Hemp taxes in limbo as industry braces for massive sales drop-off in July

Tennessee officials budgeted more than $185 million in hemp tax revenue over two years, but lawmakers made the industry’s most popular product illegal, throwing those projections in doubt. 

Budget officials have already reduced this year’s hemp wholesale tax projections from more than $55 million to less than $10 million. But Tennessee’s Department of Finance and Administration remains optimistic that the state can collect $130 million in taxes for fiscal year 2027, when the new taxing regime takes effect. 

Kelley Hess, executive director of the Tennessee Growers Coalition, questioned the projections since lawmakers banned a hemp-derived product called THCA, which her organization estimated made up about 75% of the state’s market.

In addition to the new prohibition, state lawmakers passed legislation changing how taxes are collected on hemp products, shifting the state agency in charge from the Department of Agriculture to the Alcoholic Beverage Commission and banned several products, the most popular of which was THCA.

When lit on fire, THCA essentially turns into THC, the psychoactive ingredient in marijuana that is illegal in Tennessee. THCA, because it comes from hemp, technically has a THC content below the state’s previous legal threshold.

During the legislative process, several hemp industry experts testified that by banning THCA products such as smokable flower and vapes, lawmakers were going to kill many of the stores that popped up in recent years. 

The new tax structure repealed the additional 6% sales tax on hemp starting on Jan. 1 in favor of a wholesale tax. But before the law went into effect, the hemp industry reached an agreement with lawmakers to operate under the old rules until July 1.

Kelly Cortesi, spokesperson for the state Department of Revenue, said by email that revenue could be down because businesses operating under an old license that haven’t yet registered with the Alcoholic Beverage Commission “may not be reporting” their taxes. 

In January, the state Department of Revenue collected around $140,000 in wholesale and sales taxes on hemp, compared to a budget amount of nearly $10 million. 

Hess said even when the new law takes effect, hemp revenue is likely to crater because companies won’t make enough money to justify a new license. 

“Most people aren’t going to renew,” Hess said.