The “Cannabis Administration and Opportunity Act” was published today. The proposed bill, sponsored by Majority Leader Chuck Schumer and Senators Cory Booker and Ron Wyden, provides a plan for extensive re-planning and state regulation of marijuana. Below we’ve highlighted some key aspects of the bill and our thoughts on the wider landscape.
Removal of cannabis from the Narcotics Act
First things first, the proposed legislation would remove cannabis from the Controlled Substances Act (“CSA”) and related regulations within 60 days of going into effect. Rather than being regulated 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 entrusted with the performance of official duties with regard to cannabis in a similar way as they apply to alcohol and tobacco. Despite increased regulation at the federal level, the proposed legislation continues to align with state laws to control the possession, production, and distribution of cannabis. Therefore, federal decriminalization under the proposed law does not allow the use or distribution of cannabis in violation of state laws.
Location of the country
As noted above, under the proposed legislation, the FDA would be recognized as the primary federal regulator over the manufacture and marketing of cannabis products, and the TTB would retain federal regulator over the taxation of cannabis products and control over trade practices.
The proposed legislation establishes a cannabis products center under the FDA to regulate the “cannabis” aspect of all cannabis-containing products. Regulation by the Cannabis Products Center would include plant registration, product lists, good manufacturing practices, product standards, product labeling, product distribution, and recalls.
The TTB, in conjunction with the Treasury Department, would retain authority over the taxation and trading practices of cannabis products. Under the proposed law, cannabis products are subject to an excise tax similar to that on alcohol and tobacco. The general tax rate would be 10% for the first full calendar year of entry into force. Thereafter, the tax would be increased by 5% annually until the fifth year. From year five, the tax would be levied at a rate per ounce (cannabis flower) or per milligram of THC (cannabis extract), equivalent to 25% of the price of cannabis sold in the United States the previous year. To alleviate some of the burdens associated with the high tax rate, the proposed law includes a tax credit aimed at removing barriers to entry. Under the tax break, small cannabis producers with sales less than $ 20 million would be entitled to a 50% reduction in their tax rate, and larger producers would be entitled to a tax break on their first $ 20 million annually sold cannabis. In addition to levying a consumption tax, the proposed law contains licensing and registration requirements. Since there are already cannabis companies operating in full compliance with state laws, the proposed law allows a cannabis company to continue operating without a TTB permit as long as the company submits a full application to TTB within 90 days of the TTB commencing Accept applications.
Restorative Justice and Opportunity Programs
Finally, section 301 of the bill introduces three grant programs to address those adversely affected by the war on drugs. First, the Community Reinvestment Grant Program, as administered by the Cannabis Justice Office, will fund the efforts of nonprofits that provide tactical services such as professional training and legal assistance to those affected by the war on drugs. Second, the Cannabis Opportunity Program, as administered by the Small Business Administration (“SBA”), will provide funding to states and municipalities that provide loan assistance to eligible small businesses in the cannabis industry. Eligible companies are broadly defined as companies owned by socially and economically disadvantaged people. Third, the Equitable Licensing Grant Program, as administered by the SBA, will provide funding to states and communities to implement cannabis licensing programs that minimize the barriers to entry for those adversely affected by the war on drugs. To be eligible for any of the SBA programs, states and municipalities must take steps to put in place an automated criminal record clearing process for cannabis offenses and violations. In addition to state / local programs, the proposed legislation requires each federal district to overturn all federal arrests and convictions for non-violent cannabis offenses within one year of its entry into force.
Implications for industry participants
What could it all mean? In short, this calculation is a good start. Postponing cannabis has many benefits, including access to the U.S. banking system, better access to capital, and the overall warm, fuzzy feeling of building something that is – well – legal. However, the bill also offers some insight into who is winning the political debates in the back room. Spoiler alert: It’s the tobacco and alcohol companies. If the proposed law is passed, it will be pretty clear that new industry players will emerge. Some market players, like tobacco companies, will appear to have a head start when it comes to navigating the complex intricacies of a national market and being familiar with the regulatory landscape. However, all hope is not lost! Current operators have many chances of success under the proposed plan. However, to be successful, operators need to analyze the current state of the market and devise a plan to surf the waves of legalization instead of being swallowed up by them.
The content of this article is intended to provide general guidance on the subject. You should seek expert advice regarding your specific circumstances.