A new federal lawsuit is challenging Texas’ ban on most hemp-derived THC products, with members of the state’s hemp industry arguing that the crackdown has wiped out thousands of jobs, cost businesses billions of dollars and unfairly protected Texas’ tightly controlled medical marijuana program from competition.
Four hemp retailers filed the lawsuit Wednesday in the U.S. District Court for the Western District of Texas against the Texas Department of State Health Services. The plaintiffs accuse the agency of executive overreach by classifying several hemp-derived substances as illegal drugs despite federal protections established under the 2018 Farm Bill.
The federal law removed hemp from the Controlled Substances Act and defined legal hemp based on its concentration of delta-9 THC.
“Thousands of small business owners built enterprises, hired workers, and invested capital relying on that law,” David Sergi, lead counsel for the hemp industry in the case, said in a news release. “DSHS does not have the constitutional authority to rewrite statutes or destroy an industry simply because it disagrees with legislative policy.”
The lawsuit paints a dire picture of what has happened to the Texas hemp market since the state began enforcing its new THC classifications.
According to the complaint, more than 36,000 jobs have been lost through workforce reductions, retail sales have fallen by more than 50% and businesses have suffered billions of dollars in lost revenue. Retailers have also been left with large amounts of inventory they can no longer legally sell.
The plaintiffs argue the damage goes beyond lost jobs and shuttered businesses.
They allege the state’s decision effectively gives preferential treatment to the Texas Compassionate Use Program, or TCUP, the state-regulated medical marijuana program. The lawsuit claims DSHS has shut down much of the competing hemp market while leaving the state-licensed medical cannabis industry protected.
Along with the complaint, the plaintiffs are seeking a temporary restraining order and temporary injunction that would block enforcement of the ban while the lawsuit proceeds.
“We are asking the Court to uphold the Texas Constitution, protect thousands of Texas jobs, and keep policy decisions where they belong—with the elected representatives of the people,” Sergi said.
Second federal lawsuit challenges Texas THC crackdown
Wednesday’s case is the second federal lawsuit filed this month challenging Texas’ treatment of hemp-derived THC.
Earlier in August, two hemp retailers and a distributor sued DSHS, Attorney General Ken Paxton and officials in Galveston County in the U.S. District Court for the Southern District of Texas.
That lawsuit similarly argues Texas cannot classify federally protected hemp products as illegal controlled substances. The plaintiffs contend the state’s definitions fail to adequately distinguish between legal hemp and illegal marijuana, conflict with protections established by the 2018 Farm Bill and place an unconstitutional burden on interstate commerce.
“For more than seven years, Texans have built a multibillion-dollar hemp industry under laws that define these products as legal hemp. Without any change to those laws, the State now says they're Schedule I drugs, like heroin,” Andrea Steel, lead counsel for the hemp industry in that case, said in a news release.
The legal challenges follow a dramatic change in what Texas stores can legally sell.
At the end of July, state officials banned several hemp-derived THC products, including those containing delta-8 and delta-10 THC. Other affected cannabinoids include THCP and THCA flower.
Delta-9 THC products that meet the federal definition of hemp — containing no more than 0.3% delta-9 THC by dry weight — remain legal.
The distinction matters because products covered by the state’s new Schedule I classification now carry potentially serious criminal penalties. Cannabis experts say possession can be treated as a state jail felony, punishable by 180 days to two years behind bars and a fine of up to $10,000.
“Our Constitution does not allow the government to jail a person under a framework no one can make sense of - our clients are asking the federal court to protect Texans from their own confused government,” Steel said.
Industry advocates say more than half of the THC products previously available in Texas stores could disappear if the new restrictions remain in effect.
“It’s a pretty big blow, and it’s recriminalizing a lot of cannabis products that have been completely legal and allowable in the state for many years, so we’re taking steps backwards toward prohibition,” Sarah Todd, a media representative at the Texas Cannabis Policy Center, previously told the Tribune.
Years of legal uncertainty
The latest upheaval traces back to a long-running dispute over DSHS’ attempt to classify certain forms of THC as controlled substances.
In May, the Texas Supreme Court allowed the agency to move forward with classifying hemp-derived THC other than qualifying low-dose delta-9 products as Schedule I drugs. The decision ended an injunction dating to 2021 that had prevented DSHS from enforcing the classification.
For nearly five years, that injunction allowed Texas retailers to continue selling products containing cannabinoids such as delta-8 THC.
The court’s decision changed the landscape almost overnight.
Under the current rules, synthetically created THC forms including delta-8 and delta-10 are prohibited, while hemp-derived delta-9 products containing less than 0.3% THC by dry weight remain available.
That exception stems from the 2018 Farm Bill, which defines hemp according to its delta-9 THC concentration. The federal law helped fuel the explosive growth of intoxicating hemp products nationwide as manufacturers developed products using cannabinoids other than delta-9 and found ways to sell delta-9 products while remaining below the federal concentration limit.
Texas now has roughly 14,000 retail locations licensed to sell consumable hemp, according to DSHS.
The industry has spent much of 2026 facing uncertainty over which products it can sell and how long they will remain legal.
A separate statewide ban on the sale of smokable hemp products, including flower and pre-rolled joints, had been scheduled to take effect March 31. A court ruling paused that restriction, meaning qualifying delta-9 smokable hemp products remain available.
Texas lawmakers also banned the sale of vape pens containing THC during the last legislative session.
And the political fight is far from finished.
Lawmakers who have pushed for tougher restrictions have promised to return to the issue when the Legislature reconvenes. Sen. Charles Perry, R-Lubbock, has already said he plans to again file legislation seeking to ban consumable hemp products.
For hemp businesses, however, the immediate battle has moved from the Capitol to the courts.
With two federal lawsuits now challenging the state’s THC classifications, judges will be asked to decide whether Texas regulators are legitimately enforcing the state’s controlled substance laws or have gone beyond their authority and undermined a hemp market that businesses argue was built around protections established by Congress.
