Market snapshot

Trends and prospects

How would you describe the current state of the cannabis industry in your jurisdiction, including areas of growth, market prospects and trends, and M&A activity?

Cannabis is an illegal Schedule I hallucinogenic substance under the Texas Controlled Substances Act, and its possession, use, cultivation, and distribution is illegal in Texas (Sections 481.032 and 119 to 22, Texas Statutes & Codes Annotated (West 2001); 43 TexReg 2825 (2018)). Given the substantial population of Texas, the availability of farm land, and the entrepreneurial spirit of the people in the state, if cannabis is legalized, the market prospects for hemp and marijuana are strong.

Legal framework

Legislation

What primary and secondary legislation governs the use, cultivation and retail of cannabis in your jurisdiction?

The Texas Controlled Substances Act (Sections 481.001 et seq of the Texas Statutes & Codes Annotated) prohibits the use, cultivation, and retail of cannabis in Texas (Id. at Sections 481.119 to 122). However, the Texas Compassionate Use Act allows for the possession and use of cannabidiol products that are less than 0.5% by weight of tetrahydrocannabinol (THC) by persons with intractable epilepsy when such products are prescribed by a doctor (Sections 169.001 to 169.005 and 487.001 to 487.201 of the Texas Statutes & Codes Annotated (West 2015)).

However, the Agriculture Improvement Act 2018 removed only “hemp”—which it defines as any portion of the cannabis sativa L. plant with a THC concentration of 0.3% or less—from the Controlled Substances Act’s definition of “marijuana.” Thus, to the extent that the Texas Compassionate Use Act allows cannabis with a concentration greater than 0.3% to be used, it is still illegal under federal law. It remains to be seen whether Texas will modify its definition under the Compassionate Use Act to comport with the definition of “hemp” in the Agriculture Improvement Act 2018. In addition, although the Agriculture Improvement Act 2018 removes hemp from the federal Controlled Substance Act’s definition of “marijuana” and permits states to oversee the production of hemp, the cultivation of all forms of cannabis, including hemp, remain illegal in Texas.

The Agriculture Improvement Act 2018 permits the large-scale commercial production of hemp. The act gives the authority to implement programs to oversee the production of hemp to states and, in the event that a state does not implement a plan, the federal government retains the authority to oversee production. Because Texas did not establish a hemp pilot program under the Agriculture Improvement Act 2014, it does not currently have a program in place to oversee the production of hemp. Further, hemp continues to fall under Texas’s definition of “cannabis” (Section 481.002(26) of the Texas Statutes & Codes Annotated). Thus, because the Agriculture Improvement Act expressly does not pre-empt state laws regulating hemp production that are more stringent than federal law, hemp production will likely remain prohibited under the federal hemp program once it is initiated. Consequently, all cannabis cultivation, including hemp, will remain illegal in Texas until the state establishes a hemp program and removes hemp from its definition of “marijuana.”

Regulators

What bodies regulate the use, cultivation and retail of cannabis, and what is the extent of their powers?

The Texas Compassionate Use Act is regulated by the Department of Public Safety (Sections 169.001 to 169.005 and 487.001 to 487.201 of the Texas Statutes & Codes Annotated (West 2015)). Marijuana is otherwise illegal in Texas, and marijuana laws are enforced by state and local law enforcement (Id. at Sections 481.032 and 119 to 122 (West 2001)). Texas has not yet put in place a state-level regime to implement the hemp provisions of the Farm Bill 2018, but any such program is likely to be administered at least in part by the Texas Department of Agriculture.

Personal use and cultivation

Possession and consumption

What rules and restrictions govern the personal possession and consumption of cannabis in your jurisdiction?

The Texas Controlled Substances Act (Sections 481.001 et seq. of the Texas Statutes & Codes Annotated) prohibits the possession and consumption of cannabis in Texas (Id. at Sections 481.119, 121). However, the Texas Compassionate Use Act allows for the possession and use of cannabidiol products that are less than 0.5% by weight of tetrahydrocannabinol (THC) by persons with intractable epilepsy when such products are prescribed by a doctor (Sections 169.001 to 169.005 and 487.001 to 487.201 of the Texas Statutes & Codes Annotated (West 2015)). However, the Agriculture Improvement Act 2018 removed only “hemp,” which it defines as any portion of the cannabis sativa L. plant with a THC concentration of 0.3% or less, from the Controlled Substances Act’s definition of “marijuana.” Thus, to the extent that the Texas Compassionate Use Act allows cannabis with a concentration greater than 0.3% to be used, it is still illegal under federal law. It remains to be seen whether Texas will modify its definition under the Compassionate Use Act to comport with the definition of “hemp” under the Agriculture Improvement Act 2018.

Cultivation

What rules and restrictions govern cultivation of cannabis for personal use?

The Texas Controlled Substances Act (Sections 481.001 et seq. of the Texas Statutes & Codes Annotated) prohibits the cultivation of cannabis in Texas (Id. at Sections 481.119).

In addition, although the Agriculture Improvement Act 2018 removes hemp from the federal Controlled Substance Act’s definition of “marijuana” and permits states to oversee the production of hemp, the cultivation of all forms of cannabis, including hemp, remain illegal in Texas. The Agriculture Improvement Act 2018 permits the large-scale commercial production of hemp. The act gives the authority to implement programs to oversee the production of hemp to states and, in the event that a state does not implement a program, the federal government retains the authority to oversee the production. Because Texas did not establish a hemp pilot program under the Agriculture Improvement Act 2014, it does not currently have a plan in place to oversee the production of hemp. Further, hemp continues to fall under Texas’s definition of “cannabis” (Section 481.002(26) of the Texas Statutes & Codes Annotated). Thus, because the Agriculture Improvement Act expressly does not pre-empt state laws regulating hemp production that are more stringent than federal law, hemp production would likely remain prohibited under the federal hemp program once it is initiated. Consequently, all cannabis cultivation, including hemp, will remain illegal in Texas until the state establishes a hemp program and removes hemp from its definition of “marijuana.”

Use in and outside the workplace

What statutory and case law (if any) governs employers’ ability to restrict cannabis use both in and outside the workplace? Can cannabis use (even medical use) serve as legal grounds for termination?

There is no law in Texas limiting an employer’s ability to restrict cannabis use, and Texas legislation has not addressed drug testing or drug policies. However, cannabis use may nonetheless serve as legal, non-discriminatory grounds for termination from employment in Texas (See Hardin v. Christus Health Se. Texas St. Elizabeth, 1:10-CV-596, 2012, WL 760642, at *8 (E.D. Tex. January 6, 2012), report and recommendation adopted, No. 1:10-CV-596, 2012 WL 760636 (E.D. Tex. March 8, 2012); Hall v. Smurfit–Stone Container Enters., No. 3:07–CV–0501–G, 2008 WL 3823252, at *4 (N.D.Tex. August 14, 2008)).

Commercial cultivation, retail and marketing

Business licensing requirements

What licensing requirements apply to businesses seeking to cultivate, distribute, produce and sell cannabis products in your jurisdiction? What procedures, timeframes and fees apply in this regard, and on what grounds can a licence be revoked?

Cannabis is an illegal Schedule I hallucinogenic substance under the Texas Controlled Substances Act, and its possession, use, cultivation, and distribution is illegal in Texas (Sections 481.032 and 119 to 122 of the Texas Statutes & Codes Annotated (West 2001); 43 TexReg 2825 (2018)). Therefore, there are no specific business licenses for cannabis businesses. Any “dispensing organization” under the Texas Compassionate Use Act must obtain a license issued by the Texas Department of Public Safety (Section 481.032 (2015) of the Texas Statutes & Codes Annotated). Under the Texas Compassionate Use Act, a “dispensing organization” is any “organization licensed by the [Department of Public Safety] to cultivate, process or dispense” cannabidiol permitted under the Compassionate Use Act (Id. at Section 487.001(3)). In order to be eligible for a license as a dispensing organization, the applicant must have:

  • the technical ability to cultivate the cannabis-related products allowed under the Compassionate Use Act;
  • the resources necessary to operate as a dispensing organization;
  • the ability to secure premises reasonably located to allow patients listed on the compassionate use registry access to the applicant;
  • the ability to maintain accountability for the cannabis-related product and its raw materials and by-products to prevent unlawful access or diversion of those materials; and
  • the financial ability to maintain operations for at least two years following the date of its application (Id. at Section 487.102).

Moreover, each director, manager, and employee of the applicant must register under the Compassionate Use Act (Id. at Section 487.151).

In addition, although the Agriculture Improvement Act 2018 legalized “hemp”—defined as any part of the cannabis sativa L. plant with a tetrahydrocannabinol concentration of 0.3% or less—by removing it from the Controlled Substance Act’s definition of “marijuana,” Texas has not implemented a hemp program or removed it from the definition of “cannabis.” Thus, there are no business licenses for businesses seeking to cultivate or produce hemp.

Are any businesses specifically prohibited from selling cannabis products?

Cannabis is an illegal Schedule I hallucinogenic substance under the Texas Controlled Substances Act, and its possession, use, cultivation, and distribution is illegal in Texas (Sections 481.032 and 119 to 122 of the Texas Statutes & Codes Annotated (West 2001)); 43 TexReg 2825 (2018)). Therefore, all businesses are prohibited from selling cannabis products, other than licensed dispensing organizations which distribute medical-use cannabidiol pursuant to the Texas Compassionate Use Act (see Sections 487.101 to 108 of the Texas Statutes & Codes Annotated (West 2015)).

Zoning and real estate considerations

Are there any zoning restrictions on where businesses can cultivate, produce and sell cannabis products?

Cannabis is an illegal Schedule I hallucinogenic substance under the Texas Controlled Substances Act, and its possession, use, cultivation, and distribution is illegal in Texas (Sections 481.032 and 119 to 122 of the Texas Statutes & Codes Annotated (West 2001); 43 TexReg 2825 (2018)). Therefore, all businesses are prohibited from cultivating, producing, and selling cannabis products regardless of location. The Texas Compassionate Use Act prohibits any political sub-division from enacting any rule prohibiting the cultivation, production, dispensing, or possession of cannabidiol pursuant to the Texas Compassionate Use Act (Section 487.201 (2015) of the Texas Statutes & Codes Annotated). However, all regulated premises under the Texas Compassionate Use Act must be at least 1,000 feet from any private or public school or day-care center that existed before the date of the initial license application (37 Texas Administrative Code § 12.7(n) (2017)).

Are there any other notable real estate issues pertinent to cannabis businesses, including with regard to landlord/tenant relationships and real estate market activity?

Cannabis is an illegal Schedule I hallucinogenic substance under the Texas Controlled Substances Act, and its possession, use, cultivation, and distribution is illegal in Texas (Sections 481.032 and 119 to 122 of the Texas Statutes & Codes Annotated (West 2001); 43 TexReg 2825 (2018)). Therefore, real estate in Texas may not be used by cannabis businesses for the cultivation or distribution of cannabis. Although hemp remains illegal in Texas, if and when the state legalizes hemp production, it will likely be an opportune place to grow hemp given its abundance of farmland and hemp’s ability to flourish in arid climates. Consequently, in the event that Texas passes a hemp program, the state should expect numerous real estate deals.

Product restrictions and specifications

Are any cannabis products and accessories prohibited from sale? Do any product specifications apply?

Cannabis is an illegal Schedule I hallucinogenic substance under the Texas Controlled Substances Act, and its possession, use, cultivation, and distribution is illegal in Texas (Sections 481.032 and 119 to 122 of the Texas Statutes & Codes Annotated (West 2001); 43 TexReg 2825 (2018)). Therefore, no product specifications apply to cannabis products in Texas. Further, it is illegal to use, possess with the intent to use, or deliver or manufacture with intent to deliver:

Drug paraphernalia to plant, propagate, cultivate, grow, harvest, manufacture, compound, convert, produce, process, prepare, test, analyze, pack, repack, store, contain, or conceal a controlled substance in violation of [the Texas Controlled Substances Act] or to inject, ingest, inhale, or otherwise introduce into the human body a controlled substance in violation of [the Texas Controlled Substances Act]. (Sections 481.125(a) to (b) of the Texas Statutes & Codes Annotated (West 1994).)

Therefore, cannabis accessories are illegal, and no product specifications apply to cannabis accessories in Texas.

Packaging and labelling

What packaging and labelling requirements apply to the sale and distribution of cannabis products and accessories?

Cannabis is an illegal Schedule I hallucinogenic substance under the Texas Controlled Substances Act, and its possession, use, cultivation, and distribution is illegal in Texas (Sections 481.032 and 119 to 122 of the Texas Statutes & Codes Annotated (West 2001); 43 TexReg 2825 (2018)). Therefore, no labelling requirements apply to cannabis products in Texas. However, cannabinoids produced pursuant to the Texas Compassionate Use Act must be packaged in child-resistant packaging and must be labelled with:

  • the prescribing physician’s name;
  • the patient’s name;
  • the dispensing organization’s:
    • name;
    • state license number;
    • telephone number; and
    • mailing address;
  • the dosage prescribed and means of administration;
  • the date on which the dispensing organization packaged the contents;
  • the batch and serial numbers (and a barcode with such information if applicable);
  • the potency of the product, including the levels of tetrahydrocannabinol and cannabidiol;
  • a statement that the product has been tested for contaminants with specific indications of all findings, and the date of testing in accordance with Code of Federal Regulations, Title 16, Part 1107; and
  • a statement, in bold print, stating that the product is for medical use only and is intended for the exclusive use of the patient to whom it is prescribed (37 Texas Administrative Code § 12.7 (2017)).

Moreover, it is illegal to use, possess with the intent to use, or deliver or manufacture with intent to deliver:

Drug paraphernalia to plant, propagate, cultivate, grow, harvest, manufacture, compound, convert, produce, process, prepare, test, analyze, pack, repack, store, contain, or conceal a controlled substance in violation of [the Texas Controlled Substances Act] or to inject, ingest, inhale, or otherwise introduce into the human body a controlled substance in violation of [the Texas Controlled Substances Act]. (Sections 481.125(a) to (b) of the Texas Statutes & Codes Annotated (West 1994)).

Therefore, cannabis accessories are illegal, and no labelling requirements apply to cannabis accessories in Texas.

Advertising and marketing

What rules and restrictions govern the advertising and marketing of cannabis products and accessories (including online)?

Cannabis is an illegal Schedule I hallucinogenic substance under the Texas Controlled Substances Act, and its possession, use, cultivation, and distribution is illegal in Texas (Sections 481.032 and 119 to 122 of the Texas Statutes & Codes Annotated (West 2001); 43 TexReg 2825 (2018)). Therefore, no specific advertising or marketing rules apply to cannabis products in Texas. Further, it is illegal to use, possess with the intent to use or deliver or manufacture with intent to deliver:

Drug paraphernalia to plant, propagate, cultivate, grow, harvest, manufacture, compound, convert, produce, process, prepare, test, analyze, pack, repack, store, contain, or conceal a controlled substance in violation of [the Texas Controlled Substances Act] or to inject, ingest, inhale, or otherwise introduce into the human body a controlled substance in violation of [the Texas Controlled Substances Act] (Sections 481.125(a) to (b) of the Texas Statutes & Codes Annotated (West 1994)).

Therefore, cannabis accessories are illegal, and no specific advertising or marketing rules apply to cannabis accessories in Texas.

Branding

What rules and restrictions govern the branding and trademarking of cannabis products and accessories? Are there any other special branding considerations for cannabis businesses?

Cannabis is an illegal Schedule I hallucinogenic substance under the Texas Controlled Substances Act, and its possession, use, cultivation, and distribution is illegal in Texas (Sections 481.032 and 119 to 122 of the Texas Statutes & Codes Annotated (West 2001); 43 TexReg 2825 (2018)). Further, it is illegal to use, possess with the intent to use or deliver or manufacture with intent to deliver:

Drug paraphernalia to plant, propagate, cultivate, grow, harvest, manufacture, compound, convert, produce, process, prepare, test, analyze, pack, repack, store, contain, or conceal a controlled substance in violation of [the Texas Controlled Substances Act] or to inject, ingest, inhale, or otherwise introduce into the human body a controlled substance in violation of [the Texas Controlled Substances Act]. (Sections 481.125(a) to (b) of the Texas Statutes & Codes Annotated (West 1994)).

However, Texas does allow individuals to obtain state trademarks under certain situations (Sections 16.001 et seq. of the Texas Business & Commerce Code Annotated). While the statute does not address cannabis or cannabis accessories, it does state that a mark cannot be registered if it consists of or comprises an immoral matter (Id. at Section 16.051(a)(1)). Further, the U.S. Patent and Trademark Office (USPTO) requires a mark to be used lawfully in commerce in order to be trademarked, and therefore does not register marks for cannabis. Consequently, because cannabis and cannabis accessories are illegal in Texas, the state would likely not register a cannabis or cannabis accessory trademark, especially since the USPTO refuses to do the same. There are otherwise no rules or restrictions governing the branding or trademarking of cannabis products and accessories in Texas.

Financing

Private

What private financing options are available for cannabis businesses in your jurisdiction, and what are their respective advantages and disadvantages?

Cannabis is an illegal Schedule I hallucinogenic substance under the Texas Controlled Substances Act, and its possession, use, cultivation, and distribution is illegal in Texas (Sections 481.032 and 119 to 122 of the Texas Statutes & Codes Annotated (West 2001); 43 TexReg 2825 (2018)). Further, in Texas, a person can be found guilty of the acts of another if “acting with intent to promote or assist the commission of the offense, he solicits, encourages, directs, aids, or attempts to aid the other person to commit the offense” (Section 7.02(a)(2) of the Texas Penal Code Annotated). Therefore, financing a cannabis business arguably constitutes aiding in the commission of a criminal offense. In addition, it is illegal in Texas to invest funds in an operation when the investor knows or believes that the funds will be used to further a drug offense (Sections 481.126(a)(1) to (4) of the Texas Statutes & Codes Annotated).

With the enactment of the Agriculture Improvement Act 2018, the hemp industry is expected to see a sharp increase in private financing opportunities.

Public

What rules and restrictions govern cannabis businesses’ listing and admission to trading on recognised equity securities exchanges? What are the advantages and disadvantages of public listing?

Cannabis is an illegal Schedule I hallucinogenic substance under the Texas Controlled Substances Act, and its possession, use, cultivation, and distribution is illegal in Texas (Sections 481.032 and 119 to 122 of the Texas Statutes & Codes Annotated (West 2001); 43 TexReg 2825 (2018)). Further, in Texas, a person can be found guilty of the acts of another if, “acting with intent to promote or assist the commission of the offense, he solicits, encourages, directs, aids, or attempts to aid the other person to commit the offense” (Section 7.02(a)(2) Texas Penal Code Annotated). In addition, it is illegal in Texas to invest funds in an operation when the investor knows or believes that the funds will be used to further a drug offense (Sections 481.126(a)(1) to (4) of the Texas Statutes & Codes Annotated). Therefore, financing a cannabis business or listing it on a securities exchange in Texas arguable constitutes aiding a criminal offence under Texas law.

Medical cannabis

Medical use

Which medical conditions qualify for treatment with cannabis products? What other rules and restrictions govern medical use of cannabis (eg, dosage limits)?

Despite the illegality of cannabis in Texas, under the Texas Compassionate Use Act, Texans are permitted to use low-tetrahydrocannabinol (THC) cannabis for the treatment of intractable epilepsy (Sections 169.001 to 169.005 and 487.001 to 487.201 of the Texas Statutes & Codes Annotated (West 2015)). “Intractable epilepsy” is defined as seizure disorder that has been unresponsive to treatment by at least two U.S. Food and Drug Administration approved epilepsy drugs (Id. at Section 169.001(1)). In addition, to qualify for the compassionate use program, the individual must:

  • be a permanent resident of Texas;
  • have a qualified physician determine that low-THC cannabis is an appropriate remedy and prescribe the low-THC cannabis; and
  • have a second qualified physician concur with the determination. (Id. at Sections 169.003(1) to (3)).

Once a qualifying patient receives a prescription for low-THC cannabis, the treating physician will submit the prescription to the Compassionate Use Registry of Texas, and the patient can visit any qualified dispensary to collect the prescription. In addition, the medical use of cannabis is limited to ingestion by means other than smoking (Section 169.001(3) of the Texas Statutes & Codes Annotated).

“Low-THC cannabis” is defined as:

The plant Cannabis sativa L., and any part of that plant or any compound, manufacture, salt, derivative, mixture, preparation, resin, or oil of that plant that contains: (A) not more than 0.5 percent by weight of tetrahydrocannabinols; and (B) not less than 10 percent by weight of cannabidiol. (Id. at Section 169.001(3).)

Any “dispensing organization” under the Texas Compassionate Use Act must obtain a license from the Texas Department of Public Safety (Section 481.032 of the Texas Statutes & Codes Annotated). Under the Texas Compassionate Use Act, a “dispensing organization” is any “organization licensed by the [Department of Public Safety] to cultivate, process or dispense” cannabidiol permitted under the Compassionate Use Act (Id. at § 487.001(3)).

Physician licensing

What licensing requirements apply for physicians seeking to prescribe cannabis products to patients?

To prescribe low-THC cannabis in Texas, a physician must satisfy several qualifications.

First, the doctor must be licensed in the state of Texas (Section 169.002(b)(1) of the Texas Statutes & Codes Annotated).

Second, the doctor must dedicate a significant portion of their practice to the treatment of epilepsy (Id. at Section 169.002(b)(2)).

Finally, the doctor must be certified by:

  • the American Board of Psychiatry and Neurology in epilepsy, neurology, or child neurology and be otherwise qualified for certification in epilepsy, or neurophysiology; or
  • the American Board of Clinical Neurophysiology in neurophysiology (Id. at Section 169.002(b)(3)).

Pharmacy licensing

What licensing requirements apply for pharmacies seeking to dispense cannabis products?

Only qualified dispensing organizations are permitted to dispense low-THC cannabis in Texas. Thus, there are no licensing requirements for traditional pharmacies. However, a “dispensing organization” under the Texas Compassionate Use Act must obtain a license from the Texas Department of Public Safety (Section 481.032 of the Texas Statutes & Codes Annotated). Under the Texas Compassionate Use Act, a “dispensing organization” is any “organization licensed by the [Department of Public Safety] to cultivate, process or dispense” cannabidiol permitted under the Texas Compassionate Use Act (Id. at Section 487.001(3)). To be eligible for a license as a dispensing organization, the applicant must have:

  • the technical ability to cultivate the cannabis-related products allowed under the Texas Compassionate Use Act;
  • the resources necessary to operate as a dispensing organization;
  • the ability to secure premises reasonably located to allow patients listed on the compassionate use registry access to the applicant;
  • the ability to maintain accountability for the cannabis-related product and its raw materials and by-products to prevent unlawful access or diversion of those materials; and
  • the financial ability to maintain operations for at least two years following the date of its application (Id. at Section 487.102).

In addition, each director, manager, and employee of the applicant must register under the Texas Compassionate Use Act (Id. at Section 487.151).

Health insurance

How are cannabis products covered by health insurers (both public and private)? Are there any rules or restrictions in this regard?

The Texas Compassionate Use Act does not address the role of health insurers in regard to medical cannabis. Consequently, health insurers do not currently cover the cost of low-THC cannabis in Texas.

Product development

What opportunities are available for cannabis businesses to cooperate with healthcare providers, pharmaceutical companies and research institutes in the development of new medical cannabis products? Are there any notable regulatory considerations in this regard?

The Texas Compassionate Use Act permits a licensed dispensing organization to cultivate, process, or dispense low-THC cannabis (Section 487.001(3) of the Texas Statutes & Codes Annotated). However, the act does not contemplate the cooperation of pharmaceutical companies and healthcare providers in the development of products. According to the Texas Department of Public Safety, only licensed dispensaries can test low-THC products. Currently, only three such facilities have been licensed by the state.

Taxes

Sales tax

How are sales of cannabis products taxed?

Cannabis is an illegal Schedule I hallucinogenic substance under the Texas Controlled Substances Act, and its possession, use, cultivation, and distribution is illegal in Texas (Sections 481.032 and 119 to 122 of the Texas Statutes & Codes Annotated (West 2001); 43 TexReg 2825 (2018)). The Compassionate Use Act permits a licensed dispensing organization to cultivate, process, or dispense low-tetrahydrocannabinol (THC) cannabis (Section 487.001(3) of the Texas Statutes & Codes Annotated). However, the act does not create a specific tax for medical cannabis products.

Business taxes

What tax liabilities arise for cannabis businesses, and what best practices are advised for efficient tax planning?

Cannabis is an illegal Schedule I hallucinogenic substance under the Texas Controlled Substances Act, and its possession, use, cultivation, and distribution is illegal in Texas (Sections 481.032 and 119 to 122 of the Texas Statutes & Codes Annotated (West 2001); 43 TexReg 2825 (2018)). The Texas Compassionate Use Act permits a licensed dispensing organization to cultivate, process, or dispense low-THC cannabis (Section 487.001(3) of the Texas Statutes & Codes Annotated). The act does not create a specific tax for medical cannabis products. Consequently, there are no state-specific tax liabilities or tax planning practices applicable to cannabis businesses. However, Section 280E of the Internal Revenue Code prohibits businesses from deducting ordinary business expenses from income derived from the trafficking of Schedule I or II narcotics. Because marijuana remains a Schedule I narcotic, the section applies to marijuana businesses in states where marijuana is legal under state law. Thus, even if Texas were to legalize marijuana, businesses would not be able to deduct business expenses from their gross income. However, because the Farm Bill 2018 legalized “hemp”—defined as cannabis containing 0.3% THC or less—hemp businesses are no longer subject to Section 280E.

Cross-border issues

Import and export

What rules and restrictions govern the import and export of cannabis products and accessories to and from your jurisdiction?

Cannabis is an illegal Schedule I hallucinogenic substance under the Texas Controlled Substances Act, and its possession, use, cultivation, and distribution is illegal in Texas (Sections 481.032 and 119 to 122 of the Texas Statutes & Codes Annotated (West 2001); 43 TexReg 2825 (2018)). Thus, the import and export of cannabis products and accessories is illegal. However, licensed dispensing organizations are exempt from the Texas criminal code when they acquire, possess, produce, cultivate, dispense, or dispose of low-tetrahydrocannabinol (THC) cannabis, raw materials used in the production and cultivation of low-THC cannabis, or “drug paraphernalia used in the acquisition, possession, production, cultivation, delivery, or disposal of low-THC cannabis.” (Section 481.111(e)(2) of the Texas Statutes & Codes Annotated). In addition, a person who delivers “tetrahydrocannabinols or their derivatives, or drug paraphernalia to be used to introduce tetrahydrocannabinols or their derivatives into the human body, for use in a federally approved therapeutic research program” is exempt from criminal prosecution (Id. at Section 481.111(c)).

Immigration considerations

What immigration rules and restrictions are noteworthy for stakeholders in a cannabis business, including with regard to the movement of employees and the cross-border carriage of cannabis for personal use?

Cannabis is an illegal Schedule I hallucinogenic substance under the Texas Controlled Substances Act, and its possession, use, cultivation, and distribution is illegal in Texas (Sections 481.032 and 119 to 122 of the Texas Statutes & Codes Annotated (West 2001); 43 TexReg 2825 (2018)). Only permanent residents of Texas are permitted to obtain low-THC cannabis in Texas, and they must have a prescription from a Texas physician to do so. Thus, the cross-border carriage of cannabis products and accessories for personal use is illegal. Licensed dispensing organizations are exempt from the Texas Criminal Code when they acquire, possess, produce, cultivate, dispense, or dispose of low-THC cannabis, raw materials used in the production and cultivation of low-THC cannabis, or “drug paraphernalia used in the acquisition, possession, production, cultivation, delivery, or disposal of low-THC cannabis” (Section 481.111(e)(2) of the Texas Statutes & Codes Annotated). In addition, a person who delivers “tetrahydrocannabinols or their derivatives, or drug paraphernalia to be used to introduce tetrahydrocannabinols or their derivatives into the human body, for use in a federally approved therapeutic research program” is exempt from criminal prosecution (Id. at Section 481.111(c)).