Colorado's Marijuana Enforcement Division announced Monday it will crack down on companies illegally substituting hemp for marijuana in cannabis products, warning the practice threatens public safety and the state's legal market.
The agency's bulletin stated that these violations "present serious risks to public safety, market integrity and the tax revenue framework that supports Colorado's regulated cannabis industry." Regulators said they had "identified and investigated evidence" of businesses using illicit methods and banned manufacturing processes instead of properly tracked marijuana.
A Denver Gazette and ProPublica investigation in January found Colorado failed to adopt many regulations other states use to keep hemp off dispensary shelves. Hemp-derived distillates for vapes and edibles cost far less to produce than marijuana, giving violating companies a competitive edge.
Manufacturers convert CBD — the nonintoxicating hemp compound — into THC using toxic chemicals, a process regulators ban because residues may remain in finished products. In 2024, investigators found a popular vape brand sold in dispensaries was hemp-derived and contaminated with methylene chloride, used in CBD-to-THC conversion and banned by the EPA for most uses because it causes liver and lung cancer and damages the nervous, immune, and reproductive systems. Ware Hause, the vape's manufacturer, surrendered its marijuana license; owner Thanh Hau and the company's lawyer declined to comment.
The bulletin also identified a tax fraud pattern: companies report bulk marijuana sales to the state's seed-to-sale tracking system at prices as low as $1 per pound, while such material typically fetches up to $600 per pound. Industry insiders say this has cost state and local governments millions in tax revenue, with no official estimate.
The agency will pursue emergency rules. Companies caught passing hemp or illicit material as marijuana face immediate product embargo, license suspension or revocation, significant monetary penalties, and law enforcement referral. The Colorado Hemp Association and Colorado Hemp Education Association did not respond to comment requests.
Federally, Congress passed a law last November banning nearly all intoxicating hemp products nationwide starting this fall, though implementation remains unclear. In December, President Donald Trump issued an executive order directing his administration to work with Congress on regulations that could allow some hemp products. Marijuana industry representatives met with division officials late last month, arguing that bad actors are driving down prices and shifting the tax burden to compliant businesses; the bulletin was released about two weeks later.