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The Texas Legislature is considering a major overhaul of the state’s hemp laws through Senate Bill 3 (SB 3), filed by State Sen. Charles Perry (R-Lubbock). This bill aims to tighten the rules around consumable hemp products by restricting the cannabinoids that can be legally sold, imposing stricter licensing and testing requirements, and introducing criminal penalties for non-compliance. While supporters argue that SB 3 will increase consumer safety and regulatory clarity, opponents warn that it could cripple Texas’ growing hemp industry by banning popular products and creating barriers for businesses. As a legislative priority of Texas Lt. Gov. Dan Patrick (R), SB 3 has strong political momentum and is likely to see significant debate in the 2025 legislative session.
When launching his effort, Patrick said,
“Dangerously, retailers exploited the agriculture law to sell life-threatening, unregulated forms of THC to the public and made them easily accessible. These stores not only sold to adults, but they targeted Texas children and exposed them to dangerous levels of THC. Since 2023, thousands of stores selling hazardous THC products have popped up in communities across the state, and many sell products, including beverages, that have three to four times the THC content which might be found in marijuana purchased from a drug dealer. Under Senate Bill 3, these products, and all forms of THC, will be banned in Texas.”
Source: Statement by Lt. Gov. Dan Patrick, 12.4.2024
Restrictions on Cannabinoids in Texas’ Hemp Market
One of the most controversial aspects of SB 3 is its restriction on cannabinoids. Under the proposed legislation, consumable hemp products would only be allowed to contain cannabidiol (CBD) and cannabigerol (CBG). This means that products containing delta-8 THC, delta-9 THC, and other cannabinoids that have become popular in recent years would effectively be banned. The bill explicitly states that hemp-derived products cannot contain any amount of a cannabinoid other than CBD or CBG, closing a loophole that many businesses have used to sell products with psychoactive effects.
If enacted, this would force many retailers to pull their most profitable items from the shelves, affecting consumers who rely on these cannabinoids for relaxation, pain relief, or other medicinal purposes. Critics argue that this provision could push consumers toward the unregulated black market, where there is less oversight of product safety and quality.
Stricter Licensing and Registration for Hemp Retailers
Beyond restricting cannabinoids, SB 3 introduces tighter licensing and registration requirements for hemp retailers. Businesses that sell consumable hemp products would be required to register every retail location with the Texas Department of State Health Services (DSHS) and pay a registration fee. This new mandate is designed to enhance regulatory oversight, but it also adds another layer of bureaucracy for business owners. Smaller retailers, in particular, may struggle with the added financial burden of compliance, raising concerns that the bill favors large corporations over independent stores.
The renewal process for existing licenses would also become more stringent, ensuring that only businesses fully adhering to the law can continue operating. If passed, these changes could limit the number of businesses selling hemp products in Texas, concentrating the market in the hands of fewer, more financially stable companies.
New Testing and Labeling Requirements for Hemp Products
The bill also strengthens testing and labeling requirements for consumable hemp products. Before any product is sold at retail, it must be tested for cannabinoid content, heavy metals, pesticides, and microbial contamination. The testing must be conducted by ISO-accredited laboratories, ensuring high-quality safety checks.
Additionally, products must have clear labeling that lists the type and concentration of cannabinoids, includes a QR code linking to a certificate of analysis (COA), and is packaged in a tamper-evident, child-resistant, and resealable container. While these requirements are intended to protect consumers, they also add costs for businesses that may already be struggling with regulatory burdens. This could drive some hemp companies out of the Texas market, either by making compliance too expensive or by limiting the variety of products they can legally sell.
Criminal Penalties for Hemp Violations in Texas
Perhaps the most significant aspect of SB 3 is its criminal penalties for violations. Under the proposed law, possession or sale of consumable hemp products containing any banned cannabinoids would be a Class A misdemeanor. Additionally, selling hemp products to individuals under 21 years old would be a Class B misdemeanor, and selling hemp products near schools (within 1,000 feet) would carry similar penalties.
The bill also criminalizes marketing hemp products in a way that could appeal to children, including packaging in the shape of animals, fruit, or cartoons. These restrictions signal a clear effort by lawmakers to crack down on the unregulated sale and marketing of hemp-derived cannabinoids, but they also introduce significant legal risks for businesses and consumers alike.
Fiscal Implications of SB 3: Economic Impact and Revenue Losses
Beyond its regulatory and legal changes, Senate Bill 3 (SB 3) carries significant financial implications for Texas. According to an official fiscal note from the Legislative Budget Board (LBB), the bill is projected to result in a net negative impact of $19.27 million to general revenue-related funds during the biennium ending August 31, 2027. The projected financial losses continue over the next several years, with estimated revenue declines of $9.04 million in 2026, $10.23 million in 2027, and increasing losses reaching $11.69 million by 2030.
The primary driver of these revenue losses is the ban on certain cannabinoids other than CBD and CBG, which will effectively eliminate a large segment of the Texas hemp retail market. Many businesses that currently rely on sales of delta-8 THC and similar products will be forced to close or significantly restructure, leading to a decline in taxable sales revenue. The Comptroller of Public Accounts based its analysis on sales tax data from hemp retailers in Austin, extrapolating that similar trends would apply statewide.
These financial losses won’t just impact state revenue but will also reduce local government funds. The fiscal analysis estimates that cities, counties, and transit authorities will collectively lose millions in tax revenue over the coming years. In 2026 alone, cities are expected to lose $1.62 million, counties $400,000, and transit authorities $540,000. These losses grow over time, with cities projected to lose $2.09 million annually by 2030.
While SB 3 imposes registration fees for hemp retailers, which could generate some revenue, the LBB estimates that about 10% of businesses holding hemp-related licenses or registrations will shut down and not renew. This means that any gains from registration fees will likely fail to offset the loss of sales tax revenue.
Additionally, SB 3 introduces criminal penalties for violations, but the potential revenue from fines and administrative penalties remains uncertain. While the Department of State Health Services (DSHS) has the authority to impose fines of up to $10,000 per violation, the actual amount collected is unknown, and it is unlikely to compensate for the overall economic impact.
At the local level, the loss of tax revenue could force cities and counties to adjust their budgets, potentially affecting public services. Law enforcement and court systems may also see increased expenses related to new misdemeanor and felony charges, further straining resources. The Office of Court Administration was unable to determine the exact fiscal impact on the legal system, but an increase in criminal cases related to hemp violations could place additional burdens on courts and law enforcement agencies.
Balancing Fiscal Costs With Regulatory Intent
Proponents of SB 3 argue that the long-term benefits of stricter hemp regulations—such as consumer safety and clarity in the legal market—outweigh the financial losses. However, critics contend that shutting down a significant portion of the hemp industry will ultimately cost the state and local governments more than it protects consumers.
With millions in projected losses and uncertainty surrounding enforcement costs, the fiscal implications of SB 3 raise an important question: Will the economic impact be worth the regulatory crackdown? As the bill moves through the Texas Legislature, this financial concern will likely play a role in the debate over its final version.
The Future of the Hemp Industry Under SB 3
For the Texas hemp industry, the passage of SB 3 would mark a turning point. Proponents of the bill argue that it will enhance consumer safety, eliminate deceptive marketing practices, and close loopholes that have allowed potentially intoxicating cannabinoids to be sold without proper oversight. They believe that Texas needs stricter rules to ensure that only safe and properly regulated hemp products are available on the market.
However, opponents argue that the bill goes too far, overregulating an industry that has already faced legal uncertainty since the 2018 federal Farm Bill legalized hemp. They warn that SB 3 could push businesses out of the state, reduce consumer access to legal alternatives to marijuana, and stifle innovation in an industry that is still in its early stages.
What’s Next for SB 3?
With SB 3 currently moving through the legislative process, stakeholders in the hemp industry should be paying close attention. The legislation will be heading to the full Senate floor soon, and the deliberations could shape the final version of the bill. If it passes in its current form, hemp businesses will need to adapt quickly to comply with the new requirements or face legal consequences. Consumers who rely on certain cannabinoids may also need to look for alternatives or prepare for changes in product availability.
The debate over hemp regulations in Texas is far from over, and the final outcome of SB 3 could have long-lasting effects on the state’s hemp market. Whether the bill ultimately enhances safety or stifles economic opportunity will depend on how the Texas Legislature balances consumer protection with economic freedom. As a legislative priority of Texas Lt. Gov. Dan Patrick, SB 3 has significant political backing, making its passage likely unless strong opposition emerges. As the hemp industry continues to evolve, one thing is clear: regulation is coming, and businesses must be prepared to navigate the new landscape.
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