By Seth Gitner, Jonathan Havens, and Adam Fayne
In July 2021, Senate Majority Leader Chuck Schumer (D-N.Y), along with Senators Ron Wyden (D-Ore.) and Cory Booker (D-N.J.), released a discussion draft of the Cannabis Administration and Opportunity Act (CAOA). The measure set out to, among other things:
Schumer, Booker, and Wyden issued the discussion draft to explain where Democratic leadership stood, start a conversation towards meaningful cannabis reform, and solicit public comment. One year, and over 1,800 comments later, the trio formally introduced the CAOA on July 21, 2022. As the filed version of the bill is nearly double the length of the draft (300 pages, expanded from 160), it is important to explore the additions that are most relevant to cannabis professionals, which we summarize below.
Definition of Cannabis
Reacting to the proliferation of cannabinoids such as delta-8 and delta-10 tetrahydrocannabinol (THC), the bill would amend the definition of “hemp” by accounting for the total THC (not just delta-9 THC), and modifying the allowable amount thereof to 0.7 percent for plant material, and 1 milligram per 100 grams for concentrates, extracts, and other cannabis preparations, on a dry weight basis. The measure would also allow the Secretary of Health and Human Services to include or exclude cannabinoids from this definition, as appropriate, and would specify that synthetic cannabis and other non-cannabis-derived substances would not be subject to automatic de-scheduling under the Controlled Substances Act.
Among the other enhancements since the discussion draft are provisions related to the study and mitigation of cannabis-impaired driving. These provisions would direct the National Highway Traffic Safety Administration (NHTSA) to research the potential impact of cannabis use on driving, as well as the effects of using cannabis along with other substances (e.g., alcohol). The bill would also create a federal program to prevent cannabis-impaired driving, issue grants to states to do the same, and establish a national cannabis impairment standard.
Small Business Provisions
The introduced version makes a number of clarifications to the discussion draft regarding small business loan programs for cannabis businesses owned by socially and economically disadvantaged individuals, as well as grant programs to states to minimize barriers to entry into the cannabis industry for individuals adversely impacted by the war on drugs. Specifically, the introduced version would expand eligibility for Cannabis Restorative Opportunity Program loans and assistance to small businesses owned and controlled by qualifying socially and economically disadvantaged individuals. It would also establish an intermediary lending pilot program, whereby the U.S. Small Business Administration (SBA) could make loans to intermediaries that provide and manage loans made to qualifying individuals.
The introduced bill seeks “to make up for lost time” regarding matters of cannabis and public health. Specifically, the measure includes provisions that would support and expand cannabis research by directing the Centers for Disease Control and Prevention (CDC) and the National Institutes of Health (NIH) to coordinate research between the agencies and across the federal government, at large.
The bill also includes provisions aimed at preventing, and reducing, cannabis use among individuals under 21 years of age, including a national media campaign to educate the public, and awards to states and nonprofits for prevention and intervention programs.
The legislation further clarifies that industry members would be able to continue marketing cannabis products that are also food, provided all applicable U.S. Food and Drug Administration (FDA) requirements for food are met, as well as establishing transition periods to come into compliance with FDA requirements for products currently regulated at the state level.
Whereas the discussion draft required producers, processors, and wholesalers of cannabis to obtain a permit from the Treasury Department, the introduced bill would require licensed operators to comply with certain wage and labor laws, including the National Labor Relations Act, the Fair Labor Standards Act, and the Occupational Safety and Health Act. The bill would also require the Occupational Safety and Health Administration (OSHA) and the National Institute of Occupational Safety and Health (NIOSH) to issue joint guidance for cannabis industry employers to clarify which OSHA standards apply to the cannabis industry.
The introduced legislation removed a requirement from the discussion draft that would have required all cannabis businesses to maintain a surety bond for potential excise tax liability. It now provides for quarterly excise tax filing for licensees with more than $10,000 but no more than $100,000 in excise tax liability, and annual filing for licensees with less than $10,000 in excise tax liability.
The bill would also make the Treasury Department responsible for cannabis anti-diversion enforcement, and require Treasury to study the impact of state cannabis excise tax rates on diversion and noncompliance.
To ensure fair trade practice rules do not undermine state equity goals, the measure provides that certain fair trade practice limitations would only apply if similar limitations exist under state law.
The introduced version also eliminates the concept of “THC measurable cannabis products,” opting instead for a weight-based tax for unprocessed plant material, and a THC content-based tax for cannabis products such as extracts, concentrates, and other derivatives. It also revises the definitions of “cigarette paper” and “cigarette tube” in the Internal Revenue Service Code to cover these products when intended for use with cannabis.
The legislation would require the Financial Crimes Enforcement Network (FinCEN) to update its guidance or issue regulations to ensure they are consistent in promoting the decriminalization of cannabis, specify how to facilitate deposits and movements of cash held by legitimate cannabis businesses and service providers, and not inhibit financial services to legitimate cannabis businesses and service providers. The bill would also encourage financial institutions to provide financial services to small and/or minority-owned businesses by providing additional funding to Community Development Financial Institutions and making additional investments in minority depository institutions, facilitating their ability to reach small and underserved businesses and consumers.
The CAOA faces an uphill climb in the Senate. While the bill has gained two more cosponsors since it was introduced, Sens. Patty Murray (D-Wash.) and Gary Peters (D-Mich.), it does not have universal support from the Senate Democratic Caucus, and Senate Republican support is expected to be minimal, leaving a long way to go to achieve the 60 votes necessary for passage. As such, incremental reform, such as the Secure and Fair Enforcement (SAFE) Banking Act, remains a more likely scenario.
Sens. Schumer and Booker have indicated repeatedly that they will not support incremental reform without addressing social justice. It is not clear how, if at all, Schumer and Booker would pivot in the event the CAOA does not pass.
Also not clear is the impact the November midterm elections could have on cannabis reform. It is predicted that the Republicans will take control of both the House and Senate. If so, it is possible a more centrist cannabis reform proposal, like Rep. Nancy Mace’s (R-S.C.) States Reform Act, could be considered during the “lame-duck” session between the midterm election and when the new Congress is sworn in next January.
 For a full breakdown of the discussion draft, see Jonathan Havens and Adam Fayne, “Senators Schumer, Booker and Wyden Introduce Comprehensive Legislation to End Federal Cannabis Prohibition,” July 2021, https://www.saul.com/sites/default/files/sites/default/files/documents/Cannabis_071621_.pdf.
About the Co-Authors
Adam Fayne is Co-Chair of Saul Ewing Arnstein & Lehr’s Cannabis Law practice and Vice Chair of its Transactional Department. Adam assists national cannabis companies with corporate legal matters involving formation, investment, mergers and acquisitions, and financing necessary to launch or operate their businesses as well as regulatory compliance from their inception through their daily operation.
Seth Gitner is an Associate in Saul Ewing Arnstein & Lehr’s Cannabis practice. Seth counsels clients on regulatory, compliance, enforcement and transactional matters related to products regulated by the U.S. FDA, FTC, USDA, the U.S. DEA and myriad state agencies. His email is [email protected].
Jonathan Havens is a partner at Saul Ewing Arnstein & Lehr and co-chairs the firm’s Cannabis Law and Food, Beverage and Agribusiness practices. He counsels state cannabis license applicants and awardees, ancillary service and product providers, investors, underwriters, management companies, and various other entities that are affected by federal and state cannabis laws.
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