How Much Does the New Federal Hemp Law Really Change Business for Existing Hemp Companies?

Sportscaster Jim McKay famously said that “our greatest hopes and worst fears are seldom realized.” When the federal government enacted a law that, on its face, would essentially eradicate the consumable hemp industry in America, my first reaction was great sadness for those I had gotten to know in the industry and those millions of Americans who had turned to consumable hemp as an alternative to more traditional substances and medications. I also recognized that many people, rightly or wrongly and to be clear in many cases very rightly, viewed the law as a positive step towards stopping disreputable hemp operators who preyed on youth, ignorance, and a general misunderstanding of the cannabis plant. And I also understood the satisfaction of cannabis licensees around the country who finally felt vindicated and unburdened from a system that allowed products very similar to their own to be sold without the extraordinary costs and regulated burden they faced. And while I still have some of those feelings, I’ve begun to think about this a little differently.

For the past couple of weeks, I have been reading, writing, thinking considerably, and even podcasting about the impact of the new federal law criminalizing most existing hemp-derived consumer products.

At first, I admit I began to doubt T.S. Eliot’s prediction about the way the hemp world would end. This was certainly no mere whimper. It was a bang. It was going to ruin jobs, businesses, and lives (even if, as proponents of the law argue, it saved others). It was the death knell for an industry just beginning to hit its stride after only seven years of federal legality.

But in recent days, I’ve been thinking about the new law from a different perspective, and it has made me reconsider the scope of the impact to the existing hemp industry. In doing so, I have concluded that while there are very serious potential consequences still on the horizon for the industry, it is at least a reasonable possibility that consumable hemp will maintain a robust presence in American life.

Will the Law Take Effect?

By its terms, the law does not take effect until November 2026. That means the federal government can choose to change the law or push out its enforcement to a later date.  I previously wrote about this issue:

The clock is ticking. There’s just one year before the law takes effect. Is that enough time to convince Congress to change the law? Technically yes, as Congress can act quickly when it wants to. But there are a few complicating factors.

First, although the law will not take effect until November 2026, as a practical matter we can expect to see a dramatic reduction in the amount of hemp grown in 2026 if hemp farmers aren’t assured they will have buyers for their harvest in Fall 2026. That means that a change needs to take place by Spring 2026 in order to avoid substantial supply chain interruptions.

Second, is there the political appetite and will to take up the issue of hemp again in the coming month? Congressional staff has been inundated with meetings and information about hemp for nearly two years as part of the Farm Bill debate. It will take a major effort to get Congress to engage on this issue again so soon, but if enough members would like the opportunity to debate the issue without the sword of a shutdown hanging overhead, that may be enough to overcome institutionalized inertia.

Third, can the hemp industry come together to make a specific “ask” for what a legislative change should look like? Congress seems unlikely to allow high-THC products, and that could pit low-dose operators against those seeking high-dose products. It will be interesting to see if a sizeable group of operators can get together to push for a federal hemp program that is more regulated and less open than the industry is used to.

Fourth, can the hemp industry bring together additional stakeholders and fend off well-funded and well-organized challengers? The alcohol industry will be important to watch here given that many manufacturers are opposed to intoxicating hemp products they view as competitive to alcohol, which has been on a steady decline of late. Alcohol distributors, on the other hand, have with increasing frequency taken on hemp customers as a way to offset the decline in alcohol sales. And what, if anything, will marijuana operators agree to allow?

If the law or the date of its enforcement changes in the next 11 months, most if not all of what follows is a moot point. But hemp operators would be well advised not to simply assume either of those outcomes, and what follows is an examination of what might happen if the law takes effect.

Will Consumable Hemp Operators Face Enforcement Actions if the Law Takes Effect?

Loyal readers of Budding Trends know of my fondness for The West Wing. One of my very favorite episodes of that powerhouse of a series is “Noel.” As was tradition, the show used its final episode before Christmas to spotlight one of its main characters. In this episode, the character of Josh Lyman (played with a combination of sanctimony, arrogance, and sly humor associated with few thespians more than Bradley Whitford) finds himself in a state of PTSD and he doesn’t know how to escape. Following a session with trauma therapist Stanley Keyworth (played with wit, austerity, and humanity by Adam Arkin), Josh confronts his boss, White House Chief of Staff Leo McGarry (played sublimely by the late John Spencer). Leo, a recovering alcoholic, tells Josh the story of a man in a hole:

“This guy’s walking down the street when he falls in a hole. The walls are so steep he can’t get out. A doctor passes by and the guy shouts up, ‘Hey you! Can you help me out?’ The doctor writes a prescription, throws it down in the hole and moves on.
Then a priest comes along and the guy shouts up, ‘Father, I’m down in this hole, can you help me out?’ The priest writes out a prayer, throws it down in the hole and moves on.
Then a friend walks by. ‘Hey, Joe, it’s me. Can you help me out?’
And the friend jumps in the hole. Our guy says, ‘Are you stupid? Now we’re both down here.’ The friend says, ‘Yeah, but I’ve been down here before, and I know the way out.”

Hemp and marijuana are now both in the same hole. And marijuana knows the way out.

How Will the Feds and States Treat Legacy Hemp if the Prohibition Takes Effect?

A key part of determining whether the new law would impact the existing hemp industry is determining (or, perhaps, predicting) whether hemp will be treated with the same hands-off approach by the federal government as marijuana? In a very real way, this is the multibillion-dollar question of the moment.

There are reasons to believe hemp will not be subject to prosecution even in light of the new law. After all, if the new law goes into effect, most legacy hemp would be marijuana. If the federal government is not going to prosecute marijuana operators in states where marijuana had been legalized by state law, is it at least possible that the federal government will take the same position with respect to legacy hemp operators whose products are still the same but have now been deemed “marijuana” by the federal government?

In some states, the enactment of the federal law does not impact the express terms of state law. Will those states enforce federal law that is contrary to state law? They haven’t generally done so when it comes to legacy marijuana operators, and it’s certainly possible they won’t do so with legacy hemp operators who are now selling “marijuana” under federal law.

There are also reasons to believe the federal government and certain states will enforce the new law if it takes effect. In at least 13 states, the state law will change if and when the federal law changes (often referred to as “trigger laws” because state law expressly provides that it will change automatically to conform with a corresponding change in federal law). In those states, state and federal law will both prohibit consumable hemp products, and it seems likely that law enforcement will be interested in at least some type of enforcement activity. And even absent actual enforcement, reputable operators will be reluctant to operate in states where federal and state law define their operations as illegal.

Conclusion 

Marijuana has been a controlled substance at the federal level for more than 50 years.  If the new federal hemp law takes effect in November 2026, most of what has previously been defined as legal “hemp” will be categorized as marijuana.

For more than a decade, it has been the policy of the federal government not to prosecute state-legal marijuana operators. Is it fair to say that the federal government will similarly exercise its discretion not to prosecute legacy hemp operators whose products are now categorized as marijuana? What about the states where the products will be expressly illegal? What about the states where those products will be unambiguously illegal? That, unfortunately, is a calculus legacy hemp operators will face if the new federal law takes effect next year.

I wish I had clearer news, but this is sadly yet another instance where if you choose to operate in the cannabis space, you have to get used to operating in a world of uncertainty.

Thanks for stopping by.