After more than a year of anticipation, Senate Democrats released a long-awaited cannabis legalization bill on Thursday. The Cannabis Administration and Opportunity (CAO) Act is sweeping and ambitious in scope, but industry insiders believe it still lacks the support it needs to pass the Senate.
“A majority of Americans now support legalizing cannabis, and Congress must act by working to end decades of over-criminalization. It is time to end the federal prohibition on cannabis,” Senate Majority Leader Chuck Schumer (D-N.Y.) said in a statement.
The CAO Act seeks to deschedule cannabis from the Controlled Substances Act and regulate it at the federal level. It implements a federal excise tax on products of up to 25 percent for large companies and 12.5 percent for small and mid-sized producers and funnels that tax revenue into an “Opportunity Trust Fund” for social equity. The bill contains significant equity and social justice provisions intended to reinvest in communities disproportionately impacted by punitive drug laws and reduce barriers to entry into the industry for individuals in those communities. It requires more research into the effects of cannabis on driving, public health and more, and clears the way for cannabis companies to access banking services among other things.
Draft legislation of the bill was introduced by Schumer, Senate Finance Committee Chairman Ron Wyden (D-Ore.) and Sen. Cory Booker (D-N.J.) in July 2021 along with requests for comment. Just over a year and more than 1,800 comments from stakeholders later, the legislation looks a bit different than it did before.
Among many other changes, the new bill bumps up the quantity of allowable THC in hemp to 0.7 percent or less on a dry weight basis for plant material. The legislation also specifies that descheduling entails only THC derived from the cannabis plant, and recommends the Attorney General revisit scheduling in the Controlled Substances Act for synthetic THC or THC derived from other substances.
The bill contains revisions to drug testing policies put forth in the draft legislation, advising that cannabis should no longer be considered an illegal drug when drug testing federal employees. There are, however, a number of significant exceptions. The bill would permit drug testing for law enforcement, commercial transportation employees and federal employees who are “determined to have significant involvement in national security, the protection of life and property, public health, and safety,” according to a summary of changes to the original draft legislation.
When it comes to drugged driving concerns, the bill requires the National Highway Traffic Safety Administration to conduct research on the effects cannabis has on drivers, and establish a national standard for what constitutes cannabis-impaired driving within three years of legalization. It requires the Departments of Transportation to create drugged driving prevention programs in partnerships with states and provides funding to support prevention measures at the state level.
The bill maintains a felony charge for possession of large quantities of cannabis without a permit, but bumps the threshold to 20 pounds and creates an intermediary misdemeanor charge for possession of between 10 and 20 pounds of cannabis. When it comes to immigrants, the introduced bill gives noncitizens at risk of cannabis-related deportation 30 days to request reconsideration with the possibility that their deportation order could be cancelled.
Concerning banking, the bill seeks to mitigate some of the challenges associated with banking for the cannabis industry, like instructing the Financial Crimes Enforcement Network (FinCEN) to allow financial services for legitimate cannabis businesses and create procedures for banking the industry.
What Didn't Change?
There are some notable areas where things didn’t change. The bill imposes an excise tax, similar to ones that exist for tobacco and alcohol, of 10 percent in the first two calendar years, gradually climbing to 25 percent over time. Some critics say the tax would make it difficult for the businesses, especially in states like California that already impose heavy taxes, to compete with illicit operators that aren’t beholden to taxes or regulations.
The revised bill also maintains the Food and Drug Administration (FDA) in a position of regulatory authority over the cannabis industry, but it clarifies the FDA’s role. It specifies the issues that FDA standards should address and clarifies that the cannabis industry can continue to sell food products so long as FDA requirements for food safety are met.
The Industry Responds
Reactions to the bill from the cannabis industry have been mixed. Some executives like LeafLink co-founder and CEO Ryan Smith and The Parent Company CEO Troy Datcher applauded the Senate for this historic moment. Others felt the bill didn’t go far enough to address some of the concerns the industry voiced in 2021, when the draft legislation was released.
"We see the CAOA is a nonstarter. The cannabis industry could be thankful, excluding the harm caused by lack/adverse Federal action, for the little to no work done on this bill as it helps demonstrate the validity of SAFE,” Morgan Paxhia, co-founder and managing director of cannabis hedge fund Poseidon Asset Management, said in a statement.
Paxhia’s biggest concerns involve the excise tax and continued involvement of the FDA in regulating the industry.
“A 25 percent excise tax is just horrific,” he said. “The whole idea of federal legalization is to combat the illicit market that is so well established in this country. And so you have to be sensible with tax policy, in addition to the regulatory frameworks.”
In spite of those drawbacks, Paxhia felt the bill’s release could actually prompt healthy debate in Congress and comparisons with other cannabis bills, like Rep. Nancy Mace’s (R-S.C.) States Reform Act, and the Secure and Fair Enforcement (SAFE) Banking bill. He added that the release of the CAO Act raises the odds of federal reform, specifically the passage of SAFE Banking, to “better than zero percent.”
He wasn’t alone in his doubts about the bill’s viability.
“The proposed legislation is far from being passable given the current political landscape in the U.S. Senate, its filing signals a historic shift in our federal government as the US Senate finally joins the U.S. House in putting forth a cannabis legalization bill,” cannabis lobbyist Brady Cobb said in a statement.
Matt Hawkins, founder and managing partner of Entourage Effect Capital, also felt the bill would have a tough time passing, but that portions of the bill’s language could later be used as a blueprint for future reform.
“Democrats are likely to lose the House in November's midterms, so we expect the party to fight extra hard to pass a cannabis bill before they lose the opportunity, especially given the current administration’s perceived shortcomings in progressing other federal priorities,” Hawkins said.
With the midterm elections around the corner the clock is ticking on cannabis reform.
Cannabis tends to be a bipartisan issue among voters, with 91 percent of U.S. adults agreeing cannabis should be legal in some form, according to a 2021 Pew Research survey. Among Republicans and adults who lean Republican, 87 percent believe in medical or medical and recreational legalization. Among Democrats and Democrat-leaning adults, the percentage is slightly higher at 95 percent.
But in Congress, support for cannabis tends to fall along party lines -- with notable exceptions among Republicans hailing from states where cannabis is legal -- especially in the Senate. Historically, bills that are more narrow in scope, especially the business-friendly SAFE Banking bill that has passed the House of Representatives six times, have enjoyed broader bipartisan support. Still, SAFE Banking faces opposition from key critics in the Senate. Booker, one of the co-sponsors of the CAOA bill, for example, said in 2021 he would “lay myself down” to prevent the passage of a banking bill before a bill focused on social justice. If Democrats lose control of Congress during the midterm elections before passing some form of legislation, experts believe that could close the door on cannabis reform for years to come.
The bill’s Senate sponsors urged their colleagues to support the bill Thursday.
“I'd ask my colleagues in the Senate to think long and hard about what keeping the federal government stuck in yesteryear means for public health and safety,” Wyden said in a statement. “Cannabis legalization is here, and Congress needs to get with the program.”