Yesterday, Senate Majority Leader Chuck Schumer (D-NY), Senate Finance Committee Chairman Ron Wyden (D-OR) and Sen. Cory Booker (D-NJ) formally filed the much-anticipated Cannabis Administration and Opportunity Act (CAOA), a comprehensive bill to decriminalize, regulate, and tax cannabis. If passed, the CAOA would end federal cannabis prohibition by removing cannabis from the Controlled Substances Act, and establish a federal regulatory framework to “protect public health and safety; and prioritize restorative and economic justice.” The bill would also allow states to continue regulating cannabis within their borders.
The CAOA contains a number of significant provisions, including:
- Removes cannabis from the Controlled Substances Act, and eliminates federal prohibitions in states that have chosen to legalize medical cannabis, or adult-use cannabis for people aged 21 and up. The proposed law also expressly permits interstate commerce, and licensed businesses will be allowed to transport cannabis through states that continue to prohibit cannabis even if they cannot sell it there.
- Federal enforcement for trafficking will remain in states that have not legalized cannabis and in legal states that impose laws for trafficking.
- Transfers federal jurisdiction over cannabis from the Drug Enforcement Agency to the Food and Drug Administration (FDA) and the Alcohol and Tobacco Tax and Trade Bureau (TTB) within the Treasury Department, implementing a regulatory regime similar to alcohol and tobacco.
- Establishes a Center for Cannabis Products within the FDA to regulate and establish standards for “the production, labeling, distribution, sales and other manufacturing and retail elements of the cannabis industry.”
- Eliminates the application of 280E to cannabis businesses, allowing them to claim deductions for businesses expenses, and implements the following excise tax on cannabis products. For small and mid-sized producers, the excise tax would begin at 5 percent and gradually increase to a maximum of 12.5 percent. For larger cannabis businesses, the excise tax would begin at 10 percent and gradually increase to a maximum rate of 25 percent.
- Implements anti-diversion measures, including a track-and-trace system, and adopts quantitative limitations on retail purchases (10 ounces in a single retail transaction).
- Establishes DOJ grants to assist law enforcement hiring and community outreach to combat the illegal market.
- Instructs the Financial Crimes Enforcement Network (FinCEN) to update or issue new guidance clarifying to financial institutions that they can lawfully provide services to legitimate cannabis businesses (subject to continued SARS reporting).
- Prohibits electronic cannabis product delivery systems from containing added artificial or natural flavors. An electronic cannabis product delivery system is defined as an electronic device that delivers a cannabis product via an aerosolized solution to the user inhaling from the device, and any component, liquid, part, or accessory of such a device, whether or not sold separately.
- Disallows the denial of any benefits or protections under immigration law to any noncitizen based on their use or possession of cannabis.
Additionally, the bill contains a number of comprehensive social equity and criminal justice reform policies including:
- Initiates automatic expungement of federal 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.
- Uses federal tax revenue to fund an Opportunity Trust Fund to reinvest in communities and individuals most harmed by the failed War on Drugs.
- 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 award grants to community based organizations in order to serve individuals harmed by the failed War on Drugs, 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 War on Drugs.
- 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 War on Drugs, 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 War on Drugs.
- Directs the Secretary of Housing and Urban Development to establish a grant program to provide communities whose residents have been disproportionately affected by the War on Drugs with additional funding to address the housing, economic, and community development needs of such residents.
Despite widespread industry support for the CAOA, the future of the bill remains uncertain. Now that the bill has been officially introduced, it must obtain both Senate and House approval before it comes law, which is likely to be a difficult feat given the high Senate vote threshold, as well as the looming mid-term elections, which may result in Republicans assuming control of Congress. It is also uncertain whether President Biden would sign such legislation if it were to pass. While Biden has expressed support for decriminalization and legalizing medical cannabis, he has maintained his opposition to legalizing adult-use cannabis.
We will continue to closely monitor developments in connection with the CAOA. If you have questions regarding the content of this alert or federal legalization efforts generally, please contact me at email@example.com, or another member of the Foley Hoag’s cannabis team.