Senators File Comprehensive Federal Cannabis Legalization Bill: Cannabis Administration and Opportunity Act (CAOA)

By: Andrew P. Cooper, Esq., LL.M. and Terran Cooper

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 Cannabis Administration and Opportunity Act (CAOA).  In addition to its widespread reform provisions, this bill is interesting in part due to Senators Schumer and Booker’s history of outspoken disapproval of incremental reforms such as the SAFE Banking Act in favor of a more comprehensive reform proposal. A few things to keep in mind about this bill are that Congress has been deliberating these issues for years, although we’ve never seen such a comprehensive bill including so many significant provisions. Also, now that it’s been officially introduced, the bill must move through the legislative process which includes both Senate and House approval before it becomes law. There’s also no guarantee that President Biden would approve the measure, which would be required in order for the bill to become law. For those of you in need of a refresher, here’s a link to the Schoolhouse Rock - I’m Just a Bill video. In the coming weeks, we shall see the level of Senate support for the CAOA as the lawmakers work to bring it to the floor.

The filed CAOA comes just over a year following the unveiling of a draft in July of 2021. This new version comes in at 296 pages, nearly doubling the previous version’s 163 pages, a result of the significant number of comments received. Some of these additions include revisions concerning cannabis industry workers’ rights, a federal responsibility to set an impaired driving standard, banking access, expungements and penalties for possessing or distributing large quantities of cannabis without a federal permit (Jaeger, 2022). Still, the CAOA proposes the removal of federal penalties for cannabis, record expungement of those convicted for nonviolent federal cannabis crimes, designating funding for restorative justice programs, establishing cannabis product tax rates, and formally permitting states to decide whether to legalize cannabis. Specifics of these provisions are further discussed below.

Despite roughly two thirds of Americans supporting cannabis legalization, the Senate has not mirrored the public approval. The fairly comprehensive nature of the CAOA, not only through removing cannabis from the Controlled Substances Act, but the inclusion of cannabis expungement and other social equity initiatives, means that widespread bipartisan support is unlikely. Further, not all Senate democrats were in support of the CAOA on its initial release, with Senators Joe Manchin and Jeanne Shaheen voicing their concerns. Additionally, even lawmakers from states with legal adult-use cannabis markets, such as Senator Jon Tester of Montana, do not support federal legalization, presumably due to the potential ramifications on the existing state-legal markets. Most notable of these being the activation of the Dormant Commerce Clause. See, e.g., Bloomberg, Preserving the States’ Marijuana Marketplaces After Federal Legalization. The CAOA would require approval from all Senate Democrats and ten Senate Republicans in order to meet the Senate’s 60-vote threshold.

If the passage of the CAOA is doubtful, why is it even worth discussing? The failure to pass the CAOA would require key Senate Democrats (Senate Majority Leader Schumer and colleagues) to acknowledge the lack of necessary support for comprehensive reform. The repeated failures to pass incremental reform such as the SAFE Banking Act come mainly as a result of a lack of support by key Senate Democrats, who continue to insist on the passage of broad reform first. This rejection of incremental reform is due to key Senate Democrats desire to include social equity provisions and justice reforms in any significant cannabis bill. Further, with regard to the SAFE Banking Act specifically, the aforementioned Senate Democrats have appeared fearful of banking reform undermining GOP support for the CAOA (Jaeger, 2022). If there is not currently sufficient GOP support for the CAOA to pass it, Senate Democrats must recognize the importance of supporting passable incremental reform. While the need for record expungement of non-violent cannabis offenders is of the upmost importance, we must also recognize the inherent dangers associated with the continued failure to pass any significant reform, such as the numbers of cannabis business owners and employees robbed and even killed as a result of the failure to pass even the simplest of banking reform measures. There must be a truly bipartisan effort to pass incremental reforms, hopefully, inclusive of relevant justice provisions, in order for any change to come to the industry and for freedom for those currently incarcerated for non-violent cannabis-related crimes.

The failure to pass the CAOA could also lead to an alternative omnibus cannabis reform package, which could potentially further its support by not de-scheduling cannabis. The narrow majority held by Democrats in both chambers of Congress means that we could potentially have a Republican-controlled House and/or Senate following the midterm elections. While this would likely not bode well for cannabis reform, it may propel the States Reform Act filed by Republican Rep. Nancy Mace as the legalization vehicle with the highest likelihood of success. The stakes surrounding the passage of the CAOA are higher than ever, and regardless of its fate, the CAOA represents a step closer to a national U.S. cannabis market.

Cannabis Administration and Opportunity Act (CAOA)

The CAOA is as far-reaching as any cannabis reform proposal ever released. The below serves to highlight some key provisions contained in the CAOA but is not exhaustive.

Cannabis Legalization

The CAOA would require the attorney general to finalize a rule removing marijuana from the Controlled Substances Act within 180 days of enactment. This would effectively legalize cannabis federally while still allowing states to continue prohibiting cannabis production and sales. Interestingly, the CAOA would not allow a state to prevent cannabis product transportation by those transporting between legal states. Trafficking in states that ban cannabis or legal states with their own trafficking laws would be federally illegal.

Only those 21 and older would be allowed to purchase adult-use (recreational) cannabis products. Further, the CAOA calls for the HHS Secretary to award grants, contracts, and cooperative agreements to eligible entities to prevent and reduce underage cannabis use. 15 million Dollars are dedicated (each fiscal year 2023 through 2027) to the prevention of underage consumption. A national media campaign on cannabis use is to be conducted, with the purpose of educating the public on underage cannabis use, impaired driving, and public health and safety benefits. Further research on cannabis-impaired driving and certain cannabis-impaired driving prevention programs, and potentially a national cannabis impairment standard, would also be established.

A huge consequence of this de-scheduling of cannabis would be the ability of cannabis operators to deduct ordinary business expenses, as such is currently disallowed due to Section 280E of the Internal Revenue Code.

The CAOA would also prohibit federal benefit denial due to cannabis possession or convictions and federal employment drug testing (with the exception of certain positions). Federal immigration consequences related to cannabis would also be removed.

The CAOA would establish a track and trace system to prevent illegal diversion, and all retail sales transactions would be limited to 10 ounces. Further retail tracking and record-keeping requirements would also be imposed.

Social Equity and Small-Business Provisions

One of the most notable social justice provisions of the CAOA is that it would expunge the records of those with low-level federal cannabis convictions within a year. Those currently incarcerated over cannabis could also petition the courts for relief.

The CAOA would establish the Cannabis Justice Office within the Office of Justice Programs. The Cannabis Justice Office would mainly serve to administer the Community Reinvestment Grant Program.

The Community Reinvestment Grant Program would provide eligible entities with funds to administer services for those adversely impacted by the War on Drugs, such as job training, re-entry services, legal aid, literacy programs, youth recreation or mentoring, and health education programs.

Equitable Licensing Grant Programs would provide funding for states and municipalities to promote participation in the industry by minority and low-income individuals.

The Small Business Administration (SBA) would be permitted to work with legal cannabis businesses. Further, a 10-year pilot program would be established within the SBA to make direct loans and grants to eligible intermediaries for the purpose of small-business loans, and small-business marketing, management, and compliance, respectively.

The Cannabis Restorative Opportunity Program would be established to provide loans and technical assistance to small businesses owned and controlled by socially and economically disadvantaged individuals operating legally.

Employers with federal cannabis permits who violate certain labor laws could have their federal cannabis permits revoked.

Veteran Provisions

The CAOA would call for the Secretary of Veterans Affairs (VA) to carry out a series of clinical trials on the effect of medical cannabis on veterans with chronic pain and PTSD. Section 210 further describes the trial requirements.

Additionally, the VA Secretary would update all regulations, guidance, and policies of the VA to authorize health care providers to give recommendations to veterans on cannabis programs.

Taxation

The CAOA would impose a 10% federal excise tax on (many) cannabis producers for the first two calendar years following adoption, increasing to 15% for the following year, then to 20% for the year following, and finally 25% for the fifth calendar year. For years following the first five calendar years, the “applicable equivalent amount” shall be applied. This “applicable equivalent amount” is equal to 25% of the prevailing sales price of THC sold in the U.S. during the 12-month period ending one calendar quarter before such calendar year, multiplied by the number of grams of such product. The same rule applies for non-THC products, calculated upon the prevailing sales price of cannabis flowers.

“Qualified domestic manufacturers” shall be allowed a 50% tax credit against any tax imposed for the calendar year. This essentially means that the aforementioned taxation scheme is cut in half for qualified domestic manufacturers. This tax credit is not allowed for any cannabis which is received in bond, imported, smuggled or improperly produced. Further tax considerations are contained in Title IV of the CAOA (page 122).

Federal Agency Changes

The CAOA would transfer the Drug Enforcement Administration’s (DEA) authority as it pertains to cannabis to the Department of Health and Human Services (HHS) and Department of the Treasury. Further, current Attorney General functions as the DEA Administrator would be administered by the Secretary of HHS and the Secretary of the Treasury.

The CAOA would also create the regulatory framework for the marijuana industry, with the Food and Drug Administration (FDA), Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF), and the Alcohol and Tobacco Tax and Trade Bureau (TTB) all serving different roles.

A Center for Cannabis Products would be established within the FDA, and would be responsible for regulating the production, labeling, distribution, sales, and other manufacturing and retail elements of the cannabis industry (Jaeger, 2022).

The CAOA calls for the Financial Crimes Enforcement Network (FinCEN) to provide updated guidance to financial providers on the ramifications of the policy changes.

Department of Justice grants would also be established for hiring of law enforcement personnel and community outreach to prevent further illicit cannabis operations.

The Government Accountability Office (GAO) would be required to conduct studies on cannabis policies and those receiving assistance under the Cannabis Restorative Opportunity and Equitable Licensing Programs.

The Bureau of Labor Statistics would cull demographic information on cannabis business owners and employees.

The National Highway Traffic Safety Administration would cull data on impaired driving and create an educational campaign to help prevent such.

Research

The Comptroller General of the U.S. would conduct an evaluation of the societal impact of legalization by states of adult-use cannabis. The evaluation is to address arrests related to illicit use, diversion, employment, health care changes, tax revenue, and anything else identified by the Comptroller General.

The Secretary of HHS shall conduct or support research on the impacts of cannabis, including the effects of THC on the human brain, efficacy of medical use, impact of use on bodily functions, and identification of additional benefits, harms, and uses. Within 18 months of passage the HHS Secretary shall annually (for 4 years following) submit a report containing a research overview to various Committees.

The Secretary of HHS shall increase the availability and diversity of research-grade cannabis products.

The Cannabis Research Interagency Advisory Committee would also be established within the HHS to coordinate federal research and programs.

Competitive grants would also be awarded to institutions of higher education to improve exploratory cannabis research.

​Works Cited

Bloomberg, S. (2021, October 14). Preserving the States’ Marijuana Marketplaces After Federal Legalization. Retrieved from Maine Law: https://mainelaw.maine.edu/faculty/preserving-the-states-marijuana-marketplaces-after-federal-legalization/

Fertig, N. (2022, July 21). Schumer's legal weed bill is finally here. Retrieved from Politico: https://www.politico.com/news/2022/07/21/schumer-legal-weed-bill-00047058

Jaeger, K. (2022, July 21). Senate Bill To Federally Legalize Marijuana And Promote Social Equity Finally Filed By Schumer, Booker And Wyden. Retrieved from Marijuana Moment: https://www.marijuanamoment.net/senate-bill-to-federally-legalize-marijuana-and-promote-social-equity-finally-filed-by-schumer-booker-and-wyden/

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