Facing Off: Hemp-Derived Cannabis vs Traditional Cannabis in the US - Regulatory Doddery and Legal Brawls
Unregulated hemp operations pose an escalating challenge to legal cannabis enterprises
The facing off between hemp-derived cannabis and traditional cannabis in America's market isn't quite a fair fight, thanks to a technical loophole and slight variations in product differences.
Hemp, the cannabis plant containing no more than 0.3% delta-9 THC, sashayed into the limelight in 2018 with the Agriculture Improvement Act, better known as the Farm Bill. Officially, this federal legislation merged agriculture and food policy, removing hemp from the Controlled Substances Act and allowing for hemp cultivation, production, and interstate transport. The USDA assumed regulatory oversight, giving states and tribes the opportunity to develop their own hemp programs.
Marijuana, on the other hand, remains a Schedule I narcotic and is federally illegal, despite widespread state legalization. State-run programs have led to businesses navigating tight regulatory ropes—but they're unable to reap the benefits of multi-state operations at scale or qualify for as many tax deductions because of cannabis' federal scheduling.
The hemp loophole created a booming market for hemp-derived cannabinoids, such as CBD, delta-8 THC, and delta-9 THC, now infamously dubbed 'intoxicating hemp.' However, these products operate in a legal gray area: many are indistinguishable from marijuana-based cannabis, which is subject to far stricter regulatory oversight. And the result? A cocktail of controversy and dangerous incidents across the United States.
The Accountants' Take
Mike Goral, a tax guru leading Armanino's cannabis practice, warns that this hemp-driven boom won't last forever. "Products like delta-9 are a real challenge," he admits. "Cannabis companies went through all the red tape to get licenses, pay taxes, and adhere to regulations, while hemp-based companies produce delta-9 THC products from hemp under the Farm Bill with none of the oversight." The multi-state cannabis operators are running out of steam to challenge these producers and are now entering the hemp-derived market—launching their own product lines.
Brenda Bader, owner of Gold Leaf Accounting, has firsthand experience with the hemp-derived cannabis challenge in Missouri. While she doesn't advocate for these products' banishment from the cannabis market, she acknowledges the lack of regulation and resulting dangerous incidents, public frustration, and, to some extent, a stained image for the cannabis industry. "One attorney," she recounts, "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."
The Cannabis-Centric Legal Sphere
Jeffrey Hoffman, the mastermind behind one of New York's largest cannabis-focused legal practices, reveals that hemp-derived cannabis products are facing a major legal battle in multiple states. However, Texas presents the greatest challenge: the Lieutenant Governor, a key state power player, has outlined SB3, a bill set to make all intoxicating hemp products illegal in Texas.
Though states like California, Nebraska, Florida, and South Dakota have proposed bills regarding hemp-derived cannabis, others, like Tennessee, have instilled regulations on it, and states such as Alabama, Alaska, Arkansas, and Virginia have implemented legislation either prohibiting or regulating hemp-based cannabis products.
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Caveats
- The proliferation of hemp-derived products isn't necessarily a lasting reality, as experts predict increased regulations in the long term.
- states have varying approaches to hemp-derived cannabis, with some allowing its interstate commerce and others imposing stricter regulations, such as limiting THC content.
- The lack of federal guidance and uniform regulations across states fuels regulatory challenges, creating a complex and ever-changing market landscape.
- Although hemp-derived cannabis products can be more accessible due to federal legalization, they often operate in a legal gray area, encompassing public health risks and an uneven playing field in the market.
- The image crisis caused by unregulated hemp products can revive outdated narratives around cannabis, undoing the strides made by companies and activists in redefining its reputation.
- The hemp-derived cannabis boom, driven by products like CBD, delta-8 THC, and delta-9 THC, may not endure forever due to potential increased regulations in the long term.
- Mike Goral, a tax expert leading Armanino's cannabis practice, finds products like delta-9 THC particularly challenging because hemp-based companies can produce such products without the same oversight as cannabis companies that have gone through regulatory hurdles and paid taxes.
- Brenda Bader, owner of Gold Leaf Accounting, has immediate concerns about the lack of regulation in the hemp-derived cannabis market, highlighting dangerous incidents and public frustration that can negatively impact the cannabis industry's image.
- In Texas, hemp-derived intoxicating products are facing a significant legal battle as SB3, a bill to ban such products, has been proposed by the Lieutenant Governor, a key state power player.
- The US cannabis market is facing regulatory challenges due to the lack of federal guidance and uniform regulations across states, resulting in a complex and ever-changing landscape that includes public health risks and an uneven playing field for market participants.
