On Monday, Colorado regulators announced plans to target companies illegally marketing low-cost, potentially dangerous hemp products as marijuana. The state’s Marijuana Enforcement Division identified “regulatory compliance issues” that could undermine the marijuana industry in the country’s pioneering legal retail market. These problems “pose serious risks to public safety, market integrity, and the tax revenue system supporting Colorado’s regulated cannabis sector,” the agency noted in an industry bulletin. A January investigation by The Denver Gazette and ProPublica revealed that, despite Colorado’s early ban on intoxicating hemp products, lawmakers and regulators neglected to implement many rules other states use to prevent hemp items from appearing on marijuana dispensary shelves. Hemp-derived liquid distillate for vapes and edibles is far less expensive to produce than marijuana-based versions, offering firms a market edge. However, officials are concerned because producers use toxic, hazardous chemicals to transform CBD—the abundant non-intoxicating compound in hemp—into THC, the psychoactive substance that produces a high. Regulators have prohibited such chemical synthesis, citing concerns that chemical residues might linger in final products and endanger consumers. Colorado producers have taken advantage of weaknesses in the state’s testing and enforcement mechanisms to keep using hemp for products promoted as marijuana, despite this violating state regulations, per regulatory probes, prior agency notices, testimony, and lab data from multiple lawsuits. In 2024, state investigators discovered that a well-known brand of marijuana vapes in dispensaries was made from hemp and tainted with methylene chloride, a substance commonly employed to transform hemp-derived CBD into THC. Colorado’s marijuana regulators prohibit it, and the U.S. Environmental Protection Agency bans it for most uses due to its potential to cause liver and lung cancer as well as damage to the nervous, immune, and reproductive systems. Ware Hause, the manufacturer of those vapes, surrendered its marijuana license in response to the investigation. Ware Hause owner Thanh Hau and the company’s attorney declined to comment. Congress enacted a nationwide ban last November on nearly all intoxicating hemp products, effective this fall, though enforcement details remain unclear and hemp producers are lobbying to repeal it. In December, President Donald Trump signed an executive order directing his staff to collaborate with Congress on regulations that might permit certain hemp products. Colorado’s Marijuana Enforcement Division stated in a Monday bulletin that officials had “identified and investigated evidence” showing marijuana businesses employing illegal tactics and prohibited techniques to produce products, bypassing regulated marijuana tracked for safety. The Colorado Hemp Association and Colorado Hemp Education Association did not promptly reply to comment requests. In addition to safety concerns, the bulletin highlighted that some marijuana makers and growers are dodging taxes via “a pattern of noncompliance” in sales reported to the state’s “seed-to-sale” tracking system, which monitors marijuana from planting through dispensary sales of pot, vapes, and other items. Companies are underreporting bulk marijuana sales at artificially low prices—sometimes as little as $1 per pound for raw material—the bulletin noted. Those products usually sell for up to $600 per pound on the open market, depending on the type of marijuana, according to industry insiders. Industry insiders say such fraudulent reporting has cost state and local governments millions in marijuana tax revenue, though no official estimate exists. The agency said it would pursue emergency rules to tackle these issues. The bulletin stressed that suspicious and anomalous transactions and inventories detected by the state will trigger investigations. Regulators warned that companies caught using hemp or other illicit materials masquerading as marijuana will face “immediate product embargo, license suspension or revocation, significant monetary penalties and referral to law enforcement.” The Denver Gazette and ProPublica have tried to monitor unusual transactions, but the Marijuana Enforcement Division insists that sales records—even those not identifying companies—are not public. Marijuana industry representatives met with division regulators late last month to urge a tougher stance against hemp substitution by the agency, despite potential impacts on some industry companies. The representatives contended that unscrupulous actors are unfairly depressing prices and forcing manufacturers and cultivators—who are attempting to comply with regulations—to shoulder a greater share of the tax burden.
