Three Senate Democrats introduced a bill to decriminalize, regulate, and tax cannabis at the federal level, removing it from a controlled-substances list and eliminating a Code ban on expense deductions by marijuana businesses in states where the drug is legal.
The Cannabis Administration and Opportunity Act, presented July 21, would impose a top excise tax of 25% on products sold by large cannabis businesses. That’s the same rate proposed last year in a discussion draft of the bill sponsored by Senate Majority Leader Chuck Schumer of New York, Finance Committee Chair Ron Wyden of Oregon, and Sen. Cory Booker of New Jersey.
Initially a 5% excise tax would be applied to small and midsize cannabis producers and gradually be increased to a maximum 12.5% after five years, according to a summary of the bill. Larger cannabis businesses would have an initial excise tax of 10% applied, to be increased to no higher than 25% after five years.
Federal tax revenues generated by decriminalization would be reinvested in communities and people most harmed by the nation’s war on drugs, according to the summary. It said a new regulatory regime would shift U.S. jurisdiction over cannabis from the Drug Enforcement Administration to the Food and Drug Administration as well as to the Treasury Department’s Alcohol and Tobacco Tax and Trade Bureau. The regime would be similar to similar to the regulatory frameworks for alcohol and tobacco, “while recognizing the unique nature of cannabis products,” the summary said.
The legislation, which drew Democratic Sens. Patty Murray of Washington state and Gary Peters of Michigan as additional co-sponsors, would leave it to each state to decide whether to legalize cannabis within its borders. It also would encourage research into the drug.
By removing cannabis from coverage under the Controlled Substances Act, the bill would nullify Code Sec. 280E (which forbids producers and sellers of illiegal drugsers from claiming deductions for business expenses) with respect to cannabis. Under the legislation, producers would get the same tax incentives as other legal enterprises-as well as access to bank accounts, credit cards, and other financial services now denied them.
The change will help establish market-based rules aimed at protecting independent producers, wholesalers, and retailers and preventing anticompetitive behavior, the three sponsors said.
“For far too long, the federal prohibition on cannabis and the war on drugs has been a war on people, and particularly people of color,” Schumer said in a statement. “The Cannabis Administration and Opportunity Act will be a catalyst for change by removing cannabis from the federal list of controlled substances, protecting public health and safety, and expunging the criminal records of those with low-level cannabis offenses, providing millions with a new lease on life.”
With polls showing a majority of Americans support legalizing cannabis, “Congress must act by working to end decades of over-criminalization,” the Senate leader added.
According to Wyden, it’s no longer a question of whether cannabis should be legalized, but when. To date, 37 states have moved to legalize cannabis at least for medical use, meaning tens of millions of Americans now live in a state where some form of cannabis is legal.
“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 stated. By failing to act, Washington is empowering the illicit cannabis market, ruining lives and “propping up deeply rooted racism” in the criminal justice system, he said. It’s also holding back small cannabis businesses from growing and creating jobs in their communities.
With more states legalizing cannabis and working to reverse injustices of “the failed war on drugs levied against Black, brown, and low-income people, the federal government continues to lag woefully behind,” Booker said. “With strong restorative justice provisions for communities impacted by the drug war, support for small cannabis businesses, and expungement of federal cannabis offenses, this bill reflects long overdue, common-sense drug policy.”
The bill makes only minor changes to the tax regime, including the treatment of Section 280E, described in the three senators’ discussion draft released in 2021. In that document, Schumer, Wyden, and Booker had requested comments on transition rules and interactions with tax breaks for activities that may have occurred while a business was subject to the section. Nothing in the bill’s text addressed that issue.
The bill is expected to face obstacles to passage by the Senate, where the draft received over 1,800 comments and input from 10 committees to refine and expand it, its sponsors said.
“I’ve had many productive conversations with my Republican and Democratic colleagues about cannabis reform, and I look forward to working with members from both sides of the aisle to secure support for this bill,” Schumer said on the Senate floor July 21.
The House of Representatives has passed its own marijuana legalization bill, twice: the Marijuana Opportunity Reinvestment and Expungement Act (H.R. 3617), which the Senate hasn’t considered. Excise tax rates in the House bill are lower than in the Senate package, starting at 5% and rising to a maximum 8%.
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