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from News & Perspectives | Arnold & Porter.
On Friday, December 4, 2020, the US House of Representatives took a historic step by passing legislation to remove cannabis (marijuana) from the Controlled Substances Act of 1970. The “Marijuana Opportunity, Reinvestment, and Expungement Act of 2020,” H.R. 3884 (the MORE Act), was approved by a vote of 228 to 164. Libertarian Rep. Justin Amash of Michigan voted in favor, along with five Republicans who crossed party lines to support the bill, including Rep. Matt Gaetz (R-FL), who is a cosponsor. Six Democrats voted against the legislation.
The House vote marked the first time in 50 years that a chamber of Congress has revisited the classification of cannabis as a federally controlled and prohibited substance. Since 1970, federal law has classified cannabis as a Schedule I drug under the Controlled Substances Act. Schedule I substances, such as the hallucinogen lysergic acid diethylamide (LSD) and heroin, are substances that have “a high potential for abuse” with “no currently accepted medical use in treatment in the United States” and that cannot safely be dispensed under a prescription. Schedule I substances may be used only for bona fide, federal government-approved research studies. Described below are the significant provisions of the MORE Act, as passed in the House.
Violations of the CSA’s marijuana ban have given rise to large fines and lengthy prison sentences that have been particularly disproportionate for Black Americans, other communities of color and low-income communities. A central aim of the MORE Act is to begin correcting these historical injustices by decriminalizing marijuana at the federal level, reassessing marijuana convictions, and investing in local communities. Thus the “de-scheduling” of marijuana, as well as tetrahydrocannabinols (THC), the principal psychoactive constituent of cannabis, would apply retroactively to prior and pending convictions at the federal level.
As written, the MORE Act would leave in place the patchwork of state laws governing cannabis, including prohibitions as strict as those currently in place under the CSA, in some ways inverting the current “marijuana policy gap” between state and federal law. While every state once banned marijuana, since 1996, when California became the first state to legalize medical cannabis, states have been liberalizing their policies, creating a challenging policy gap for law enforcement, financial firms, patients, advocates, and entrepreneurs. To date, a total of 47 states have reformed their cannabis laws, with 36 states, the District of Columbia, Puerto Rico, and Guam now permitting legal access to cannabis for medical purposes; and 15 states, the District of Columbia, and the Commonwealth of the Northern Mariana Islands having adopted laws legalizing cannabis for adult use. Legal cannabis (marijuana) sales are projected to reach $23 billion by 2022.
Key provisions of the MORE Act include the establishment of a process for expunging federal cannabis offense convictions involving non-violent crimes for individuals convicted on or after May 1, 1971 (the effective date of the CSA) and before the date of enactment of the bill, and sealing of cannabis-related records. For individuals currently serving a criminal justice sentence for a federal cannabis offense, federal courts would consider motions for review and reduction of the sentence and potential expungement, and vacating and sealing of records. The Congressional Budget Office (CBO) estimates that, over the 2021-2030 period, the bill would reduce time served by 73,000 person-years, among existing and future inmates. CBO’s analysis accounts for time served by offenders convicted of cannabis-only crimes and by those convicted of another crime in addition to a cannabis offense.
During consideration in the Rules Committee, prior to the floor vote, tax provisions included in the bill were substantially reworked, replacing a simple five percent ad valorem tax with one that rises to eight percent during the first five years of operation, and then is replaced by a tax by weight or by THC. In addition, the bill establishes occupational taxes for cannabis manufacturers and importers. These changes are similar to provisions originally proposed during the 113th Congress and re-introduced in this Congress by Congressman Blumenauer (D-OR) and Senator Wyden (D-OR) as the Marijuana Revenue and Regulation Act (H.R.1120/S. 420). It is also noteworthy that, by removing cannabis from the CSA, the legislation would enable cannabis businesses to use credits and deductions without regard to Section 280E of the Internal Revenue Code.
The additional tax provisions also required, in language similar to that found under 26 U.S.C. § 5723, that the cannabis for sale be in such packages and bear such marks as the Treasury Secretary prescribes. This indicates a regulatory approval process under the Alcohol and Tobacco Tax and Trade Bureau would be necessary for packaging and labeling.
The CBO, relying on the Joint Committee on Taxation, found that, if enacted, the legislation would generate $13.7 billion for the federal Treasury in the next decade, and that the excise taxes in particular, would generate about $5.7 billion during that period. The revenue from the excise taxes would go to an “Opportunity Trust Fund,” which supports three grant programs:
- A Community Reinvestment Grant Program, which would provide services to individuals most adversely impacted by the War on Drugs, including job training, re-entry services, legal aid, literacy programs, youth recreation, mentoring, and substance use treatment;
- A Cannabis Opportunity Grant Program, which would provide funds for loans to assist small businesses in the marijuana industry that are owned and controlled by socially and economically disadvantaged individuals; and
- An Equitable Licensing Grant Program, which would provide funds for programs that minimize barriers to marijuana licensing and employment for the individuals most adversely impacted by the War on Drugs.
The congressional drafters concluded these programs were necessary for reasons made clear in the report accompanying the legislation from the House Committee on the Judiciary:
The collateral consequences of even an arrest for marijuana possession can be devastating, especially if a felony conviction results. Those arrested can be saddled with a criminal conviction that can make it difficult or impossible to vote, obtain educational loans, get a job, maintain a professional license, secure housing, secure government assistance, or even adopt a child. These exclusions create an often-permanent second-class status for millions of Americans. Like drug war enforcement itself, these consequences fall disproportionately on people of color.
The MORE Act would also open up Small Business Administration funding for legitimate cannabis-related businesses and service providers, making loan opportunities available to small businesses owned and controlled by socially and economically disadvantaged individuals, facilitate states’ implementation of equitable cannabis licensing programs, and ensure that Veteran Business Outreach Centers are able to provide services to otherwise eligible small business concerns.
The legislation extends various protections for individuals convicted of offenses for using or possessing marijuana. Protections include prohibiting the denial of federal public benefits (including housing) and impairment of any benefit or protection under the immigration laws based on marijuana-conviction grounds. It would also require the Bureau of Labor Statistics to collect data on the demographics of the industry to ensure people of color and those who are economically disadvantaged are participating in the industry, and would direct the Government Accountability Office to conduct a study and report to Congress concerning the societal impacts of the legalization of adult-use cannabis by states and concerning the uses of marijuana and its byproducts for purposes relating to the health, including the mental health, of veterans.
The MORE Act does not address other existing federal regulatory regimes applicable to cannabis. For instance, the bill expressly preserves the authority of the US Food and Drug Administration (FDA) to regulate products containing cannabis or cannabis-derived compounds under the Federal Food, Drug, and Cosmetic Act (FD&C Act) and section 351 of the Public Health Service Act, 42 U.S.C. § 262, which give the FDA authority to regulate products that contain cannabis and compounds derived from it, including cannabidiol (CBD).
The FD&C Act applies to all prescription drugs and prohibits the “introduction or delivery for introduction into interstate commerce of any . . . drug . . . that is adulterated or misbranded.” Because CBD is the active ingredient in an FDA-approved prescription drug, FDA has taken the position that cannabis and cannabis-derived compounds, including THC and CBD, require FDA approval before they may be added to foods, sold as dietary supplements, or marketed for therapeutic use. Given the growing market and public demand for cannabis-derived products, however, the MORE Act directs the FDA to hold “no less than one public meeting” within a year of enactment to address regulatory issues raised by these products. Bipartisan legislation has been introduced in the House in the 116th Congress to amend the FD&C Act to establish a framework for hemp-derived CBD and other hemp-derived ingredients to be legally marketed as an ingredient in dietary supplements.
The MORE Act also expressly preserves the ability of the federal government to continue testing federal employees for marijuana use as part of routine drug testing.
The bill also does not address the current barriers to research on the health effects of cannabis and cannabinoids. After passage of the MORE Act, House leadership announced a vote on the floor for next week on legislation that would make medical marijuana research easier. The bill, the “Medical Marijuana Research Act,” H.R. 3797, led by Reps. Earl Blumenauer (D-OR) and Andy Harris (R-MD), received strong support from both sides of the aisle when it was approved by the House Energy and Commerce Committee last September, and is likely to pass in the House. With a limited number of legislative days remaining in the 116th Congress, it is unlikely that this bill will pass the Senate before Congress adjourns. However, given broad bipartisan support for opening up marijuana research, it is highly possible that marijuana research legislation could pass both chambers in the 117th Congress.
Additional provisions of the bill would ensure that the US Department of Transportation and the Coast Guard may continue to issue regulations and test for the unauthorized presence of or illegal use of marijuana by certain transportation employees in sensitive safety positions.
In order to become law, the legislation would need to be passed by the Senate and signed by the President to become law. Given opposition from Senate Republicans and limited time remaining in the 116th Congress, this is highly unlikely. Indeed, many Republican lawmakers used the vote to take political shots at the House Democrats for, “picking weed over workers,” as Minority Leader McCarthy asserted in a tweet. While political opposition is generally to be expected, it was noticeable that few of the negative comments from lawmakers were substantively about cannabis reform. One of the few Republican lawmakers who voted to support the bill pointed out, following the vote:
If we were measuring the success of the war on drugs, it would be hard to conclude anything other than the fact that drugs have won . . . the American people do not support the policies of incarceration, limited research, limited choice and particularly constraining medical application.
Other Republicans support federal reform, but object to the manner in which the taxes are structured and provisions like the Opportunity Trust Fund. For example, Rep. Dave Joyce (R-OH), who is the co-chair of the Congressional Cannabis Caucus, voted no, raising concerns about the tax provisions and potential unfairness of the proposed federal grant programs for existing medical marijuana operators.
Still, the bill enjoys prominent support in the Senate, as Vice President-elect Kamala Harris (D-CA) introduced the companion bill (S. 2227) and many observers argue that chances for passage of reform measures continue to increase. As the leaders of the Congressional Cannabis Caucus wrote to their colleagues prior to the House vote on the MORE Act:
One of the biggest winners of the 2020 election was cannabis reform. Americans in five very different states voted overwhelmingly to liberalize their cannabis policies and it is clearer than ever that the American people are demanding a change to outdated cannabis laws.
Merging the business interests of the tax and regulatory aspects of the legislation with a social justice narrative should expand support for the legislation in both parties. While this legislation will not be enacted in the 116th Congress, the work done in this bill lays substantial groundwork for the eventual legalization of cannabis.
The MORE Act provides a key starting point for companies participating in or watching the growing cannabis market, and context for understanding the dynamics and nature of the future federal legal framework. We will continue to monitor legislative developments in this area and encourage readers to contact the authors of this Advisory or their usual Arnold & Porter contact for more information.
© Arnold & Porter Kaye Scholer LLP 2020 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.