Few things are more difficult to eradicate in our system of modern governance than a government-sanctioned monopoly or oligopoly. A recently passed bill in Tennessee, which will allow the state’s alcohol wholesalers to take over hemp distribution in the state, shows that these monopolies are not only difficult to eliminate but also often attempt to expand their reach.
The new law sets up a distribution system for hemp—which was legalized at the federal level in the 2018 Farm Bill—that mirrors the notorious three-tier system for alcohol distribution, which requires producers, wholesalers, and retailers to be legally separate entities. The three-tier system restricts producers and suppliers from selling directly to their customers and mandates that they work through a wholesaler to reach the market. This allows wholesalers to operate as functional monopolies or oligopolies in certain parts of states where only one or two wholesalers operate.
The law, which takes effect on January 1, 2026, also requires all wholesalers and retailers of hemp products to maintain a physical presence within the state. Out-of-state hemp suppliers will be prohibited from engaging in direct-to-consumer shipping to customers in Tennessee, and instead will be forced to work through the state’s wholesaler and retailer tiers. While in-state Tennessee hemp suppliers cannot ship their products to Tennesseans either, they are able to sell on-site directly to their customers, providing a workaround to avoid the three-tier system.
Cornbread Hemp, a Kentucky hemp supplier that recorded $1 million in Tennessee-based sales last year, is challenging the new law in federal court. Cornbread Hemp argues that Tennessee’s law unconstitutionally discriminates against out-of-state competitors in favor of in-state businesses, which is a violation of the Constitution’s Dormant Commerce Clause.
Supreme Court observers will recognize how closely the case mirrors Tennessee Wine and Spirits Retailers Association v. Thomas (2019). In the case, the majority struck down Tennessee’s requirement that applicants for alcohol wholesaling or retailing licenses must have resided in the state for over two years, finding it to be unconstitutional discrimination against out-of-state economic interests.
Hellbound and Down 