Hemp growers have accused government departments of "drug paranoia" after being told it is illegal to feed the plant to livestock.
While it's now legal to grow and sell hemp seed for human consumption, farmers are then not allowed to feed the left over leaves and stalks to animals.
The New Zealand Hemp Industry Association said the Ministry for Primary Industries argued there could be potential issues from countries where hemp is prohibited.
"MPI argues the tiniest trace amount of any cannabinoid in our milk or meat could be devastating," association chairman Donald Mcintosh said.
It came as an "absolute shock" when members were told the news this week.
"The problem seems to be getting worse and worse rather than better and better."
Mcintosh said the Ministry of Health had a "drug paranoia" and had persuaded the Ministry for Primary Industries that residues of cannabinoids could risk New Zealand's meat and milk exports.
The head of New Zealand Food Safety, Bryan Wilson, said because industrial hemp contained cannabinoids, it came under the Medicines Act and the Misuse of Drugs Act.
If any drugs were used on animals, they had to be registered under the Agricultural Compounds and Veterinary Medicines Act.
"Hemp crops, which include the leaves and flowers of the plant, contain higher levels of tetrahydrocannabinols than the seeds. If fed to animals, these chemicals can transfer to meat and milk.
"MPI's position on the use of hemp in animal feed is in line with other countries," Wilson said.
Mcintosh disagreed, pointing to the example of Australia, Canada and some European countries where hemp was fed to livestock.
Marton dairy farmer Tom Welch has been growing hemp for seed and wanted to feed the leaves to his dairy cows, but had been warned it was illegal.
"These constant roadblocks by government are killing our industry's future. We need government to help, not hinder, for hemp to flourish to its economic and ecological potential."
Welch said industrial hemp was extremely low in THC, which is the principal psychoactive constituent of cannabis.
He had been trialling the best way to feed the crop to livestock. The fibre was unpalatable but the leaves were full of useful nutrients.
"They [cows] haven't really been interested in feeding on it, but that's to do with how we've been doing it. We tried feeding it when it was knee to thigh height, but by then it's a bit past it.
"If was finely cut into a silage it would be a very good animal food, nutritionally it's phenomenal.
"We're focusing on the seed, but you've got close to a $1000 a hectare of dry matter, which could easily be 20 per cent of your total income. That's enough to make the difference between a loss and a profit," Welch said.
While the fibre could not be used for animal feed, it could be converted into textiles or carpet.
Welch recognised few countries had as strong an export dairy business as New Zealand, but Australia exported a lot of meat.
"We're a bit dumbfounded. It's no issue from a health point of view," he said.
The association said industrial hemp was considered generally safe by the World Health Organisation and the UN, with levels of THC under 0.35 per cent.