Texas hemp businesses are urging a Travis County judge to block new state regulations that took effect on March 31, contending that the rules established by the Department of State Health Services (DSHS) effectively eliminate a significant portion of the legal cannabis market. The lawsuit focuses on regulations that prohibit stores from selling smokable hemp products, including flower and concentrates, and challenges the steep new fees and regulatory requirements that could drive many businesses to closure.
Legal Definitions: Hemp vs. Marijuana
In 2019, Texas lawmakers delineated the distinction between legal hemp and illegal marijuana based on Delta-9 THC content—the primary psychoactive ingredient in cannabis. Cannabis containing over 0.3% Delta-9 by dry weight is classified as marijuana, while anything below is deemed hemp. However, cannabis also contains other compounds that can induce a high, such as THCA, which transforms into Delta-9 when smoked or heated. Many flower and concentrate products, even in states where marijuana is legal, contain far more THCA than Delta-9.
The DSHS’s new rules, proposed on December 26, introduce a “total THC” calculation that equates THCA to 88% Delta-9. This regulation means that over 9,000 registered businesses can no longer sell smokable hemp products, which the lawsuit argues undermines the Legislature’s definition of hemp.
Economic Impact and Business Viability
Economists estimate that smokable products comprise a vast majority of cannabis sales in Texas, with flower accounting for about half the market and smokable products, including vapes, making up approximately two-thirds. According to Robin Goldstein, a University of California economist specializing in cannabis markets, Texas’s retail cannabis market generates around $4 billion annually.
Moreover, the “total THC” restriction affects not only Texas-grown plants but also any products shipped into the state for processing, which could severely impact local manufacturing.
New Fees and Regulatory Burdens
The lawsuit also addresses the heightened financial barriers created by the new regulations. Annual licensing fees for manufacturers have escalated from $250 to $10,000, while retail locations now face fees of $5,000 annually, a significant increase from $150. In addition, there are new ownership change fees and hefty penalties for late renewals. Plaintiffs argue that these fees do not correlate with regulatory costs and function as unconstitutional taxes that inhibit business operations.
Concerns Over Regulatory Process
Beyond the substance of the rules, the lawsuit contends that the state did not adhere to the proper procedural guidelines when enacting them. Texas law mandates that regulators assess how new rules will affect jobs and small businesses while considering less burdensome alternatives. The plaintiffs claim that the state recognized the potential economic impacts but failed to conduct the requisite analysis or adequately address public complaints, resulting in “arbitrary and capricious rulemaking.” This, they argue, renders the regulations invalid under state law.
Although the Legislature did propose stricter hemp regulations in 2025, Governor Greg Abbott vetoed the bill, and subsequent special sessions resulted in a deadlock on whether to regulate THC products more stringently or impose an outright ban. Following this, Abbott issued an executive order directing DSHS to create new rules, which the lawsuit argues exceeds the authority of state agencies.
Coalition Leading the Lawsuit
The Texas Hemp Business Council, leading the lawsuit, has expressed support for several safety regulations within the new framework, including age restrictions, child-resistant packaging, and clear labeling. However, the council opposes measures that act as de facto bans or create unaffordable operational conditions, thus pushing consumers toward unregulated markets.
The lawsuit is filed by the Texas Hemp Business Council, the Hemp Industry and Farmers of America, and eight hemp companies, including Alchemy TX Consulting and Serenity Organics. Defendants include DSHS Commissioner Jennifer Shuford, HHSC leader Stephanie Muth, and Texas Attorney General Ken Paxton.
In response to the pending litigation, a DSHS spokesperson stated that the agency does not comment on ongoing cases, while HHSC and the Attorney General’s Office have not yet provided remarks.
Next Steps in Litigation
The plaintiffs are seeking a temporary restraining order to suspend enforcement of the most contentious aspects of the new regulations, with a decision expected by the end of the week. For now, smokable hemp products remain unavailable for sale in Texas. While possession is still legal, the outcome of this lawsuit could determine whether Texans can purchase these products from local businesses or be compelled to buy from out-of-state sources.