On July 14, Senate Majority Leader Chuck Schumer, Senate Finance Committee Chairman Ron Wyden, and Senator Cory Booker introduced the Cannabis Administration and Opportunity Act in the US Senate. If passed, the bill would end the federal cannabis ban once and for all.
On the one hand, the bill is really historic, as it is the first time that senators from a major party have tabled a bill that would decriminalize cannabis at the federal level.
On the other hand, it makes no sense that this federal discussion is just beginning, since weed (or, as the federal authorities still call it, marijuana) is entirely adult use in 18 states, starting with Colorado and Washington in 2012 37 states have approved medical programs. In California, cannabis has been legal for medicinal purposes since 1996 and for recreational use since late 2016.
But these are all state laws. Cannabis remains fairly illegal under federal law: it is classified as a List I drug under the Controlled Substances Act. Due to federal restrictions, the cannabis industry faces major challenges with banking, transportation, and tax payments, even in states where it is legal.
This bill, published as the “Discussion Draft,” is based in part on a failed attempt by the House of Representatives in 2020 known as the MORE Act. Among many measures, it suggests abolishing federal cannabis penalties, clearing criminal records for non-violent offenders against federal cannabis laws, allocating funds to restorative justice programs, setting tax rates on cannabis products, and officially allowing states to decide whether to legalize cannabis.
In states where recreational use is already legalized, the abolition of federal penalties would solve the aforementioned banking, transportation, and tax problems for cannabis companies. In places where weed is still illegal, state governments may choose to leave it that way. The Food and Drug Administration and the Treasury Department’s Alcohol and Tobacco Tax and Trade Bureau would regulate the production, distribution and sale of cannabis. In an effort to address injustice through federal marijuana bans, the Justice Department would set up an office to help people convicted of marijuana nonviolent offenses get out of custody.
“While there are some issues under the hood that require more public engagement, this pioneering piece of legislation is a good starting point to address any federal barriers to legitimizing the cannabis industry like any other industry in America,” says local cannabis entrepreneur J. Alex Gomez , Publisher and editor-in-chief of AloftMagazine.com, a Palm Springs-based online cannabis lifestyle and information magazine.
However, not all of the news in the bill is good for the cannabis industry. While cannabis companies are currently subject to federal income tax and state excise taxes, products are not currently subject to federal excise taxes. The bill would impose a state excise tax on cannabis products that is similar to the tax on alcohol and tobacco. The general tax rate would be 10% in the first year, followed by annual increases of up to 25% over the next three years. In the fifth year, the tax would be levied per ounce in the case of cannabis flowers or per milligram of THC in the case of cannabis extracts. Small cannabis producers would be entitled to a 50 percent reduction in their tax rate through a tax credit. A US Treasury Department sales license would also be required, similar to alcohol products. Every manufacturer of cannabis products would have to register with the Food and Drug Administration.
While cannabis companies are currently subject to federal income tax and state excise taxes, products are not currently subject to federal excise taxes. The bill would impose a state excise tax on cannabis products that is similar to the tax on alcohol and tobacco.
The tax issue is a big problem, according to Rich Eaton, owner of The Vault in Cathedral City. “I have concerns about the level of taxes, and you might as well forget about cannabis as a viable California industry with a 70% compound tax rate,” he said, referring to sales and cannabis taxes already paid to local governments, as well state taxes paid to Sacramento. With taxes passed on from farmers and producers to retailers, the prices of the products would surely go up – and this is bad news for an industry battling a robust illegal market.
In its current form, the law is unlikely to be passed. Schumer must convince 10 Republicans in the Senate to vote for the bill while guaranteeing that all 50 Democrats stay in favor. Michael Correia, director of government relations at the National Cannabis Industry Association, recently mentioned that the bill could be more of a campaign booster for Schumer, who is about to be re-elected next year, than a plausible attempt to legislate.
Even if the bill passed the Senate and then the House of Representatives, President Joseph Biden would have to sign the bill – and it’s unclear whether he would. He has spoken out in favor of decriminalizing marijuana, but not in favor of full legalization. Speaking at a press conference shortly after the bill was launched, White House press secretary Jen Psaki said “nothing has changed” about Biden’s views on cannabis reform.
What’s next? Formal bill has not yet been tabled, but anyone can participate by September 1st via public comment at Cannabis_Reform@finance.senate.gov.