New hemp tax yields pennies on the dollar

NASHVILLE — Tennessee thought a new tax on hemp would bring in tens of millions, but data shows the state collected less than 3% of what it expected the tax to bring. Gov. Bill Lee's most recent budget proposal estimated the state would collect $55.8 million from the Hemp tax in the first six months of 2026. But in reality, the state generated only about $1.46 million — 2.6% of what it originally budgeted. The budget further estimates the hemp tax will hit $130 million in the fiscal years to follow. In January of this year, a new law went into effect overhauling the state's hemp industry. Among a host of provisions, the law replaced a 6% at-the-register tax on hemp products with a separate, higher tax on wholesalers. That tax can be as high as 60 cents for every dollar the product costs the distributor. The result was not more revenue, as the state predicted, but less. From February to July of 2025, the hemp tax produced $9 million. In the same period this year, after the new tax and THCa ban were implemented, that tax produced $1.4 million. That's an 84% decline between years. In addition, the tax base has shrunk. Whereas it once relied on thousands of retailers, it now relies on a handful of wholesalers. And the number has decreased by almost half since the new law was passed. In April of 2025, there were 115 licensed wholesalers. The state expected that number to go up to 140 by the end of this year, as of Sept. 1, it instead shrunk to 62. One of the most hotly-contested points of House Bill 1376 was its ban of THCa, a naturally-occurring cannabinoid that hemp industry experts say made up 70% of all hemp products in the state. THCa converts to delta 9 THC when smoked, producing the same effects as typical forms of marijuana. Industry professionals warned during testimony that banning such a popular product would cost jobs and close the doors on many hemp businesses in the state. "If you pull the rug out from underneath these businesses by passing this bill, you'll close the door on the majority of hemp businesses within this state," said Clint Palmer, a lobbyist on behalf of the hemp industry, during testimony given last year. Lawmakers wrangled with the idea of including the THCa ban in the bill, which contains a host of other provisions such as carding requirements, potency regulations and increased licensure standards. Ultimately, they voted down an amendment including the ban. But the vote was hotly contested for a supermajority legislature — 56 to 38 — and opponents of the ban included equal parts Democrats and Republicans.