Marijuana

The Unveiling Of The CAOA: How The Senate Proposes to Regulate Marijuana

The federal descheduling of marijuana would allow companies to take tax deductions, have access to banking services, and list on the U.S. stock market. 

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For the past month, this column has focused on the federal legalization of marijuana, which continues to be at the forefront of lawmakers’ agenda. A few days following my most-recent article, a 163-page discussion draft legislation intended to end the decades-long federal marijuana prohibition was unveiled by its lead sponsors, Senate Majority Leader Chuck Schumer (D-NY), Senate Finance Committee Chairman Ron Wyden (D-OR), and Sen. Cory Booker (D-NJ). Here is a 30-page summary of the discussion draft for those of you who prefer CliffsNotes.

The draft bill, formally known as the Cannabis Administration and Opportunity Act (CAOA), was introduced “to spur a robust conversation among stakeholders” to inform members of Congress as they craft the final legislative proposal.

The official purpose of the draft bill is “to decriminalize and deschedule cannabis, to provide for reinvestment in certain persons adversely impacted by the War on Drugs, to provide for expungement of certain cannabis offenses, and for other purposes.”

The federal descheduling of marijuana would allow companies to take tax deductions, have access to banking services, including maintaining bank accounts and applying for loans (note that the discussion draft does not specifically mention banking, but its provisions ending federal prohibition would automatically remove any penalties with which financial institutions are currently faced), and list on the U.S. stock market.

In addition, marijuana would be federally taxed and regulated, like tobacco and alcohol. According to the draft, federal excise taxes on marijuana products would increase annually, starting at 10% for the first year following the bill’s enactment and the first subsequent year, then would increase up to 25% by year five, at which point the tax would be levied on a per-ounce rate in the case of marijuana flower, or a per-milligram of THC rate in the case of any marijuana extract. Small marijuana producers with less than $20 million in annual sales would qualify for a 50% reduction in their tax rate via a tax credit. Producers with more than $20 million in sales would be eligible for a tax credit on their first $20 million of annual sales, with sales above that amount subject to tax at the full rate. Some of these tax revenues would be funneled to an Opportunity Trust Fund to reinvest in the communities most impacted by the failed War on Drugs and help entrepreneurs in these communities enter the industry.

The descheduling of marijuana would also transfer regulatory authority over marijuana products from the DEA to the FDA, the ATF, and the Alcohol and Tobacco Tax and Trade Bureau (TTB). The FDA would regulate the manufacture and marketing of marijuana products, whereas the TTB and ATF would collect taxes, enforce tax regulations, and track/trace these products to prevent their illicit distribution. The agencies would have dual jurisdiction related to certain aspects of marijuana product labeling and packaging, advertising, and other consumer information.

The 163-page draft bill also clearly provides that the federal legalization of marijuana would not render marijuana legal in every state. In fact, the CAOA preserves the right of states to develop their own laws and regulations on the matter and to maintain prohibition if they so choose, except for interfering with the interstate transportation of marijuana.

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Lastly, the draft bill contains robust restorative measures to lift up people and communities of colors that have been unfairly targeted in the War on Drugs. The bill proposed to automatically expunge federal nonviolent marijuana convictions and allow those currently serving time for nonviolent federal cannabis crimes the ability to petition for resentencing. In addition, the bill proposes to establish a grant program known as the Community Reinvestment Grant Program that would be carried out by the Cannabis Justice Office, an office that would be established following the enactment of the bill. The Cannabis Justice Office would administer social equity programs such as literacy programs, legal aid for civil and criminal cases, youth mentoring programs, and health education programs in communities that have been adversely harmed by past drug policies.

This discussion draft bill is undoubtedly a huge step forward in the federal legalization of marijuana. Yet, despite its growing bipartisan public popularity, the CAOA has been widely criticized for its lack of specificity surrounding key issues. Many critics have expressed issue over the hefty 25% federal excise tax which would be added on top of existing state and local taxes that are already as high as 25%, and thus, would likely exacerbate the thriving illicit market. Another cause of concerns surrounds the lack of specifics regarding the FDA’s regulation of marijuana products. Specifically, given the complex therapeutic value of marijuana, many are wondering whether state laws and regulations regarding these products will be preempted if they ultimately failed to align with the FDA’s final rules. This, of course, would directly contradict the bill’s expressly reserved authority of states to determine their own marijuana laws and regulations.

With all that said, the CAOA is a “discussion draft,” which means a lot of ground will need to be covered to produce a robust final proposal. While its lead sponsors seem confident that their discussion draft addresses key concerns from stakeholders, they have recognized that this is not the final version of the bill and have invited stakeholders and members of the public to submit their feedback until September 1 to improve the draft.

2021 won’t likely be the year marijuana becomes federally legal but the growing appetite to tackle this issue, including social reforms, is promising.

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Nathalie Bougenies chairs Harris Bricken‘s hemp CBD practice group and focuses her practice on health and wellness, in addition to corporate transactions and regulatory compliance. For the past three years, Nathalie has helped clients navigate the complex regulatory landscape of hemp products intended for human consumption and advises domestic and international clients on the sale, distribution, marketing, labeling, and importation of these products. Nathalie frequently speaks on these issues and has made national media appearances, including on NPR’s “Marketplace.” She also authors a weekly column for “Above the Law” that features content on cannabis policy and regulation and is a regular contributor to her firm’s “Canna Law Blog.” For three consecutive years, Nathalie has been named Rising Star by Super Lawyers.

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