The increasing influence of unregulated hemp businesses on legal cannabis industries.
In the competitive cannabis market, companies face a familiar conundrum when dealing with hemp-derived cannabis products that have less regulatory scrutiny due to a technicality or minor product difference.
Hemp, with less than 0.3% delta-9 THC content, is legally permissible under the 2018 Farm Bill, a key piece of US legislation overseeing agriculture and food policy. It removed hemp from the Controlled Substances Act and enabled hemp cultivation, production, and interstate transport, with regulatory oversight mainly under the USDA. In contrast, traditional cannabis, colloquially known as marijuana, remains a Schedule I narcotic, federally illegal despite state legalization, and subjected to tight regulatory pressures, preventing them from taking advantage of multi-state operations at scale.
This legal change for hemp-derived cannabis created a flourishing market for products like hemp-derived CBD, delta-8 THC, and delta-9 THC, now termed "intoxicating hemp." However, due to operating in a legal gray area, these hemp-based products are questionable and prone to various controversies, leading to unsafe situations across the nation.
The Accountant's Take
Despite the burgeoning business environment for hemp-derived cannabis products, Mike Goral, a tax professional and CPA leading the cannabis practice at Armanino, advises clients that this scenario will not last long.
"Products like hemp-based delta-9 have become a real challenge," said Goral. "Cannabis companies went through all the red tape to get licenses, pay taxes, and follow regulations. Meanwhile, hemp-based companies are producing delta-9 THC products from hemp under the Farm Bill with minimal oversight."
Goral notes that large Multi-State Operators (MSOs) are losing interest in contesting these producers and are instead venturing into hemp-derived cannabis products.
"Larger MSOs are starting to join them rather than fight – launching their own hemp-derived lines," Goral stated. "However, it's a significant issue, and we're seeing it well because we have clients on both sides. In the long term, I think hemp-based products will face tighter regulations. No one in this business should be able to bypass cannabis laws with a hemp loophole."
Missouri-based cannabis accounting firm owner Brenda Bader stated that local markets in the state have confronted the hemp-based cannabis challenge head-on. Despite not completely condemning these products, she links the lack of legal oversight in the space to potential risks, client dissatisfaction, and an image problem for the cannabis industry.
"I've been to panels where attorneys shared stories about how unregulated these products are," said Bader. "One attorney said he went into a convenience store and scanned the QR code on a Delta-9 product. It was supposed to link to lab results and ingredient info, but what he found was shocking: the lab report was for a completely different flavor, and it was dated over 20 years ago on a product that clearly isn't 20 years old."
A Lawyer's Perspective
Jeffrey Hoffman, a prominent cannabis-focused legal practitioner in New York, mentioned that hemp-derived cannabis products are facing a significant legal challenge in numerous states, with Texas being the most significant market for the product "by far." Hoffman also emphasized that the Lieutenant Governor of Texas (Dan Patrick) is pushing to eliminate the entire multi-billion-dollar hemp-derived cannabis industry through legislation, making SB3, a bill that would make all intoxicating hemp products illegal, a priority.
Meanwhile, states like California, Nebraska, Florida, and South Dakota have submitted laws relating to hemp-derived cannabis, with Tennessee proposing regulations on it, and Arkansas, Alaska, and Virginia implementing legislation to either prohibit or regulate hemp-based cannabis products.
- In the cannabis industry, companies manufacturing hemp-derived cannabis products are facing a predicament due to lesser regulatory scrutiny.
- Hemp-based products, including hemp-derived CBD, delta-8 THC, and delta-9 THC, are thriving in the market due to their legal status.
- However, the operation of these hemp-based products is questionable and is prone to controversies, leading to safety concerns.
- Mike Goral, a tax professional and CPA, anticipates that the current situation for hemp-derived cannabis products will not last long.
- Goral believes that larger Multi-State Operators (MSOs) are shifting their focus towards hemp-derived cannabis products rather than contesting producers.
- Brenda Bader, the owner of a Missouri-based cannabis accounting firm, points out that the lack of legal oversight in hemp-based cannabis products presents potential risks for the industry.
- Jeffrey Hoffman, a significant cannabis-focused legal practitioner, highlights that hemp-derived cannabis products are facing a significant legal challenge in multiple states, with Texas being the foremost market.
- Texas Lieutenant Governor, Dan Patrick, is pushing to eradicate the multi-billion-dollar hemp-derived cannabis industry through legislation.
- California, Nebraska, Florida, and South Dakota have proposed laws concerning hemp-derived cannabis, while Tennessee has proposed regulations for it.
- Arkansas, Alaska, and Virginia are implementing legislation to either prohibit or regulate hemp-based cannabis products.
- Navigating the complex web of regulatory landscapes in the general news and casino-and-gambling sectors is crucial for both personal-finance and business management in the cannabis lifestyle.
- Technology and education-and-self-development are essential for entrepreneurs looking to invest in the cannabis industry to stay updated on the latest news, scheduling, and industry developments.
