On July 14, Senate Majority Leader Chuck Schumer, Senate Finance Committee Chairman Ron Wyden and Sen. Cory Booker introduced the Cannabis Administration and Opportunity Act in the U.S. Senate. If passed into law, the bill would finally end the federal prohibition of cannabis, once and for all.
On one hand, the bill is truly historic, because this is the first time senators from a major party have introduced a bill that would decriminalize cannabis at the federal level.
On the other hand, it’s nonsensical that this federal conversation is just beginning, since weed (or, as the feds still call it, marijuana) has now been fully legalized for adult use in 18 states, starting with Colorado and Washington in 2012, and 37 states have approved medical programs. In California, cannabis has been legal for medical use since 1996 and for recreational use since late 2016.
But those are all state laws. Under federal law, cannabis remains quite illegal: It is classified as a Schedule I drug under the Controlled Substances Act. Because of federal restrictions, the cannabis industry faces significant challenges with banking, transportation and paying taxes, even in states where it is legal.
This bill, which as released as a “discussion draft,” is partially based on a failed effort from 2020 out of the House of Representatives known as the MORE Act. Among many actions, it proposes removing federal penalties for cannabis, expunging criminal records for nonviolent offenders of federal cannabis laws, earmarking funding for restorative-justice programs, establishing tax rates for cannabis products, and formally allowing states to decide whether to legalize cannabis.
In states where recreational use is already legalized, removing federal penalties would solve those aforementioned banking, transport and taxation problems for cannabis businesses. In places where weed is still illegal, state governments could opt to keep 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 caused by federal marijuana prohibitions, the Justice Department would establish an office to help people convicted of nonviolent marijuana-related violations transition out of incarceration.
“While under the hood there are some items that require more public input, this breakthrough legislation is a great starting point in addressing all of the federal obstacles for the cannabis industry to be legitimized just as any other industry in America,” says local cannabis entrepreneur J. Alex Gomez, the publisher and editor-in-chief of AloftMagazine.com, a Palm Springs-based online cannabis lifestyle and information magazine.
However, not all the news in the bill is good for the cannabis industry. While cannabis businesses are currently subject to federal income taxes and state excise taxes, products currently are not subject to any federal excise taxes. 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% in the first year, followed by annual increases up to 25% over the next three years. 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. Small cannabis producers would be eligible for a 50 percent reduction in their tax rate via a tax credit. Also, 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 would have to register with the Food and Drug Administration.
While cannabis businesses are currently subject to federal income taxes and state excise taxes, products currently are not subject to any federal excise taxes. The bill would impose a federal excise tax on cannabis products in a manner similar to the tax imposed on alcohol and tobacco.
The tax issue is a big one, according to Rich Eaton, the owner of The Vault in Cathedral City. “I have concerns with the level of taxes, and you might as well forget about cannabis as a viable industry in California, with a compounded tax rate at 70%,” he said, referring to the sales and cannabis taxes already paid to local governments, as well as state taxes paid to Sacramento. As taxes are passed along from the cultivators and producers to the retail side, the price of products would certainly rise—and this is bad news to an industry that is fighting a robust illegal marketplace.
In its current form, the bill is unlikely to pass. Schumer needs to convince 10 Republicans in the Senate to vote for the bill while guaranteeing all 50 Democrats remain in favor. Michael Correia, director of government relations for the National Cannabis Industry Association, recently mentioned that the bill might be more of a campaign booster for Schumer—who faces a re-election campaign next year—rather than a plausible attempt at lawmaking.
Even if the bill passed the Senate and then the House of Representatives, President Joseph Biden would have to sign the legislation into law—and it’s unclear if he would do so. He has expressed support for decriminalizing marijuana, but not for full legalization. At a news briefing just after the draft bill was introduced, White House Press Secretary Jen Psaki said “nothing has changed” regarding Biden’s views on cannabis reform.
What’s next? A formal bill has not yet been introduced, but anyone can weigh in via public comment via Cannabis_Reform@finance.senate.gov by Sept. 1.
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