The Road Ahead for Hemp: Finding a Path Forward in the Face of the Federal Ban and Patchwork of State Laws

Seven years after the passage of the 2018 Farm Bill and the ensuing proliferation of hemp-derived products, Congress has fundamentally rewritten the rules. On November 12, 2025, Congress passed–and the President signed into law–the Agriculture, Rural Development, Food and Drug Administration, and Related Agency Appropriations Act of 2026 (the "Act"). Section 781 of the Act contains provisions that will effectively ban the vast majority of hemp-derived consumable products currently sold in the United States. This includes products like infused beverages and gummies that have exploded in popularity in recent years as an alternative to alcohol.

It is important to note at the outset that these restrictions do not go into effect until November 12, 2026, one year from passage. Therefore, industry stakeholders have one year to pursue legislative changes, seek protection under state law, and/or adapt their product lines and business models to conform to the new law.

This article will discuss what Section 781 does, what products are now prohibited, what major questions remain unanswered, and, critically, the path forward for hemp-derived product manufacturers and retailers. 

New Rules for Hemp-Derived Products

Fundamentally, Section 781 redefined what constitutes federally legal "hemp" as opposed to federally illegal cannabis, which remains a Schedule I controlled substance at present. Much of what previously fell under the definition of hemp is now considered cannabis.

Specifically, the law imposes the following content and potency restrictions:

• Hemp products cannot contain more than 0.4 milligrams of total THC per container. A "container" is defined as "the innermost wrapping, packaging, or vessel in direct contact with a final hemp-derived cannabinoid product" and excludes "bulk shipping containers or outer wrappings that are not essential for the final retail delivery or sale to an end consumer[.]"
• The prior 0.3% THC by dry-weight threshold will apply to total THC—including THCA, delta-8 THC, and all other isomers of THC, as well as cannabinoids that have similar effects as THC —rather than just delta-9 THC. Therefore, legal hemp products sold to consumers must have a total THC content of not more than 0.4mg per container and 0.3% by dry weight.
• Hemp products cannot contain cannabinoids that were synthesized or manufactured outside of the cannabis plant (e.g., delta-8 THC) or not capable of being naturally produced by the plant (e.g., HHC).
• Epidiolex, and other FDA-approved cannabinoid-based drugs are excluded from Section 781's restrictions.

Section 781 also addresses intermediate hemp-derived cannabinoid products, known in the industry as "work in progress" or "WIP" material. Specifically, the law prohibits intermediate hemp-derived cannabinoid products containing cannabinoids that are synthesized or manufactured outside of the cannabis plant or not capable of being naturally produced by the plant or that contain more than 0.3% total THC by dry weight. This restriction prohibits the interstate shipment of hemp oil, distillates, and isolates unless they meet the total THC thresholds of 0.3% by dry weight. Previously, hemp manufacturers and processors were able to work within federal limitations by diluting bulk hemp oil in ethanol to transport it across state lines. It is unclear whether this will be feasible under the total THC framework. Processors and manufacturers who possess WIP material that is above 0.3% or transport it within a state for further manufacturing or processing are now in violation of federal law but may have a safe harbor under state law.

Open Questions & Regulatory Action Required

Within 90 days of enactment, the FDA and other agencies must publish lists of all cannabinoids known to be naturally produced by the Cannabis sativa L. plant and all tetrahydrocannabinol class cannabinoids. FDA must also clarify what constitutes a "container" within this same timeframe.

One major question not addressed by Section 781 is the impact of the law on hemp-derived product manufacturers and retailers operating lawfully within state regulatory frameworks. Section 781 mandates that most hemp products will now be treated like cannabis under federal law. However, state law may provide a safe harbor for these operators and products, as it does for regulated medical and adult-use cannabis. States must determine how they interpret the federal restrictions within their cannabis frameworks and provide guidance to stakeholders.

Section 781 does not address whether Internal Revenue Code § 280E, which prohibits ordinary tax deductions for businesses dealing in Schedule I controlled substances with the exception of cost of goods sold, will apply to hemp-derived cannabinoid manufacturers and retailers. Hemp-derived product manufacturers and retailers need to be prepared for this reality since many of their products will effectively be reclassified as cannabis. Finally, obtaining financing, a problem that has plagued the cannabis industry for years, may also become more difficult for hemp operators.

Where do hemp businesses go from here?

While Section 781 is viewed by many as a death knell for most consumable hemp-derived products, there is still time for Congress to amend the law before it goes into effect. In addition, a pathway remains in many states with legal cannabis frameworks. 

The hemp ban was added to the appropriations package late in the negotiations without much opportunity for debate due to pressure to reopen the government. Hemp industry associations and business owners will, no doubt, push hard to have the hemp ban language revised or removed within the next year.

Nevertheless, Senator Rand Paul, a champion of the hemp industry, recently remarked that a full repeal of the ban was unlikely. Senator Paul had introduced an amendment removing the hemp ban language from the bill, but the Senate approved Senator Mitch McConnell's motion to table the amendment by a vote of 76-24. In addition, a bipartisan group of state Attorneys General recently petitioned Congress to clarify the definition of hemp and ban synthetic cannabinoids, citing several adverse events linked to unregulated, adulterated and/or synthetic THC products. Senator Paul indicated that he would propose legislation that would allow state regulation of hemp to supersede the federal restrictions. This would return the issue to the states, consistent with an overarching trend in federal law and jurisprudence, avoiding a full repeal of the ban, and allow states to determine rules for potency, packaging, and testing.

Many operators and stakeholders are turning to state law and legislatures for clarity and guidance. States which have legal cannabis and hemp frameworks that differ from federal law have been allowed to operate with limited federal intervention for over a decade. Section 781 does not address state-legal cannabis regimes, though until rescheduling or federal legalization of cannabis occurs, the specter of federal prohibition remains.

Congress has taken a hatchet to this industry where a scalpel would suffice. But some see a silver lining in that Congress has, for the first time, recognized the legality of hemp-derived products with some THC. The framework has been created, and now it must be adjusted. 

Hemp products can be regulated under state cannabis frameworks, so long as states are willing to do so and adapt their laws and regulations accordingly. One pathway that hemp businesses might explore at the state level is creation of specific license types for the manufacture and sale of low-THC hemp-infused products that meet certain milligram thresholds, such as 1 to 5 milligrams of Total THC per serving or container and provide a safe harbor for intermediate hemp products or WIP. To the extent such license types already exist at the state level, state legislatures and regulators should clarify that these licenses fall within the same state-legal framework as cannabis licenses. Nevertheless, interstate commerce of hemp-derived products will be severely curtailed unless Section 781 is repealed or significantly amended, and hemp-derived operators will need to shift to state-centric operations where hemp is grown, processed, manufactured and sold in a single state.

Going forward, education will be key. There is a pathway to allow for the manufacture and sale of cGMP compliant, high quality low-THC hemp-infused products. A better balance can be struck between health and wellness, consumer choice, and safe alternatives to alcohol and painkillers on the one hand, and consumer protection on the other. Industry stakeholders must distinguish their products from synthetic, deceptively marketed, non-compliant high-potency products–colloquially referred to as "gas station weed"–that have been associated with adverse events, particularly in children. And, they must assist lawmakers in devising a regulatory framework that both creates a lane for quality, compliant and safe products while eliminating the loophole for bad actors to protect consumers, through potency limits, age-gating, testing, and labeling.