Beyond Compassion[ate Use]: How to Capitalize on Texas’s Cannabis Market Boom

By: Daniel J. Gershman, Andrew P. Cooper, and Terran Cooper

As of September 2025, Texas maintains its status as a medical-only, low-THC market, governed by a stringent regulatory framework overseen by the Department of Public Safety (“DPS”). The current program is designed to benefit a select group of vertically integrated operators, with product offerings limited to low-THC formulations for registered patients who meet specific qualifying conditions. For prospective entrants, the message is clear: while licensing opportunities are confined to the state’s medical program and remain both limited and highly competitive, Texas’s vast population and the strong potential for future legislative expansion create a uniquely attractive environment. Thus, for serious, well-capitalized applicants, establishing an early foothold in this market offers a strategic advantage that could yield significant long-term rewards. 

This article summarizes the current regulatory posture, explains license types and availability, and outlines the operational, financial, and compliance considerations that define success in the Texas market. While the Texas medical application window recently closed, the Compassionate Use Program was previously expanded, and many experts anticipate changes to Texas’s medical program and the regulation of hemp in the coming years.  

The Regulatory Landscape Today 

Texas’s medical cannabis framework is organized under the Compassionate Use Program, which authorizes the cultivation, processing, and dispensing of low-THC cannabis products to registered patients. The program is administered by DPS rather than a health department or standalone cannabis agency, and it is built around strict controls on licensing, product formulation, and distribution. The state does not permit adult-use cannabis, does not allow smokable flower, and continues to emphasize physician oversight through a prescription registry that ties patient access to authorized prescribers. 

The statutory cap on tetrahydrocannabinol remains low by national standards at no more than 0.3% concentration of delta-9 THC, and product formats are limited to non-smokable forms such as tinctures, capsules, or other ingestible or topical preparations. Qualifying conditions are limited to several serious diagnoses, including seizure disorders and certain neurodegenerative conditions, with targeted expansions in recent years that stopped short of broad categories like chronic pain. The Legislature meets in odd-numbered years, and material changes typically occur through that cycle, leaving 2025 as a consequential period for potential expansion but not one in which adult-use is expected to launch. 

Within this framework, compliance expectations are exacting. Licensees must demonstrate robust security, inventory controls, and patient dispensing protocols, together with quality assurance systems that meet state rules. Because the program is conservative and law-enforcement led, diversion prevention, record integrity, and demonstrable safety practices receive special scrutiny in both application reviews and ongoing oversight. 

License Types and Market Access 

Texas does not offer separate cultivation, processing, or retail authorizations and instead issues a single vertically integrated license for a “dispensing organization,” obligating each holder to cultivate, process, and dispense low-THC cannabis under one regulatory umbrella. The statewide ceiling is fixed at fifteen dispensing organization licenses, and, in recognition of the state’s vast geography, satellite storage locations that have been reviewed and approved by the DPS are expressly authorized to improve regional product availability. 

The cap of fifteen leaves room for twelve new market entrants beyond the three incumbents. To fill those openings, DPS opened an application window which ran from August 15, 2025 through September 15, 2025, and established a two-phase award schedule. Phase I is restricted to applicants that previously participated in the 2023 cycle; to remain eligible they must upload all supplemental exhibits, updated ownership and financial statements, and any other required attestations to the secure DPS portal, and must pay the non-refundable application fee, on or before the September 15 deadline. DPS will competitively rank these Phase I submissions, announce nine conditional awards on December 1, 2025, and assign any Phase I applicants ranked ten through twelve to the Phase II pool. 

Phase II, which opens immediately after the Phase I rankings are published, permits entirely new applicants to compete alongside the three deferred Phase I candidates. DPS has committed to announcing up to three Phase II awards no later than April 1, 2026, thereby exhausting the statutory maximum of fifteen licenses. The two-step procedure preserves the investment expectations of prior applicants while still offering a limited path for fresh entrants. 

The application process itself begins with an initial online form that captures basic identifying information and generates a transaction number. Applicants must then upload detailed exhibits through a secure portal and must remit the mandated, non-refundable application fee before the submission will be docketed for review. Note that the current application window closed on September 15, 2025.  

Current regulations direct DPS to award licenses on a competitive, merit-based evaluation that incorporates technical competence, financial stability, security, and diversion-control measures and, critically, require DPS to balance the final roster of licensees across public health regions to ensure “reasonable statewide access.” Accordingly, an applicant’s strategy for siting fixed dispensing locations, designing delivery routes, and deploying satellite storage facilities will factor heavily into the geographic-distribution calculus. Although recent regulatory changes provide a clearer roadmap than prior iterations, the program remains highly selective, and prospective operators must be prepared to demonstrate end-to-end operational proficiency, robust compliance infrastructure, and a credible plan for serving patients in underserved areas. 

What Regulators Expect from Applicants 

Regulatory vetting in Texas prioritizes organizational integrity, operational readiness, and financial stability. Applicants should expect rigorous background checks for owners and key personnel, together with comprehensive disclosures of ownership, governance, and control. DPS has historically favored teams that blend pharmaceutical, healthcare, and regulated-industry expertise, reflecting the program’s medical orientation and its emphasis on patient safety. 

Security and diversion prevention measures form another pillar of review. Regulators will assess facility design, surveillance and access controls, intrusion detection, transport protocols, and evidence that the applicant can monitor and reconcile inventory at every stage. A credible seed-to-sale tracking approach is essential, including policies that prevent discrepancies and ensure traceable, auditable records from cultivation through final dispensing. 

Quality assurance expectations mirror those of other controlled products. Applicants should present validated standard operating procedures for cultivation and extraction, batch-level testing by qualified laboratories, stability and shelf-life programs appropriate to the chosen formulations, and recall plans that demonstrate the ability to identify, contact, and remediate issues in the field. Packaging and labeling must align with state content and warning requirements, and marketing practices must avoid any appeal to minors and adhere to medical standards. 

Financial capacity also matters. DPS expects proof that an applicant can build, operate, and sustain a vertically integrated business under a conservative revenue model, including reserves for compliance, insurance, and contingencies. Although the state does not prescribe a public minimum capitalization in all contexts, successful applicants present clear, verifiable funding commitments and bank relationships that can withstand the constraints of federal law. 

Strategic Considerations for Market Entry 

Market planning in Texas begins with the realities of patient access. The current program supports a defined and relatively narrow patient population, and demand growth will track physician participation and any expansion of qualifying conditions that may emerge from the 2025 legislative session. Successful operators invest in physician outreach and education, help demystify the prescription process, and design patient services that reduce friction for caregivers and families who may be traveling significant distances or relying on delivery. 

Geography and logistics are decisive. Texas spans 254 counties with diverse urban and rural needs. An operator’s access strategy should combine hub facilities with regional dispensing sites and compliant delivery routes that meet security requirements while maintaining product integrity. Cold-chain considerations, where relevant to certain formulations, and realistic travel times influence both cost structure and service levels. Early site control in strategically located communities, together with strong relations with local officials and law enforcement, can smooth permitting and accelerate deployment when a license is granted. 

Product strategy must align with the low-THC cap. Formulation science, titration guidance, and patient education become differentiators when potency ceilings constrain conventional approaches. Balancing cannabinoids within permitted limits, ensuring consistent dosing, and communicating expected effects to physicians and patients improve adherence and outcomes. This medical emphasis also shapes brand tone, packaging aesthetics, and marketing compliance. 

Federal constraints continue to affect banking, insurance, and taxation. While federal policy is evolving, applicants should plan for conservative underwriting by financial institutions, limited access to conventional credit, and potential exposure to unfavorable federal tax treatment on plant-touching activities until federal scheduling changes are finalized and implemented. Preparing pro forma financials that reflect these frictions is essential to a viable business plan. 

Building a Competitive Application 

Winning applications in Texas are comprehensive, polished, and auditable. Teams should assemble complete documentation that narrates readiness across governance, operations, and compliance, supported by attachments that can withstand forensic review. This includes final, not draft, standard operating procedures; detailed site plans; vendor agreements; training curricula; and documented quality systems. Mock inspections and third-party gap assessments help validate that the program is real on day one. 

Site control strengthens credibility. Letters of intent or executed leases and evidence of zoning compatibility show regulators that the applicant can move swiftly to build compliant facilities. Environmental, health, and safety programs should address hazardous materials handling, waste disposal, worker safety, and emergency response, all tailored to cannabis operations rather than generic manufacturing. 

Community engagement and patient access plans carry weight. Demonstrating a patient-centered approach, including discounted access programs where appropriate, multilingual support, and practitioner education, aligns with the program’s medical mission. Thoughtful plans for data privacy and cybersecurity round out the narrative by addressing the sensitivity of patient information and prescription records in a digital environment.  

The Hemp and Cannabinoid Context 

Texas also maintains an active hemp-derived cannabinoid market under separate statutes and oversight, which has generated both commercial opportunities and regulatory disputes over intoxicating hemp products. Despite repeated attempts at blanket hemp-derived THC-product bans, Senate Bill 3 was not enacted following a veto by Governor Abbott, citing its inconsistency with the Farm Bill. Then, earlier this month, the Texas House closed its second special session without passing Senate Bill 6, which would have broadly banned consumable hemp products with any “detectable amount of any cannabinoid.” Only those with cannabidiol or cannabigerol, which are both non-psychoactive, would have stayed legal. 

That means most forms of consumable hemp-derived products stay legal in Texas, at least for now, though new executive action tightens near-term controls. On September 10, 2025, Governor Abbott issued Executive Order GA-56, which does not ban hemp-derived THC products but immediately tightens oversight by prohibiting sales to anyone under 21, requiring government ID verification at the point of sale (with violations risking license revocation), directing DSHS to strengthen rules on testing, labeling, licensing fees, and recordkeeping, and mandating coordinated enforcement among DSHS, TABC, DPS, and local law enforcement.  

What is clear, however, is that the debate over banning intoxicating hemp in Texas is far from over. With Lt. Gov. Dan Patrick strongly in favor of banning all intoxicating hemp products, while Gov. Greg Abbott argues that the attempted ban would run afoul of federal law and, instead, calling for a more reasoned regulatory approach, including restrictions on potency, age limits, enforcement mechanisms and a prohibition of synthetically modified hemp compounds, it seems like this issue is in its infancy.    

Notably, the industry has so far backed Abbott’s position, welcoming GA-56’s focus on standardized testing, labeling, and age-gating while continuing to oppose categorical product bans.  

For medical cannabis applicants, the hemp landscape matters because it affects consumer expectations, retailer education, and the potential for brand confusion. Operators that span both ecosystems must segregate operations, maintain clear product labeling and age controls, and prepare for evolving rules that may narrow permissible hemp products, particularly those that mimic marijuana’s psychoactive effects. Medical cannabis remains distinct in physician oversight, product standards, and patient eligibility, and applicants should resist the temptation to blur these lines in marketing or distribution. 

Outlook for 2025 and Beyond 

The near-term outlook centers on the 2025 legislative session and subsequent administrative action. The most plausible path to an expanded medical market is legislative direction to broaden qualifying conditions, which would increase patient enrollment and may prompt DPS to authorize additional dispensing organizations or facilities to meet access needs. Adult-use legalization remains unlikely in the immediate term, but incremental medical expansion in a state with more than twenty-nine million residents can still reshape the competitive landscape and justify investment in scalable infrastructure.  Separately, on the hemp side, expect DSHS to initiate rulemakings in response to GA-56 to codify enhanced testing, labeling, fee, and recordkeeping requirements, and anticipate stepped-up, coordinated enforcement with TABC and DPS. Multi-ecosystem operators should monitor these proceedings, submit comments, and adjust SOPs and budgets accordingly. 

Prospective applicants should therefore prepare along two tracks. The first is rigorous readiness for a medical-only license round, with all core materials complete and auditable so that the application can be filed as soon as a window opens. The second is scenario planning that contemplates moderate program expansion, including sensitivity analyses on patient counts, physician adoption, and regional access. Maintaining flexible capital commitments, modular facility designs, and supplier agreements that can scale without compromising compliance will position entrants to succeed under either outcome. 

Conclusion 

Texas is one of the largest untapped cannabis markets in the United States, and its medical program, while conservative, offers a pathway for sophisticated operators to establish trusted brands and durable infrastructure ahead of broader reform. As of September 2025, the state continues to license a small number of vertically integrated dispensing organizations, limit products to low-THC formulations, and prioritize patient safety and diversion prevention. Applicants who combine deep compliance discipline, medical credibility, statewide logistics, and patient-centered service can compete effectively when licensing opportunities arise. Given the program’s complexity and the timing uncertainty around new awards, early preparation is a strategic imperative. 

If you are exploring entry into the Texas cannabis market, our team can help you evaluate feasibility, build a competitive application, and help design compliant operations suited to Texas’s unique regulatory environment. Contact us to discuss your objectives and how we can support your path from strategy to licensure to sustained, compliant growth. 

DISCLAIMER: This summary is not legal advice and does not create any attorney-client relationship. This summary does not provide a definitive legal opinion for any factual situation. Before the firm can provide legal advice or opinion to any person or entity, the specific facts at issue must be reviewed by the firm. Before an attorney-client relationship is formed, the firm must have a signed engagement letter with a client setting forth the Firm’s scope and terms of representation. The information contained herein is based upon the law at the time of publication.