Committee rejects 50% excise tax on certain hemp-derived THC products after extensive testimony

A House Revenue and Taxation Committee on Monday rejected Senate Bill 605, a measure to impose a 50% excise tax on specified hemp-derived tetrahydrocannabinol (THC) products, after more than two hours of testimony from retailers, industry representatives and the Department of Finance and Administration.

Supporters said the excise tax would create a second enforcement tool against sellers of synthetically derived intoxicating cannabinoids; opponents said the bill’s definitions could capture naturally derived hemp products that are legal under the 2018 Farm Bill and would seriously harm small businesses.

Representative Baker (District 71), the bill sponsor, told the committee the excise tax would “bring us in an industry alignment similar to tobacco, and also provide what I would believe is a second arm of enforcement on these products.” He said the tax would target products already found to be harmful and that DFA (the Department of Finance and Administration) would administer the excise tax through an added reporting line on existing sales tax returns.

Paul Gearing, speaking for DFA, said the department envisions adding a line to the sales tax return so retailers would self-report sales of products subject to the 50% excise tax and remit the amount collected. "If a taxpayer is selling these products as defined in the bill and they're not collecting and remitting the tax, they will be subject to audit by DFA," Gearing said. He told legislators that DFA’s field audit staff currently number roughly 75–100 and that any audit would rely primarily on business records and invoices rather than on chemical testing.

Retailers and industry witnesses disputed the bill’s scope. Roger Crawford, owner of SunMed CBD stores in Hot Springs and Hot Springs Village, said his stores sell naturally derived hemp products and warned the bill would put small operators out of business. "Hemp CBD saved my life and I do not sell dangerous or deadly products," Crawford said. He argued the bill’s 50% tax would be "detrimental to a business" and said the measure, together with other legislation on the floor, threatened to eliminate his business in Arkansas.

Erin (or Erin) Gray, an industry witness, told the committee the bill’s definition would reach products that meet the federal hemp standard of 0.3% delta-9 THC on a dry weight basis. "This bill is going to attach the 50% excise tax to the federally legal CBD products under the 2018 Farm Bill," Gray said, adding that lotions, tinctures and some gummies sold legally under federal law could be swept in by the bill’s language.

Committee members pressed both the sponsor and DFA on how DFA would distinguish synthetic, banned products from naturally derived hemp items in an audit. DFA officials acknowledged auditors do not carry chemical testing equipment and that audits would rely on invoices, inventory records and investigative leads. DFA also said it had no reliable data to estimate revenues from a new excise tax and therefore could not provide a fiscal-impact estimate for the committee.

Several legislators expressed concern that the bill’s listed chemical names and derivative terms could be unclear to retailers and auditors. Representative Warren and others said they did not want to "throw the baby out with the bathwater" and were wary of unintentionally taxing legitimate hemp-based wellness products.

After questions and extended public comment, Representative Baker moved the bill for passage. The chair called for a voice vote; after members responded, the chair declared the noes prevailing and did not advance the bill. The committee did not record a roll-call tally in the hearing transcript; the chair announced verbally that "the no's have it."

The bill’s supporters argued the proposal offered a practical enforcement lever against sellers of synthetic intoxicating cannabinoids who currently operate in a legal gray area, while opponents urged clearer statutory language or a regulatory approach that would separate synthetics from naturally derived hemp products.

Legal and administrative context cited at the hearing included the federal 2018 Farm Bill’s 0.3% delta-9 THC threshold, state Act 629 (previous state action that banned certain cannabinoids), and references to U.S. Food and Drug Administration (FDA) oversight for therapeutics. The attorney general’s office and the Department of Health were mentioned in testimony as active participants in related enforcement work, and committee members discussed potential rulemaking authority for relevant state agencies.

The committee’s rejection leaves open how the General Assembly will address synthetic or intoxicating hemp derivatives; sponsors said they may revise language to narrow the tax to products that are clearly synthetic or otherwise banned, while industry representatives asked for legislative safeguards to protect lawful hemp businesses.

Ending: The committee’s decision halts SB 605 for now; sponsors and opponents signaled continued discussions and possible refiled language in future sessions.