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Tax Experts Told NC's Cannabis Council to Tax THC by Content. Here's What That Means for Hemp.

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Tax Experts Told NC's Cannabis Council to Tax THC by Content. Here's What That Means for Hemp.

On Friday, November 13, the Revenue and Legal Subcommittee of North Carolina's Advisory Council on Cannabis holds what its own minutes call its "final" meeting, from 1 to 3 p.m. on Microsoft Teams, according to the NCDHHS council page. Its job is the money question: if North Carolina regulates THC, how should the state tax it?

The minutes from the subcommittee's October 30 meeting are now posted, and they show what members heard. State officials from Colorado, California and New York walked through their tax systems. A Connecticut assistant attorney general explained that state's enforcement tools. Then two tax experts, from the Tax Foundation and the Institute on Taxation and Economic Policy (ITEP), took questions. In the minutes' words: "Both panelists favored a non-price tax base and stressed simplicity."

Most of that session was about how states tax marijuana. Whether North Carolina ever goes there is a question for the General Assembly, and it isn't our subject. Ours is hemp, which shops across the state sell today. Hemp came up at that meeting more than once, and the tax lessons apply to it directly.

What the two tax experts recommended

The minutes summarize the Tax Foundation's position this way: "Not price-based. Tax THC content for edibles, extracts and other processed products. For flower, tax THC if testing and labeling are already required; otherwise tax by weight."

ITEP backed "A combination," and the minutes record its reasoning: "The excise tax exists because cannabis is an intoxicant, so THC is the most principled base." ITEP also argued that "clear THC labeling is a public health need anyway."

The Tax Foundation's closing advice fit on one line: "Keep it simple. Lower THC testing costs now make a THC tax practical."

The subcommittee didn't pick a winner. The minutes record "General agreement that the report may present several tax options, with the advantages and disadvantages of each, rather than force a single consensus."

What other states learned the hard way

The state presentations were more cautious than the panel, and the details matter for anyone designing rules for hemp.

  • New York started with a THC-based tax. Per the minutes, "It worked for edibles and concentrates but not flower: lab results varied, and some producers 'lab shopped' for lower THC results." The legislature replaced it with a flat 9% price-based tax at distribution.
  • Colorado looked at taxing by potency early on. The minutes say it was "considered but rejected because testing infrastructure did not exist at the time."
  • California's first lesson, as the minutes record it: "Start with lower taxes to bring consumers into the regulated market, where public health tools apply."

Put those together and one point stands out. A tax based on THC content only works when lab testing is reliable and every label is honest. That's a testing problem before it's a tax problem.

Where hemp came up

Colorado's officials listed "intoxicating hemp" among the headwinds facing their market. During the discussion, the minutes say, "A member said NC law enforcement expects little change from the federal hemp ban because NC has no state hemp rules."

Connecticut offered a contrast. According to the minutes, "Hemp-derived products are legal through proper channels" there, and "Other hemp THC products are tiered by potency".

North Carolina has two hemp bills on the table. Neither one includes a hemp tax.

HB 328's conference report would prohibit selling hemp-derived consumable products to anyone under 21 and conform state law to the new federal hemp definition. The House sent it back to its Rules Committee on July 30, 2026, and the bill page shows no action since.

S265 goes further on regulation. The UNC School of Government summary says it would require manufacturers, sellers and distributors to be licensed, require testing "by an independent testing laboratory prior to distribution," and bar sales to anyone under 21. It would raise money through license fees, with "application fees ranging from $250 per location," and the Department of Revenue would administer it. S265 has been in Senate Rules since March 12, 2025.

The federal clock doesn't wait for the report

Federal hemp law changes in two steps, as the Congressional Research Service explains. On Thursday, November 12, products containing cannabinoids not capable of being naturally produced by the cannabis plant lose federal hemp status. On Friday, December 11, the rest of the new definition in P.L. 119-37 takes effect, after P.L. 119-103 delayed it. That includes a cap of 0.4 milligrams of total THC and other cannabinoids with similar effects, combined, per container.

State law does not override federal law. No state tax or license can make a product legal that federal law excludes from hemp. What a state framework can do is make sure the products still sold in North Carolina are tested, honestly labeled, kept away from anyone under 21, and sold by licensed retailers the state can hold accountable.

What we want the Council's report to say

We'd like the Council to treat hemp regulation as part of its recommendations, not as a headwind to be wished away. The October 30 testimony points to a sequence that makes sense for hemp:

  • Testing and labeling first, because the THC-based tax both experts favored depends on knowing what's in the package.
  • Licensed retail and a firm 21-and-up rule, so enforcement has a clear line to follow.
  • If lawmakers add a tax, keep it simple and low enough that buyers stay in the licensed market, the lesson California offered.

That's regulation, not prohibition. It's also work North Carolina can do on its own timeline, without waiting on Washington. The full Council meets on Tuesday, November 17, from 1:30 to 5 p.m. at DHHS headquarters in Raleigh, per the council page.

The Council advises. The General Assembly decides. If you sell, grow or buy hemp in North Carolina, tell your legislators you want clear rules on testing, labeling and age, not a ban. Find your legislators' phone numbers and email addresses here.

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