Democratic Senators Chuck Schumer, Cory Booker, and Ron Wyden recently unveiled the latest legislative attempt to make cannabis legal at the federal level. The Cannabis Administration and Opportunity Act (CAOA) is not the first attempt of its kind — several iterations of the MORE Act and the SAFE Banking Act have been introduced multiple times. Whether or not the CAOA passes this year, it is the most comprehensive federal legalization bill thus far and offers a glimpse at how the next evolution of America’s cannabis industry is likely to operate.
Currently, the patchwork of state cannabis laws, coupled with cannabis’ continued illegality at the federal level, create major hurdles for the growing cannabis industry. State-legal cannabis businesses do not have easy access to banking and cannot deduct normal business expenses from their revenue. Further, cannabis products cannot be shipped across state lines; it has been difficult to conduct research on cannabis’ therapeutic effects, and no uniform standards for cannabis product safety exist across the country. This awkward arrangement has even caught the attention of the Supreme Court, with Justice Thomas criticizing the federal government’s inconsistent treatment of cannabis and cannabis businesses.
The CAOA may be the fix the industry and cannabis consumers have been waiting for. In addition to addressing basic issues, such as taxes, permitting, and product standards, the CAOA speaks to other various and diverse issues affected by cannabis’ illegality, including research, resentencing and expungement, public benefits, immigration, and even access to health care.
The CAOA would deschedule cannabis altogether, remove it from the purview of the DEA, and place it within the oversight responsibilities of the Bureau of Alcohol, Tobacco, Firearms, and Explosives, the Alcohol and Tobacco Tax and Trade Bureau, and the Department of Health and Human Services. These agencies would oversee permitting, taxation, trade, and health and safety standards, and they must coordinate among each other to draft regulations and avoid overlap. The availability of interstate commerce under the CAOA will be revolutionary for the industry, but the CAOA attempts to respect current state regulatory frameworks by requiring that cannabis transported into any state be subject to the laws of that state as though it had been produced in that state. States that have not legalized commercial or medicinal cannabis may continue to prohibit it but cannot, however, prohibit the transport of cannabis on interstate highways within their state borders.
Tax rates will likely be a point of contention. Most states already heavily tax regulated cannabis, leading to retail prices that can be 30% higher than illicit market prices. State-legal cannabis has yet to eliminate the illicit market for cannabis as hoped. The CAOA, as written, would establish an additional 10% excise tax on cannabis products for the first two years of the program, increasing to 25% in the fifth year. Small cannabis producers with less than $20 million in sales annually would be eligible for a 50% reduction in their tax rate, but industry groups have suggested that a federal excise tax should be much lower to make the industry viable.
Many in the cannabis industry are wondering to what extent the U.S. Food and Drug Administration (FDA) will be involved in setting standards for cannabis products. The agency has been criticized for a lack of movement on CBD regulation and its substantial backlog regarding its new role overseeing tobacco and vaping products. Under the CAOA, however, the FDA would have a critical role in setting cannabis product ingredient, testing, and labeling regulations through a new Center for Cannabis Products. The FDA would maintain a list of registered cannabis product manufacturers and their approved products, and registered manufacturers must update their listings before introducing a new product. Product standardization is an important aspect of interstate commerce, and cannabis manufacturers should begin to familiarize themselves with the federal standards that the food, beverage, and dietary supplement industries already operate under to prepare for FDA oversight.
Other areas addressed by the CAOA include loans under the Small Business Act, funding for social equity licensing programs and other social justice programs, and automatic expungement of certain cannabis offenses. Also, the CAOA would prohibit the denial of federal public benefits and immigration protections due to cannabis violations.
Any current cannabis operators, especially multistate operators, would do well to read the CAOA closely as many of its basic building blocks will likely become reality in the near future. Legislators also want to hear from the industry regarding the new bill; comments are being accepted at Cannabis_Reform@finance.senate.gov until September 1, 2021. We look forward to continuing to report on the progression of this important and historic piece of legislation.
Our Cannabis Practice provides advice on issues related to applicable federal and state law. Marijuana remains an illegal controlled substance under federal law.