California Department of Public Health Proposes Permanent Ban on Hemp-Derived THC Products, Risking Over $3 Billion in Economic Fallout

State’s Public Health Agency Moves to Finalize Emergency Rules That Threaten Small Businesses and Jobs in the Hemp Industry

On June 13, 2025, the California Department of Public Health (CDPH) formally introduced a proposal to permanently ban hemp-derived products that contain any detectable levels of THC or other intoxicating cannabinoids. This proposal aims to solidify emergency regulations first enacted in September 2024 by Governor Gavin Newsom, significantly reshaping the state’s hemp market and igniting concerns among small business owners, economic analysts, and consumer advocates.

The proposed rulemaking comes with staggering economic projections: the CDPH estimates that the permanent enforcement of these regulations could cause more than 115 hemp businesses to shut down and lead to 18,478 job losses over the next five years. Furthermore, the state anticipates a total revenue loss of approximately $3.14 billion across multiple industry segments, from retail to manufacturing and distribution.

Proposal Would Codify Restrictions That Go Beyond Federal Hemp Definitions and Cut Into California’s Economy

The proposed permanent ban directly conflicts with the federal definition of legal hemp under the 2018 Farm Bill, which allows hemp to contain up to 0.3% delta-9 THC on a dry weight basis. While federal law permits states to implement stricter regulations, California’s zero-tolerance approach to any detectable THC content would essentially eliminate most existing hemp-derived products from the state’s consumer market.

Current emergency rules prohibit the inclusion of THC or any similar cannabinoid in any food, beverage, or dietary supplement intended for human consumption. In addition, these products must be sold only to individuals aged 21 or older and must be limited to a maximum of five servings per package. These rules are currently set to expire on  September 23, 2025, but the CDPH’s new proposal would extend them indefinitely, initiating a 45-day public comment period and scheduling a public hearing for July 28 at 10 a.m.

Business Closures, Job Losses, and a Shrinking Market for Hemp-Derived CBD Products

If implemented, the proposed regulations would drastically reduce the availability of CBD products that are commonly used by California’s nearly 70,000 regular hemp consumers. Products that do not meet the stringent no-detectable-THC standard would need to be reformulated or removed from shelves altogether.

According to the CDPH, nearly 100 out of the state’s 115 licensed hemp product manufacturers would likely be pushed out of the market. Only a small subset of manufacturers using CBD isolate, a highly refined and expensive form of cannabidiol with no traceable THC, could continue operations. These isolates are considerably costlier than full-spectrum extracts and were rarely used in the California market prior to the emergency regulations.

Additionally, around 10 businesses would be expected to spend an average of $20,000 each on relabeling costs, while 50 businesses overall may need to absorb similar expenses to meet packaging and labeling requirements under the new rule.

Retail, Wholesale, and Manufacturing Sectors Face Disproportionate Financial Impacts

Economic projections detailed in the CDPH’s notice of proposed rulemaking outline significant sector-wide consequences. Carry-out retailers are predicted to bear the heaviest financial burden, with a projected $2.02 billion revenue decline over five years. Manufacturers could lose $615 million, food service retailers could lose $268 million, and wholesalers stand to forfeit $227 million.

These figures underline a broader concern that the permanent ban would disproportionately affect small businesses across the state. The California Department of Tax and Fee Administration (CDTFA) emphasized that diminished revenue streams would compromise the ability of these businesses to remain solvent and cover essential operating expenses. Many small enterprises, already strained by regulatory complexities and shifting consumer preferences, may not survive such disruptions.

Out-of-State Substitution and Illegal Markets Likely to Erode California’s Competitiveness

As in-state hemp businesses grapple with tighter regulations, consumers are expected to turn to out-of-state or illegal suppliers to meet their product demands. The CDPH projects that a significant portion of consumer demand will shift to mail-order purchases or illicit channels, especially since out-of-state producers may offer similar products without California’s strict THC standards.

This anticipated shift could lead to reduced tax revenue for the state, while giving rise to unregulated products flooding the market. The CDPH acknowledged that this may reduce California’s competitiveness in the national hemp industry and open the door for increased risk to public safety, particularly when it comes to monitoring quality and age-restricted sales outside of regulated frameworks.

Public Health Rationale Cited as Primary Justification for the Proposed Ban

Despite the sweeping economic consequences, the CDPH defends the proposed regulations as essential for protecting public health and safety, especially among youth populations under the age of 21. The department’s June 13 notice argues that the regulations aim to reduce the risk of illness, injury, or death associated with unregulated intoxicating hemp products.

Prior to the emergency rules, hemp-derived products—many containing delta-8 THC and other synthetic cannabinoids—were widely available in vape shops, gas stations, and convenience stores with little to no oversight. The CDPH pointed out that some manufacturers marketed their products using bright packaging and familiar branding designed to appeal to children and adolescents, posing clear health and safety concerns.

Enforcement Costs and Rulemaking Alternatives Remain Under Consideration

To monitor compliance with the proposed permanent rules, the CDPH projects an annual enforcement cost of $785,000, which would cover inspections and legal action against noncompliant operators. However, enforcement efforts will primarily apply to licensed businesses, and the department has not provided detailed estimates for controlling unlicensed or underground operations.

In an effort to explore more balanced outcomes, the CDPH has invited the public to submit alternatives or feedback that could potentially reduce the economic strain on California’s hemp industry while maintaining core health and safety objectives. Suggestions can be submitted by email, fax, or mail, and all comments will be reviewed after the 45-day window closes.

Path Forward Depends on Public Input and Final Decision by State Health Authorities

The fate of California’s hemp industry now hinges on the outcome of the public comment process, which will run through late July. The CDPH must determine whether any reasonable alternatives exist that could achieve the public health goals of the regulation without inflicting disproportionate economic harm.

As the industry watches closely, stakeholders across the supply chain—from manufacturers and retailers to consumers and trade associations—are expected to weigh in on how the proposed rule will shape the future of hemp in California. If the proposal is finalized as-is, the state will become one of the most restrictive hemp markets in the U.S., with wide-reaching implications for local businesses and national policy trends.