Cannabis Administration and Opportunity Act Introduced in the Senate: Will It Live Up to the Hype?

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On July 21, the Cannabis Administration and Opportunity Act (CAOA), a comprehensive bill to decriminalize, regulate, and tax cannabis, was introduced by Senate Majority Leader Chuck Schumer (D-NY), Senator Cory Booker (D-NJ), and Senate Finance Committee Chairman Ron Wyden (D-OR). According to the senators’ press release, the CAOA aims to “work towards reversing the many injustices the failed War on Drugs levied against Black, Brown, and low-income people,” promote safe use of cannabis products, and facilitate potentially $45 billion or more in annual sales in the cannabis industry by 2025.

A discussion draft of the CAOA was initially released in 2021, along with a request for comments from stakeholders to refine the bill before it was formally introduced. The new bill has taken into account over 1,800 comments, plus the critique of multiple Senate committees. Along with setting the legal age for cannabis use at 21, the bill includes multiple major provisions related to highway safety; justice, immigration, and enforcement; small business administration; public health; education infrastructure; labor; veterans; tax and operations; and banking, housing, and community development.

Federal Agencies

The bill’s various provisions create responsibilities for multiple federal agencies, but the Food and Drug Administration (FDA) is specifically charged with regulating cannabis products through a new Center for Cannabis Products. Every person who owns or operates a business engaged in the manufacture, preparation, compounding, or processing of a cannabis product must register with FDA and annually submit and update a list of the cannabis products prepared by them. Additionally, cultivators, producers, manufacturers, packers, or warehousers of cannabis and cannabis products would be required to obtain a permit from a new Federal Cannabis Administration within the Treasury Department and comply with related wage and labor laws, such as National Labor Relations Act, the Fair Labor Standards Act, and the Occupational Safety and Health Act (OSHA). The CAOA charges the National Institute of Occupational Safety and Health to jointly issue guidance in accordance with OSHA and any other necessary federal laws for cannabis industry employers. Also, the Financial Crimes Enforcement Network must update its guidance or issue new consistent with the CAOA, specifying how cash held by cannabis-related legitimate businesses can be deposited, and ensure that the guidance “does not significantly inhibit the provision of financial services to a cannabis-related legitimate business” or cannabis service provider. Banks would still be required to report suspicious activities as appropriate.

Small Business Administration

To promote small business involvement in the national cannabis industry and facilitate economic development among cannabis-related small businesses, the CAOA would establish two programs to be administered by the Small Business Administration (SBA). The first of these programs, the Cannabis Restorative Opportunity Program, would provide funding to eligible states and localities to support small businesses owned and controlled by socially and economically disadvantaged individuals through loans or technical assistance. The second program, the Cannabis Restorative Opportunity and Equitable Licensing Grant Program, would provide funding to states and localities that implement cannabis licensing programs that minimize barriers for those negatively impacted by the war on drugs.

Taxes

Regarding taxes, the CAOA utilizes a five-year, phase-in period for a new federal excise tax rate. For large cannabis businesses, cannabis products sold in the first two years after the passing of the CAOA would be taxed at 10%, 15% in the third year after the CAOA is passed, 20% during the fourth year, and 25% in the fifth year. The rates are cut in half for small and mid-sized businesses. The discussion draft of the CAOA initially set out a requirement that licensed cannabis businesses pay taxes every two weeks and maintain a surety bond to account for any potential excise tax liability. The introduced version of the CAOA removed the bond requirement for cannabis businesses with less than $100,000 in tax liability in the prior year. There is, however, a quarterly tax filing requirement for licensed businesses with less than $100,000 in excise tax liability and an annual tax filing requirement for those with under $10,000 in excise tax liability. Licensed businesses, which exceed the $100,000 tax liability, are still required to pay taxes every two weeks.

Social Equity

As a primary stated intent of the bill was to respond to the impacts of the war on drugs, there were various social equity provisions included. The bill provides additional funding to the Community Development Financial Institutions Fund created by the Community Development Banking and Financial Institutions Act of 1994, encourages financial institutions to provide services to small or minority-owned businesses, and invests in minority depository institutions. The CAOA would prohibit the denial of financial services because of an individual’s past conviction for a nonviolent cannabis offense. Additionally, the bill would provide loans and technical assistance for businesses operating in the jurisdiction of an Indian tribe.

Prospects for Passage

The CAOA is currently one of several proposals for cannabis decriminalization introduced in Congress, and it is certainly one of the most comprehensive proposals. Incremental reform, however, may be the only chance for any cannabis reform in the near future, especially if the Democrats lose the Senate in this year’s midterm elections. The SAFE Banking Act, which would simply permit banks to service cannabis institutions without fear of reprisal, is one example of incremental reform with bipartisan support. Senator Schumer and other Senate Progressives, however, have said they will not support the SAFE Banking Act without addressing broader criminal reforms, such as the ones contained in the CAOA. The CAOA itself is unlikely to receive much consideration, since the Senate has only a little over two weeks of session before the midterms, but the bill’s introduction may help the Senate reach a compromise on an enhanced SAFE Banking Act with some social justice provisions. The SAFE Banking Act was included in the House-passed National Defense Authorization Act, setting up a path for a potential December compromise. Assuming the Democrats compromise, they already have nine Senate Republicans supporting SAFE Banking Act. If they add one more, Minority Leader McConnell (R-KY) may not stand in the way of its final passage.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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