Blog
What to Know About Licensing and Selling Under Tennessee’s New Hemp Derived Cannabinoid Law
Published: May 23, 2025
Tennessee enacted new legislation governing HDC - hemp derived cannabinoids, the state’s term for legal CBD and hemp that contains less than 0.3% THC.
The new law does not take effect until January 1, 2026. Here is a copy of the legislation.
Until January 1, 2026, existing HDC laws apply.
The new law transfers authority for HDC licensing from the Department of Agriculture to the ABC. The Department of Agriculture continues to process and renew HDC licenses through December 31, 2025, “or until the [ABC] has the capacity to process applications for licensure under this chapter, whichever is later…” The timing gives the ABC some flexibility, in case the ABC cannot get RLPS or whatever system they want to use for processing applications online in time.
Look for renewal notices from the Tennessee Department of Agriculture in your inboxes. They look like this.
The renewal requires a new nationwide criminal background check, completing the application, and paying the $200 fee to continue selling HDC products. Even if you just obtained an HDC license, you need to renew it to keep selling HDC past June 30, 2025. The background check requires fingerprints.
It appears that renewed licenses will be valid for one year – expiring June 30, 2026.
Businesses must continue paying the 6% HDC tax, in addition to sales tax, on all sales of HDC through December 31, 2025.
The new HDC law.
The new HDC law goes into effect on January 1, 2026. The Tennessee Alcoholic Beverage Commission will take control of regulating HDC. Fees will go up.
Our crystal ball says to expect more enforcement. ABC agents will be checking for compliance with HDC laws, including sales to minors and failure to card.
We are optimistic the ABC will crack down on unlicensed sellers.
The new law creates a new acronym: HDCP - hemp derived cannabinoid product. Retailers can sell HDCPs with a license.
Another big change for retailers in the hospitality space is the elimination of the 6% tax. Starting January 1, 2026, wholesalers will start paying a new tax to the state. The wholesale tax takes the place of the existing 6% retail tax.
Speaking of wholesalers, the new law establishes a three-tier system, similar to the three-tier system for alcoholic beverages. The new law requires restaurants, bars, hotels and liquor stores to purchase HDCPs from HDCP-licensed wholesalers.
What does the new law include?
Who can sell HDCPs? The legislature limited retail HDCP sales to 21 and up businesses, retail package stores, and liquor by the drink licensees, such as restaurants, bars, and hotels.
Conspicuously absent are grocery stores, convenience stores, and drug stores. These businesses cannot sell HDCPs.
Liquor by the drink licensees are limited to the sale of HDCPs intended for consumption on the premises, such as HDCP beverages. It appears that gummies and other edibles are permitted for restaurants, bars and hotels, but vaping and smoking HDCP is prohibited. HDCP cannot be sold to-go by a liquor by the drink licensee. Because the licensed premises of most hotels includes rooms, we presume that a marketplace next to the front desk can sell HDCP to a guest to take back to their room, and that hotels can serve HDCP via room service.
Behind Barriers Clarification. The new law fixes a problem with the existing law for restaurants and bars. Current law requires that HDC must be kept behind barriers. There is no exception for consuming the product in the restaurant, although we interpret the law to allow customers to drink HDC after purchase in the restaurant or bar.
The new law creates a specific exception for HDCP beverages having a minimum container size of 12 fluid ounces. HDCP beverage products do not need to be maintained behind a barrier, starting January 1, 2026.
The exception for HDCP beverages should also accommodate marketplaces and other grab and go coolers next to hotel front desks.
The new law keeps the requirement that HDCPs “only be displayed in an area of the retail establishment that is constantly visible to a retail licensing employee.” We see this rule as potential fertile ground for ABC citations. The requirement may sound responsible on paper, but in practice, what area is constantly visible at a busy crowded bar in a downtown Nashville Honky Tonk, for example?
THC Limits. The new law sets a limit of 15 milligrams of HDC in each serving of beverages, with a limit of 2 servings per can. Half barrel and quarter barrel kegs of HDC beverages are allowed, so long as single servings are sold. Sixtels are not allowed.
Fees. The new law increases license fees. The $200 license fee is replaced by a $500 application fee and a $1,000 annual license fee for retailers.
The new law establishes significant financial requirements to be able to qualify for a wholesaler license. Only the well-heeled – read between the lines - existing liquor and beer wholesalers – need apply. Among the detailed requirements for a wholesale HDC license is a minimum of $750,000 in documented cash, a bond, or a line of credit.
Penalties. The new law is similar to current ABC policy for citations for sales of alcohol to minors:
- The first violation is $1,000
- A second violation in two years is $2,500
- A third violation in two years is $5,000
The new statute gives the ABC authority to revoke an HDCP license for a fourth violation that occurs in two years.
Strangely, the law does not establish suspensions for sales to minors. The statute does not give the ABC authority to accept more money to avoid revocation.
The ABC can also require retraining under the supervision of the ABC, in addition to fines.
The ABC keeps all revenue from fines for violations of sales to minors. 10% of taxes is dedicated to the ABC, and another 10% is dedicated to the Department of Revenue.
Deliver not. If there was a question about whether the wholesalers had a hand in drafting the law, look no further than the complete ban on delivery of HDCPs. No Uber Eats, no Instacart, no Postmates. The new law specifically bans direct-to-consumer shipping and delivery, with hefty fines. Interestingly, shipment is allowed out of the state, if the state allows direct-to-consumer shipping.
Although retail package stores can continue to deliver cases of spirits, not one can of HDCP beverages can be delivered by a liquor store to customers.
Indoor smoking ban. The new law adds HDCPs to the ban on smoking. No vaping HDCP or flower in restaurants and bars.
Mandatory carding and signage. The new law requires proof of age in order to sell an HDCP. There is no exception for individuals that appear 50 years of age or older. Failure to card is a crime and also the basis for ABC sanctions.
The law does not prohibit the sale of HDCPs to intoxicated persons.
Signs fix everything, right? Makes us think of the 1970 hit by Five Man Electrical Band:
Sign, sign
Everywhere a sign
Blockin' out the scenery
Breakin' my mind
Do this, don't do that
Can't you read the sign?
The new law requires signage “in all areas where HDCPs are displayed…clearly advising, and warning the consumer that the HDCPs on display may have intoxicating effects and cause impairment.” One has to ask: isn’t that the intent? Does the legislature think Tennesseans just fell off the turnip truck?
The ABC will set the requirements for signage.
Self-checkout and vending machine sales of HDCP are prohibited.
Application Requirements. The existing 1,000-foot distance requirement from schools and churches prevents a number of businesses in urban areas from obtaining licenses. Who knew that Opry Mills Mall had a Metro public school? The school disqualifies all the restaurants in the mall from selling HDCPs, unless they are grandfathered.
The new law tweaks the 1,000-foot distance requirement. Distances are currently measured from the closest point of the business to the property line of the school or church. Under the new law, the 1,000-foot distance will be measured from building to building.
The new law retains the existing grandfather provision for businesses that provide proof that the business sold HDC’s before January 1, 2024.
The new law continues the requirement that background checks include fingerprints. The new law requires a background check against records maintained by the Tennessee Bureau of Investigation and the FBI.
The new law provides: a person is not eligible to hold a direct or indirect interest in a supplier or retail license, while serving a sentence for, or for 10 years following the date of conviction of, a drug related felony offense in any state, territory of the United States or federal jurisdiction.
This is similar to, but different from, the disqualifying requirements for liquor licenses and beer permits.
The new law does not define what a “direct or indirect interest” is. Does the direct or indirect standard apply to owners, officers, landlords, employees with incentive options? The ABC will have to clarify this requirement.
New Taxes. The new law imposes a wholesale tax of two cents per milligram of hemp derived cannabinoid in each HDCP sold at wholesale.
The wholesale tax for liquid form HDCPs is $4.40 per gallon. Perhaps not coincidentally, this is the same rate as the wholesale distilled spirits tax.
Testing. The new law contains specific standards for testing for HDC content and gives the ABC authority to regulate, but not conduct, testing. Suppliers must contract with third-party laboratories that are approved by the ABC.
Advertising. The new law restricts advertising by retailers and suppliers. The law prohibits packaging or marketing “known to appeal primarily to persons under twenty-one (21) years of age, including, but not limited to, superheroes, comic book characters, video game characters, television show characters, movie characters, or unicorns or other mythological creatures.”
Based on our reading of the law, the ABC can cite a retailer for selling a product that has packaging “known” to appeal primarily to minors. Sounds profitable for the lawyers, but not good guidance for business.
If we have missed anything, or misread the law, please let us know by email. This is a new licensing regime, and we are still digesting all the changes.
