The much-anticipated proposed Senate bill that would legalize
marijuana on the federal level was made public on July 14, 2021, by
its lead sponsor, Senate Majority Leader Charles Schumer (D-New
York). Called the Cannabis Administration and Opportunity Act, it
removes marijuana from the Controlled Substances Act (CSA) and
allows states to determine their own cannabis laws, similar to the
way alcohol is federally regulated. Revenue generated by federal
taxes would support restorative justice and public health and
safety research.
The bill’s Senate sponsors note that federal cannabis
reforms are especially urgent as more states legalize the adult and
medical use of cannabis. They point to the fact that today more
than 90 percent of Americans believe cannabis should be legal for
either adult or medical use.
Though movement on cannabis legalization in the Senate is a
welcome development, the proposed legislation contains elements
that are of concern to many within the cannabis industry. In
addition, there are significant gaps in the draft bill that will
need to be clarified in the final version, which is not expected to
be voted on until September 2021 at the earliest. The bill’s
sponsors are seeking public comment from various stakeholders on
several important topics, discussed below. In the meantime,
important details on how cannabis will be regulated are
omitted.
Federal Legalization
The Cannabis Administration and Opportunity Act removes
cannabis from the CSA and directs that a new definition of cannabis
be established within the Federal Food, Drug and Cosmetic Act for
regulation of cannabis in food, dietary supplements, drugs and
cosmetics. The new definition would retain the existing exception
for hemp.
State law would continue to control the possession, production
and distribution of cannabis. Shipment of cannabis into a state in
violation of state law would remain prohibited, notwithstanding
federal decriminalization. Federal criminal penalties are proposed
for cannabis diversion, which is defined as the unlawful
possession, production, distribution or purchase of 10 pounds or
more of cannabis in violation of federal or state law. The bill
further clarifies, however, that a state may not prohibit the
interstate commerce of cannabis transported through its borders for
lawful delivery into another state. This is similar to the current
protections in place for the interstate transportation of hemp and
hemp-derived products.
Federal Regulatory Jurisdiction
The legislation would transfer primary federal regulatory
responsibility over cannabis from the Drug Enforcement
Administration (DEA) to the Alcohol and Tobacco Tax and Trade
Bureau (TTB), the Food and Drug Administration (FDA), and the
Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF).
The FDA would have primary federal regulatory authority over the
manufacture and marketing of cannabis products. TTB would have
authority over the taxation of cannabis products and trade
practices, including implementing a new federal track-and-trace
process and enforcing prohibitions on unfair competition. ATF would
have investigative and enforcement obligations over diversion and
other criminal matters involving cannabis products, similar to its
existing mandate with respect to alcohol and tobacco products.
This transfer of jurisdiction generally is expected to follow
similar agency responsibilities that have been established for
alcohol and tobacco, and the bill directs the heads of the
above-mentioned agencies to enter into a memorandum of
understanding regarding their respective responsibilities.
Mandated Federal Research
The extent of possible health benefits or harms of
cannabis use remains unknown due to the DEA’s strict
limitations on research related to cannabis. The bill’s
sponsors point out these restrictions have deprived researchers of
the ability to study “the impairing effects of in order to
develop effective tests for driving under the influence of
cannabis, the effects of cannabis use on fetal development and
other crucial gaps in our national understanding of this widely
used substance.”
The bill therefore directs federal departments and agencies to
study and report on several areas important to public health and
safety, including:
- The Government Accountability Office (GAO) is directed to
include a number of societal metrics that may be impacted by
cannabis legalization, including traffic-related deaths and
injuries, hospitalizations and poison control center calls, violent
crime rates, employment statistics, rates of cannabis use and
various other criteria. - The United States Department of Health and Human Services (HHS)
and National Institutes of Health are directed to conduct or
support research on the impacts of cannabis, including the effects
of cannabis on the human brain, the impact on various health
conditions, and identification of potential medical benefits and
uses of cannabis. - The Department of Transportation and HHS are directed to
collect data on cannabis-impaired driving and to continue research
on development of an impairment standard. - HHS and the Centers for Disease Control and Prevention are
directed to study public health prevention strategies, develop
public education materials, and award up to five grants to states
to collect data, raise awareness and enhance the use of state data
linkage systems with respect to impaired driving. - The Veterans Administration and Indian Health Service are
directed to provide recommendations and opinions regarding the
medical use of cannabis or drugs containing cannabis. - The Bureau of Labor Statistics is directed to regularly compile
and publicize data on the demographics of business owners and
employees in the cannabis industry.
Restorative Justice and Opportunity Programs
The bill creates three grant programs aimed at creating
opportunity for those harmed by the War on Drugs. These programs
will fund nonprofits, make loans to assist small businesses and
provide funding to implement state cannabis licensing programs that
minimize barriers for individuals who have been adversely affected.
To be eligible, states and localities first must take steps to
create an automatic process to expunge criminal records for
nonviolent cannabis offenses.
Within one year of enactment, each federal district will be
directed to expunge any arrests and convictions for nonviolent
federal cannabis offenses. An individual who receives an
expungement may treat the arrest or conviction as if it never
occurred, and shall be immune from civil or criminal penalties
related to perjury, false statement or failure to disclose the
arrest or conviction. A noncitizen may not be denied any benefit or
protection under the immigration laws based on events relating to
cannabis.
Federal Excise Tax
Although cannabis businesses are subject to federal income
taxes and state excise taxes, cannabis products currently are not
subject to any federal excise tax. The bill would impose a federal
excise tax on cannabis products in a manner similar to the tax
imposed on alcohol and tobacco. The general rate of tax would be 10
percent in the first year, followed by annual increases up to 25
percent over the next three years. Beginning in year five, the tax
would be levied on a per-ounce rate in the case of cannabis flower,
or a per-milligram of THC rate in the case of any cannabis extract.
The applicable rate on a per-ounce or per-milligram of THC basis
would be equal to 25 percent of the prevailing price of cannabis
sold in the United States in the prior year. Small cannabis
producers with less than $20 million in sales annually would be
eligible for a 50 percent 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 cannabis
sold annually, with sales above that amount subject to tax at the
full rate.
Federal Sales Permit
A sales permit would be required from the U.S. Department
of the Treasury, similar to what is required for alcohol products.
Any producer of cannabis products also would be required to
register with the FDA. Cannabis manufacturing facilities would be
required to be maintained in a manner that prevents tax evasion or
diversion. Manufacturers also would be required to maintain a bond
to ensure cannabis excise taxes are paid. A federal cannabis permit
may be denied or revoked if the premises is inadequate to prevent
tax evasion or diversion, if operations do not comply with federal
or state law, or if an applicant fails to disclose material
information or makes a false statement.
An FDA Center for Cannabis Products
The bill would establish within the FDA a new Center for
Cannabis Products that would regulate the “cannabis
aspect” of all products containing cannabis (except products
that make claims regarding the treatment or prevention of disease,
which are regulated as drugs). The Center for Cannabis Products
would be responsible for establishing various requirements related
to cannabis products, including good manufacturing practices,
cultivation standards, product standards, product labeling
information, product distribution information and mandatory recall
parameters. Manufacturers of cannabis products would owe various
reporting obligations to the Center for Cannabis Products. State
and local governments may enact rules more stringent than
requirements established by the FDA.
Cannabis in Food and Cosmetics
Food and cosmetics that contain cannabis would (1) continue to
be regulated by the Center for Food Safety and Applied Nutrition
and (2) be regulated as cannabis products by the Center for
Cannabis Products.
Cannabis in Dietary Supplements
Under the current draft of the bill, cannabis products would
not be regulated as dietary supplements, but manufacturers would be
authorized to make structure-function claims about the benefits of
their product in the same manner allowed for dietary supplements.
As with existing law for dietary supplements, these
structure-function claims must be supported by competent and
reliable scientific evidence and accompanied by a statement on the
label that advises: “These statements have not been evaluated
by the U.S. Food and Drug Administration. This product is not
intended to diagnose, treat, cure or prevent any disease.”
Cannabis Vape Products
The proposed bill contains little information specifically
relating to cannabis vaping products, other than prohibiting
“electronic cannabis product delivery systems from containing
natural or artificial flavors.”
Legal Pathway for CBD in Dietary Supplements
The bill would create a legal pathway for the use of CBD in
dietary supplements. However, dietary supplements would be deemed
adulterated if they contain more than a level of CBD per
recommended daily servings set by the FDA. In some cases, dietary
supplements containing CBD may be required to submit new dietary
ingredients notifications to the FDA. The bill also provides the
FDA with more comprehensive enforcement tools. Synthetic CBD is
excluded from the definition of dietary supplements.
Industry Reactions
Reaction to the proposed Cannabis Administration and
Opportunity Act has been mixed. Certainly removal of marijuana from
Schedule 1 of the CSA will remedy many of the problems that plague
the cannabis industry, such as better access to financial and
insurance services. The legislation’s efforts to enlist the
federal government to widely study and report on cannabis-related
issues should result in much better data on the economic, health
and public safety impact of cannabis. The restorative justice
aspects of the draft bill represent a sweeping change from the
status quo.
Many have raised alarm, however, over a proposed 25 percent
federal excise tax on top of already onerous state and local taxes
that make it difficult to combat a thriving illicit market. Lack of
detail on how the FDA will be directed to regulate cannabis
products also is a cause of concern. Although the legislation is
largely premised on regulating cannabis like alcohol, cannabis is a
much more complex pharmacological substance than alcohol. It is
therefore reasonable to ask whether, regardless of the
legislation’s stated intent to protect the states’ ability
to determine their own cannabis laws, state regulations will be
preempted when inconsistent with the FDA’s final rulemaking on
cannabis products.
Public comments are currently being solicited by the bill’s
Senate sponsors with the goal of introducing a final version for
floor vote after the summer recess. Though the final version of the
Cannabis Administration and an Opportunity Act is unlikely to be
passed into law, this draft bill provides a good window into what
broad federal marijuana legalization will resemble when it finally
happens.
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