September 1st marked the deadline for public comment on the preliminary draft of the Cannabis Administration and Opportunity Act (CAOA) and industry stakeholders made sure their voices were heard. The U.S. Cannabis Council (USCC) and the Marijuana Policy Project (MPP) submitted similar feedback on the draft legislation, which would remove marijuana from the Controlled Substance Act, tax and regulate cannabis at the federal level, and allow states to keep or administer their oversight programs. U.S. Cannabis Council’s CEO Steven Hawkins said, “Certainly, what’s wrong well overall is that we have, for the first time, a comprehensive cannabis reform bill introduced in Congress that tackles the hard part, which is regulatory structure and everything else comes with the industry.” In Marijuana Policy Project’s formal comments, along with those submitted by U.S. Cannabis Council, both organizations are critical of certain aspects of the new legislation. This includes the bill’s tax structure, how federal legalization might affect state-legal cannabis programs, and the decision to let the Food and Drug Administration (FDA) regulate the industry.
The Cannabis Administration and Opportunity Act draft bill levies a tax on marijuana products that increases from 10% to 25% within the first five years of legalization. Both the U.S. Cannabis Council and the Marijuana Policy Project concur that this tax is too high, especially when added on top of existing state and local taxes. Hawkins said, “That model, it’s not taking into account some of the complexities of cannabis and how the industry runs and operates.”
He continued, “Under the current taxation structure, we feel it would actually make matters worse because it would be fueling the illicit market. Some states, for example, already have a 25% cumulative tax.” Adam Faye, partner and co-chair for the cannabis practice at Saul Ewing Arnstein & Lehr made similar comments saying, “If [federal legalization] drives the price up too much, then you’re still going to have the unintended consequence of the illicit market.”
He continued, “If you truly want to get rid of the illicit market, you have to make cannabis available to everybody by way of access as well as the price.” Since the federal government will undoubtedly require its fair share of taxes to cover the cost of regulation and restorative justice initiatives, Fayne said federal legalization could ultimately drive state taxes down to keep costs in check.
Although federal legalization will remove some of the industry’s biggest challenges, such as restricted access to banking and tax code Section 280E, Fayne said interstate commerce could quickly become the industry’s biggest obstacle if it’s not addressed correctly in the Cannabis Administration and Opportunity Act. Fayne said, “You can’t really stop interstate commerce necessarily, but you want to do it in a way where the people that have invested all this time and capital into the industry…don’t get crushed by this bill.” He went on to say, “adding that small business owners and social equity licensees could be especially impacted by an influx of national competition.”
Karen O’Keefe, the director of the Marijuana Policy Project, suggests that the Cannabis Administration and Opportunity Act should allow states to choose whether to allow interstate commerce, so maybe states could take time to make changes to their existing laws, tax structures, and licensing systems before allowing out-of-state competition. She said, “We just want to make sure that, in the legislation, it is extremely explicit and written in a way that doesn’t have that kind of sudden transition, that actually allows ramp-up time for any change to rules and recognizes that these are already regulated on the state level and gives plenty of time for input, so we don’t end up accidentally making the system have a relatively small handful of large businesses.”
Both U.S. Cannabis Council and Marijuana Protection Project are skeptical of the idea of the bill naming the FDA as the marijuana industry’s primary regulator, instead of calling for the Tax and Trade Bureau at the Treasury Department to oversee the market. Hawkins said, “The FDA has certainly a role, but the Tax and Trade Bureau would be a better fit.” He says, “it plays that role with respect to alcohol and tobacco, and we feel it would be the space to have primary jurisdiction. We understand that the FDA would still have a role with any kind of specific medical use of cannabis, as well as food additives.” The Marijuana Protection Project also agrees that the Tax and Trade Bureau would be a better fit to regulate the marijuana industry at the federal level, particularly because compliance could get costly under the FDA.
Now that September 1 deadline for public comment has passed, the Cannabis Administration and Opportunity Act’s sponsors have received feedback from across the industry that will inform their next steps and ultimately result in the filing of an actual bill. While an exact timeline is unclear Hawkins expects to see legislation go into place by the end of the year and he says the U.S. Cannabis Council will continue to speak with members of Congress as they fine-tune the bill.
Whether it comes through the Cannabis Administration and Opportunity Act or a different piece of legislation, federal marijuana legalization will impact the everyday operations of every state-legal cannabis business in the country. Hawkins said the best thing that businesses can do to prepare for the shift in federal policy, is to make sure their voices are heard, this is a time where “sitting by” is not an option.