Texas Hemp Industry: Retailer Update and Outlook
From Proposal to Enforcement: What is happening with DSHS’ CHP Rules
Rulemaking Timeline
TABC has already adopted its age-gate rules, and DSHS has included similar rules in its proposed rules package (the “Proposed Rules”), which was published on Dec. 26, 2026. The deadline for submission of written public comments on the Proposed Rules was Jan. 26, 2026. The Hemp Branch Manager at DSHS has confirmed with me that it has received hundreds of comments, and the Texas Administrative Procedure Act requires that regulatory agencies consider every public comment validly submitted to an agency during rulemaking. This means that the Proposed Rules are likely, but not guaranteed, to be adopted sometime in mid-March.
After DSHS adopts and submits the Proposed Rules (with or without amendment) to the Texas Secretary of State, the rules would typically become effective 20 days later—due to the administrative mechanics of the weekly publication of the Texas Register, this often means that rules are published in the Texas Register with very little notice before they go into effect. However, DSHS could elect to adopt the Proposed Rules on an expedited timeline (much like TABC did with its age-gate rules) given the public health concerns around consumable hemp products (“CHPs”)—if DSHS goes this route, the rules could become effective on the same day that they are submitted to the Secretary of State, providing even less notice than the alternative.
Potential for Amendments to the Proposed Rules
DSHS’ adopted rules could vary from the Proposed Rules given strong industry opposition to many of the rules, including: the high fees, the lack of a delayed implementation timeline, and the definitions and limitations on Total delta-9 THC. However, I expect that DSHS, an agency focused on health and safety, is less likely to compromise than TABC, an agency arguably focused on commerce, so any compromise may not be as significant as TABC’s walking back of its one-strike-you’re-out rule for age-gating, which became effective on January 21, 2026, the day after TABC adopted them.
Fulfilling the Governor’s Executive Order
In addition to the age-gate requirements outlined in Governor Abbott’s September 10, 2025, executive order (“GA-56”), DSHS was directed to 1) revise testing requirements (and include measurements of THC-A in the Delta-9 THC count); 2) revise application and renewal fees; 3) clarify and standardize labeling requirements; and 4) strengthen record keeping requirements. Each of these broad areas of concern have already been addresses by DSHS and are included in the Proposed Rules.
GA-56 also directed DSHS to coordinate enforcement with TABC; this directive also has already been fulfilled. Both agencies entered into a Memorandum of Understanding (“MOU”) in early December. Under that MOU, DSHS has agreed to take responsibility for compliance inspections, referring age-gate and setback distance violations to TABC, updating TABC with lists of CHP retailers and any changes of address, reporting “hot products” to the Department of Public Safety (“DPS”). TABC has likewise agreed to undertake many similar responsibilities focused on inspection of CHP retailers and information and records sharing with other agencies.
Currently, the only significant gap between the directives contained in GA-56 and the actions of TABC, DSHS, and other agencies, appears to be the need to undertake a joint agency study on implementation of rules similar to those contained in H.B. 309, 89th Leg. 2nd Special Session. H.B. 309 was introduced to establish a comprehensive regulatory framework (nearly parallel to alcohol) for CHPs in Texas, including new definitions, a statutory licensing and permitting structure, regulatory oversight provisions, civil and criminal penalties, and taxation for hemp businesses. The bill would have significantly expanded state authority over hemp product manufacturing, distribution, and retail sales, but it did not pass before the conclusion of the special session.
Remaining Gaps
While the Proposed Rules are comprehensive, there are gaps between them and what H.B. 309 would have imposed. Of note: 1) creation of a formal governmental oversight body; 2) a more comprehensive licensing and permitting structure; 3) special taxation of hemp products; 4) specific applicability of criminal offenses; and 5) transportation of raw hemp material. Because of this gap, it is likely that a future agency study is initiated within the next year to address the gaps and recommend further regulations by DSHS, or by other relevant agencies. Such a study may go beyond the gaps listed here and may seek to further tighten DSHS’ rules, depending on the perceived strength of the Proposed Rules, as adopted, based on early-stage implementation and how effective they are at achieving the goals laid out in GA-56.
That said, because the Texas Legislature only meets once every 2 years, unless an emergency session is called and hemp is a focus, it is unlikely that further legislation will affect the regulatory landscape within the next year. However, while the Senate’s interim charges were just released and did not address CHPs, CHPs may be a priority of the House’s interim charge and report process. Between legislative sessions, the Speaker of the House and the President of the Senate generate their own recommendations and gather input from legislators and stakeholders which are then reported to legislative committees with recommendations for which types of bills to consider in the next legislative session. These reports are likely to not be materially addressed by the legislature until the 2027 legislative session.
Total Δ9 THC Today, Total THC Tomorrow?
The Current Proposed Rules
Currently, the Proposed Rules require testing of plant material, hemp-derived ingredients, and CHPs which reflects in a COA, among other things, both the Total THC and Total d-9 THC levels in a representative sample. The Proposed Rules also set the acceptable hemp THC level at a Total d-9 THC level of 0.3% on a dry weight basis (when accounting for the measurement of uncertainty). Total d-9 THC, unlike Total THC, only includes d-9 THC and d-9 THC-A levels. And even though this standard is less restrictive than Total THC, industry pushback observed at the January 9, 2026, DSHS hearing focused heavily on the total d-9 THC standard. I believe that DSHS is unlikely to walk back the current definition of Acceptable Hemp THC level, as it is in line with the public health concerns outline in GA-56 and otherwise widely circulated in the industry, especially by public safety advocates, many of whom also testified at the DSHS public hearing.
However, DSHS may meaningfully consider public comments stating that the agency will improperly exceed the agency’s statutory authority if it adopts the new definition of hemp contained in the Proposed Rules. That is because the definition contained in the Proposed Rules is materially different (and more restrictive) than the definition that currently exists in statute. Therefore, if the Proposed Rules are passed as written, DSHS may be sued by parties seeking to enjoin enforcement of the new definition; such an injunction has the potential to remain in effect for an extended period of time—this is exactly what happened in 2021, in the case of Sky Marketing Corp., et al. v. Texas Department of State Health Services, and John Hellerstedt, in his official capacity as Commissioner of the Texas DSHS.
A Joint Agency Study
The joint agency study, mentioned above, may raise concerns over THC isomers and other cannabinoids with effects similar to d-9 THC, and it may recommend that DSHS adopt the more stringent Total THC standard as the definition of Acceptable Hemp THC Level. This concern is heighted by the inclusion of a new highly restrictive federal definition of hemp contained in Section 781 of Public Law 119-37 (H.R. 5371), which reversed a government shutdown on November 12, 2025. That new definition accounts for isomers and other cannabinoids in a way that Total d-9 THC does not. Governor Abbott has generally shown a willingness to steer the state’s trajectory in a manner aligned with the federal government under the Trump administration. But at the same time, he has shown that he does not wish to eliminate the Texas hemp industry, most notably, by vetoing S.B. 3 in 2025, which would have broadly banned CHPs. Either way, a joint agency study has yet to be initiated, and is likely far from completion, due to the extent of the study necessary to satisfy the directives of GA-56.
Changes are Likely a Long Way Off
While the legislature could pass further legislation incorporating a Total THC standard, such change would likely not occur prior to the 2027 Texas legislative session. The Senate is more likely to initiate such legislation; this is because the Senate is controlled by Lieutenant Governor Dan Patrick, a staunch opponent of consumable hemp products, and is highly influenced by both Senators Perry and Paxton, other prominent opponents of hemp sitting on influential Senate committees.
In light of this, there is a low to moderate likelihood that Texas may shift to a Total THC standard, but such changes are likely to be delayed by the mechanics of the contemplated joint agency study and the need for the legislature to wait until 2027 to begin passing new legislation.
What About Flower?
I have been hearing more and more retailers complain that the new definition of hemp contained in the Proposed Rules will eliminate flower; however, flower is already largely illegal under Texas’ existing CHP rules. The rules currently prohibit the processing or manufacturing of CHPs for smoking. The definition of manufacturing includes preparing, packaging, repackaging, or labeling a “drug.” And CHPs meet the definition of drug because they are designed or intended to mitigate or treat diseases or are intended to affect a bodily function—if they weren’t, arguably, they wouldn’t have proliferated as they have.
That said, while manufacturing and processing such products is prohibited, retail sales have remained permissible; this was confirmed by the Texas Supreme Court, in 2022, in the case of Texas Department of State Health Services v. Crown Distributing LLC, et al. Nonetheless, retailers who engage in preparing, packaging, repackaging, or labeling hemp flower are manufacturing CHPS for smoking and are in violation of the existing CHP rules.
The existing framework still allowed retail sale and wholesale distribution, in Texas, of smokable CHPs manufactured outside of the state, and it may have left room for creative practices, such as “deli-style” flower, that avoid preparation, packing, or labeling, but any creative argument for flower sales will effectively be eliminated by the Proposed Rules’ new definition of hemp. This is because flower with a Total d-9 THC concentration exceeding 0.3% on the Texas market is rare—and flower that truly meets that definition has historically held little favor with consumers.
The Substantial Burden on Hemp Retailers
Under the Proposed Rules, DSHS would move away from the historically nonburdensome registration model and toward a tiered licensing model, with higher barriers to entry, ongoing compliance obligations, and materially greater exposure to suspension or revocation.
Higher Fees
Registration fees for retail locations are expected to increase from $150 to $20,000, and—importantly—will apply on a per-location basis, rather than at the entity level (which DSHS has the statutory authority to allow). This change alone would meaningfully alter the economics of multi-location retail operations and is likely to disproportionately impact smaller, regional, and rural retailers operating on thin margins. The Proposed Rules do not include a delayed or phased implementation timeline, meaning retailers could be required to absorb these increased costs immediately following rule effectiveness and the expiration of their current retail registration with DSHS.
Broader Burdens and Enforcement
The Proposed Rules would impose expanded application, renewal, and reporting requirements, including enhanced recordkeeping obligations, product-level documentation, and clearer traceability expectations tied to certificates of analysis and supplier information. These requirements represent a significant expansion of administrative burden for retailers.
The Proposed Rules also require affirmative prior consent to inspection and enforcement access as a condition of registration. Retailers would be deemed to have consented to inspections not only by DSHS, but also by coordinating agencies and law enforcement under both the rules and the DSHS–TABC Memo. This is a meaningful shift from prior practice and signals that retail registration will create routine, multi-agency compliance scrutiny, rather than a largely passive filing requirement with an agency that lacked funds and personnel to undertake meaningful enforcement action.
Thinner Margin for Error
Finally, and most critically from a risk perspective, the Proposed Rules significantly tighten the consequences of non-compliance. Unlike TABC’s finalized age-gate rules—which incorporate a tiered penalty structure—the Proposed Rules would allow for registration revocation after a single failure to properly ID a customer or a single sale to a minor. For retailers, this creates a materially higher compliance risk profile and effectively elevates age-verification failures from a manageable enforcement issue to a significant business risk.
In sum, while Texas is not yet adopting the full regulatory regime envisioned by H.B. 309, hemp retailers should expect higher costs, greater administrative burdens, increased inspection exposure, and significantly reduced tolerance for compliance errors. However, as outlined above, regulators could eventually move closer to the regime envisioned by H.B. 309. Taken together, these changes reflect a clear regulatory intent to thin the retail market through heightened entry and survival standards, even in the absence of new legislation.
Accelerated Rulemaking and the Risk of Immediate Market Disruption
Penalty Structure and Heightened Enforcement Risk
TABC has already adopted final rules regarding a ban on sales to minors and mandatory ID checks, but with a tiered penalty scheme rather than the one-strike-you’re-out rule contained in TABC’s prior emergency rules. That said, the Proposed Rules (which could be adopted at any time over the next few weeks) do not contain the same tiered penalty scheme; rather, as written, they would allow DSHS to revoke a CHP retail registration after a single failure to ID or a single sale to a minor.
This, combined with the Proposed Rules’ express prior consent by registrants to allow multiple agencies and law enforcement to access properties where CHPs are manufactured, processed, or delivered is a strong sign that both TABC and DSHS will be closely monitoring the industry for strict compliance with the new regulations.
Additionally, given that local law enforcement (in some cases, in conjunction with the federal government) has largely been the force carrying out stings and raids on hemp businesses and given that they would have prior consent by such businesses to inspect their premises, I expect that enforcement actions will increase suddenly upon passage of the Proposed, unless the prior consent language is removed before adoption. This is highlighted by the fact that Texas law prohibits localities from adopting moratoriums on the sale of CHPs.
One need only look to the State of Tennessee to see how things might play out in Texas. In Tennessee, the Alcoholic Beverages Commission (TN ABC) assumed regulatory oversight over hemp derived cannabinoid products, as of January 1, 2026. TN ABC has since hired 23 new agents, conducted roughly 1200 inspections aimed at hemp retailers, issued warnings to over 430 of those retailers, and plans to revisit each noncompliant location within 30 days to see if further action is necessary. It is important to note that TN ABC did not see a significant increase in revenue from which to aid its enforcement actions—DSHS, however, is likely to see large sums of money pouring in from the high registration fees, mentioned above. This means that enforcement actions in Texas may be more comprehensive than those seen in Tennessee last month.
Expedited and Emergency Rulemaking under GA-56
In terms of accelerated rulemaking, I have already witnessed TABC adopting an expedited timeline applicable to its age-gate rules, and I understand that DSHS may well do the same thing. The agencies are both operating under the directive of GA-56 which expressly states that public health concerns are at play; and such health concerns trigger both the ability of agencies to expedite the effective date of adopted rules (by 20 days) and to adopt emergency rules (without public notice and comment). This means that DSHS’ current and future proposed rules may go into effect 20 days sooner than they otherwise would and that both DSHS and TABC may adopt further emergency rules, without notice, in the future.
The risk of sudden enforcement actions and the potential for expedited effective dates and wholesale adoption of emergency rules is a significant concern for hemp businesses operating in Texas. These businesses will need to be ready to pivot at a moment’s notice and the pivots may entail high costs of compliance or otherwise broadly disrupt business operations (including how supply chains are managed). For example, a change from a Total d-9 THC standard to a Total THC standard could, overnight, render entire product lines impermissible for sale in the state; implementation of a milligram cap per serving or container could do the same.
State Tightening, Federal Drift, and a Narrowing Path for Growth
State Considerations
While the state has historically been the largest market in the U.S. for hemp products, Texas is not a broadly favorable environment for aggressive retail expansion right now—unless the business model can absorb materially higher per-location fees, heightened inspection exposure, and a non-trivial risk of near-term market contraction, all while planning for a potential federal definitional shift effective November 12, 2026, that could materially narrow what qualifies as lawful “hemp.”
At the state level, the clearest signal is the Proposed Rules, that would convert retail “registration” into something much closer to a costly, enforcement-forward licensing regime. Combined with GA-56’s explicit directive to tighten testing (including THC-A in the delta-9 accounting), increase fees, standardize labeling, strengthen recordkeeping, and coordinate enforcement, the near-term trajectory is toward fewer, more compliance-heavy retail operators.
Federal Considerations
At the federal level, Congress has already enacted changes to the federal hemp definition (with an effective date of November 12, 2026)—meaning products that no longer meet the federal definition would not be “hemp” and could be treated as marijuana under the CSA. Even if Texas’s rules settle into a workable equilibrium in early 2026, that federal definition could materially affect the availability of products which consumers wish to purchase.
Tying it Together
It is currently unclear whether Texas will adopt the new federal definition of hemp, but it will be forced to do so by its controlled substances “trigger law,” unless the appropriate parties timely object to its automatic applicability within the state. If the new federal definition of hemp becomes applicable within Texas, the majority of CHPs will become impermissible.[1]
The combination of the Proposed Rules’ prohibition of importation into the state of useful “work-in-process” (“WIP”) materials, which are used in processing and manufacturing, and the new federal definition of hemp’s prohibition on WIP in excess of 0.3% Total THC, the Texas market is likely to become strained due to the availability of raw hemp plants needed to meet consumer demand relative to the amount of hemp crops grown in the state—this is important because under both new definitions, hemp crops grown outside of Texas effectively will not be able to be imported into Texas once they have been processed into almost any form of extract, and transporting hemp biomass over long distances, into Texas, greatly reduces its profitability.
Therefore, absent significant changes to the Proposed Rules, Texas’ hemp market is likely to shrink, with certain SKUs becoming impermissible, and the risk of an unworkable supply chain highlights the shortcomings hemp businesses may encounter. Therefore, it is likely that business expansion in the state is only favorable for certain businesses who are well situated to survive in the anticipated regulatory environment
What a Viable Texas Hemp Strategy Looks Like in 2026
Texas can still be investable for well capitalized operators with 1) high-discipline age-gate compliance, 2) robust COA/traceability systems, 3) a product portfolio that can pivot away from the categories most exposed to definitional or testing shifts, and 4) economics that remain positive under the $20,000 per-location, per-year, registration overhead. But for most growth strategies centered on rapid retail footprint expansion, the current risk environment supports a selective expansion strategy (i.e. only investing in the strongest locations/partners) rather than broad rollout.
Conclusion: A Market Moving Toward Fewer, Heavier-Regulated Participants
Texas’ CHP market is entering a consequential transition period defined by accelerated rulemaking, expanded enforcement authority, materially higher compliance costs, and growing alignment with federal public-health and definitional standards. DSHS’ proposed rules, when considered alongside TABC’s finalized age-gate framework and the directives of Executive Order GA-56, reflect a clear departure from the status quo toward a more restrictive, enforcement-forward regime with higher barriers to entry and significantly reduced tolerance for compliance failures. Although Texas is unlikely to eliminate the hemp industry outright in the near term, the combined effect of heightened testing requirements, per-location fees, inspection consent, and expedited rule adoption is likely to contract the retail market and concentrate participation among fewer, better-capitalized operators. Compounding this shift is an impending federal definitional change that could further constrain lawful products and supply chains beginning in late 2026. Taken together, these developments indicate that future viability in Texas will depend less on rapid expansion and more on compliance discipline, operational flexibility, and the ability to operate within an increasingly narrow—and still evolving—regulatory framework.
[1] Additionally, the Texas Agricultural Code prohibits nonconsumable hemp products manufactured outside of Texas from being sold within the state if retail sale of such products violates federal law—this will further effect business operations for retailers selling hemp cloth, cordage, fuel, paint, paper, building materials, and plastics.
