that either prohibit or introduce new regulations on these products.

The Need for Uniform Regulation Across All Cannabis Products

The growing confusion around hemp-derived cannabis products has led to widespread calls for more consistent and comprehensive regulation, regardless of whether the products are hemp-based or marijuana-based. According to Hoffman, states with legal cannabis markets are particularly keen to restrict hemp-based products so that they do not undermine their regulated industries. Meanwhile, states without legal cannabis are similarly looking to ban intoxicating hemp products because they provide a “back door” for consumers seeking to get high in areas where cannabis is not yet legal.

As cannabis businesses continue to navigate these challenges, the call for a level playing field is becoming louder. Stakeholders in the industry—from tax professionals to business owners—are advocating for more oversight and transparency to ensure that all cannabis products are subject to the same safety standards. For the time being, it remains to be seen how quickly regulators will address the issue, but one thing is clear: the growing market for hemp-derived cannabis is creating a significant challenge for businesses that are striving to follow the rules.