Not much has changed for cannabis law at the state level since my last post on the topic. I noted there that several defendants were seeking review before the North Carolina Supreme Court regarding the potential impact of legal hemp and the sight or odor of cannabis on probable cause. As readers may know, the North Carolina Supreme Court granted review in several cases addressing that issue and heard oral argument this past September (as discussed in this article). Whenever the court decides those cases, I will be sure to cover them here. Meanwhile, there have been major developments for legal cannabis at the federal level. Today’s post examines those changes and their potential implications for North Carolina’s hemp industry.
Existing Federal Hemp Law. Under current federal (and state) law, hemp is defined as any part of the Cannabis sativa plant, including all extracts, derivatives, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with a delta-9 THC concentration of not more than 0.3% on a dry weight basis. 7 U.S.C. 1639o; see also G.S. 90-87(13a). This definition of hemp was first codified in federal law with the passage of the 2018 Farm Bill. Because the federal definition distinguished legal hemp from illegal marijuana based only on the delta-9 THC concentration, the hemp industry soon began producing hemp products with higher levels of other cannabinoids or cannabinoid isomers, derivatives, acids, and the like, many of which have intoxicating effects. For instance, THCA, an acid and precursor of THC, has become a popular hemp product. Isomers of THC like delta-7, delta-8, and delta-10 have likewise grown in popularity. Some cannabinoids that naturally occur in cannabis only in trace amounts, like hexahydrocannabinol (“HHC”), can now be synthetically derived from hemp and produced at a commercial scale. Other cannabinoids do not naturally occur at all in the cannabis plant but are derivable from hemp, such as THC-O. These too have been found by some courts to qualify as legal hemp products (as I discussed here). These products and more are often sold by themselves or blended with other cannabinoids to increase the potency of the final product. These hemp and hemp-derivative products are largely unregulated. For example, there are currently no federal (or state) limits on the age a person must be to purchase, possess, or use hemp products, no purchase amount or concentration limits, and no standard quality assurance or child safety measures.
The New Federal Definition of Hemp. This past November, Congress passed a continuing resolution (“CR”) to fund and reopen the government following a lengthy government shutdown. Tucked into Title VI of the CR is an amendment to the federal definition of hemp (available here at page 64). Under the amended version of 7 U.S.C. 1639o, hemp will no longer be classified by reference to its delta-9 THC levels. Instead, hemp will be defined by its “total” THC. Under the amended definition, total THC means all the tetrahydrocannabinols within the plant, specifically including THCA, and presumably including all THC isomers like delta-8.
The amended definition also contains several exclusions that further narrow the definition of hemp. Products containing cannabinoids not naturally occurring in the cannabis plant are excluded, as are naturally occurring cannabinoids that are “synthesized or manufactured” outside of the plant. Hemp products may not contain more than 0.3% of the combined total of all THCs or of the total THC plus any other cannabinoids with effects like those of THC (or that are marketed to have similar effects as THC). For final hemp products that meet the new definition of hemp, they cannot contain more than 0.4 milligrams per container of any THC or other cannabinoid with effects like those of THC.
The statute distinguishes hemp-derived cannabinoid products from industrial hemp. Industrial hemp is hemp intended to be used for its stalk, fiber, leaves, or seeds in non-cannabinoid preparations (mostly for industrial or research purposes). Hemp-derived cannabinoid products, on the other hand, are products containing cannabinoids intended for human or animal consumption by any means of application or administration, including inhalation, ingestion, and topical application.
What is the Impact of the New Definition? Congress was explicit about its desire to more strictly regulate intoxicating hemp products, and the legislation accomplishes that goal. Absent additional legislation, hemp-based products like THCA, THC-O, delta-8, HHC, and many others will no longer meet the definition of legal hemp after the new definition kicks in. Instead, those products will be considered illegal marijuana, a Schedule I drug under current federal law. Further, because the law also targets “intermediate” hemp products—products not yet in their final form or those that are intended to be mixed or added to other substances before being consumed—the new definition may also criminalize common non-intoxicating hemp-based cannabinoids like CBD and CBG. The manufacturing processes used to create these products often produce THC byproducts that will be illegal under the new definition, and many (perhaps most) non-intoxicating hemp products like CBD contain more than 0.4 milligrams of total THC (or similar cannabinoids) per container.
These changes to the federal definition of hemp do not go into effect immediately. Instead, Congress set an effective date of November 12, 2026, one full year from the passage of the November 2025 CR. After that date, people producing, selling, or possessing hemp products like delta-8 or THCA will be in violation of federal criminal law.
What about State Law? It is worth noting that state law in this area has not changed and all the hemp products discussed above remain legal as a matter of state law. It is possible that state law could change, but unless it does, state law will conflict with federal law come next November. That conflict begs the question of whether and to what extent the federal government will attempt to enforce federal law in states like North Carolina. Because of hemp’s potential impact on interstate commerce, the federal government has jurisdiction to enforce its criminal law in the states. This is true even when the hemp is grown, sold, and used in North Carolina and never leaves the state. See Gonzales v. Raich, 545 U.S. 1 (2005) (holding that Congress’s commerce powers permit federal enforcement of federal controlled substances law, even when the substance is locally grown and used pursuant to state law).
Potential Risks to the Hemp Industry. Setting aside the potential for a federal criminal prosecution based on possessing or distributing hemp, the new definition creates other challenges for the hemp industry. It is possible that the federal government could utilize civil judicial forfeiture to seize the property and assets of an entity selling hemp. See 18 U.S.C. 981 (making any proceeds or property derived from the sale, distribution, or manufacture of a controlled substance subject to civil forfeiture). In such proceedings, the government has the initial burden to show by a preponderance of the evidence that the property is subject to seizure. If it meets that initial hurdle, the burden shifts to the person claiming a legitimate interest in the property to show by a preponderance that they were an innocent owner, i.e. the property was not derived from illegal activity, or the claimant could not have reasonably known the property was derived from illegal activity (among other narrow exceptions). See 18 U.S.C. 983(b)&(c). This process can occur regardless of whether any criminal charges are brought. Thus, a person engaging in a legal hemp operation under state law may be subject to the potential for civil forfeiture, even if federal law enforcement is uninterested in criminally prosecuting the same conduct.
In a similar vein, federal money laundering law prevents banks from accepting money or conducting transactions with proceeds derived from the sale of controlled substances. See 18 U.S.C. 1956(c)(7)(i). Businesses and individuals in the hemp industry may therefore be prohibited from using banks or credit cards to operate their businesses.
Finally, the hemp ban may increase federal tax liability for those involved in the hemp business. Under 26 U.S.C. 280E, businesses may not deduct normal business expenses like rent from their taxes if the business is engaged in trafficking Schedule I or II drugs. If the new hemp ban goes into effect and marijuana remains a Schedule I drug at the federal level, Section 280E will presumably mean that normal business expenses associated with running a hemp business are no longer deductible under federal tax law.
The End of the Hemp Industry? While the potential consequences outlined above could radically alter the landscape for legal hemp in North Carolina and other states, it may be premature to say the end is nigh for the industry. As this article notes, at least two bills have been drafted to either repeal the new federal definition of hemp altogether or create a more robust regulatory framework for consumable hemp products.
Even without such legislative change, just because the federal government can enforce its new hemp ban against businesses that are legal under state law does not necessarily mean that it will. Consider that marijuana remains an illegal controlled substance as a matter of federal law. Since 2014, however, Congress has banned the Department of Justice from spending federal dollars to enforce the federal ban on marijuana in marijuana-friendly states (as discussed in greater detail here). To the extent federal and state law continues to conflict, a similar funding provision could allow hemp markets to continue operating within their state borders.
Federal Reclassification of Marijuana. Other efforts are underway at the federal level to reclassify marijuana as a Schedule III drug instead of a Schedule I. This process began under the Biden administration. A recent executive order from the Trump administration has directed the Attorney General to expedite the process. Reclassifying marijuana to a Schedule III would, at the very least, alleviate the increased tax liability under 26 U.S.C. 280E, because that provision only applies to Schedule I and II drugs.
Additionally, the executive order endorses the medicinal value of marijuana and of hemp-derived consumable cannabinoid products. It notes the new federal definition of hemp will ban many THC and full-spectrum CBD products and calls for executive branch officials to work with Congress to (again) update the meaning of hemp of federal law and develop a regulatory framework for hemp-derived consumable THC and CBD products. The executive order is therefore one more indication that the hemp industry may live on in one form or another.
It will be interesting to watch how these and other developments continue to play out for hemp and hemp products. If you have thoughts or questions on the new federal definition of hemp or federal reclassification, I can always be reached at dixon@sog.unc.edu.
