Cross-Pollination: How Cannabis Companies Can Break into the Hemp Business (And Vice Versa)

Editor’s note – This article was written by Kight Law attorney Aaron Tucker.

From tax benefits to establishing a nationwide brand and distribution system, more and more state-licensed cannabis businesses are discovering the benefits of breaking into the hemp space.

On the other hand, lower barriers to entry, both regulatory and financial, often make the hemp market the perfect proving ground for cannabis entrepreneurs and brands.

Making the jump, however, can be a risky proposition. In this article I will discuss the things you need to know to build and manage a brand in both markets.

1.       Understand the Rules

Entrepreneurs in both the cannabis and hemp industries have to navigate a complex legal and regulatory framework. However, while both businesses sell cannabis products, the law, regulations, and risk management approaches surrounding hemp and cannabis businesses are, in many ways, more different than they are alike. Successfully navigating both sets of rules requires a clear understanding of these differences.

Hemp: Federal Legalization and State Prohibition

The 2018 Farm Bill legalized the cultivation and sale of “hemp,” meaning cannabis plants containing 0.3% delta-9 THC or less. This created a national market for hemp products.

As a reaction to the rapid and unexpected proliferation of cannabis-derived goods in every state in the nation, individual states have enacted a patchwork of restrictions on these products. To give just a few examples, while many states adopt the federal definition of hemp, many states consider the “total THC” in a product, meaning both THC and THCA, to determine whether a product is “hemp”. States may also impose additional limits on the types and amounts of cannabinoids that can be added to consumer products.

Many states also require that products, manufacturers, and distributors are registered with various state agencies, regardless of the manufacturer or distributor’s physical location. Finally, states have implemented a variety of different, and sometimes contradictory, packaging and labeling requirements for hemp products. Maximizing the reach of hemp products while navigating this dizzying array of federal and state-level restrictions poses a unique challenge for hemp businesses. Our new and improved 50-state hemp product spreadsheet is designed to help hemp businesses navigate these challenges.

Cannabis: State-By-State Legalization

Unlike hemp, cannabis containing more than 0.3% delta-9 THC remains a controlled substance and is illegal under federal law. Nonetheless, over the last couple of decades various states have established programs that legalize the sale and consumption of marijuana by adults and patients as a matter of state law.

Focusing on just a single state’s laws can make compliance a simpler, but by no means easy, task. Medical and adult-use cannabis regulations can be hundreds if not thousands of pages long; covering security requirements, labor standards, packaging and labeling, and so much more. These regulations vary significantly from state to state and from year to year, making one-size-fits-all compliance programs nearly impossible to implement. Successful multi-state operators have multi-disciplinary teams of legal, compliance, and operational experts that help ensure their facilities, procedures, and operations stay compliant with the latest changes in each state’s laws.

2.       Keep the Business Lines Separate

The most successful cross-market brands combine the multi-state thinking necessary to build a successful hemp brand with the tight control and isolation of entities that is necessary to be successful in adult-use and medical cannabis markets.

Separate Entities

A crucial first step in establishing a cross-market cannabis business is to set up a clear corporate structure that separates hemp activities and revenue from state-licensed cannabis activities. This means maintaining separate business entities for hemp activities and state-licensed cannabis activities. It is important to be mindful of the often-extensive disclosures of ownership and controlling persons required of licensees in each market.

Separate Facilities and Supply Chain

Preventing diversion of state-licensed medical and adult-use cannabis products into the nationwide hemp supply chain is a top concern of both federal and state officials. Similarly, the regulations and testing standards for state-licensed cannabis products can often be stricter than those governing hemp products. In many states, preventing “inversion” of hemp products, and particularly hemp derived cannabinoids, is a major priority of state regulators. We are aware of a number of businesses that have come under scrutiny over concerns that products are being moved between these markets. Maintaining separate facilities and supply chains for hemp and cannabis products is often required by law and is a good practice for any cross-market business to help alleviate these concerns.

Limiting Control

Licensing your hemp or cannabis brand to an existing operator on the other side of the hemp-cannabis divide can be a great way to maximize the separation between these activities while enjoying the benefits of building a cross-market brand. However, all parties need to be careful to maintain the independence of their business and its management. Businesses, particularly in the adult-use and medical cannabis market should also carefully consider the impact of any licensing agreement on their mandatory ownership and control disclosures to state regulators.

Conclusion

Navigating the varied and complex laws, regulations, and best practices in the medical, adult-use, and hemp industries is a significant challenge for cannabis business owners. Kight Law routinely helps clients navigate these challenges and develop “best practices” for their enterprises. Contact us to schedule a consultation about your business.

August 19, 2025

This article was written by Kight Law attorney Aaron Tucker. Kight Law represents hemp businesses in the US and throughout the world.