Texas Marijuana Business

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What is the Demand for Marijuana in Texas?

Recreational marijuana is still illegal in Texas, but qualified medical patients are legally allowed to use CBD oil to treat specified debilitating medical conditions. The signing of HB 1325 in 2019 is in line with the federal government's position on medical marijuana. This action is contributing heavily to the growth of the CBD sector in Texas.

Although advocates promoted CBD use in Texas before the Compassionate Use Act became effective, the legal gray area has limited the potentials of hemp-related trade. However, following the legalization of CBD for medical purposes, Texas retailers embraced the full complement of CBD products. These include concentrated oils, vape oil, tincture, edibles, isolate, and hair care lines.

While the Texas Department of State Health Services is not yet imposing licensing requirements, there has been a rush in entrepreneurial interest which is unconnected to the growing demands for CBD, including CBD oil. According to some economic projections, the collective market for CBD products in the United States could reach $20 billion by 2024. Different studies have shown that Texans appear ready to take a chance on CBD.

How is Marijuana Taxed in Texas?

CBD oil, which is the legally approved cannabis extract for medical purposes in Texas, is considered a drug. Hence, it is exempt from state sales tax. However, Rep. Joe Moody filed HB 447 in the 2021 legislative session, which would make recreational cannabis legal for adults 21 years and older in Texas. Besides banning driving while under the influence of marijuana, the bill seeks to create a taxable cannabis market that will stimulate the state economy.

According to HB 447, Texas would tax marijuana and marijuana-infused products 10% if passed into law. The revenue generated would fund counties, cities, and the Teacher Retirement System. Similarly, SB 140, filed by Senator Roland Gutierrez, if passed, would fully legalize the use of cannabis for all purposes in Texas for persons over 21 years while equally creating a standard and taxable marijuana industry. The bill also seeks to place a 10% tax on the sale of marijuana, which Senator Guitierrez projects will raise about $1.6 billion for public schools and other public services hit by the COVID-19 economy.

Currently, it is impossible to say how far these bills will go. However, the financial considerations, especially the fiscal 2021 ending shortfall of $4.6 billion in revised revenue estimates, may provide a headway where previous trials have failed.

According to HB 447, the comptroller would allocate tax revenue generated from cannabis in the fashion below:

  • 10% as a local share to municipalities in which cannabis establishments are located
  • 10% as a local share to counties in which cannabis establishments are located
  • 1% to the cannabis testing and quality control fund
  • The amount approved for the comptroller by the commission to the fund established under that section
  • The remainder of the revenue to the Public School Teachers Fund

By SB 104, the comptroller would distribute the net revenue generated from taxes imposed on marijuana sales as follows:

  • 5% to the Border Security Enhancement Fund
  • 5% to the Municipal Security Enhancement Fund
  • 1% to the cannabis testing and quality control fund
  • The remainder to the Foundation School Program

What is the Texas Comptroller Office?

Marijuana is not currently being taxed in Texas. However, the two bills geared towards legalizing and taxing marijuana, HB 447 and SB 104, both named the Texas Comptroller Office as the agency to collect tax on cannabis sales in the state once legalized.

The Texas Comptroller Office collects taxes and fees owed to the state and helps in keeping the books for the multi-billion-dollar business of state government. If recreational marijuana becomes legal in Texas, the comptroller office will start taxing marijuana businesses in addition to the following existing separate taxes, fees, and assessments:

Typically, anyone engaged in business or sells taxable services in Texas (it would include marijuana businesses once legalized) must apply for a permit via eSystems. Sales permit covers 911 surcharge and fees, sales tax surcharge on diesel equipment, and sales and use tax. Applicants for a sales permit must be at least 18 years old or have their parents or legal guardians apply on their behalf.

An applicant who is a sole owner, partner, officer, or director and does not have a social security number cannot apply for a sales permit in Texas online. Such an applicant must complete the AP-201 Form and send completed applications to the comptroller office via email or fax to 512-936-0010. A completed Texas sales permit application requires the following documentation:

  • Sole owner's Social Security number
  • Texas corporation's file number from the Texas Secretary of State
  • Partnership Social Security numbers or federal employer's identification numbers for each partner
  • North American Industrial Classification System (NAICS) code (required for all businesses)
  • Social Security number for each officer or director of a corporation

Most sales permit applications take between two to three weeks to complete.

Texans can contact the Texas Comptroller Office in person between the hours of 8:00 a.m. and 5:00 p.m., Monday through Friday, for inquiries on tax-related matters at:

Texas Comptroller of Public Accounts

Lyndon B. Johnson State Office Building

111 East 17th Street

Austin, TX 78774

Alternatively, they can send inquiries via mail to:

Texas Comptroller of Public Accounts

P.O. Box 13528, Capitol Station

Austin, TX 78711-3528

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