1. Introduction
The House Committee on Appropriations approved legislation that would prohibit the production, distribution, and sale of hemp-derived delta-9 tetrahydrocannabinol (“THC”) and related cannabinoids at the federal level.1 If the proposed legislation is enacted, it would close the so-called “hemp-loophole,” an unintended consequence of the Agricultural Improvement Act of 2018 (“2018 Farm Bill”), which permits the marketing of hemp-derived products that contain THC, subject to certain production rules. The proposed legislation would impose stricter federal limits on hemp-derived products (intoxicating and non-intoxicating), which would force hemp companies to reshape quality control standards, pivot toward alternative markets, or close altogether. The Senate Appropriations Committee approved a similar provision in its agricultural appropriations bill, but it has since been removed from the Senate version. 2
2. The 2018 Farm Bill
The 2018 Farm Bill created a legal framework that gave rise to the hemp-derived cannabinoid marketplace. Prior to 2018, THC was federally regulated as a Schedule I controlled substance under the Controlled Substances Act of 1970 (“CSA”), irrespective of its source.3 Although both hemp and marijuana come from the Cannabis sativa L. plant, the 2018 Farm Bill amended the CSA to differentiate scheduled “marijuana” from unscheduled “hemp.” It defined hemp as “any part of [the cannabis] plant, including the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers,” that contains no more than a 0.3% concentration of delta-9 THC on a dry weight basis. 4
3. The Hemp Loophole and Resulting State Hemp Regulations
The intent of the 2018 Farm Bill, as reflected in its definition of hemp, was to legalize industrial hemp (for use in, for example, textiles, building materials, food products, cosmetics, supplements, and the like), while protecting against the intoxicating effects of THC. The 2018 Farm Bill’s hemp definition, however, referenced only one isomer of THC, delta-9 THC—which has given rise to the so-called “hemp loophole.”
Exploiting the hemp loophole, businesses began cultivating and selling hemp-derived products containing THC isomers that have psychoactive and pharmacological profiles that are similar to delta-9 THC (e.g., delta-8 and delta-10 THC), as well as other hemp-derived cannabinoids (e.g., cannabidiol, or “CBD”). These businesses quickly realized that, due to the low prevalence of these minor cannabinoids in botanical hemp, it was more cost-effective to produce the cannabinoids synthetically.
Because Congress did not intend to create a commercial market for new intoxicating hemp-derived consumables, it also did not establish baseline quality control regulations. Producers capitalized on these regulatory gaps to market intoxicating hemp products without federal oversight in gas stations, liquor stores, online, and through other retail channels.5
As a result of the hemp loophole, intoxicating hemp products have become a public health concern for lawmakers on both sides of the aisle.6 Concerns have arisen over these products’ potency and lack of federal oversight, as well as over the lack of federal minimum purchasing age requirements, labeling restrictions, and production standards.
In response, a state patchwork of hemp regulation has emerged. Minnesota and Kentucky, for instance, have imposed minimum age restrictions, dosage limits, mandatory testing, and labeling requirements.7Other states have focused on regulating production and retail practices.
4. The New Hemp Definition in the Fiscal Year 2026 Agriculture Appropriations Bill
The House’s FY 26 Agriculture, Rural Development, Food and Drug Administration, and Related Agencies Appropriations Bill (“FY 26 Ag Appropriations Bill”) contains a rider that would significantly change to the definition of hemp and dramatically reshape the current hemp-derived product market.
Under the legislation’s proposed definition, “hemp” would include any part of the Cannabis Sativa L. plant that contains no “quantifiable amounts” of THC [including delta-8, delta-9, and delta-10], THCA, or “any other cannabinoids that have similar effects (or are marketed to have similar effects) on humans or animals as [THC].”
This definition would exclude, and therefore federally place in Schedule I, hemp-derived products that contain:
- Cannabinoids not capable of being naturally produced;
- Cannabinoids capable of being naturally produced but synthesized or manufactured outside of the plant; or
- Any “quantifiable” amounts of THC, THCA, or other cannabinoids that have similar effects as THC on humans or animals.
In other words, hemp products must contain only naturally occurring, naturally derived, and non-intoxicating levels of cannabinoids.8 Crucially, the legislation would expand the scope of regulated substances beyond delta-9 THC.
5. The Dividing Line: “Quantifiable” Amounts of THC or THC-Adjacent Cannabinoids
The House’s FY 26 Ag Appropriations Bill, if enacted, would limit “hemp” to products with no “quantifiable amounts” of THC, THCA, or other similar cannabinoids, but it would not define “quantifiable amounts.” Instead, the U.S. Secretary of Health and Human Services (“HHS”) would be empowered to establish limits in consultation with the USDA Secretary.
Significantly, the House Committee clarified that it does not intend to impact products containing “trace or insignificant amounts” of THC, specifically in reference to industrial or non-intoxicating hemp products. 9
The House Committee directs the Food and Drug Administration (“FDA”) to establish a task force to provide input on determining the level of “quantifiable amount” of THC or other cannabinoids in hemp-derived cannabinoid products. The FDA task force likely will recommend setting the “quantifiable amount” well below 0.3% on a dry weight basis to an amount deemed “non-intoxicating” based on scientific evidence, while considering the practicalities of THC purification and testing.
If the House’s FY 26 Ag Appropriations Bill is enacted, the future definitions of “quantifiable amounts” and “trace or insignificant amounts” will be critical for stakeholders seeking to keep their cannabinoid levels federally compliant. To be clear, the future definitions of these terms will determine whether a product is considered federally scheduled or legal industrial hemp.
6. Legislative Status
As it stands, the House’s FY 26 Ag Appropriations Bill has been reported out of the House Appropriations Committee (with a vote of 35-27).10 The provision closing the hemp loophole was removed from the Senate’s FY 26 Ag Appropriations Bill. The Senate went on recess on August 2, 2025. To become law, the House and Senate must pass identical legislation and then get it signed by the President.
Whether the House’s hemp loophole rider is retained in the final FY 26 Ag Appropriations Bill or whether a similar bill is introduced separately later in the session, there may be pushback from lawmakers concerned about the impact on local businesses and tax revenue. For example, before fighting to remove the hemp provision from the Senate bill, Sen. Rand Paul (R-Ky.) said it would “devastate” Kentucky’s hemp industry.11 The hemp loophole has created a gray market worth an estimated $28 billion.12 USDA reported that the value of the national industrial hemp market totaled $445 million in 2024.13 Some states’ tax information shows significant market expansion. In Tennessee, for example, a 6% tax on hemp-derived cannabinoid products yielded over $14.5 million in revenue, an almost 30% increase from the previous fiscal year. 14
7. Legal and Commercial Implications
As outlined above, the House’s FY 26 Ag Appropriations Bill would effectively ban the production and sale of all hemp-derived products that contain any “quantifiable” amount of THC or cannabinoids with similar intoxicating effects.
The House’s FY 26 Ag Appropriations Bill would require businesses to revise testing and extraction methods to meet stricter federal thresholds. CBD product manufacturers and industrial hemp producers may face limitations in producing non-intoxicating consumer products due to residual THC content.
Companies that are unable to comply may need to pivot to state-legal cannabis markets or cease operations altogether. However, because the House’s hemp provision is focused on cannabinoids, this bill may prompt research into other chemical classes contained in cannabis, such as terpenes and flavonoids.
8. What Should Stakeholders Do Now?
Industry stakeholders should assess risks, explore mitigation strategies, and actively prepare for a shifting regulatory landscape:
- Strategic M&A and Restructuring: Explore mergers, restructuring, or diversification into adjacent markets, such as industrial hemp, state-legal recreational cannabis, or non-cannabinoid consumer wellness or food products.
- Regulatory Advocacy: Engage with federal agencies and Congress to demonstrate the appropriate “quantifiable” amount of THC or related cannabinoids.
- Pursue FDA Routes: Consider seeking (a) FDA approval for cannabinoid products via Investigational New Drug Applications or (b) dietary supplement development and notification via New Dietary Ingredient Notifications.
The exact language of the FY 26 Ag Appropriations Bill will evolve during the legislative process, but closing the hemp loophole has strong momentum, with mixed congressional support, state actions, related FDA concerns over cannabinoid products,15 and competitor industry lobbying 16 pointing toward stricter federal regulations. Whether or not the provision closing the hemp loophole becomes federal law as part of agricultural appropriations or later this legislative cycle, it remains crucial for stakeholders to stay attuned to state and federal action in the space.
1Agriculture, Rural Development, Food and Drug Administration, and Related Agencies Appropriations Act, 2026, H.R. 4121, 119th Cong. (2025), available at https://www.congress.gov/bill/119th-congress/house-bill/4121; Renée Johnson, Hemp Restrictions in FY2026 Agriculture Appropriations, Congressional Research Service (updated July 17, 2025), https://www.congress.gov/crs-product/IN12565.
2Agriculture, Rural Development, Food and Drug Administration, and Related Agencies Appropriations Act, 2026, S. 2256, 119th Cong. (2025), available at https://www.congress.gov/bill/119th-congress/senate-bill/2256/; Al Weaver and Aris Foley, Republicans move to clear final hurdles to funding bill before recess, TheHill.com (July 29, 2025), https://thehill.com/homenews/senate/5426408-senate-republicans-spending-bills/.
3Congressional Research Service, The Evolution of Marijuana as a Controlled Substance and the Federal-State Policy Gap (updated Apr. 7, 2022), https://www.congress.gov/crs-product/R44782.
47 U.S.C. §1639o; Marian J. Lee, The Legalization of Hemp, FDLI.org (Feb. 2019), https://www.fdli.org/2019/02/the-legalization-of-hemp/.
5See generally Press Release, House Comm. on Appropriations, Committee Approves FY26 Agriculture, Sural Development, Food and Drug Administration, and Related Agencies Appropriations Act, (June 23, 2025), https://appropriations.house.gov/news/press-releases/committee-approves-fy26-agriculture-rural-development-food-and-drug [hereinafter House Comm. on Appropriations Press Release].
6Letter from Twenty State Att’ys Gen. & D.C. to Chairman Thompson, et al. (March 20, 2024), https://events.in.gov/event/indiana-and-arkansas-co-lead-18-other-states-dc-in-calling-on-congress-to-fix-hazy-language-in-farm-bill?utm_campaign=widget&utm_medium=widget&utm_source=State+of+Indiana [hereinafter “Letter to Chairman Thompson”].
7Alexander Malyshev & Sarah Ganley, The Battle Over Buzz: Federal and State Crackdowns on Intoxicating Hemp Products Escalate, Reuters.com (July 9, 2025), https://www.reuters.com/legal/litigation/battle-over-buzz-federal-state-crackdowns-intoxicating-hemp-products-escalate-2025-07-09/.
8Renée Johnson, Hemp Restrictions in FY2026 Agriculture Appropriations, Congressional Research Service (June 26, 2025), https://www.congress.gov/crs-product/IN12565.
9H.R. Rep No. 119-172, at 92 (2025), available at https://www.congress.gov/119/crpt/hrpt172/CRPT-119hrpt172.pdf.
10See House Comm. on Appropriations Press Release. The Senate’s original version which contained the hemp loophole provision was reported out of the Appropriations Committee 27-0. Press Release, Senate Comm. on Appropriations, Senate Committee Approves FY 2026 Agriculture Appropriations Bill, (July 10, 2025), https://www.appropriations.senate.gov/news/majority/senate-committee-approves-fy-2026-agriculture-appropriations-bill.
11Grace Yarrow, Senate’s Paul holds up ag appropriations bill over hemp language, Politico.com (July 10, 2025), https://subscriber.politicopro.com/article/2025/07/mitch-mcconnell-hemp-loophole-farm-bill-appropriations-00445268. Similarly, Florida Gov. Ron Desantis vetoed a 2024 bill that would ban intoxicating hemp-derived products, concerned that it “would introduce dramatic disruption and harm to many small retail and manufacturing businesses in Florida.” Veto of Fla. SB 1698 (2024) (Letter from Gov. Ron DeSantis to Sec’y of State Cord Byrd, (June 7, 2024), https://www.flgov.com/eog/sites/default/files/press/Senate_Transmittal_6.7.24.pdf.
12See Letter to Chairman Thompson.
13USDA, National Hemp Report (Apr. 17, 2025), https://downloads.usda.library.cornell.edu/usda-esmis/files/gf06h2430/ww72d7715/4f16f032g/hempan25.pdf.
14Tenn. Dep’t of Revenue, 2025 Hemp Report (June 24, 2025), https://www.tn.gov/content/dam/tn/revenue/documents/taxes/sales/2025%20Hemp%20Report.pdf
15See FDA, Agency Information Collection Activities; Submission for Office of Management and Budget Review; Comment Request; Food and Drug Administration’s Adverse Event and Product Experience Reporting Program, 90 Fed. Reg. 27,029 (June 25, 2025) (Docket No. FDA–2024–N–5468), available at https://www.federalregister.gov/documents/2025/06/25/2025-11605/agency-information-collection-activities-submission-for-office-of-management-and-budget-review; see also Forbes Breaking News, HHS Commissioner Marty Makary Asked Point Blank if Kratom is Safe to Use, YouTube.com (July 29, 2025) https://www.youtube.com/watch?v=SMbMkVQOHGQ (starting at 7:40) (describing FDA Commissioner Dr. Martin Makary’s “serious concerns” in response to a question about high-potency and synthetic cannabis products).
16Alcohol industry stakeholders support closing the hemp loophole, presumably to limit competition from hemp-derived intoxicating beverages. See Distilled Spirits Council of the United States, Distilled Spirits Council Applauds Language to End Farm Bill Loophole that Led to the Unregulated Proliferation of Intoxicating Hemp in U.S. (June 2025), https://www.distilledspirits.org/news/distilled-spirits-council-applauds-language-to-end-farm-bill-loophole-that-led-to-the-unregulated-proliferation-of-intoxicating-hemp-in-u-s/.
