A breakdown of the new federal cannabis legalization bill

Senate Democrats introduced draft legislation that would end the federal prohibition of cannabis and remove cannabis from the Controlled Substances Act (CSA)...

On July 14, 2021, Senate Democrats introduced draft legislation that would end the federal prohibition of cannabis and remove cannabis from the Controlled Substances Act (CSA). The Cannabis Administration and Opportunity Act is sponsored by Senate Majority Leader Chuck Schumer (D-NY), Sen. Ron Wyden (D-OR), and Sen. Cory Booker (D-NJ).

“I am proud to introduce our discussion draft of the Cannabis Administration and Opportunity Act, a legislative proposal aimed at finally putting an end to the federal prohibition of cannabis and addressing the over-criminalization of cannabis in a comprehensive and meaningful way,” Majority Leader Schumer said in a press statement. “The War on Drugs has too often been a war on people, and particularly people of color. Not only will this legislation remove cannabis from the federal list of controlled substances, but it will also help fix our criminal justice system, ensure restorative justice, protect public health, and implement responsible taxes and regulations.”

Key Provisions of the Cannabis Administration and Opportunity Act

The Cannabis Administration and Opportunity Act is a sweeping bill that decriminalizes cannabis, establishes a regulatory structure for overseeing the legal cannabis industry, imposes a federal tax on cannabis products, enacts criminal justice reforms, and establishes opportunity programs. While it is impossible to discuss the bill in its entirety in this brief article, below are several key components of the cannabis legalization legislation that would impact cannabis businesses:

Decriminalization of cannabis: The bill would remove cannabis (marijuana) from the Controlled Substances Act and direct the Attorney General to remove cannabis from the list of controlled substances in regulation within 60 days of enactment. A new definition of “cannabis” would be established within the Federal Food Drug and Cosmetic Act (FFDCA), which establishes requirements for food, dietary supplements, drugs (including biologics), devices, cosmetics, and other substances such as tobacco. This definition would retain the existing exception for hemp.

Recognition of state laws: The legislation would preserve the integrity of state cannabis laws. Like with federal regulations on alcohol, states could determine their own cannabis laws, but federal prohibition would no longer be an obstacle. 

Minimum age and retail restrictions: The legislation would amend Section 301 of the FFDCA to establish 21 years of age as the minimum age required to purchase cannabis. A related provision would limit any retail sales transaction to no more than 10 ounces of cannabis or the equivalent amount of any cannabis derivative.

Taxation of cannabis: The legislation would impose an 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 for the year of enactment and the first full calendar year after enactment. The tax rate would increase annually to 15 percent, 20 percent, and 25 percent in the following years. Beginning in year five and thereafter, 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 for year five and thereafter would be a per-ounce or per-milligram of THC amount determined by the Secretary of the Treasury equal to 25 percent of the prevailing price of cannabis sold in the United States in the prior year. In order to remove barriers to entry, 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.

Establishment and Permitting: The draft bill would require any person selling cannabis products at wholesale to obtain a permit from the Treasury Department. In addition, any person producing taxable cannabis products must obtain a Treasury Department permit and register for tax purposes. A producer of cannabis products would also be required to register with the FDA.

Regulation of cannabis: Regulatory responsibility would be moved from the U.S. Drug Enforcement Agency (DEA) to the Alcohol and Tobacco Tax and Trade Bureau (TTB), the Bureau of Alcohol Tobacco Firearms and Explosives (ATF), as well as the Food and Drug Administration (FDA) to protect public health.

Opportunity programs: The draft legislation would create three grant programs aimed at creating opportunity for those harmed by the War on Drugs. The Community Reinvestment Grant Program would fund nonprofits that provide services to individuals adversely impacted by the War on Drugs, such as job training, reentry services, and legal aid, among other services. The Cannabis Opportunity Program would provide funding to eligible states and localities to make loans to assist small businesses in the cannabis industry owned by socially and economically disadvantaged individuals. The Equitable Licensing Grant Program would provide funding to eligible states and localities to implement cannabis licensing programs that minimize barriers for individuals adversely affected by the War on Drugs. The proposed bill also amends relevant sections of the Small Business Act and Small Business Investment Act to explicitly make SBA programs and services available to cannabis-related legitimate businesses and service providers.

What’s Next?

According to its sponsors, the Cannabis Administration and Opportunity Act discussion draft is a “detailed legislative proposal meant to spur a robust discussion among stakeholders in order to inform the Sponsoring Offices as they work to craft a final legislative proposal.” The lawmakers are seeking feedback from stakeholders and members of the public, including social and criminal justice advocates, industry stakeholders, members of the public health and law enforcement communities, members of Congress, federal officials, state and local officials, and others. Stakeholders are encouraged to submit comments in writing by September 1, 2021, in order to ensure there is time for the comments to be considered before introducing a final legislative draft.

Likelihood of Passage

The Cannabis Administration and Opportunity Act is a monumental step towards cannabis legalization. However, the legislation faces an uphill battle. In order to become law, all Senate Democrats and at least 10 Republicans would have to get on board.  Further, President Joe Biden has stated that he does not support decriminalizing recreational [cannabis].  Those interested in the cannabis industry and the change in federal treatment of the industry should stay well attuned and contact a Scarinci Hollenbeck attorney with any questions.

If you have questions, please contact us

If you have any questions or if you would like to discuss the matter further, please contact Dan McKillop, or the Scarinci Hollenbeck attorney with whom you work, at 201-896-4100.

This article is a part of a series pertaining to cannabis legalization in New Jersey and the United States at large. Prior articles in this series are below:

• Cannabis Industry Finds Unlikely Ally in Justice Clarence Thomas
• Candy Brands Filing Trademark Suits Over Cannabis Copycats
• New York’s Off-Duty Conduct Law Now Includes Cannabis Use

Disclaimer: Possession, use, distribution, and/or sale of cannabis is a Federal crime and is subject to related Federal policy. Legal advice provided by Scarinci Hollenbeck, LLC is designed to counsel clients regarding the validity, scope, meaning, and application of existing and/or proposed cannabis law. Scarinci Hollenbeck, LLC will not provide assistance in circumventing Federal or state cannabis law or policy, and advice provided by our office should not be construed as such.