Tag Archives: TX

Cannabis in Texas: A Look Ahead to Legalization and Beyond

By Abraham Finberg, Rachel Wright, Simon Menkes
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A Uniquely Texas Approach to Cannabis

The last few decades have seen the United States move forward state-by-state with the legalization of cannabis. Every state is charting its own unique path, and nowhere is this truer than with the state of Texas.

The Lone Star State has made its way from being staunchly anti-cannabis to expressing its own blend of temperance and careful action, combined with a medical cannabis program that’s expanding.

Any predictions regarding the future of cannabis in Texas must take into consideration both the state’s past and its values. In the end, it’s clear that Texas will embrace cannabis in its own individual way and at its own pace, but with a timeframe that appears to be arriving sooner rather than later.

The Debate Continues

108 years after Texas first banned cannabis and the debate continues. Even though Texas has a medical cannabis program, cannabis is still illegal in the state, with possession of less than two ounces a misdemeanor. Possession of more than four ounces is a felony punishable by a $10,000 fine and from 2-99 years in jail.

Texas’s 2015 Compassionate Use Act created the state’s medicinal cannabis program, which now makes treatment available only in the form of low-THC oil of a maximum strength of 1%, and only to a small list of serious conditions: epilepsy, terminal cancer, autism, multiple sclerosis, amyotrophic lateral sclerosis (ALS), seizure disorders, incurable neurological disorders such as Alzheimer’s, Parkinson’s, Huntington’s Disease and PTSD.

Support for a Stronger Medicinal Cannabis Program Comes from Prominent Politicians

Texas Department of Agriculture Commissioner Sid Miller, a leader in Texas politics and one of the architects of Texas’s burgeoning hemp industry, has encouraged Texas legislators to create a more complete medical cannabis program.

Texas Department of Agriculture Commissioner Sid Miller

“I am for medical use,” Miller said in an August 2023 interview. “We have so much good science now. And we know what diseases it can treat, yet our legislature picks winners [and] losers. If you’ve got this disease, you can get treated, but if you’ve got this disease and cannabis will help you, you can’t get treated. We need to let the doctor-patient relationship make those medical decisions and not some bureaucrat or some politician … I’m not a supporter of recreational marijuana, but if someone has a condition that this chemical will help, they should be able to use it.”

Texas Representative Joe Moody from El Paso has worked for many years to promote adult-use cannabis. He recently co-authored two pro-cannabis bills, HB 1805, which would have expanded covered medical conditions and defined a per-doze THC limit instead of a percentage limit on cannabis products, and HB 218, which would have decriminalized cannabis.

Although both bills passed the House of Representatives, they were stopped in the Senate. The next session of the state legislature, which happens every two years, won’t begin until January 2025, so that is the earliest any change in cannabis statutes could take place.

The Future of Medicinal Cannabis

There are currently only three dispensaries in Texas. They appear to be servicing the state’s 268,000 square miles through a series of weekly drop-offs to satellite “partner locations,” which are open an average of only two days per week. This is not exactly a corner-CVS type of arrangement, and the need for new dispensaries for the state’s 61,000 registered patients is high.

The Texas Department of Public Safety took applications for new medical dispensary licenses between January and April 2023. Tony Gallo, managing partner of Sapphire Risk Advisory Group, which helped twelve licensees prepare their applications during this round, anticipates around ten new dispensaries being approved.

All licensees must be vertically integrated – product must go from seed-to-sale under one license – and each applicant paid $7,356 to apply. If approved, the applicants will owe another $488,520.00 for a two-year period.

Many knowledgeable Texans, including Agriculture Commissioner Sid Miller, predict a fully-functioning medicinal cannabis market is just a few years away. “If you can get it to the floor, probably 70% or 80% of the legislative body will vote in favor of it because we have such good science on it. [Originally] we thought, ‘Well, that’ll lead to recreational use or more drug use,’ but it’s not. It’s a plant derivative. Medical marijuana is not nearly as addictive as some of the prescription drugs we use now.”

The Push is On for Adult-Use

Representative Joe Moody believes that adult-use is not too far away in Texas’s future either, and that the way to speed its arrival is through education. He recently sponsored HB 3652, the Texas Regulation & Taxation of Cannabis Act, in order to start a dialogue on what a retail cannabis market will look like in Texas.

Texas Representative Joe Moody

On April 26, 2023, Moody and his bill received a public hearing in the House Committee for Licensing and Administrative Procedures in which many points about setting up a retail market in Texas were discussed. A 10% cannabis tax was proposed by Moody, to be split evenly between the state and local government. Licenses would be required for those growing, selling, transporting or testing cannabis, although individuals would be allowed to grow or possess it in small amounts for personal use. Legal sale and consumption would be limited to adults 21 years of age and older, like alcohol. And of course, cannabis possession would be decriminalized.

How Strong is the Market Potential for Cannabis?

One indication of how strong even a fully-open medical cannabis market might be in Texas came during Moody’s hearing from the testimony of Estella Castro. Castro owns two medical dispensaries in Oklahoma just across the state line from Texas and suspects most her buyers are from Texas. “They have a Texas plate and they come in and buy $500 to $600 worth of product,” she said. Her two shops generated $158,000 in taxes to Oklahoma, most of which she believes should have gone to Texas.

New Mexico recently legalized adult-use cannabis, and the small towns along the Texas-New Mexico border are seeing a lot of traffic from Texas. In the first week of adult-use sales, the New Mexico did adult-use sales totaling $6 million. Of those sales, $1.5 million came from dispensaries in 5 small border towns.

Florida and California Suggest the Scope of a Mature Cannabis Market in Texas

The potential for a fully developed medical cannabis market can be gleaned by studying the next smaller state, Florida, which has an open, mature, medical cannabis market. Florida, with 20 million people, is about two-thirds the size of Texas, which has 30 million inhabitants. Right now, Florida boasts 700,000 cannabis patients whereas Texas only has 61,000. Simple math suggests a fully open, mature, medical cannabis market in Texas could see over a million patients gain relief.

California is the nation’s most populous state with 39 million inhabitants, and its cannabis revenue gives some perspective as to the size of a Texas adult-use market. 2024 estimates of California’s cannabis revenue suggest the Golden State will see $7.2 billion legal cannabis sales while the illegal market will generate another $6.4 billion for a total of $13.6 billion. With a reduction for Texas’s smaller size, these numbers suggest a fully-mature Texas adult-use cannabis market could generate close to $10 billion in annual revenue.

Large adult-use states like California and New York are notorious for having an illicit market that threatens to derail their legal, tax-paying cannabis license holders. Texas’s strong business-friendly focus should help deter such an illicit marketplace from gaining too significant a foothold.

The Back-Door Cannabis Industry

Meanwhile, an extensive “back door” cannabis industry is in full swing in Texas. CBD shops now sell delta-9 (fully psychoactive) THC/CBD gummies and tinctures made from the hemp plant, which is the low THC-version of the cannabis plant. These THC/CBD products adhere to the 0.3% definition of hemp as required by the federal 2018 Farm Bill and are legal and available for over-the-counter or online purchase in Texas’s CBD stores.

Gummies, tinctures and other products made form them hemp plant

Current estimates are that there are over 5,000 hemp, CBD and cannabinoid retailers, manufacturers and distributors in Texas that employ more than 50,000 workers and generate more than $8 billion in annual revenue. With these numbers, the 1,100+ licensed Texas hemp growers are sitting well where they are and are poised to take advantage of a legal adult-use market if and when Texas decides it is ready to go down that path.

Next Steps for Texas’s Cannabis Market

People familiar with Texas’s cannabis market believe that adult-use is a ways down the road for the Lone Star State, and that the near-term focus needs to be on decriminalization and achieving an unincumbered medical cannabis system. Tony Gallo of Sapphire Risk Advisory Group advises the Texas cannabis community to concentrate on “increasing what conditions are allowed for medicinal use” and “increasing what areas of the state it’s allowed to be sold.”

There is a groundswell of public support for decriminalizing cannabis as well as for allowing adult-use. A December 2022 poll showed 55% of Texans support legalizing at least small amounts of cannabis for recreational purposes, and another 28% said it should be legal for medicinal purposes.

A February 2023 poll by the University of Houston found that 82% of Texans support the Legislature passing a bill that would allow people to use marijuana for a wide range of medical purposes with a prescription. The belief that cannabis is a “gateway drug” that would make people more likely to use other illegal drugs is losing traction as well – 70% said it would make people less likely to do so or would have no impact.

Final Thoughts

The demand for cannabis in the Lone Star State is strong. With the likelihood of a fully-functioning medical cannabis market coming soon, and the possibility of decriminalization not too far behind, it’s clear that the future of cannabis is bright in Texas.

While the legalities around adult-use will take longer to work out, and the place of hallucinogenic hemp in the mix needs to be examined and clarified, one fact is certain. The path forward that Texas cannabis takes will certainly be a unique one, as unique and as individual as the Texan people themselves.

Texas Takes Advantage of the 2018 Farm Bill

By Abraham Finberg, Rachel Wright, Simon Menkes
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When Texas Governor Greg Abbott signed Senate Bill 339, also known as the Texas Compassionate Use Act, into law in 2015, many Texans expressed frustration. The purpose of the act was to allow the THC treatment of illness via prescription, opening up the state’s medicinal cannabis market. However, the act authorized only low-THC cannabis oil (maximum strength 0.5% THC) and only for epilepsy. Many Texans with other medical conditions that would have benefited from cannabis were unable to access it, and the dosage was seen as weak and minimally effective.

In addition, those residents hoping the Lone Star State would take a significant step forward towards legalizing adult-use cannabis experienced a rude awakening. A long road was still left to travel before recreational cannabis sales would be allowed to take place.

The Texas Department of Public Safety, which oversees the Compassionate Use Program, did a study of other state’s compassionate use programs and determined that three licenses were the minimum needed to supply the state’s epilepsy population. They updated Health and Safety Code to require a minimum of three licenses, and only three licenses were issued in 2017. This, for a state with a population of 29 million.

Then, the following year, a quiet revolution began. It started with the passage of the federal 2018 Farm Bill, signed into law by President Donald Trump as the Agriculture Improvement Act of 2018. Among its many provisions were several sections dealing with the production of hemp. Because the hemp plant and the cannabis plant are the same plant, the Farm Bill defined hemp as “the plant Cannabis sativa L. and any part of that plant, including the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with a delta-9 tetrahydrocannabinol (THC) concentration of not more than 0.3 per-cent.”

The Farm Bill also removed hemp from the Drug Enforcement Administration’s schedule of Controlled Substances and authorized states to submit plans to administer hemp programs, making sure to keep the THC of plants and products under 0.3%.

The Texas Department of Agriculture, led by its enthusiastic three-term commissioner, Sid Miller, was instrumental in promoting the hemp section of the 2018 Farm Bill. Upon the bill’s passage, Miller backed Texas House Bill 1325 which authorized the production, manufacture, retail sale and inspection of industrial hemp crops and products. HB 1325 passed unanimously in June 2019, and the Texas Department of Agriculture opened the online hemp licensing and permit application process on March 16, 2020. The cost to be licensed by the Department of State Health Services is a yearly fee of $258; a licensee either purchases a license to grow, manufacture and sell hemp products wholesale or a license to sell hemp products retail in-store and online.

The hemp is tested before harvesting to make sure the THC level stays below 0.3%; otherwise, it must be destroyed. (The type of THC being measured is delta-9 THC, the same THC used in cannabis flower, gummies and other products being sold in fully legal states.)

That being said, what the hemp farmers realized was that, by keeping the delta-9 THC content of their hemp and hemp oil to 0.3%, they could still make CBD gummies with strong psychoactive properties. A typical 4-gram gummy would support 10mg of THC and a 6-gram gummy would support THC of 15mg, while still maintaining the 0.3% legal hemp concentration. This is a similar number of milligrams of THC found in cannabis gummies sold in cannabis shops in states such as California.

The Texas state list of approved hemp varietals reads like the list of cannabis flower sold in a dispensary: names like Hemp Kush, Bubba Kush and Blu Haze abound. Additionally, because it is still hemp by the 0.3% strength definition, there is no age limit to purchases and products may be purchased online by anyone and mailed anywhere.

There were 1,123 licensed hemp growers in Texas in 2021. “We started out growing hemp for CBD oil,” commented Agriculture Commissioner Miller recently. “Typical farmers saw a lot of profit in doing that.”

A 2023 study revealed that the Texas hemp industry currently employs more than 50,000 workers and generates more the $8 billion in annual revenue. Also, between $19.1 and $22.4 billion in economic activity is generated by the 5,033 hemp, CBD and cannabinoid retailers, manufacturers and distributors in Texas.

“It is vital that Texas continues to support the hemp industry, which has become a key component of the state’s overall economy,” said Cynthia Cabrera, chair of the cannabinoids council of the Hemp Industries Association and chief strategy officer at Austin-based Hometown Hero CBD. “The results of this study demonstrate the positive economic and social impact of hemp in Texas, and that its small businesses and farmers need to be protected to continue to thrive, providing jobs and tax revenue.”

In 2020, smokable hemp, including vapes, was banned in Texas, a ban that was upheld by the Texas Supreme Court. The only allowed consumable hemp products are oil-based products, like tinctures and gummies.

The only allowed consumable hemp products are oil-based products, like tinctures and gummies.

Agriculture Commissioner Miller lobbied against the ban and feels it puts Texas hemp farmers in an uncompetitive position compared to other state’s hemp farmers. “After three years of administering our hemp program, it’s clear the legislature’s effort to ban smokable hemp products has reduced our competitiveness to other states and harmed our farmers,” he said earlier this year. “The ban on smokable hemp products has confused and discouraged licensed growers and forced out processing facilities on which those growers depend.”

Meanwhile, the medicinal cannabis industry has expanded, at least in terms of the conditions for writing a medical prescription and the allowable THC strength. Terminal cancer, autism, multiple sclerosis, amyotrophic lateral sclerosis (ALS), seizure disorders, and incurable neurological disorders such as Alzheimer’s, Parkinson’s, and Huntington’s Disease were approved in 2019, and in 2021, House Bill 1535 raised the THC concentration from 0.5% to 1.0% and added PTSD to the list of approved medical conditions.

From January to April 2023, Texas Department of Public Safety took applications to open more dispensaries at an applicant cost of $7,356 for each application. All licensees must be vertically integrated – product must go from seed-to-sale under one license. If approved, the applicants will owe another $488,520.00 for a two-year period. This will allow them the opportunity to serve almost 61,000 registered patients who are supported by 747 physicians approved by the Regulatory Services Division to prescribe low-THC cannabis through the Compassionate Use Program.

Tony Gallo, managing partner of Sapphire Risk Advisory Group, helped twelve of the recent license applicants prepare their applications. In addition, his firm has been assisting cannabis companies in Texas since 2017. 420CPA reached out to Tony for an “in-the-trenches” view of cannabis in Texas. Gallo believes an adult-use market is a long way away.

“Concerning growth in the Texas cannabis industry,” Gallo says, “two factors come into play — increasing what conditions are allowed for medicinal use, and increasing what areas of the state it’s allowed to be sold.”

420CPA co-founder Abraham Finberg CPA suggests hemp companies position themselves to enter the cannabis market should state legislators and the people of Texas have a change of heart and decriminalize cannabis and authorize an adult-use market. “Hemp entrepreneurs can start with CBD products as they’re doing now and expand their offerings as the laws change,” Finberg says.