September 30, 2022

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Schumer and Company File Federal Cannabis Legalization Bill

Editor’s note: This is a developing story and will be updated periodically through the day on July 21.

Senate Majority Leader Chuck Schumer’s bill to federally legalize cannabis is finally here.

The New York Democrat, along with Senate Finance Committee Chairman Ron Wyden, D-Ore., and Sen. Cory Booker, D-N.J., officially filed the Cannabis Administration and Opportunity Act (CAOA) July 21 in the upper chamber.

The 296-page bill expands upon a 163-page draft that the Senate trio originally unveiled more than a year ago, before industry organizations and stakeholders spent the better part of two months submitting their feedback.

While the final version of the legislation filed Thursday broadens the initial proposal, the nuts and bolts of the bill remain: remove cannabis from the list of controlled substances; tax and regulate cannabis at the federal level; and grant states the power to keep or administer their own oversight programs.

“It will help with consistency, it will make things cheaper, it will make things better [and] it will make the market much more efficient,” Jonathan Robbins, chair of the cannabis practice at Akerman LLP, told Cannabis Business Times. “I think the real positive impact will be for the start-ups, the entrepreneurs, the people who otherwise couldn’t get into business because the price is so high, and they don’t have access to traditional financing.”

More specifically, the bill aims to implement an excise tax on cannabis products, starting at 5% for small and mid-sized producers and gradually increasing to a maximum rate of 12.5% after five years from enactment. For larger cannabis businesses, the excise tax would begin at 10% and gradually increase to a maximum rate of 25%.

In addition, the legislation provides provisions to help repair the harms and injustices associated with the enforcement of prohibition policies that have led to disproportionately targeting Black people and communities.

“For far too long, the federal prohibition on cannabis and the war on drugs has been a war on people, and particularly people of color,” Schumer said in a statement, adding that the CAOA “will be a catalyst for change [by] expunging the criminal records of those with low-level cannabis offenses, providing millions with a new lease on life.”

Specifically, the legislation directs funding to reinvest in people and communities impacted by prohibition and lays the groundwork to foster diversity and inclusion in state-regulated markets.

The majority of U.S. voters support comprehensive cannabis policy reform, including 68% of Americans who support full legalization, according to a November Gallup Poll.

As that support for cannabis policy change continues to strengthen, now is the time to effectively address the damage done to marginalized communities and create equitable opportunities in the burgeoning cannabis industry, NORML Political Director Morgan Fox said in a news release Thursday.

“The official introduction of this bill to finally end the policy nightmare of federal marijuana prohibition is the culmination of unprecedented leadership in the Senate and engagement with stakeholders across the political spectrum,” Fox said. “We look forward to working with lawmakers to move this legislation toward passage and eagerly anticipate engaging in substantive conversations on all aspects of federal marijuana law with Senate members. These conversations and hearings are long overdue.”

The broad legalization effort comes as incremental changes, such as the Secure and Fair Enforcement (SAFE) Banking Act, which passed the House for the seventh time last week as an amendment to the 2023 National Defense Authorization Act (NDAA), continue to get held up in the Senate.

Addressing the lack of access to traditional banking services available in other industries, the CAOA would not only provide safe harbor to financial institutions to take on cannabis clients, but it also would eliminate the inability of licensed cannabis companies to deduct standard business expenses when filing their federal taxes.

While that provision is included in the CAOA, it should not distract congressional leaders from advancing limited “yet critical” reform efforts, such as SAFE Banking and expungement measures that are more immediately within reach, U.S. Cannabis Council CEO Steven Hawkins said in a statement to Cannabis Business Times.

“The introduction of comprehensive cannabis reform legislation in the Senate, by none less than the majority leader himself, is the strongest sign yet that cannabis prohibition in America is nearing its end,” Hawkins said. “We applaud the authors of the CAO Act for their leadership and vision. We are reviewing the updated legislative text and look forward to having substantive discussions on how to best transition away from the illicit market to a fully regulated, national market with opportunities for all.”

When the USCC submitted feedback on the draft version of the CAOA last year, it was one of roughly 1,800 entities to do so during the public comment period.

Three key issues raised by the USCC, and others, included the draft legislation’s high excise tax rates; the balancing roles of the Food and Drug Administration (FDA), Alcohol and Tobacco Tax and Trade Bureau (TTB) and other regulatory bodies needing to mirror other adult-use substances, such as alcohol; and the need for states with already established cannabis programs the ability to provide their licensees the time needed to adapt ahead of the onset of a national marketplace.

Robert DiPisa, co-chair of Cole Schotz’s Cannabis Law Group, told Cannabis Business Times that the CAOA would address some of his clients’ biggest obstacles, such as landlords refusing to lease property to them and insurance companies denying them coverage, by simply removing cannabis from the Controlled Substances Act (CSA).

“I think the biggest problem in the cannabis industry for my clients and operators all over the country is the fact that, obviously, cannabis is still Schedule I under the CSA,” DiPisa said. “That’s essentially the root of all problems.”

Descheduling cannabis would also expand research on medical cannabis, which DiPisa said could increase understanding of the long-term effects of cannabis use, as well as what other medical conditions the plant and its compounds could benefit.

At the time of the CAOA’s filing, 19 states have legalized adult-use cannabis and 37 states have legalized medical programs without low-THC restrictions.

Below are some of the key provisions for public health, public safety, regulation and taxation, research, entrepreneurship and restorative justice, and workers’ rights included in the CAOA legislation filed July 21:

Public Health

  • Establishes a Center for Cannabis Products within the FDA to regulate the production, labeling, distribution, sales and other manufacturing and retail elements of the cannabis industry.
  • Instructs the FDA to establish standards for labeling of cannabis products, including potency, doses, servings, place of manufacture and directions for use.
  • Establishes programs and funding to prevent youth cannabis use, including through media campaigns.
  • Prohibits electronic cannabis product delivery systems from containing added flavors.
  • Funds state programs to prevent youth use and cannabis-impaired driving, including enforcement, education and data collection.
  • Increases funding for comprehensive opioid, stimulant and substance-abuse disorder treatment.
  • Requires Veterans Affairs (VA) and Indian Health Service (IHS) to provide recommendations and opinions regarding the medical use of cannabis by VA and IHS patients.

Public Safety

  • Removes cannabis from the Controlled Substances Act and eliminates federal prohibition in states that have chosen to legalize medical cannabis, or adult-use cannabis for people aged 21 and older. Retains federal prohibitions on trafficking of cannabis in violations of state law, or in states that have not legalized cannabis.
  • Implements robust anti-diversion rules, including a track-and-trace system, and adopts quantitative limitations on retail purchases.
  • Establishes a grants program through the Department of Justice to assist small law enforcement departments in hiring officers, investigators and community outreach specialists to combat illicit market cannabis production and distribution.
  • Requires the Department of Transportation to create a standard for cannabis-impaired driving within three years to be adopted by states.
  • Directs the National Highway Traffic Safety Administration (NHTSA) to collect data on the number of cannabis-impaired drivers through a national roadside survey, and conduct further research into how cannabis use and multi-substance impairment affects drivers.
  • Directs the NHTSA to create educational materials on “best practices” for preventing cannabis-impaired driving that can be distributed to states.
  • Directs NHTSA to carry out media campaigns intended to prevent cannabis-impaired driving, including a campaign specifically targeted at drivers under the age of 21.
  • Incentivizes states to adopt cannabis open container prohibitions.

Regulation and Taxation

  • Transfers federal jurisdiction over cannabis from the Drug Enforcement Administration (DEA) to the Food and Drug Administration (FDA) and the Alcohol and Tobacco Tax and Trade Bureau (TTB) within the Treasury Department, and implements a regulatory regime similar to alcohol and tobacco, while recognizing the unique nature of cannabis products.
  • Eliminates the tax code’s restriction on cannabis businesses claiming deductions for business expenses, and implements an excise tax on cannabis products:
    • For small and mid-sized producers, the excise tax would begin at 5% and gradually increase to a maximum of 12.5%.
    • For larger cannabis businesses, the excise tax would begin at 10% and gradually increase to a maximum rate of 25%.
  • Establishes market competition rules meant to protect independent producers, wholesalers, and retailers and prevent anti-competition behavior.
  • Ensures regulatory bodies and law enforcement have the resources and tools they need to protect the integrity of the legal cannabis marketplace.

Research

  • Requires the Government Accountability Office (GAO) to study and report on metrics that may be impacted by cannabis legalization, including traffic-related deaths and injuries, hospitalizations and poison center calls, violent crime rates, employment statistics, rates of cannabis use and various other criteria.
  • Requires the U.S. Department of Health and Human Services (HHS) and the National Institutes of Health (NIH) to conduct or support research on the impacts of cannabis, including its effects on the human brain, the impact on various health conditions, and identification of potential medical benefits and uses of cannabis.
  • Requires the VA to carry out a series of clinical trials studying the effects of medical cannabis on the health outcomes of veterans diagnosed with chronic pain and post-traumatic stress disorder (PTSD), including long-term observational studies.
  • Requires the Bureau of Labor Statistics to regularly compile and publicize data on the demographics of business owners and employees in the cannabis industry.
  • Directs the HHS to increase the diversity and availability of cannabis products for research purposes.
  • Establishes grants to build up cannabis research capacity at institutions of higher education, with a particular focus on minority-serving institutions and Historically Black Colleges and Universities.
  • Expands programs to increase the supply of cannabis available for research purposes.

Entrepreneurship and Restorative Justice

  • Uses federal tax revenue to fund an Opportunity Trust Fund to reinvest in communities and individuals most harmed by the failed drug war.
  • Establishes a Cannabis Justice Office at the Department of Justice’s Office of Justice Programs, to administer the Community Reinvestment Grant Program.
  • Establishes the Community Reinvestment Grant Program to issue grants to community-based organizations in order to serve individuals harmed by the failed drug war, including job training, reentry services, legal aid, literacy programs, youth mentoring and health education.
  • Establishes the Equitable Licensing Grant Program to provide states, tribes or localities funding to implement licensing programs that minimize barriers to cannabis licensing and employment for individuals adversely impacted by the drug war.
  • Establishes the Cannabis Restorative Opportunity Program to provide loans and technical assistance to small businesses owned and controlled by socially and economically disadvantaged individuals in cannabis-legal states.
  • Establishes a 10-year pilot program for intermediary lending from the Small Business Administration (SBA), in which SBA would make direct loans to eligible intermediaries that in turn make small business loans to startups, businesses owned by individuals adversely impacted by the drug war, and socially and economically disadvantaged small businesses.
  • Establishes expedited FDA review of drugs containing cannabis manufactured by small businesses owned by socially and economically disadvantaged individuals.
  • Provides grants to Community Development Financial Institutions and invests in minority depository institutions to expand lending and investment in low- and moderate-income areas, especially those harmed by the failed drug war.
  • Directs the Secretary of Housing and Urban Development (HUD) to establish a grant program to provide communities whose residents have been disproportionately affected by the drug war with additional funding to address the housing, economic and community development needs of such residents.
  • Initiates automatic expungement of non-violent cannabis offenses and allows an individual currently serving time in federal prison for a nonviolent cannabis offense to petition a court for resentencing.
  • Disallows the denial of any benefits or protections under immigration law to any noncitizen based on his or her use or possession of cannabis.
  • Prevents discrimination in the provision of federal benefits against people who sue cannabis.

Workers’ Rights

  • Removes unnecessary federal employee pre-employment and random drug testing for cannabis, while preserving appropriate drug testing for certain sensitive categories of employees where continued testing is determined necessary, including national security, law enforcement and commercial transportation.
  • Reduces barriers to employment at banks or credit unions based on past minor criminal offenses, including criminal offenses that have been expunged, sealed or dismissed.
  • Ensures worker protections for those employed in the cannabis industry by strengthening requirements that permitted cannabis businesses comply with the National Labor Relations Act, the Fair Labor Standards Act and the Occupational Safety and Health Act.
  • Establishes grants for community-based education, outreach and enforcement of workers’ rights in the cannabis industry, and requires the National Institute of Occupational Safety and Health to study how legalization of cannabis impacts the health and safety of workers.

The CAOA would have sweeping effects on the U.S. cannabis industry, which DiPisa said could ultimately harm its chances of passing.

“I think the acts that are the most simple, straightforward, and can get bipartisan support are the ones that are most likely to pass, such as something like some form of the SAFE Banking Act,” he said. “If you look at that one, … it’s really talking about deregulation and not penalizing lenders for servicing the cannabis industry, in its simplest form. … I think there’s a lot more in [the CAOA], and my concern is whenever there’s more, there’s always opportunity for someone to have an issue with certain aspects of it. … I think that could negatively affect the ability for this to actually get passed. At this point, the best likelihood of something to pass is something that’s very simple, very straightforward, and something that both parties can agree to.”

DiPisa attributed lawmakers’ failure to pass the SAFE Banking Act, in part, to the fact that legislators are focusing on what they see as more pressing issues that have arisen in the past six to 12 months, including the national baby formula shortage, inflation and the war in Ukraine.

“My concern is that cannabis may yet again fall by the wayside just because, in the eyes of Washington, it may not be as pressing as the bigger issues that we have going on right now,” he said.

Editor’s note: Senior Digital Editor Melissa Schiller contributed to this report.