According to the Legislative Budget Board (LBB), SB 5 is projected to have a significant negative fiscal impact on the state, resulting in an estimated net loss of $24.2 million to General Revenue over the 2026–27 biennium. This financial shortfall is largely due to anticipated declines in sales tax revenue as a result of the bill’s sweeping prohibition on most hemp-derived cannabinoid products, including popular non-intoxicating compounds like CBN and CBC.

The bill imposes new licensing and registration fees, $10,000 for manufacturers and $20,000 for retailers, per location, but these are not expected to offset the economic loss. The Comptroller’s analysis assumes that most hemp businesses will close due to a combination of product bans and the significantly higher costs of compliance. While a handful of businesses may continue operating and pay the new fees, the overall contraction in the hemp market is expected to far outweigh any revenue gains from licensing.

SB 5 is also expected to reduce local tax collections significantly. Cities, counties, and transit authorities would collectively lose millions of dollars annually in sales and use taxes, with a projected combined loss of $2.86 million to local governments in FY 2026 alone, increasing each year thereafter. Additionally, the bill creates multiple new criminal offenses, which could place new demands on local correctional systems, although the exact cost is undetermined.

The Department of State Health Services (DSHS), the Department of Public Safety (DPS), and the Health and Human Services Commission (HHSC) are expected to implement the bill using existing resources, although administrative costs—particularly for investigations, inspections, and rulemaking—may rise. DSHS is authorized to issue $10,000 administrative penalties per violation, but the number and value of penalties are unknown and not included in the fiscal estimate.

In short, SB 5 is likely to shrink the hemp industry, reduce tax revenue at both the state and local level, and impose ongoing administrative and enforcement costs. These economic downsides, layered atop the bill's liberty and legal issues, underscore its broad negative impact.

SB 5 is a retooled version of SB 3 (89th Regular Legislative Session), which Governor Greg Abbott vetoed in June 2025. SB 5 seeks to restrict the manufacture, sale, possession, and marketing of consumable hemp products to only those containing cannabidiol (CBD) or cannabigerol (CBG), while banning all other cannabinoids, including non-impairing, federally legal compounds like cannabinol (CBN) and cannabichromene (CBC). While SB 5 removes some of the harsher provisions from SB 3, it continues a prohibition-heavy approach that raises serious concerns under the core principles of liberty, economic fairness, and constitutionality. 

Governor Abbott vetoed SB 3, citing constitutional vulnerabilities and legal impracticality. In his proclamation, Abbott noted that SB 3 attempted to criminalize hemp-derived cannabinoids that were expressly legalized under the 2018 federal Farm Bill. He warned that such a ban was likely preempted by federal law, as demonstrated by a similar law in Arkansas that had already been blocked in federal court. Abbott also highlighted the risk of unintended consequences, such as criminalizing Texas farmers, small businesses, veterans, and families relying on legal hemp products. He raised concerns about unconstitutional takings of lawful property and the economic harm from shutting down an entire legal market, urging lawmakers to craft a more targeted and enforceable regulatory framework.

SB 5 makes tactical adjustments in response to the veto. It keeps regulatory authority with the Department of State Health Services (DSHS) rather than transferring it to the Texas Alcoholic Beverage Commission (TABC). It also removes certain felony penalties introduced under SB 3. However, the bill still bans any consumable hemp product that contains cannabinoids other than CBD or CBG, even if those cannabinoids, like CBN and CBC, are non-intoxicating and widely regarded as therapeutic. This means that consumers and businesses using or selling federally legal, non-impairing cannabinoids would be criminalized under Texas law.

The bill maintains burdensome regulatory costs, including a $10,000 manufacturing license fee per location, $20,000 annual retail registration fees, and $500 registration fees for each product. It introduces misdemeanor penalties for possession and a third-degree felony for manufacturing or selling banned cannabinoids. It also allows for warrantless inspections, restricts delivery and mail services, and imposes stringent packaging and marketing requirements, even when the products in question have no impairing effects and no established pattern of abuse.

Like SB 3, SB 5 undermines individual liberty by denying adults access to legal, non-intoxicating cannabinoids. It erodes personal responsibility by replacing informed decision-making with blanket bans. It suppresses free enterprise by shutting down legal product lines and making compliance too costly for small businesses. It intrudes on private property rights by threatening inventory seizure and criminal charges for products that were lawful under prior Texas and federal law. It also expands the scope of government authority far beyond what is necessary to address legitimate public safety concerns.

SB 5 purports to protect children, but instead treats all Texans, adults included, as if they are incapable of making informed decisions. Better policy options exist: age limits, testing requirements, child-resistant packaging, and marketing restrictions tailored to youth protection. These could address safety concerns without banning non-impairing, widely used cannabinoids like CBN and CBC. Governor Abbott himself laid out these options when vetoing SB 3, encouraging a regulatory model that would be enforceable and withstand judicial scrutiny.

SB 5 may look like a more cautious alternative to SB 3, but it still embodies the same underlying problems: it criminalizes peaceful, adult activity; bans non-impairing, federally legal substances; and burdens small businesses with heavy-handed regulation. It repeats the policy mistakes of prohibition under the banner of public health, ignoring both federal law and the governor’s clear guidance. Texans deserve a smarter, liberty-respecting approach that protects minors without criminalizing adults. For these reasons, Texas Policy Research recommends that lawmakers vote NO on SB 5.

• Senate Committee on State Affairs: 10Y/1N