Unregulated Hemp Growth Poses Increasing Challenge for Legitimate Cannabis Corporations
Let's face the harsh truth about the wild west of cannabis competition It's a familiar terrain for cannabis businesses grappling with competitors who skirt on the edges of legality, thanks to a technicality or slight difference in product. In this case, it's the battle between cannabis companies and hemp-derived cannabis products.
Hemp, containing less than 0.3% delta-9 THC, is federally legal due to the 2018 Farm Bill, also known as the Agriculture Improvement Act[1]. Officially, it removes hemp from the Controlled Substances Act and allows for hemp cultivation, production, and interstate transport, with regulatory oversight falling under the United States Department of Agriculture (USDA). States and tribes, too, can develop their own hemp programs[2].
In stark contrast, regular cannabis, commonly known as marijuana, is still a Schedule I narcotic and federally illegal, despite many states legalizing it and creating large state-run programs. This strict federal scheduling means these businesses cannot benefit from multi-state operations at scale and qualify for far fewer tax deductions[3].
This legal change for hemp-derived cannabis has paved the way for a booming hemp-derived cannabinoid market, including CBD, delta-8 THC, and delta-9 THC products, now dubbed "intoxicating hemp," despite operating in a legal gray area. The lack of regulation has led to dangerous incidents across the country, creating an uneven playing field and stirring up controversy[4].
A financial perspective
Even though the business sector around hemp-derived cannabis products is growing due to relaxed regulatory standards, experts like Mike Goral, a tax professional and CPA leading the cannabis practice at Armanino, caution that this won't last forever[5].
"Products like delta-9 have become a real challenge," said Goral. "Cannabis companies have gone through all the red tape to get licenses, pay taxes, and follow regulations, while hemp-based companies are producing delta-9 THC products from hemp under the Farm Bill with none of the oversight."
From the trenches
Brenda Bader, owner of Gold Leaf Accounting in Missouri, sees the impact firsthand. She attributes the lack of legal oversight in the space to dangerous incidents, consumer frustration, and harming the reputation of cannabis in more traditional regions[6].
"I've been to panels where attorneys shared stories about how unregulated these products really 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."
While some may favor a more deregulated approach, those selling regulated cannabis products are advocating for uniform regulation across the board. "The issue isn't that hemp-derived Delta-9 is inherently bad - it's that there are no guardrails," says Bader.
The watchful eye of lawyers
Jeffrey Hoffman, who operates one of the largest cannabis-centric legal practices in New York, talks about the major legal challenges these products face in many states, particularly in Texas, where the most powerful person in the state senate is pushing to ban hemp-derived cannabis products[7].
"The Lieutenant Governor of Texas [Dan Patrick] - arguably the most powerful person in the state - is pushing to eliminate an entire multi-billion-dollar industry," Hoffman said. "This isn't just about protecting the business, it's about educating the public and keeping dangerous and unregulated products out of the hands of kids."
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- [1] 2018 Farm Bill: fact sheet (2018, Dec 12). Retrived from https://www.congress.gov/bill/115th-congress/house-bill/2/text
- [2] Hemp production: frequently asked questions (n.d.). Retrieved from https://www.ams.usda.gov/hempfaqs
- [3] IRS: Cannabis industry tax issues (n.d.). Retrieved from https://www.irs.gov/businesses/alcohol-and-other-specialized-liquor-industries/irs-cannabis-industry-tax-issues
- [4] Black market growing thanks to delta-9 THC void (2021, June 03). Retrieved from https://www.cannabisbusinesstimes.com/article/black-market-growing-thanks-to-delta-9-thc-void/
- [5] Goral, M. (2021, June 17). Tax implication for delta-8 THC and other intoxicating hemp products [Interview].
- [6] Bader, B. (2021, June 17). Hemp-derived cannabis products' impact in Missouri [Interview].
- [7] Hoffman, J. (2021, June 17). Legal challenges faced by hemp-derived cannabis products [Interview].
- Despite the booming hemp-derived cannabinoid market, tax professional Mike Goral warns that it won't last forever, as cannabis companies navigate a challenging landscape filled with regulatory loopholes.
- Brenda Bader, the owner of Gold Leaf Accounting in Missouri, has witnessed the impacts of the lack of legal oversight firsthand, as dangerous incidents, consumer frustration, and a tarnished reputation for cannabis products in traditional regions become increasingly prevalent.
- Advocates for uniform regulation across all cannabis products argue that the current situation, where some hemp-derived Delta-9 THC products operate in a legal gray area, lacks essential guardrails that ensure the safety and quality of products.
- In addition to the industry concerns, lawyers like Jeffrey Hoffman face significant legal challenges, particularly in states like Texas, where high-ranking officials are pushing to ban hemp-derived cannabis products.
- The complex issue of cannabis regulation extends beyond the hemp and cannabis industries, reaching into politics, general news, and the larger health-and-wellness and medical-conditions sector.
- As the industry fights for uniform regulation and strives to educate the public about the risks of unregulated products, staying informed on the latest financial, business, and legal developments is crucial for industry stakeholders.
- Subscribing to a reliable source for daily news updates on the cannabis industry, such as this website, can help businesses navigate the constantly evolving regulatory landscape and make informed decisions in the ever-changing financial landscape.
- The USDA, through the 2018 Farm Bill, has regulatory oversight over hemp, but its strict scheduling of marijuana forces cannabis businesses to pay taxes and follow regulations that hemp-based companies often avoid.
- This advantage enjoyed by hemp-based companies could come under scrutiny as the cannabis industry advocates for fairer regulation and better protection of consumer health, given the potential risks associated with unregulated products like intoxicating hemp.
