Tennessee Traded a $17.5 Million-a-Year Hemp Tax for One That Has Collected $1.3 Million in 6 Months

By Shannen Sharpe

This is Part 1 of a 3-part series on Tennessee’s hemp tax, reported from the state’s own records. Part 2 covers how the law was made. Part 3 covers who carries the cost.

Tennessee used to collect millions of dollars a year in taxes on hemp sales. This year, a new law replaced that tax with a different one. The new tax has brought in 84% less money.

The state’s own records show what the old tax paid, what lawmakers changed, what the state expected, and what it actually got.

For years, hemp was good business for the state. In the last year of the old system, more than 4,000 stores had licenses to sell hemp products. They were in all 95 Tennessee counties. Nearly 400 suppliers kept them stocked.

Every sale carried an extra 6% state tax on top of the regular sales tax. That tax brought in $12.6 million in its first year, by the legislature’s count. It brought in $17.5 million in the 2024-25 budget year. It collected at least $1.45 million in every month of 2025.

Then it stopped. From February through July of this year, the state collected about $1.4 million in hemp taxes. In the same 6 months of 2025, it collected $9 million. That is an 84% drop. And it happened while hemp products were still legal to sell.

The old tax ended quietly. The numbers sit in spreadsheets the Department of Revenue posts each month, on a page few people visit. Here is what they show.

What changed

A new state law, 2025 Public Chapter 526, rewrote Tennessee’s hemp rules starting Jan. 1, 2026. It did 4 things.

It moved hemp oversight from the Department of Agriculture to the Tennessee Alcoholic Beverage Commission.

It banned THCa products. THCa is a compound in raw hemp flower.

It ended the 6% tax at the register.

It created a new tax paid by wholesalers, the companies that sell to stores. The rates: 2 cents per milligram of hemp-derived cannabinoid, $50 per ounce of hemp flower, and $4.40 per gallon of liquid product.

Businesses with old Department of Agriculture licenses kept operating under the old rules until those licenses ran out on June 30, 2026. The state agreed to that in 2 legal agreements in late 2025. So for the new tax’s first 6 months, almost every business selling hemp sat outside it. THCa products stayed legal to sell the whole time.

One more thing happened on the way to passage. The ban was taken out of the bill in committee, then put back on the House floor a week after the state priced the bill without it. The state priced it again that day, ban included, and kept the same estimate. Part 2 tells that story, vote by vote.

What the state expected

Before lawmakers voted, the state priced the bill more than once. The 2 estimates that matter came from the Fiscal Review Committee. That’s the legislature’s office that estimates what bills will cost if enacted.

On March 5, 2025, Hemp Law Group Compliance Director Clint Palmer told a House committee that stores expected to lose about 70% of their sales if the bill passed.

Five days later, the first estimate came out. It valued Tennessee’s hemp market at $120.4 million a year. And it assumed that THCa products were about 30% of sales.

The state stuck with 30%. It estimated the new wholesale tax would bring in about $6 million in the first half of 2026 and $12 million a year after that. That version also sent half the money to local roads and half to the TABC. But the law that passed sends 80% to the state’s general fund instead.

The March estimate also counted what was being replaced: 2,634 licensed hemp retailers and 230 suppliers and wholesalers. It expected 140 wholesalers to pay the new tax in the first year. And it budgeted for the new system: 28 new TABC jobs and about $4.9 million in first-year costs.

Then the estimate changed. On April 3, 2025, the committee priced a new version of the bill with the final tax rates. This time it expected wholesalers to sell 1.75 million ounces of taxed hemp flower a year. On that math, the new tax would bring in $55.8 million in its first 6 months and about $144 million a year after that. Most of that money was supposed to come from the flower tax.

Those are the numbers the state wrote into its budget: $55.8 million for the budget year that ended in June 2026, and $130 million for the year that started July 1, 2026. The April 3 estimate was for a bill with no THCa ban in it. A week later the House put the ban back, and the committee priced the bill again the same day. It kept the same $55.8 million. And by the count of Hemp Law Group’s clients, most of the flower being sold was THCa flower, the product the ban removed.

The state kept both numbers for almost a year. In February 2026, Gov. Bill Lee’s new budget cut the first one. The $55.8 million expected for the budget year ending June 2026 dropped to about $9.6 million. The second number did not change. In its published budget, the state still expects $130 million from the hemp tax in the budget year that started July 1, 2026.

The Department of Finance and Administration, the office that tracks the state’s money, still measures the hemp tax against the original $55.8 million. Its monthly reports show the gap. Through July, the state collected $1.46 million against that plan. That figure includes brand registration fees along with the tax. That is $54.3 million short of the plan, or 97%. No month reached even 5% of its goal.

What the state collected

The Department of Revenue’s monthly reports tell the rest.

The old 6% tax went out strong. Its last full month, covering December 2025 sales, brought in $1.8 million. After that, only late payments trickled in: about $156,000 over 6 months.

The new wholesale tax started small and stayed small. It collected about $61,000 in February. Its best month was April, at $317,000. Through July, it totaled about $1.3 million. That covers sales from January through June. Add the late payments on the old tax, and all hemp taxes together come to the $1.4 million at the top of this story.

Month for month, that is the 84% drop: $9 million in hemp taxes from February through July 2025, against $1.4 million in the same months of 2026.

In July, the Department of Revenue answered a public records request with a count of businesses signed up to pay the new tax. There were 22 in January and 48 by July. Only 17 to 19 filed a return in any given month. The state had expected 140.

That is the story of the tax base in 2 numbers. At the start of the year, thousands of licensed stores across the state paid the hemp tax. By July, the entire tax base was a few dozen wholesalers, and fewer than 20 of them filed in a given month.

One number ran the other way. The state charges $300 for what it calls a brand registration. Through June, it had collected 93 of those fees. It had expected 100 in the first year. Then in July it collected 524 more, for 617 in all.

What counts as a brand is still unsettled. The law and the registration form read as if every product, even each strain of flower, counts on its own. The Department of Revenue has not published an answer. Its filing system supplies one anyway. On TNTAP, the state’s online tax portal, the only way to register a product is to add a new SKU, and each SKU carries its own $300 fee. A 3-pack and a 5-pack of the same gummy are 2 SKUs, so 2 registrations, $600. On that math, a company with 100 products owes $30,000. Whether July’s jump came from that or from a deadline rush, the records do not say.

What it means so far

The March 2025 estimate assumed the new tax would cover the whole market starting Jan. 1. It did not. The legal agreements described in Part 2 kept nearly every seller outside the tax until July 1. The real test of the new system starts now.

But the early signs point one way. Against the March estimate, the new tax collected about 21 cents of every dollar the state expected. Against the April estimate, the one in the budget, about 2 cents. And when the ban went back into the bill, the state kept that estimate unchanged.

The state expected 140 wholesalers. It had 48 signed up in July. The TABC listed 55 licensed wholesale locations on Aug. 3. And the products the state banned were, by the industry’s estimate, about 70% of what these stores sold.

What to watch next

The next report matters most. The Department of Revenue’s August report, due in mid-September, will show July sales. That is the first full month under the new rules. It will be the first clean answer to a simple question: was the first half of 2026 a transition, or is this the new normal?

Other things to watch:

Whether the state revises the $130 million it still expects from the hemp tax this year.

The TABC’s licensing revenue. The new law requires the agency to publish an annual report by next July.

The effect on farmers. The Senate sponsor said the law should not affect them at all. The data to test that is still outstanding.

The hole does not break the state budget. The Department of Finance and Administration closed the 2025-26 fiscal year on Aug. 14 with total tax revenues $1.2 billion above what it had budgeted. Commissioner Jim Bryson cautioned in the same release that some of that growth came from inflation and from corporate payments that “may require adjustments.” A hemp line $54 million short disappears inside a surplus that size. It does not disappear from the next budget. The $130 million the state still expects works out to $10.8 million a month. July brought in $426,568, about 4% of that pace. Held for a year, that pace comes to about $5.1 million against $130 million, a gap of roughly $125 million.

The records are public. The Department of Revenue posts its collection reports every month. The old 6% tax is listed as “Hemp-Derived Cannabinoid Collections.” The new one is listed as “Wholesale Hemp Tax.” We will keep reading them.

The rest of the series: Part 2, how the law was made, and Part 3, who pays.

Shannen Sharpe is Hemp Law Group’s marketing director and a journalist who spent 11 years in broadcast news. She reported this story from the public record: legislative transcripts and session video, court filings, fiscal documents, and the Department of Revenue’s monthly collection books. Hemp Law Group’s compliance director, Clint Palmer, who appears in this story, is her colleague.