The “Cannabis Administration and Opportunity Act,” was
published today. The proposed legislation, sponsored by Majority
Leader Chuck Schumer and Senators Cory Booker and Ron Wyden,
delivers a plan for the comprehensive rescheduling and federal
regulation of marijuana. We have highlighted a few key
aspects of the proposed legislation and our thoughts on the overall
landscape below.
Removal of Cannabis from the Controlled Substances
Act
First thing’s first, the proposed legislation would remove
cannabis from the Controlled Substances Act (“CSA”) and
corresponding regulations within 60 days of enactment. Instead of
being subject to regulation under the CSA, cannabis would be added
to the Federal Food, Drug and Cosmetic Act, and the Federal Drug
Administration (“FDA”), in conjunction with the Alcohol
and Tobacco Tax and Trade Bureau (“TTB”), would be
charged with exercising agency responsibilities over cannabis in a
manner similar to the responsibilities established for alcohol and
tobacco. Despite increased regulation at the federal level, the
proposed legislation continues to look to state law to control the
possession, production, and distribution of cannabis. As such,
federal decriminalization under the proposed legislation does not
allow for the use or distribution of cannabis in violation of state
law.
Lay of the Land
As mentioned above, under the proposed legislation, the FDA
would be recognized as the primary federal regulatory authority
with respect to the manufacture and marketing of cannabis products,
and the TTB would retain federal regulatory authority with respect
to the taxation of cannabis products and control of trade
practices.
FDA
The proposed legislation establishes a Center for Cannabis
Products under the FDA, tasked with regulating the
“cannabis” aspect of all products containing cannabis.
Regulation by the Center for Cannabis Products would include
establishment registration, product listing, good manufacturing
practices, product standards, product labeling, product
distribution, and recalls.
TTB
The TTB, in connection with the Department of Treasury, would
maintain authority over the taxation and trade practices of
cannabis products. Under the proposed legislation, cannabis
products are subject to an excise tax similar to the tax imposed on
alcohol and tobacco. The general rate of tax would be 10% for the
first full calendar year of enactment. Thereafter, the tax would
increase by 5% annually until year five. Beginning in the fifth
year, the tax would be levied on a per-ounce (cannabis flower) or
per-milligram of THC (cannabis extract) rate equal to 25% of the
prevailing price of cannabis sold in the U.S. in the prior year. To
alleviate some of the burden associated with the high tax rate, the
proposed legislation includes a tax credit provision aimed at
removing barriers to entry. Under the tax credit, small cannabis
producers with less than $20 million in sales would be eligible for
a 50% reduction in their tax rate, and larger producers would be
eligible for a tax credit on their first $20 million of cannabis
sold annually. In addition to imposing an excise tax, the proposed
legislation contains permitting and establishment registration
requirements. Since there are already cannabis businesses operating
in full compliance with state laws, the proposed legislation allows
for a cannabis business to continue operations without TTB
approval, so long as the business files a complete application with
TTB within 90 days of the date on which TTB begins accepting
applications.
Restorative Justice and Opportunity Programs
Finally, in an attempt to address those adversely affected by
the War on Drugs, Section 301 of the proposed legislation creates
three grant programs. First, the Community Reinvestment Grant
Program, as administered by the Cannabis Justice Office, will fund
the efforts of nonprofit organizations that provide tactical
services, such as job-training and legal aid, to individuals
impacted by the War on Drugs. Second, the Cannabis Opportunity
Program, as administered by the Small Business Administration
(“SBA”), will provide funding to states and localities
that offer loan assistance to eligible small businesses in the
cannabis industry. Eligible businesses are loosely defined as those
owned by socially and economically disadvantaged individuals.
Third, the Equitable Licensing Grant Program, as administered by
the SBA, will provide funding to states and localities to implement
cannabis licensing programs that minimize barriers of entry for
individuals adversely effected by the War on Drugs. In order to be
eligible for either SBA program, states and localities must take
steps to create an automatic process to expunge criminal records
for cannabis offenses and violations. In addition to state/locality
focused programs, the proposed legislation requires each federal
district must expunge any arrests and convictions for non-violent
federal cannabis offenses within one year of enactment.
Implications for Industry Participants
What could this all mean? In short, this bill is a great start.
The descheduling of cannabis has many benefits, including access to
the U.S. banking system, greater access to capital, and the overall
warm, fuzzy feeling of building something that
is—well—legal. However, the proposed legislation also
provides some insight into who is winning the backroom policy
debates. Spoiler alert: it’s the tobacco and alcohol companies.
If the proposed legislation is passed, it is pretty clear new
industry players will emerge. Some entrants, like tobacco
companies, will seemingly have a leg up in navigating the complex
intricacies of a national marketplace and a competitive familiarity
with the regulatory landscape. All hope is not lost though! Current
operators have plenty of opportunity for success under the proposed
plan. But, in order to succeed, operators must analyze the
marketplace as it stands currently and make a plan to surf the
waves of legalization instead of getting swallowed by them.
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