The Texas Hemp Crackdown Is Bigger Than It Looks

Texas appears to be moving toward market consolidation, shifting from a fragmented, low-margin hemp market toward a more tightly controlled, limited-license medical system.

What Happened

The state is expanding its medical cannabis program while also tightening rules around hemp-derived THC products.

Multistate cannabis operators are entering the state market, including Cresco Labs Inc. (CSE: CL) (OTCQX: CRLBF) (FSE: 6CQ) and Green Thumb Industries Inc. (CSE: GTII) (OTCQX: GTBIF). Both businesses were awarded a conditional license under Texas’ Compassionate Use Program (TCUP) recently as part of Phase II of the program expansion, the Texas Department of Public Safety (DPS) said on April 1. Texas Medical Collective was also awarded a permit last week, adding to the nine already announced licensees in Phase I in December 2025.

These vertically integrated licenses allow businesses to cultivate, process and dispense medical cannabis. The businesses are required to become operational within 24 months of licensure, as outlined in House Bill 46.

The news made headlines amid broader disruption in the market tied to new interpretations and enforcement from the Texas Department of State Health Services (DSHS), which have put pressure on intoxicating hemp products such as Delta-8 and THCA flower. The state also imposed stricter THC definitions and higher licensing fees.

At the same time, the new medical cannabis rules allow patients to access products with up to 10 mg of THC per dose, capped at 1,000 mg per package, with qualifying conditions now including chronic pain and terminal illness, at least for now.

That said, DSHS’s wave of hemp regulations could still end up in court. In a recently posted X video, Hometown Hero CEO Lukas Gilkey outlined the company’s next steps and its plans for a potential legal challenge, reported Fox 7 Austin.

“This lawsuit is going after an injunction to prevent the state from putting in place the rules that came from DSHS,” said Gilkey.

What It Means

Recent developments suggest not only tighter oversight, but also a forced shift in demand. With fewer options remaining, some consumers may increasingly turn either to regulated medical programs or the illicit market.

Large cannabis operators are likely to benefit from the first scenario over time, especially if regulatory momentum, both in Texas and nationally, continues to favor licensed cannabis markets.

Some patients in Texas, the second most populous state in the U.S., could benefit from expanded access through the medical program. Others, however, may lose access if hemp options disappear before the licensed system is fully built out.

Charlie Bachtell, CEO of Cresco Labs, said the company is prepared to serve that market.

“Texas patients deserve access to consistent, quality medicine, and we’re excited to deliver it. Our track record in medical markets reflects our ability to build robust programs that put patients and communities first,” Bachtell said in a press release. “Organic licensing enables capital-efficient market entry, and our cash generation and balance sheet give us the financial flexibility to invest and grow a scaled, long-term platform.”

Cresco Labs’ shares traded 3.63% higher at $1 per share after the market close on Monday.

Green Thumb Industries’ shares traded 5.65% higher at $7.1 per share after the market close on Monday.