Democrats have a legalization plan. US Senators have introduced yet another cannabis legalization act. The Cannabis Administration and Opportunity Act (CAOA) legislation would create a tax and regulatory structure for legal cannabis. America’s National Cannabis Industry Association (NCIA) has applauded the act but remains cautious about the impact on small businesses.
Democrat Senators’ Legalization Plan
The bill was introduced by Chuck Schumer, Ron Wyden and Cory Booker. The CAOA is the Senate’s only pending legislation regarding cannabis reforms.
The bill seeks to remove cannabis from the federal Controlled Substances Act. It also seeks to shift cannabis regulatory power from the Drug Enforcement Administration (DEA) to the Food and Drug Administration (FDA), among other bureaucracies responsible for “public health and safety.”
The legislation promises to keep a hands-off approach to the 37 states that have already legalized medical or recreational use.
However, the Senate Democrats’ bill would institute a 5-25% federal excise tax on top of the state taxes imposed on the cannabis industry. Taxing another already heavily-taxed industry has the NCIA concerned about the Senate bill.
“We applaud the authors of this legislation for working to bring federal law into harmony with the states and the vast majority of voters who have called for an end to prohibition,” said Aaron Smith, co-founder and chief executive officer of the NCIA. “We look forward to working with Senators on both sides of the aisle to improve the tax provisions in this bill on behalf of small cannabis businesses and eventually pass it into law.”
Details of the Democrats’ Legalization Plan
Drafts of the Cannabis Administration and Opportunity Act have been floating around since last year. The NCIA and other legalization advocacy groups provided feedback which the bill’s authors have incorporated. Major changes include:
- Increase THC limits on hemp from 0.3% to 0.7%.
- Instead of receiving a felony charge for possession or distribution of over 10 pounds, the bill’s final version has someone receiving a felony for possession or distribution of over 20 pounds.
- Expunge federal cannabis convictions and vacate remaining sentences
- Noncitizens who have been deported based on cannabis-related offences can file a motion to have the government reconsider that decision.
- Establishes a 10-year intermediary lending program. The government (through the Small Business Administration) will provide direct loans to financial institutions. Who in turn make small business loans to startups or businesses owned by “individuals adversely impacted by the War on Drugs.”
- Removes requirements for cannabis businesses to maintain a bond if they had less than $100,00 in excise tax liability the previous year.
- Incorporates rules similar to malt beverage producers and wholesalers.
Whitney Economics submitted a report outlining problems with the Democrats’ legalization plan. The new tax structure imposes $1.1 billion on the already-struggling cannabis industry.
Anyone following Canada’s legalization roll-out knows that excessive excise taxes are crippling the industry. Without excise tax relief, Canada’s robust cannabis market will undoubtedly consolidate into a few large producers.
Perhaps that’s the ultimate goal behind the Democrats’ legalization plan.
What About the SAFE Banking Act?
The SAFE Banking Act will open banking and other financial services to the cannabis industry if passed. It has broad support among Democrats and Republicans in the Senate. Despite this, the bill has not yet been brought to vote.
“Introducing this far-reaching bill is a historic and important effort but we hope that the Senate moves quickly to pass the bi-partisan SAFE Banking Act,” said Smith.