TITLE 16. ECONOMIC REGULATION

PART 3. TEXAS ALCOHOLIC BEVERAGE COMMISSION

CHAPTER 35. ENFORCEMENT

The Texas Alcoholic Beverage Commission (TABC) adopts new rule 16 TAC §35.7, relating to Consumption of Consumable Hemp Products. The new rule is adopted without changes to the proposed text as published in the April 10, 2026, issue of the Texas Register (51 TexReg 2306). The new rule will not be republished.

REASONED JUSTIFICATION. The new rule prohibits a permittee or licensee from authorizing or allowing any person to consume a consumable hemp product (CHP) on permitted or licensed premises where the consumption of alcoholic beverages is generally prohibited. Specifically, the rule applies to premises covered by a wine and malt beverage retailer's off-premise permit, retail dealer's off-premise license, package store permit, or wine-only package store permit. With the recent rise in the use of CHPs, many of which are intoxicating, TABC believes it is necessary to restrict the use of such products at locations like convenience stores that are not intended for the consumption of intoxicating products. See, e.g., Bill Analysis, H.B. 877, 68th Leg., R.S. (1983) (discussing problems involving the consumption of alcoholic beverages at off-premise locations). This rule helps ensure that the permittees and licensees conduct their business in a manner that is consistent with the Alcoholic Beverage Code. See Tex. Alco. Bev. Code §§11.61(b)(7), 61.71(a)(16) (a permittee or licensee must conduct its business in a manner that is consistent with the general welfare, health, peace, morals, and safety of the people and the public sense of decency).

PUBLIC COMMENTS. TABC held a public hearing on April 23, 2026, to receive comments on the proposed rule. At the hearing, TABC received one comment from an individual. The agency also received written comments from Texans for Safe and Drug-Free Youth, Citizens for a Safe and Healthy Texas, The Coalition, Inc., the Texas Package Store Association, the Hemp Beverage Alliance, and two individuals.

COMMENT SUMMARY. Two commenters support the rule because they believe it represents a reasonable and appropriate exercise of TABC's authority to regulate licensed premises in matters affecting the public welfare, health, and safety. The same commenters ask that TABC continue to evaluate whether stronger penalties may ultimately be necessary for repeated or willful violations involving intoxicating hemp products.

AGENCY RESPONSE. TABC appreciates the comments. The agency will monitor the implementation of this rule to determine if stronger penalties are required in certain situations, but we note that under current rules, the $250 base penalty established in §35.7(c) may be augmented based upon the number of violations and other circumstances surrounding the violation. See generally 16 TAC ch. 34.

COMMENT SUMMARY. Two commenters request that the new rule allow permittees and licensees to conduct in-store samplings of CHPs under conditions similar to those currently governing alcoholic beverage samplings. One commenter believes that this would promote regulatory consistency, enhance consumer protection, and reduce marketplace confusion.

AGENCY RESPONSE. TABC appreciates the comments but declines to make any changes in response to them. Alcoholic beverage samplings are authorized at off-premise locations, but the law imposes limits on the size of samples at certain locations: 1 ounce for wine and malt beverages and .5 ounce for distilled spirits. See, e.g., Tex. Alco. Bev. Code §§22.18(d), 24.12(h). These strict limits, coupled with the well-known duty for permittees and licensees not to overserve patrons, are designed to prevent patrons from becoming intoxicated. But for CHPs it is difficult to establish workable size limitations because the THC content of such products varies so greatly (ex. a .5 ounce sample could contain multiple milligrams of intoxicating THC).

TABC considered the prospect of imposing a THC limit for a CHP sample, but because of the number of product variations (both beverage and non-beverage), the agency believes that approach would be difficult for permittees and licensees to implement and enforce. Amplifying the agency's public safety concerns is the fact that CHPs often have a delayed impact on users, which in turn makes it more difficult for permittees and licensees to know if a particular patron has been overserved.

COMMENT SUMMARY. One commenter states that permittees and licensees would benefit from additional guidance on the "constructive knowledge" standard (also known as the "reasonable care" standard) imposed in §35.7(b). The commenter states that applying this standard to non-alcoholic beverage related violations is novel and thus warrants additional guidance.

AGENCY RESPONSE. The rule states that a permittee or licensee commits a violation "if it knows or, in the exercise of reasonable care, should know of the consumption of consumable hemp products or the likelihood of its occurrence and fails to take reasonable steps to prevent it." That language was taken almost verbatim from current rule 16 TAC §34.3(b)(3) (Offenses Against the General Welfare; Place or Manner Violations) and this "constructive knowledge" or "reasonable care" standard has been used by TABC for over 25 years. See former 16 TAC §35.31(b)(3) (adopted at 24 TexReg 6288 (August 13, 1999)). And contrary to the commenter's assertion, this standard has been applied by TABC to a wide range of violations, not just those involving alcoholic beverages. See, e.g. TABC v. MA D Mendiola dba Reyna's Club, SOAH Docket No. 458-22-2668 (2023) (applying standard to violations for soliciting patrons for immoral or sexual purposes and the sale of narcotics). TABC does not believe there is anything unique about CHPs that renders the application of this standard in §35.7(b) novel, unfair, or unreasonable. Nevertheless, the agency does intend to provide clarifying guidance on this standard in a future rulemaking, consistent with guidance from the Texas Regulatory Efficiency Office.

COMMENT SUMMARY. One commenter supports the intent of §35.7 but asserts that the rule "highlights broader concerns" with CHPs and the CHP industry in general. Specifically, the commenter asserts that enforcement of the rule will be difficult because CHPs are often indistinguishable from other products. The commenter is also concerned that the use of CHPs results in increased costs (monetary and nonmonetary) to the public, and that there is an absence of public education on the dangers associated with the use of CHPs, which results in uninformed consumers. The commenter ultimately questions why the state is continuing to invest resources into regulating the CHP industry.

AGENCY RESPONSE. TABC appreciates the comment but declines to make any changes in response to it. The various points raised by the commenter are beyond the scope of this rulemaking or not within the agency's jurisdiction to address (as the commenter acknowledges). TABC does not regulate the CHP industry per se but instead regulates the agency's permittees and licensees to ensure they operate in a manner consistent with the Alcoholic Beverage Code. The Department of State Health Services (DSHS) is the state agency charged with regulating CHPs and the CHP industry, consistent with state laws adopted by the legislature. See Tex. Health & Safety Code ch. 443.

COMMENT SUMMARY. One commenter stresses that alcohol and THC products should never be consumed together and thus should never be dispensed in the same outlet. Two other commenters agree that alcohol and CHP sales should not occur at the same location.

AGENCY RESPONSE. TABC appreciates the comments but declines to make any changes in response to them. The comments are beyond the scope of this rulemaking, which only addresses the consumption of CHPs at certain locations licensed by TABC. Locations that sell CHPs must be licensed or registered with DSHS, while locations that sell alcoholic beverages must be licensed by TABC. State law does not prohibit retailers from obtaining both licenses and selling both types of products.

COMMENT SUMMARY. One commenter suggests that, in the interest of public safety, TABC prohibit all on-site consumption of CHPs.

AGENCY RESPONSE. TABC appreciates the comment but declines to make any changes in response to it. First, to clarify, the rule does not directly prohibit the consumption of CHPs at applicable locations, but rather it prohibits certain TABC licensees and permittees from allowing the consumption of CHPs on their premises. This distinction is important because TABC does not have regulatory authority over persons that are not licensed by TABC (i.e. patrons). Permittees and licensees are responsible for their premises. Second, while TABC shares the commenter's public safety concerns, the agency does not believe it necessary to extend the rule to all TABC-licensed locations. Locations that are licensed for on-premise consumption of alcoholic beverages are already (should be) designed and staffed to prevent overconsumption and intoxication, unlike the off-premise locations covered by this rule. TABC will continue to monitor all licensed locations for compliance with the Alcoholic Beverage Code and will take enforcement action where appropriate. And if the consumption of CHPs at on-premise locations becomes an issue, the agency will reevaluate the scope of the rule.

COMMENT SUMMARY. One commenter generally stresses the negative impact CHPs have on people of all ages and questions why Texas has not banned all intoxicating CHPs. The commenter also asks whether the consumption of CHPs at locations not covered by the rule is permitted.

AGENCY RESPONSE. TABC appreciates the comment but declines to make any changes in response to it. First, to the commenter's question, the rule only applies to premises covered by a wine and malt beverage retailer's off-premise permit, retail dealer's off-premise license, package store permit, or wine-only package store permit. Locations licensed by TABC that also are registered with DSHS are not prohibited by TABC from allowing the consumption of CHPs on their premises, provided that it is done so in compliance with the Alcoholic Beverage Code and any other applicable law. See, e.g., Tex. Alco. Bev. Code §§11.61, 61.71 (Grounds for Cancellation or Suspension). Second, the remainder of the commenter's general statements about CHPs are beyond the scope of this rulemaking. As previously noted, DSHS is the state agency charged with regulating CHPs and the CHP industry, consistent with state laws adopted by the legislature. See Tex. Health & Safety Code ch. 443.

STATUTORY AUTHORITY. TABC adopts the new rule pursuant to TABC's rulemaking authority under Texas Alcoholic Beverage Code §5.31. Section 5.31 authorizes TABC to prescribe and publish rules necessary to carry out the provisions of the Alcoholic Beverage Code.

The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on June 2, 2026.

TRD-202602271

Matthew Cherry

Senior Counsel

Texas Alcoholic Beverage Commission

Effective date: June 22, 2026

Proposal publication date: April 10, 2026

For further information, please call: (512) 206-3491

CHAPTER 41. AUDITING

SUBCHAPTER B. RECORDKEEPING & REPORTS

16 TAC §41.12

The Texas Alcoholic Beverage Commission (TABC) adopts an amendment to 16 TAC §41.12, relating to Compliance Reporting by License and Permit Holders. The amendment, which adds new subsection (e), is adopted without changes to the proposed text as published in the April 10, 2026, issue of the Texas Register (51 TexReg 2307). The amendment will not be republished.

REASONED JUSTIFICATION. Current §41.12(d) provides that TABC may issue a written warning to a permittee or licensee who fails to file a compliance report in a timely manner. New subsection (e) would permit TABC to issue such a warning without providing the permittee or licensee an opportunity for an administrative hearing.

TABC rule 16 TAC §34.1(d)(3) currently gives the recipient of any written warning the opportunity to request an administrative hearing challenging the warning at the State Office of Administrative Hearings (SOAH). It often takes SOAH many months to hold a hearing and issue a proposal, and TABC must devote significant time and scarce resources to each hearing. TABC believes these resources can be better spent elsewhere in these types of cases. Furthermore, conducting a hearing to determine whether a permittee or licensee filed a compliance report would be a meaningless exercise; the report is either filed or not, and that is an independently verifiable fact. As such, TABC does not believe an administrative hearing is warranted when issuing a written warning for failure to file compliance reports.

PUBLIC COMMENTS. TABC held a public hearing on April 23, 2026, to receive comments on the proposed amendment. At the hearing, TABC received three comments. TABC also received one written comment. Comments were submitted by Brackin Schwartz & Associates and Griffith & Hughes PLLC.

COMMENT SUMMARY. One commenter asserts that the proposed amendment deprives recipients of warning letters of their due process right to a hearing. The commenter also claims that conducting a hearing for a violation of §41.12 requires only minimal time and resources for TABC staff. The same commenter also proposes alternatives that it believes the agency should consider.

AGENCY RESPONSE. TABC disagrees with the comment. As noted above, conducting a hearing to determine whether a permittee or licensee filed a compliance report would be a meaningless exercise; the report is either filed or not, and that is an independently verifiable fact. Due process does not require a hearing prior to the issuance of a warning letter when, as here, there is no factual dispute to resolve. See Bell v. Tex. Workers Comp. Comm'n, 102 S.W.3d 299, 305-06 (Tex. App.-Austin 2003, no pet.) ("Due process does not require the holding of a useless hearing when there are no factual disputes to resolve."); Limon v. State, 947 S.W.2d 620, 627 (Tex. App.-Austin 1997, no writ) ("We note that a hearing on an applicant's failure to post a bond would seem to us to be meaningless; a bond is either posted or it is not."). Furthermore, neither the Alcoholic Beverage Code nor the Administrative Procedure Act require a hearing in this situation. See Tex. Comm'n on Envtl. Quality v. City of Waco, 413 S.W.3d 409, 423 (Tex. 2013) (Holding that the APA does not independently provide a right to a contested case hearing). The Alcoholic Beverage Code requires the opportunity for a hearing only in matters relating to the issuance or renewal of an application, the suspension or cancellation of a license or permit, and certain contests of taxes owed to the agency. See Tex. Alco. Bev. Code §§11.43, 11.61, 32.17, 61.71-.75, 81.005, 101.67, 101.671, 102.16, 106.13, 106.14, 106.17, 109.56, 206.09.

TABC also believes the commenter's estimates regarding the amount of time and resources the agency would need to expend on such a hearing (1.5 to 2 hours) are not realistic and fail to account for the sheer number of hearings that could potentially take place should this amendment not be adopted. And even if the commenter's estimates were accurate, any time and resources devoted to such hearings would be time and resources that are not spent on potentially more serious, public safety matters.

The commenter also proposes three potential alternatives. The first two suggestions both involve TABC contacting delinquent permittees and licensees to inform them that any failure to file a compliance report in the future will result in a violation. As the agency noted in the rule proposal preamble (51 TexReg 2307), staff have already made repeated attempts to notify delinquent permittees and licensees, with limited success. That is why the amendment is necessary. The third suggestion involves changes to TABC's licensing system (AIMS) that would prevent a delinquent permittee or licensee from filing a renewal application. Before proposing the current amendment, TABC considered a similar solution that would prevent delinquent permittees and licensees from renewing their permits and licenses until a compliance report is filed, but ultimately the agency believed that solution would create too much disruption to the industry. The decision was made to proceed with the current amendment, which the agency views as a more measured response to the problem. But if delinquent compliance reports remain an issue, TABC may reconsider other alternatives such as prohibiting permit and license renewal when a compliance report remains delinquent.

COMMENT SUMMARY. Two commenters express concern that the issuance of warning letters would negatively impact letter recipients' conduct surety bonds.

AGENCY RESPONSE. As background, the Alcoholic Beverage Code requires applicants for certain types of permits and licenses to file a conduct surety bond with TABC. See Tex. Alco. Bev. Code §§11.11, 61.13. The purpose of the bond is to ensure the applicant conforms with the law once they become licensed. TABC rules provide that "the commission may seek forfeiture of a conduct surety bond upon the third violation during the effective period of the bond, including warnings, of any statute or rule under the commission's jurisdiction." 16 TAC §33.41(e)(6)(A) (emphasis added). Notwithstanding §33.41(e)(6)(A), the agency noted in the preamble to the proposed rule amendment that warning letters issued for failure to file compliance reports "will not impact a license or permit holder's existing bonds and does not qualify as a violation for purposes of bond forfeiture."

Despite the agency's assurance, the commenters express concern that without a corresponding amendment to §33.41, permittees' and licensees' bonds will be at risk if they receive a warning letter for failure to file a compliance report. TABC disagrees. Section 33.41(e)(6)(A) provides that the agency may seek forfeiture of conduct surety bonds, meaning it is within the agency's discretion to do so. Therefore, an amendment to §33.41 is not necessary to implement the agency's assurance that warning letters issued for failure to file compliance reports will not qualify as a violation for purposes of bond forfeiture. The agency will exercise its discretion in that regard, as provided in §33.41(e)(6)(A).

COMMENT SUMMARY. One commenter expresses concern that technological issues could create a situation where a particular permittee or licensee is shown to be delinquent in the submission of their compliance report when in fact the permittee or licensee submitted their report in a timely fashion. The commenter seeks assurances that there will be avenues for permittees and licensees to communicate with the agency about report submissions and opportunities to prove they are not delinquent.

AGENCY RESPONSE. TABC's goal is to bring permittees and licensees into compliance with their reporting obligations without the need to issue warning letters. With that goal in mind, the agency still intends to send informal notices to delinquent permittees and licensees well before issuing any formal warning letter. Delinquent permittees and licensees will have ample opportunity to come into compliance before a warning letter is issued. And permittees and licensees are always welcome to engage with agency staff should they have any questions about the submission of their report. Finally, while the agency does not share the commenter's concerns about permittees and licensees incorrectly being shown as delinquent, the agency will rescind a warning letter if it is shown that it was issued in error.

STATUTORY AUTHORITY. TABC adopts the amendment pursuant to TABC's rulemaking authority under Texas Alcoholic Beverage Code §5.31. Section 5.31 authorizes TABC to prescribe and publish rules necessary to carry out the provisions of the Alcoholic Beverage Code.