My wife and I are finally able to get some time off and we're headed to Las Vegas for a long week-end. Does anyone have any tips for us re: C+H establishments?

Thanks!

Bill F

Here's a fabulous article by Scott Wilson of The Washington Post.

PETROLIA, Calif. — The Wild Cat Road skips along a ridge line, a narrow half-paved, half washed-out track that once carried much of the world’s finest marijuana to market.

Even in mists that obscured its treacherous course as it bows toward the Pacific, the road hummed in tune with the family weed farms around it. Now there is little cannabis to carry, nor “trimmigrants” who traveled here to the Mattole River Valley to pick the flower that made Humboldt County shorthand for the best marijuana around.

“I’m not making it,” said Drew Barber, 48, who has grown cannabis here for more than 15 years, watching the price for his product shrink from $1,200 a pound to about a third of that today. “I can’t lose money from one year to the next, and it’s getting to be that time when I have to decide if I can go on.”

The irony, bitter and true, is shared on the front porches of hillside homesteads across this valley where the King Range mountains and the San Andreas Fault meet the sea. The once-mystical heart of the nation’s marijuana industry is dying, fast, strangled not by law enforcement but by the high taxes and baffling regulation that have crushed small farmers since state voters approved legalization almost six years ago.

The story of Humboldt’s fate highlights how inconsistently this influential blue state has treated a quintessentially blue-state industry, a product once rogue and now a public tax bonanza. In the first quarter of this year alone, cannabis taxes delivered nearly $300 million in revenue to the state and additional money to the counties that have embraced what they once punished.

Following legalization, state officials made several far-reaching decisions that have effectively driven many small cannabis farmers to the brink of insolvency while consolidating a $5 billion-a-year legal market in the hands of industrial-scale growers, most of them based far from these northern reaches.

The chosen course concentrated much of the tax and regulatory power at the state level, dominated by Democrats who often decry corporate influence, and left counties and cities, some far more conservative, with broad discretion over whether to even establish a cannabis industry.

The state imposed multiple taxes across the cannabis supply chain, a burden unmatched in other nearby marijuana-legal states. At the same time, the state declined — after initially signaling it would do so — to limit the size of cannabis cultivations or the number of grower licenses it would issue to farmers.

As a result, the state is now awash in tax revenue, much of it from the industrial-scale farmers and retailers, and in marijuana, a market glut that has gutted wholesale prices and left farmers such as Barber unable to break even. The state rules and omissions have also empowered a still-thriving black market for marijuana — once a chief target of state regulators — whose growers sell their product illegally across state borders and still fetch a lucrative price.

Here in the Humboldt hills, the changes resulting from state policy decisions have also precipitated the slow fade of a unique out-there-alone way of life, pioneered by disillusioned migrants who had soured on the post-1960s vibe farther south.

In the renegade days, a farmer could get $4,000 a pound for Humboldt flower, the plant’s coveted bud. Today, not far from Barber’s operation, one farmer recently dumped three pounds of cannabis at the desperation price of $100 a pound. Others are simply walking away from already cultivated plots.

“The government has actually managed to do in just a few years what the war on drugs couldn’t do in decades,” said Natalynne DeLapp, executive director of the Humboldt County Growers Alliance, which represents a few hundred small farmers here. “It has killed the cannabis market.”

The change in the industry since voters passed Proposition 64 in 2016, making it legal to possess and grow a small amount of cannabis for personal use while leaving decisions on larger cultivations and retail sales to local governments, has now spurred Gov. Gavin Newsom (D) and the state bureaucracy to act on behalf of small growers.

Since 2018, when the new legalization rules took effect, the state has taxed marijuana three separate times as it travels from farm to consumer. Many counties and cities impose their own taxes, at varying levels, on top of the state levies. In some regions of the state, one pound of cannabis is subjected to as many as five separate taxes, some based on weight and others on sales.

By contrast, the state of Oregon imposes a single 17 percent sales tax on cannabis, the only product the state imposes a sales tax on at all. Counties there are allowed to impose as high as a 3 percent sales tax on top of that, which still leaves it far lower than California’s tax burden.

California’s cannabis taxes come on top of licensing fees and regulatory permits, which can cost tens of thousands of dollars annually for growers, burying those who used to work without regulation in red tape and state invoices. The option to become legal, which roughly half of Humboldt’s farmers once accepted, has been a stunningly expensive one.

In his most recent budget, bursting with a record $97 billion surplus, Newsom eliminated the so-called cultivation tax on growers, which in the first quarter of this year brought the state $32.7 million. Counties will still be able to impose their own cultivation tax, called the single most burdensome by many in the industry.

The state government also pledged not to raise the 15 percent excise tax imposed on distributors — the system’s middlemen who also inspect the marijuana before it moves to retailers — for at least three years. The state collected $156.4 million in cannabis excise taxes in the first quarter of the year.

Newsom signed the specific cannabis measures the last day of June, and the cultivation-tax elimination took immediate effect.

“The question we asked in designing this package was how do we make this simpler?” said Nicole Elliott, director of the state Department of Cannabis Control. “The burden falls most especially on these small farmers. And if we want to have a diverse industry, we have to take care of these small farmers.”

To Barber and his neighbors, the recent tax break is welcome but far from decisive. His cultivation taxes alone ran to roughly $160 a pound, taking an increasingly large chunk of his revenue as wholesale prices fell to an average of $450 a pound. In an emergency step, Humboldt County just cut its cultivation tax by 85 percent.

Barber, freckled from years farming in the sun, said it is his wife’s health consultancy business that is keeping the family, including two kids, afloat for now.

“The car has three flat tires and a blown valve, and the question is what do we fix first,” Barber said of the tax changes. “The car still isn’t going to run if you fix one flat tire. But it will help.”

Cannabis industry veterans say it didn’t have to be this way.

Marijuana long flourished in the state’s far north. A back-to-the-land hippie migration in the early 1970s established a culture accepting of illegal drugs, and an out-of-sight, out-of-mind remoteness discouraged intensive law enforcement.

From that fertile ground, the Emerald Triangle of Humboldt, Trinity and Mendocino counties built a marketable mythology around the marijuana from the region that endures today.

Here, in the Mattole River Valley, the King Range rises thousands of feet high to the south, thickly forested and sheer. The San Andreas begins its state-splitting run south from this wild place of pastures, farms and rain-filled rivers in a rare wet patch of a very dry state.

This is the Lost Coast, about 100 miles of marshy, distant topographic challenges that is the only place in the west to defeat ambitious highway builders. There is no coastal highway here. Nature won.

Like its landscape, Humboldt had a wild west feel for decades. Big cartels saw opportunities in its canyons and hilltops, planting large plots with little regard for the fate of redwood forests and clear, cold rivers.

Then the industry opened up, at least a crack.

The so-called green rush began in 1996 with the passage of Proposition 215. The measure allowed cannabis dispensaries to sell to customers who could prove they needed the drug for anxiety, pain or other ailments.

It also made it nearly impossible to determine which growers were licensed to supply the dispensaries and which remained outside the law, a line-blurring oversight that brought many into the business and began pushing down prices.

Then two decades later came Proposition 64, expanding legal recreational use to every adult. It passed easily, in part because it placed so much power to regulate the industry in the hands of local governments — the step that would create the patchwork of rules — from taxes to local cultivation caps to retail licenses — across the state.

By the time the proposition took effect in 2018, a grower’s pound of cannabis had dropped in price from about $1,200 in 2016 to $800.

An abandoned phone booth beside Mattole Road in Petrolia. (Melina Mara/The Washington Post)
Here in Humboldt, where at least 5,000 growers operated at the time, DeLapp nonetheless persuaded nearly half to sign pledges to become legal despite the costs involved.

But there were gaps between the broadly written proposition and the rules that put the new measure into practice.

Many in the industry and law enforcement favored a proposed statewide one-acre cap on farms as a protection for small growers; by the time the final rules came out, though, there was no statewide cap at all. There was also no limit on the number of cultivation licenses that could be issued.

“We still have a vibrant black market in Northern California, and we empathize with the small legal growers,” said Humboldt County Sheriff William Honsal, better known as “Billy,” who was born in the county as the illegal cannabis market boomed.

“By not capping licenses, there has been this flood of supply and I just would have thought our state would have been a little smarter with policies to allow small growers to make it.”

There were an estimated 69,000 marijuana growers in the state at the time Proposition 64 passed. In the spring of 2018, three months after the new regulations took effect, the state had issued 2,000 grower licenses with an expected annual yield of 4.1 million pounds. That translated to at least double California’s legal annual demand.

Now, according to the state Department of Cannabis Control, there are 8,600 licensed marijuana farmers and the amount of cannabis being grown legally in California today could be more than quadruple the state demand.

“The oversupply makes it hard to do business legally or illegally at this point,” said Dale Gieringer, state coordinator for the legalization advocacy group NORML.

The lack of state cultivation limits, which was not addressed in Newsom’s recent plan, stands in contrast to some other Democratic-controlled cannabis states, which have confronted market gluts in the past but not nearly to the degree facing California. Colorado, for example, has rules allowing the state to limit — and even shrink — cultivation size to better control supply.

The option of fallowing a cannabis crop for a year to wait for higher prices is also impossible in California; a grower who allows a license to lapse for a year must start the arduous and expensive process of applying for a new license as if they never held one. Cannabis, unlike wine grapes, is not classified as an agriculture product here and so farmers are denied state benefits that accrue to other crops.

“Everything about the regulations have been written as if cannabis farming were a criminal enterprise,” said Dylan Mattole, who farms a quarter-acre in Honeydew, a town in the river valley his family is named for. “And also with the assumption that this business is so profitable they can squeeze and squeeze and squeeze.”

Mattole’s family moved to this valley from San Francisco in the early 1970s, part of the post-Summer of Love exodus. His father, Walter Sharp III, renamed himself Mattole, just Mattole, for the river he moved next to. He did give his son two names; Dylan got his from the renowned singer-songwriter his dad once saw at San Francisco’s famous Fillmore theater.

But the roughly one-acre farm is shriveling. Last month he laid off his last two farmworkers. He pays more than $35,000 in annual cultivation, transfer and processing licenses, in addition to his cannabis taxes. His revenue is declining at the same time.

A pound of his marijuana, branded Mattole Valley Sungrown, is supposedly selling for about $300 a pound these days. Yet last month, he sold three pounds for $100 each. There were no buyers on the horizon and the weed was growing old.

“At one point did being honest hurt us?” asked Mattole, a 48-year-old father of three.

One major industry challenge is that California is not an entirely legal state, at least not for growers and retailers. A majority of California’s 58 counties still prohibit any cannabis business, according to the state, limiting in particular the number of retail outlets where legal marijuana can be purchased.

“Most people say the problem is oversupply,” said Graham Farrar, founder and president of Glass House Farms, a major grower and retailer based in Southern California. “I say it’s under-demand.”

His business began with state-of-the-art indoor crops in former cut-flower greenhouses in Carpinteria, along Santa Barbara County’s south coast. He has added retail licenses and now holds more than half a dozen, including one here in Humboldt County. But it is the size of his company’s cultivation that is astonishing.

Earlier this year, Farrar opened a 5.5 million square-foot greenhouse, roughly 126 acres, in the Ventura County city of Camarillo where agriculture has long been a prominent industry. By comparison, 90 percent of Humboldt cannabis farms are smaller than one acre.

Farrar and other big cannabis businesses are preparing for federal legalization or at least more modest interstate commerce between cannabis-legal states, a measure now under consideration in the California legislature.

“In a state like California it’s hard to change policy in a rapid way,” said Elliott, the cannabis department director. “There is still a lot of reform that needs to happen.”

Ross Gordon, policy director of the Humboldt County Growers Alliance and policy chair at the Origins Council, which represents about 900 growers in six state regions, said big cannabis producers have the capital to ride out the low prices and wait for federal and interstate trade laws to change.

“Glass House and others like it represent the massive upward transfer of wealth that is taking place within California’s cannabis industry,” Gordon said. “There is policy trying to get at some of these issue of disparity. But not nearly to the depth needed to fix an industry that is structurally broken.”

Humboldt growers say a couple initiatives that saved small vintners in Napa County when they faced extinction from giant wine corporations could help rescue small-scale cannabis farming in California.

The first is a strict “appellation” regimen that would distinguish Humboldt-grown marijuana on dispensary shelves from the mass-produced cannabis from the south. Humboldt, after all, still has mystique.

“Humboldt County produces more redwood fencing than any place in the world,” said Rex Bohn, a county supervisor. “But nobody I run into outside of this county asks me about the redwood fencing.”

The second is the ability to mail their product anywhere. That could depend on the federal government making cannabis legal, and several U.S. senators, including Majority Leader Charles E. Schumer (D-N.Y.), introduced a bill earlier this year to do so.

But industry experts say national legalization, like relaxing interstate commerce, is years off, time farmers here do not have.

“I would expect to see at least half of our businesses to fail in the next year,” said Genine Coleman, executive director of the Origins Council. “If I’m being quite frank, I think we need a new proposition. So much wrong is baked into this system that we are just not going to be able to move ahead without one.”

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Last Thursday, history was made when key leaders in the United States Senate introduced the Cannabis Administration and Opportunity Act (CAOA), a sweeping legalization measure that would remove marijuana from the list of controlled substances and end most criminal penalties associated with possession. This measure was led by Senate Majority Leader Chuck Schumer (D-NY), Senator Ron Wyden (D-OR), and Senator Cory Booker (D-NJ) and represents another milestone in federal cannabis reform.

In addition to ending the criminalization of marijuana, the proposal outlines a robust regulatory system, building and refining ideas that were first presented in a discussion draft published by the same lawmakers this time last year, and incorporates additional proposals.

It is clear that the sponsors of the Cannabis Administration and Opportunity Act have sought to respond to the input they received over the past year in addition to incorporating new ideas. The sponsors have published a summary of provisions and a comparison with the original draft:.

SUMMARY OF REVISIONS TO THE CANNABIS ADMINISTRATION AND OPPORTUNITY ACT DISCUSSION DRAFT

General Provisions

Cannabis Products Advisory Committee - The discussion draft requested comments on the Cannabis Products Advisory Committee, established under the Department of Health and Human Services (HHS) to advise federal agencies on regulatory matters related to cannabis and cannabis products. Stakeholders provided a variety of comments on the makeup and duties of the advisory committee. The introduced legislation establishes a 22-member advisory committee, made up of industry representatives (with an emphasis on socially-underrepresented stakeholders), federal and state regulators, labor union representation, and experts in public health and safety. The advisory committee will be charged with considering all matters submitted to it by the Secretary of HHS, making independent recommendations to the Secretary and other agency heads, analyzing cannabis health and safety impacts, and publishing an annual report of its activities and recommendations. Like all federal advisory committees, members will be expected to consult with a diverse set of stakeholders in representing the views of the populations they represent. 

Definition of Cannabis - Stakeholders offered a variety of recommendations in response to the discussion draft’s request for comment on the definition of cannabis. The existing definition of cannabis (termed ‘marihuana’ in the Controlled Substances Act) faces a number of challenges related to the existing definition of “hemp.” Under the discussion draft, the terms “cannabis” and “cannabis product” excluded hemp, as defined in section 297A of the Agricultural Marketing Act of 1946. The definition of hemp was established in 2018, generally as any part or derivative of the plant Cannabis sativa L. with a delta-9 tetrahydrocannabinol (THC) concentration of not more than 0.3 percent by dry weight. Under regulations, the U.S. Department of Agriculture (USDA) has determined that this THC amount is calculated as the sum of delta-9 THC in a sample and a portion of the non-intoxicating tetrahydrocannabinolic acid (THCA) that can be converted to delta-9 THC through decarboxylation or combustion. 

Members of the hemp industry have raised concerns that the existing testing methodology that takes into account THCA content results in an allowable THC threshold below a commercially practicable amount. Other stakeholders have raised concerns that existing law’s reference to delta-9 THC concentration fails to account for different types of THC that can have a similar effect on the user, such as hemp-derived delta-8 THC and delta-10 THC, which already exist in the marketplace. Stakeholders have also raised concerns that the dry weight measurement standard in existing law may create situations where industry members may be able to manipulate the amount of allowable THC by increasing the overall weight of a cannabis product, thereby avoiding tax and public health requirements. 
The introduced legislation refines the definition of “hemp,” and consequently “cannabis” by taking into account the total THC in a cannabis product, rather than just delta-9 THC. The legislation also modifies the allowable amount of THC to provide separate allowances for plant material and extracts. For plant material, hemp is any cannabis plant material with a total THC content of 0.7 percent on a dry weight basis or less. For extracts, concentrations, and other cannabis preparations, a product only qualifies as hemp if the total THC concentration of an article does not exceed 1 milligram of total THC per 100 grams on a dry weight basis. The Secretary of Health and Human Services may also include or exclude one or more cannabinoids from this definition, as appropriate.

The legislation further clarifies that while THC derived from the cannabis plant is descheduled under the Controlled Substances Act (CSA), synthetic cannabis and other non-cannabis-derived THC are not subject to automatic descheduling. The legislation requires that the Attorney General initiate a review of the applicable CSA schedules for such non-cannabis-derived THC substances within one year of enactment, and reschedule those substances as appropriate, pursuant to the CSA.     

Federal Employee Drug Testing - Stakeholders submitted a significant number of comments related to drug testing of federal employees. Currently, federal regulations and Executive Order 12564 direct the heads of federal agencies to implement drug testing programs for federal employees, including testing for cannabis. The introduced legislation provides that for purposes of Executive Order 12564, cannabis shall not be treated as an illegal drug. An exception allows continued testing in the case of law enforcement officers, or federal employees determined to have significant involvement in national security, the protection of life and property, public health, and safety. In addition, the legislation follows the discussion draft in continuing to authorize testing certain individuals related to commercial transportation.  

Definition of State - Stakeholders offered a variety of suggestions to clarify the definition of “state” in a number of provisions to properly address the District of Columbia, territories, and possessions. The introduced legislation modifies the definition of “state” in a number of places to clarify the application of those provisions. 

Native American Tribes - Stakeholders submitted a number of comments related to the application of various provisions to tribal governments and tribal entities. The introduced bill makes a number of conforming amendments related to tribes; provides that various governmental agencies must engage in good faith, meaningful, and timely consultation with Native entities; and provides dedicated funding under certain programs related to tribal governments or tribal entities.   

Appropriations and Opportunity Trust Fund - The discussion draft deposited excise tax revenues into the Opportunity Trust Fund established under the CAOA, and provided direct appropriations to certain programs based on specified percentages. Stakeholders have raised concerns that such trust fund mechanisms may delay the delivery of social equity funds and assistance to new or operating businesses because it can take a number of years for a trust fund to accumulate the necessary excise tax revenue. In order to accelerate the availability of funds, the introduced bill specifies funding levels for each program as a direct appropriation from the Treasury General Fund and requires the Secretary of the Treasury to reimburse the General Fund from revenues in the CAOA Opportunity Trust Fund. A similar reimbursement model exists under present law with respect to other trust funds.  

Funding levels throughout the bill were generally determined based on consultation with the Congressional Budget Office, or based on technical assistance provided by the appropriate committees of jurisdiction, and were in many cases based on existing funding for similar programs. The legislation is intended to fully offset the cost of these programs through cannabis excise tax revenues and other associated revenues.   

Highway Safety Provisions

The discussion draft included a number of provisions relating to the prevention and detection of cannabis-impared driving. A significant number of stakeholders provided comments and guidance on the most effective methods to address these issues. The introduced legislation includes the following provisions: 

Cannabis-Impaired Driving Research - Because cannabis remains illegal at the federal level, very little field research has been done in the United States on the effects cannabis has on drivers. There is a scientific consensus that cannabis has some impairing effect on drivers, but questions remain about what those effects are and their level of severity. This provision directs the National Highway Traffic Safety Administration (NHTSA) to research multiple areas, including collecting data on the number of cannabis-impaired drivers through a national roadside survey, as well as answering a number of questions about how cannabis and polyuse of cannabis affect driver behavior and driver ability.

Department of Transportation Cannabis-Impaired Driving Prevention Programs - States across the country will need guidance on how to best prevent cannabis-impaired driving. Additionally, NHTSA and many state Departments of Transportation run drunk driving prevention campaigns on a regular basis. This provision would direct NHTSA to create educational materials on “best practices” for preventing cannabis-impaired driving that can be distributed to states. Additionally, this section directs NHTSA to carry out campaigns intended to prevent cannabis-impaired driving, including a campaign specifically targeted at drivers under the age of 21. This section also requires NHTSA review the effectiveness of the cannabis-impaired driving efforts by analyzing whether a national campaign or an activity carried out by a state under the proposed State Cannabis-Impared Driving Prevention Grant Program was effective at changing driver behavior and decision-making.   

State Cannabis-Impaired Driving Prevention Grant Program - This provision provides funding to states to support preventative measures for cannabis-impaired driving including enforcement, education, and data collection. Efforts may include training of public safety personnel to detect cannabis-impaired driving and high-visibility enforcement efforts, high-visibility enforcement campaigns, and efforts to improve testing for cannabis after a serious crash. This provision also incentivizes states to adopt a cannabis open container prohibition. At least 5 percent of the funds in this section must be used to improve toxicology testing laboratories that can test for cannabis.

National Cannabis Impairment Standard - This provision requires the U.S. Department of Transportation to create a standard for cannabis-impaired driving that can be adopted by the states within three years, unless the Secretary is unable to create a standard in three years due to lack of available research. If a rulemaking has not been completed in three years, the Secretary must update Congress every two years regarding the feasibility of creating such a standard. 

Justice, Immigration, and Enforcement Provisions

Criminal Penalties for Cannabis Possession - The discussion draft included a felony charge for the distribution or possession of ten or more pounds of cannabis without a federal permit or the required state proof of payment of taxes, punishable by a fine of not more than $10,000 and up to five years in prison. Stakeholders provided feedback indicating that a fairer sentencing regime would include an intermediary misdemeanor sentence before the felony charge. The introduced legislation changed the weight quantity to qualify a person for felony cannabis distribution or possession charge under the section from 10 pounds to 20 pounds. It added a misdemeanor charge for people possessing between 10 and 20 pounds of cannabis, punishable by up to one year in prison and/or a $50,000 fine. People convicted of illegally possessing 20 or more pounds of cannabis would be subject to a sentence of up to five years in prison and/or a $100,000 fine. These changes ensure that the fines are greater than the value of any illegally diverted cannabis. 

Resentencing and Expungement Process - This section provides that a court shall automatically, after a sentencing review, expunge each federal cannabis conviction, vacate any remaining sentence, and resentence the defendant as if this law had been in place prior to the original sentencing. Previously, a court would have been required to conduct a sentencing hearing to consider a motion to expunge.

Expungement Exception - The discussion draft included an exception to the expungement eligibility for people who, as a part of their cannabis sentence, had received an aggravating factor pursuant to 3B1.1(a) of the United States Sentencing Guidelines. The introduced version directs federal courts to consider mitigating factors before barring a person from receiving a sentence and conviction expungement. Specifically, a person who received an aggravating role adjustment in their original sentence would not be eligible for expungement, unless a federal court conducting the sentencing review finds mitigating factors, including the age of the person at the time or arrest, conviction, or adjudication, the individual’s role in the prior offense, and whether it was the person’s first federal cannabis offense.

Immigration Provisions - The discussion draft included provisions ensuring that cannabis could not be considered a controlled substance for purposes of immigration laws, but did not set up a mechanism by which a person who had received a deportation order based on a cannabis-related offense could rescind that deportation order.

The introduced version enables a noncitizen who has received a deportation order based on a cannabis-related offense to file a motion to reconsider that decision. If the motion to reconsider is filed within 30 days of the removal order, the motion may allow for cancellation of the deportation order.

Hiring and Training Local Law Enforcement - The introduced version recognizes that enforcing cannabis-related laws will continue to be an evolving challenge for state and local law enforcement agencies. As the federal government decriminalizes cannabis, illicit cannabis production will continue in various and changing forms. To help state and local law enforcement keep their communities safe from traffickers involved in unlawful cannabis production, the introduced version creates a new grant program for smaller law enforcement departments to hire officers, investigators, and community outreach specialists to combat illicit cannabis production. It directs the Attorney General to develop education programs and technical assistance for these agencies, and creates a grant program to pay for this training.

Small Business Administration Provisions

The discussion draft established two programs to be implemented by the Small Business Administration (SBA), following similar provisions proposed in the House-passed MORE Act. The Cannabis Opportunity Program would provide funding to eligible states and localities to make loans to assist small businesses in the cannabis industry owned by socially and economically disadvantaged individuals. The Equitable Licensing Grant Program would provide funding to eligible states and localities to implement cannabis licensing programs that minimize barriers for individuals adversely affected by the War on Drugs. To be eligible for these SBA grants, states and localities must take steps to create an automatic process to expunge criminal records for cannabis offenses and violations for individuals under criminal supervision for cannabis offenses.

The introduced legislation makes a number of technical clarifications to these provisions. In addition, it expands eligibility for the Cannabis Restorative Opportunity Program to provide loans and technical assistance to any small business owned and controlled by socially and economically disadvantaged individuals operating in an eligible state or locality. It also requires GAO to conduct an annual study of the Cannabis Restorative Opportunity and Equitable Licensing Grant Programs and report to Congress.

Finally, it establishes a new 10-year intermediary lending pilot program in which SBA would make direct loans to eligible intermediaries that in turn make small business loans to startups, businesses owned by individuals adversely impacted by the War on Drugs, and socially and economically disadvantaged small businesses. SBA would also be required to make grants to intermediaries in the program for the purpose of providing marketing, management, and other technical assistance to borrowers.

Public Health Provisions

The discussion draft included a number of provisions related to public health and research. Because of its Schedule I status under the CSA, public health research relating to cannabis has been severely hampered in the past, despite the fact that a significant number of Americans consume cannabis products today under both medical and adult-use programs. It is critical that policymakers and the public have a clear understanding of the public health challenges and opportunities with respect to cannabis. The introduced bill seeks to make up for lost time in cannabis research by robustly funding these efforts.  

It is also critical that federal health regulators have the tools necessary to address public health challenges, and to ensure that cannabis products are as safe as possible and to restrict youth access. The introduced bill takes into account many of the comments received related to these issues, and builds on the discussion draft by clarifying and expanding on these public health and research policies. 

Supporting cannabis research - Stakeholders have emphasized the lack of rigorous research on cannabis and its health effects, many of which have stemmed from the current scheduling of cannabis and limitations on the cannabis available for research. The discussion draft established grants to support research on the short- and long-term health effects of cannabis, which remains in the introduced legislation. The introduced legislation also includes several additional provisions to support, expand, and coordinate cannabis research by directing the Centers for Disease Control and Prevention (CDC) and National Institutes of Health (NIH) to conduct research on cannabis and establishing entities to coordinate research across NIH and the federal government at large. The introduced legislation further directs HHS to increase the availability and diversity of cannabis products for research purposes.
Supporting public health and preventing cannabis use by minors - The discussion draft legalizes a cannabis market for individuals ages 21 and above. The introduced legislation includes additional provisions to prevent and reduce cannabis use among minors and other public health challenges associated with cannabis, such as driving while impaired. These provisions include launching national media campaigns to educate the public, awards to states and nonprofits for prevention and intervention programs, directing CDC to support surveillance and other evidence-based activities, and restricting the marketing of cannabis products to minors.
Clarifying FDA responsibilities - The discussion draft directed the Food and Drug Administration (FDA), through a new Center for Cannabis Products, to regulate cannabis products. The introduced legislation builds out FDA responsibilities, such as by specifying the types of issues FDA standards for cannabis products should address. The introduced legislation further clarifies that industry will be able to continue to market cannabis products that are also food, provided all applicable FDA requirements for food are met. In addition, the legislation establishes transition periods for cannabis products and medical cannabis already regulated by states in order to ensure the continued availability of such products during the transition to the FDA regulatory framework.
Education Infrastructure Provisions

The discussion draft requested comments on options to steer research funding to colleges and universities, and in particular, whether research funding should be prioritized for Historically Black Colleges and Universities (HBCUs) and other institutions associated with historically disadvantaged communities. Stakeholders submitted a number of comments in response. 

The introduced legislation builds on the expressed interest in the discussion draft by authorizing robust funding for cannabis research that will help to provide significant public health and safety benefits. The legislation establishes a new competitive program for institutions of higher education to develop or enhance the necessary cannabis research infrastructure and requires the Secretary of Education (ED) to give priority to minority-serving institutions (MSIs), including HBCUs, and under-resourced institutions of higher education. Necessary infrastructure for cannabis research can include equipment, cultivating cannabis, construction or upgrading of laboratory facilities, and storage and security needs, among other uses. This program will help HBCUs and other MSIs to enhance their infrastructure to conduct research on cannabis benefits.

Labor Provisions

Similar to provisions relating to alcohol and tobacco, the discussion draft required a producer, processor, or wholesaler of cannabis products to obtain a permit from the Treasury Department before commencing business, conditioned on compliance with all cannabis laws. Violations of such laws may result in suspension or revocation of a permit, based on the severity of the violation. The introduced bill adds a requirement that a federal permittee 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 (OSHA). Permittees who have violated such laws are required to notify the Secretary of the Treasury within 30 days of a finding of a violation. Coordination rules require the Department of Labor and National Labor Relations Board to coordinate with the Department of Treasury in establishing suspension and revocation guidelines for such violations and in enforcing those provisions. 

Workplace Safety - The introduced legislation includes a new section on workplace health and safety. Included in this new section are requirements for OSHA and National Institute of Occupational Safety and Health (NIOSH) to jointly issue guidance for cannabis industry employers, including indicating existing OSHA standards that apply to cannabis industry employers. The introduced legislation promotes workplace safety training for at-risk and hard to reach workers by including cannabis as a targeted topic for Susan Harwood OSHA training grants. The introduced legislation provides additional funding for NIOSH required studies on how legalization impacts the health and safety of workers.
Grants for community-based education, outreach, and enforcement with respect to the rights of workers in the cannabis industry - The introduced legislation creates a grant program, administered by the Department of Labor, to provide funding for public or private nonprofit organizations to educate workers and employers in the cannabis industry of their rights under federal, State, and local civil rights, labor, and employment laws and connect and refer workers to additional services to assist them in pursuing their rights. Grant funding is available for not more than three years, and each grant is capped at $300,000.

Veterans Provisions

The discussion draft required the Department of Veterans Affairs (VA) to offer medical cannabis recommendations to veterans pursuant to state medical cannabis programs. The introduced legislation refines this provision to require the VA, no later than 180 days after enactment of this Act, to update all applicable regulations, guidance, memoranda, and policies to authorize physicians and healthcare providers to provide medical cannabis recommendations regarding participation in cannabis programs authorized under federal and state law. 

The introduced legislation also requires the VA to carry out a series of clinical trials on the effects of medical cannabis on the health outcomes of veterans diagnosed with chronic pain and post-traumatic stress disorder. 

Tax and Operations Provisions

Cannabis Operations - The introduced legislation includes a number of additional conforming amendments and clarifications related to licensed cannabis operations, specifically:  

Under the discussion draft, all licensed cannabis businesses were required to pay taxes every two weeks and maintain a surety bond for the potential excise tax liability. The introduced legislation removes the requirement to maintain a bond for any cannabis business that had less than $100,000 in excise tax liability in the prior year and reasonably expects excise tax liability in the current year to be below such amount. The provision also provides for quarterly excise tax filing for licensees with less than $100,000 in excise tax liability, and annual filing for licensees with less than $10,000 in excise tax liability. A related provision establishes that cannabis excise tax liability on cannabis product inventory represents a first lien by the federal government. 

Present law establishes special authority and limitations for Treasury officials responsible for alcohol and tobacco excise tax collection. Among other things, these rules prohibit any Treasury official responsible for collecting excise taxes from having an interest in a regulated alcohol or tobacco business. The introduced legislation incorporates conforming amendments to apply consistent treatment for Treasury officials with respect to cannabis operations. 

The introduced bill clarifies that the Treasury Department shall be responsible for cannabis anti-diversion enforcement, and expands requirements that Treasury study the effect of disparate state cannabis excise tax rates on diversion and noncompliance. 

Stakeholders submitted comments noting that the fair trade practices rules applicable to cannabis producers and wholesalers may be construed to conflict with certain state laws intended to provide equity or other assistance under state social equity programs. The introduced bill incorporates rules similar to rules currently applicable to permitted malt beverage producers and wholesalers, and provides that in the case of certain fair trade practices limitations, such limitations will only apply if a similar limitation exists under state law. 

Cannabis Excise Tax and Administration - Stakeholders offered feedback on the use of “THC measurable cannabis products” in the discussion draft for purposes of determining the tax applicable to non-plant material. The introduced legislation revises the operation of the cannabis products excise tax to remove the concept of “THC measurable cannabis products.” Instead, after the five-year phase-in period, the rules generally apply a weight-based tax determination for unprocessed cannabis plant material, and a THC content-based tax for any cannabis product that is an extract, concentration, or other derivative. The introduced legislation also contains a number of clarifications to prevent avoidance of cannabis or other excise taxes, specifically: 

Revising the existing definition of tobacco rolling papers and cigarette tubes to include any rolling paper or tube intended for use in a cannabis cigarette. 

Providing that in the case of any tax recalculated under the constructive price rules (meant to prevent manipulation of tax in non-arm’s-length transactions), any additional tax assessed may be collected by either party to the transaction. 

Banking, Housing, and Community Development Provisions

The bill removes cannabis from the schedule of controlled substances, meaning that cannabis-related financial transactions and services would no longer be proceeds from an unlawful activity. To clarify that cannabis is not an illegal substance and minimize confusion among financial institutions, the bill requires the Financial Crimes Enforcement Network (FinCEN) to update its guidance or issue new regulations that: (1) ensure that it is consistent with the purpose and intent of the Act to decriminalize cannabis; (2) specifies how to facilitate the deposit and movement of cash held by cannabis-related legitimate business or service provider; and (3) does not inhibit financial services to a cannabis-related legitimate business or service provider in the United States.  The section also preserves FinCEN’s authority to require financial institutions to submit Suspicious Activity Reports, as appropriate. It would also require the Federal Financial Institution Examination Council to develop uniform examination procedures for depository institutions that provide financial services to cannabis-related legitimate businesses and service providers consistent with FinCEN’s updated guidance.

Communities affected by the War on Drugs and low- and moderate-income communities disproportionately lack access to financial services and capital, face barriers to job opportunities in the financial services sector and discrimination in financial services. In order to reinvest in these communities, the bill would encourage financial institutions to provide financial services to small or minority-owned businesses. The bill would provide additional funding to Community Development Financial Institutions and as well as make additional investment in minority depository institutions to provide these organizations with the capital necessary to reach small and underserved businesses and consumers. In addition, individuals affected by the War on Drugs face challenges accessing housing and economic opportunities, which can lead to high housing cost burdens, rates of homelessness, and reduced opportunities to become homeowners and create generational wealth for their families.  The bill directs the Secretary of Housing and Urban Development to establish a grant program to provide communities whose residents have been disproportionately affected by the War on Drugs with additional funding to address the housing, economic, and community development needs of residents affected by the War on Drugs.
 
This bill would expand employment opportunities at banks and credit unions by reducing barriers to employment based on past minor criminal offenses, including that criminal offenses that have been expunged, sealed, or dismissed is not a bar to be eligible to work for an insured bank or credit union.

The bill would prohibit financial institutions from discriminating against an individual on the basis of race, color, religion, national origin, and sex, and ensure individuals are able to enforce the anti-discrimination provisions in court.  The bill would also prevent financial institutions from denying financial services to someone simply because of a past conviction for a non-violent cannabis offense.

My wife and I are finally able to get some time off and we're headed to Las Vegas for a long week-end. Does anyone have any tips for us re: C+H establishments?

Thanks!

Bill F

Here's a fabulous article by Scott Wilson of The Washington Post.

PETROLIA, Calif. — The Wild Cat Road skips along a ridge line, a narrow half-paved, half washed-out track that once carried much of the world’s finest marijuana to market.

Even in mists that obscured its treacherous course as it bows toward the Pacific, the road hummed in tune with the family weed farms around it. Now there is little cannabis to carry, nor “trimmigrants” who traveled here to the Mattole River Valley to pick the flower that made Humboldt County shorthand for the best marijuana around.

“I’m not making it,” said Drew Barber, 48, who has grown cannabis here for more than 15 years, watching the price for his product shrink from $1,200 a pound to about a third of that today. “I can’t lose money from one year to the next, and it’s getting to be that time when I have to decide if I can go on.”

The irony, bitter and true, is shared on the front porches of hillside homesteads across this valley where the King Range mountains and the San Andreas Fault meet the sea. The once-mystical heart of the nation’s marijuana industry is dying, fast, strangled not by law enforcement but by the high taxes and baffling regulation that have crushed small farmers since state voters approved legalization almost six years ago.

The story of Humboldt’s fate highlights how inconsistently this influential blue state has treated a quintessentially blue-state industry, a product once rogue and now a public tax bonanza. In the first quarter of this year alone, cannabis taxes delivered nearly $300 million in revenue to the state and additional money to the counties that have embraced what they once punished.

Following legalization, state officials made several far-reaching decisions that have effectively driven many small cannabis farmers to the brink of insolvency while consolidating a $5 billion-a-year legal market in the hands of industrial-scale growers, most of them based far from these northern reaches.

The chosen course concentrated much of the tax and regulatory power at the state level, dominated by Democrats who often decry corporate influence, and left counties and cities, some far more conservative, with broad discretion over whether to even establish a cannabis industry.

The state imposed multiple taxes across the cannabis supply chain, a burden unmatched in other nearby marijuana-legal states. At the same time, the state declined — after initially signaling it would do so — to limit the size of cannabis cultivations or the number of grower licenses it would issue to farmers.

As a result, the state is now awash in tax revenue, much of it from the industrial-scale farmers and retailers, and in marijuana, a market glut that has gutted wholesale prices and left farmers such as Barber unable to break even. The state rules and omissions have also empowered a still-thriving black market for marijuana — once a chief target of state regulators — whose growers sell their product illegally across state borders and still fetch a lucrative price.

Here in the Humboldt hills, the changes resulting from state policy decisions have also precipitated the slow fade of a unique out-there-alone way of life, pioneered by disillusioned migrants who had soured on the post-1960s vibe farther south.

In the renegade days, a farmer could get $4,000 a pound for Humboldt flower, the plant’s coveted bud. Today, not far from Barber’s operation, one farmer recently dumped three pounds of cannabis at the desperation price of $100 a pound. Others are simply walking away from already cultivated plots.

“The government has actually managed to do in just a few years what the war on drugs couldn’t do in decades,” said Natalynne DeLapp, executive director of the Humboldt County Growers Alliance, which represents a few hundred small farmers here. “It has killed the cannabis market.”

The change in the industry since voters passed Proposition 64 in 2016, making it legal to possess and grow a small amount of cannabis for personal use while leaving decisions on larger cultivations and retail sales to local governments, has now spurred Gov. Gavin Newsom (D) and the state bureaucracy to act on behalf of small growers.

Since 2018, when the new legalization rules took effect, the state has taxed marijuana three separate times as it travels from farm to consumer. Many counties and cities impose their own taxes, at varying levels, on top of the state levies. In some regions of the state, one pound of cannabis is subjected to as many as five separate taxes, some based on weight and others on sales.

By contrast, the state of Oregon imposes a single 17 percent sales tax on cannabis, the only product the state imposes a sales tax on at all. Counties there are allowed to impose as high as a 3 percent sales tax on top of that, which still leaves it far lower than California’s tax burden.

California’s cannabis taxes come on top of licensing fees and regulatory permits, which can cost tens of thousands of dollars annually for growers, burying those who used to work without regulation in red tape and state invoices. The option to become legal, which roughly half of Humboldt’s farmers once accepted, has been a stunningly expensive one.

In his most recent budget, bursting with a record $97 billion surplus, Newsom eliminated the so-called cultivation tax on growers, which in the first quarter of this year brought the state $32.7 million. Counties will still be able to impose their own cultivation tax, called the single most burdensome by many in the industry.

The state government also pledged not to raise the 15 percent excise tax imposed on distributors — the system’s middlemen who also inspect the marijuana before it moves to retailers — for at least three years. The state collected $156.4 million in cannabis excise taxes in the first quarter of the year.

Newsom signed the specific cannabis measures the last day of June, and the cultivation-tax elimination took immediate effect.

“The question we asked in designing this package was how do we make this simpler?” said Nicole Elliott, director of the state Department of Cannabis Control. “The burden falls most especially on these small farmers. And if we want to have a diverse industry, we have to take care of these small farmers.”

To Barber and his neighbors, the recent tax break is welcome but far from decisive. His cultivation taxes alone ran to roughly $160 a pound, taking an increasingly large chunk of his revenue as wholesale prices fell to an average of $450 a pound. In an emergency step, Humboldt County just cut its cultivation tax by 85 percent.

Barber, freckled from years farming in the sun, said it is his wife’s health consultancy business that is keeping the family, including two kids, afloat for now.

“The car has three flat tires and a blown valve, and the question is what do we fix first,” Barber said of the tax changes. “The car still isn’t going to run if you fix one flat tire. But it will help.”

Cannabis industry veterans say it didn’t have to be this way.

Marijuana long flourished in the state’s far north. A back-to-the-land hippie migration in the early 1970s established a culture accepting of illegal drugs, and an out-of-sight, out-of-mind remoteness discouraged intensive law enforcement.

From that fertile ground, the Emerald Triangle of Humboldt, Trinity and Mendocino counties built a marketable mythology around the marijuana from the region that endures today.

Here, in the Mattole River Valley, the King Range rises thousands of feet high to the south, thickly forested and sheer. The San Andreas begins its state-splitting run south from this wild place of pastures, farms and rain-filled rivers in a rare wet patch of a very dry state.

This is the Lost Coast, about 100 miles of marshy, distant topographic challenges that is the only place in the west to defeat ambitious highway builders. There is no coastal highway here. Nature won.

Like its landscape, Humboldt had a wild west feel for decades. Big cartels saw opportunities in its canyons and hilltops, planting large plots with little regard for the fate of redwood forests and clear, cold rivers.

Then the industry opened up, at least a crack.

The so-called green rush began in 1996 with the passage of Proposition 215. The measure allowed cannabis dispensaries to sell to customers who could prove they needed the drug for anxiety, pain or other ailments.

It also made it nearly impossible to determine which growers were licensed to supply the dispensaries and which remained outside the law, a line-blurring oversight that brought many into the business and began pushing down prices.

Then two decades later came Proposition 64, expanding legal recreational use to every adult. It passed easily, in part because it placed so much power to regulate the industry in the hands of local governments — the step that would create the patchwork of rules — from taxes to local cultivation caps to retail licenses — across the state.

By the time the proposition took effect in 2018, a grower’s pound of cannabis had dropped in price from about $1,200 in 2016 to $800.

An abandoned phone booth beside Mattole Road in Petrolia. (Melina Mara/The Washington Post)
Here in Humboldt, where at least 5,000 growers operated at the time, DeLapp nonetheless persuaded nearly half to sign pledges to become legal despite the costs involved.

But there were gaps between the broadly written proposition and the rules that put the new measure into practice.

Many in the industry and law enforcement favored a proposed statewide one-acre cap on farms as a protection for small growers; by the time the final rules came out, though, there was no statewide cap at all. There was also no limit on the number of cultivation licenses that could be issued.

“We still have a vibrant black market in Northern California, and we empathize with the small legal growers,” said Humboldt County Sheriff William Honsal, better known as “Billy,” who was born in the county as the illegal cannabis market boomed.

“By not capping licenses, there has been this flood of supply and I just would have thought our state would have been a little smarter with policies to allow small growers to make it.”

There were an estimated 69,000 marijuana growers in the state at the time Proposition 64 passed. In the spring of 2018, three months after the new regulations took effect, the state had issued 2,000 grower licenses with an expected annual yield of 4.1 million pounds. That translated to at least double California’s legal annual demand.

Now, according to the state Department of Cannabis Control, there are 8,600 licensed marijuana farmers and the amount of cannabis being grown legally in California today could be more than quadruple the state demand.

“The oversupply makes it hard to do business legally or illegally at this point,” said Dale Gieringer, state coordinator for the legalization advocacy group NORML.

The lack of state cultivation limits, which was not addressed in Newsom’s recent plan, stands in contrast to some other Democratic-controlled cannabis states, which have confronted market gluts in the past but not nearly to the degree facing California. Colorado, for example, has rules allowing the state to limit — and even shrink — cultivation size to better control supply.

The option of fallowing a cannabis crop for a year to wait for higher prices is also impossible in California; a grower who allows a license to lapse for a year must start the arduous and expensive process of applying for a new license as if they never held one. Cannabis, unlike wine grapes, is not classified as an agriculture product here and so farmers are denied state benefits that accrue to other crops.

“Everything about the regulations have been written as if cannabis farming were a criminal enterprise,” said Dylan Mattole, who farms a quarter-acre in Honeydew, a town in the river valley his family is named for. “And also with the assumption that this business is so profitable they can squeeze and squeeze and squeeze.”

Mattole’s family moved to this valley from San Francisco in the early 1970s, part of the post-Summer of Love exodus. His father, Walter Sharp III, renamed himself Mattole, just Mattole, for the river he moved next to. He did give his son two names; Dylan got his from the renowned singer-songwriter his dad once saw at San Francisco’s famous Fillmore theater.

But the roughly one-acre farm is shriveling. Last month he laid off his last two farmworkers. He pays more than $35,000 in annual cultivation, transfer and processing licenses, in addition to his cannabis taxes. His revenue is declining at the same time.

A pound of his marijuana, branded Mattole Valley Sungrown, is supposedly selling for about $300 a pound these days. Yet last month, he sold three pounds for $100 each. There were no buyers on the horizon and the weed was growing old.

“At one point did being honest hurt us?” asked Mattole, a 48-year-old father of three.

One major industry challenge is that California is not an entirely legal state, at least not for growers and retailers. A majority of California’s 58 counties still prohibit any cannabis business, according to the state, limiting in particular the number of retail outlets where legal marijuana can be purchased.

“Most people say the problem is oversupply,” said Graham Farrar, founder and president of Glass House Farms, a major grower and retailer based in Southern California. “I say it’s under-demand.”

His business began with state-of-the-art indoor crops in former cut-flower greenhouses in Carpinteria, along Santa Barbara County’s south coast. He has added retail licenses and now holds more than half a dozen, including one here in Humboldt County. But it is the size of his company’s cultivation that is astonishing.

Earlier this year, Farrar opened a 5.5 million square-foot greenhouse, roughly 126 acres, in the Ventura County city of Camarillo where agriculture has long been a prominent industry. By comparison, 90 percent of Humboldt cannabis farms are smaller than one acre.

Farrar and other big cannabis businesses are preparing for federal legalization or at least more modest interstate commerce between cannabis-legal states, a measure now under consideration in the California legislature.

“In a state like California it’s hard to change policy in a rapid way,” said Elliott, the cannabis department director. “There is still a lot of reform that needs to happen.”

Ross Gordon, policy director of the Humboldt County Growers Alliance and policy chair at the Origins Council, which represents about 900 growers in six state regions, said big cannabis producers have the capital to ride out the low prices and wait for federal and interstate trade laws to change.

“Glass House and others like it represent the massive upward transfer of wealth that is taking place within California’s cannabis industry,” Gordon said. “There is policy trying to get at some of these issue of disparity. But not nearly to the depth needed to fix an industry that is structurally broken.”

Humboldt growers say a couple initiatives that saved small vintners in Napa County when they faced extinction from giant wine corporations could help rescue small-scale cannabis farming in California.

The first is a strict “appellation” regimen that would distinguish Humboldt-grown marijuana on dispensary shelves from the mass-produced cannabis from the south. Humboldt, after all, still has mystique.

“Humboldt County produces more redwood fencing than any place in the world,” said Rex Bohn, a county supervisor. “But nobody I run into outside of this county asks me about the redwood fencing.”

The second is the ability to mail their product anywhere. That could depend on the federal government making cannabis legal, and several U.S. senators, including Majority Leader Charles E. Schumer (D-N.Y.), introduced a bill earlier this year to do so.

But industry experts say national legalization, like relaxing interstate commerce, is years off, time farmers here do not have.

“I would expect to see at least half of our businesses to fail in the next year,” said Genine Coleman, executive director of the Origins Council. “If I’m being quite frank, I think we need a new proposition. So much wrong is baked into this system that we are just not going to be able to move ahead without one.”

 legal

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Which events do you plan on attending over the next 12 months?

Benzinga Cannabis Capital Conference (US)
Cannabis Conference - Cannabis Business Times
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Cannabis World Congress and Business Expo
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Last Thursday, history was made when key leaders in the United States Senate introduced the Cannabis Administration and Opportunity Act (CAOA), a sweeping legalization measure that would remove marijuana from the list of controlled substances and end most criminal penalties associated with possession. This measure was led by Senate Majority Leader Chuck Schumer (D-NY), Senator Ron Wyden (D-OR), and Senator Cory Booker (D-NJ) and represents another milestone in federal cannabis reform.

In addition to ending the criminalization of marijuana, the proposal outlines a robust regulatory system, building and refining ideas that were first presented in a discussion draft published by the same lawmakers this time last year, and incorporates additional proposals.

It is clear that the sponsors of the Cannabis Administration and Opportunity Act have sought to respond to the input they received over the past year in addition to incorporating new ideas. The sponsors have published a summary of provisions and a comparison with the original draft:.

SUMMARY OF REVISIONS TO THE CANNABIS ADMINISTRATION AND OPPORTUNITY ACT DISCUSSION DRAFT

General Provisions

Cannabis Products Advisory Committee - The discussion draft requested comments on the Cannabis Products Advisory Committee, established under the Department of Health and Human Services (HHS) to advise federal agencies on regulatory matters related to cannabis and cannabis products. Stakeholders provided a variety of comments on the makeup and duties of the advisory committee. The introduced legislation establishes a 22-member advisory committee, made up of industry representatives (with an emphasis on socially-underrepresented stakeholders), federal and state regulators, labor union representation, and experts in public health and safety. The advisory committee will be charged with considering all matters submitted to it by the Secretary of HHS, making independent recommendations to the Secretary and other agency heads, analyzing cannabis health and safety impacts, and publishing an annual report of its activities and recommendations. Like all federal advisory committees, members will be expected to consult with a diverse set of stakeholders in representing the views of the populations they represent. 

Definition of Cannabis - Stakeholders offered a variety of recommendations in response to the discussion draft’s request for comment on the definition of cannabis. The existing definition of cannabis (termed ‘marihuana’ in the Controlled Substances Act) faces a number of challenges related to the existing definition of “hemp.” Under the discussion draft, the terms “cannabis” and “cannabis product” excluded hemp, as defined in section 297A of the Agricultural Marketing Act of 1946. The definition of hemp was established in 2018, generally as any part or derivative of the plant Cannabis sativa L. with a delta-9 tetrahydrocannabinol (THC) concentration of not more than 0.3 percent by dry weight. Under regulations, the U.S. Department of Agriculture (USDA) has determined that this THC amount is calculated as the sum of delta-9 THC in a sample and a portion of the non-intoxicating tetrahydrocannabinolic acid (THCA) that can be converted to delta-9 THC through decarboxylation or combustion. 

Members of the hemp industry have raised concerns that the existing testing methodology that takes into account THCA content results in an allowable THC threshold below a commercially practicable amount. Other stakeholders have raised concerns that existing law’s reference to delta-9 THC concentration fails to account for different types of THC that can have a similar effect on the user, such as hemp-derived delta-8 THC and delta-10 THC, which already exist in the marketplace. Stakeholders have also raised concerns that the dry weight measurement standard in existing law may create situations where industry members may be able to manipulate the amount of allowable THC by increasing the overall weight of a cannabis product, thereby avoiding tax and public health requirements. 
The introduced legislation refines the definition of “hemp,” and consequently “cannabis” by taking into account the total THC in a cannabis product, rather than just delta-9 THC. The legislation also modifies the allowable amount of THC to provide separate allowances for plant material and extracts. For plant material, hemp is any cannabis plant material with a total THC content of 0.7 percent on a dry weight basis or less. For extracts, concentrations, and other cannabis preparations, a product only qualifies as hemp if the total THC concentration of an article does not exceed 1 milligram of total THC per 100 grams on a dry weight basis. The Secretary of Health and Human Services may also include or exclude one or more cannabinoids from this definition, as appropriate.

The legislation further clarifies that while THC derived from the cannabis plant is descheduled under the Controlled Substances Act (CSA), synthetic cannabis and other non-cannabis-derived THC are not subject to automatic descheduling. The legislation requires that the Attorney General initiate a review of the applicable CSA schedules for such non-cannabis-derived THC substances within one year of enactment, and reschedule those substances as appropriate, pursuant to the CSA.     

Federal Employee Drug Testing - Stakeholders submitted a significant number of comments related to drug testing of federal employees. Currently, federal regulations and Executive Order 12564 direct the heads of federal agencies to implement drug testing programs for federal employees, including testing for cannabis. The introduced legislation provides that for purposes of Executive Order 12564, cannabis shall not be treated as an illegal drug. An exception allows continued testing in the case of law enforcement officers, or federal employees determined to have significant involvement in national security, the protection of life and property, public health, and safety. In addition, the legislation follows the discussion draft in continuing to authorize testing certain individuals related to commercial transportation.  

Definition of State - Stakeholders offered a variety of suggestions to clarify the definition of “state” in a number of provisions to properly address the District of Columbia, territories, and possessions. The introduced legislation modifies the definition of “state” in a number of places to clarify the application of those provisions. 

Native American Tribes - Stakeholders submitted a number of comments related to the application of various provisions to tribal governments and tribal entities. The introduced bill makes a number of conforming amendments related to tribes; provides that various governmental agencies must engage in good faith, meaningful, and timely consultation with Native entities; and provides dedicated funding under certain programs related to tribal governments or tribal entities.   

Appropriations and Opportunity Trust Fund - The discussion draft deposited excise tax revenues into the Opportunity Trust Fund established under the CAOA, and provided direct appropriations to certain programs based on specified percentages. Stakeholders have raised concerns that such trust fund mechanisms may delay the delivery of social equity funds and assistance to new or operating businesses because it can take a number of years for a trust fund to accumulate the necessary excise tax revenue. In order to accelerate the availability of funds, the introduced bill specifies funding levels for each program as a direct appropriation from the Treasury General Fund and requires the Secretary of the Treasury to reimburse the General Fund from revenues in the CAOA Opportunity Trust Fund. A similar reimbursement model exists under present law with respect to other trust funds.  

Funding levels throughout the bill were generally determined based on consultation with the Congressional Budget Office, or based on technical assistance provided by the appropriate committees of jurisdiction, and were in many cases based on existing funding for similar programs. The legislation is intended to fully offset the cost of these programs through cannabis excise tax revenues and other associated revenues.   

Highway Safety Provisions

The discussion draft included a number of provisions relating to the prevention and detection of cannabis-impared driving. A significant number of stakeholders provided comments and guidance on the most effective methods to address these issues. The introduced legislation includes the following provisions: 

Cannabis-Impaired Driving Research - Because cannabis remains illegal at the federal level, very little field research has been done in the United States on the effects cannabis has on drivers. There is a scientific consensus that cannabis has some impairing effect on drivers, but questions remain about what those effects are and their level of severity. This provision directs the National Highway Traffic Safety Administration (NHTSA) to research multiple areas, including collecting data on the number of cannabis-impaired drivers through a national roadside survey, as well as answering a number of questions about how cannabis and polyuse of cannabis affect driver behavior and driver ability.

Department of Transportation Cannabis-Impaired Driving Prevention Programs - States across the country will need guidance on how to best prevent cannabis-impaired driving. Additionally, NHTSA and many state Departments of Transportation run drunk driving prevention campaigns on a regular basis. This provision would direct NHTSA to create educational materials on “best practices” for preventing cannabis-impaired driving that can be distributed to states. Additionally, this section directs NHTSA to carry out campaigns intended to prevent cannabis-impaired driving, including a campaign specifically targeted at drivers under the age of 21. This section also requires NHTSA review the effectiveness of the cannabis-impaired driving efforts by analyzing whether a national campaign or an activity carried out by a state under the proposed State Cannabis-Impared Driving Prevention Grant Program was effective at changing driver behavior and decision-making.   

State Cannabis-Impaired Driving Prevention Grant Program - This provision provides funding to states to support preventative measures for cannabis-impaired driving including enforcement, education, and data collection. Efforts may include training of public safety personnel to detect cannabis-impaired driving and high-visibility enforcement efforts, high-visibility enforcement campaigns, and efforts to improve testing for cannabis after a serious crash. This provision also incentivizes states to adopt a cannabis open container prohibition. At least 5 percent of the funds in this section must be used to improve toxicology testing laboratories that can test for cannabis.

National Cannabis Impairment Standard - This provision requires the U.S. Department of Transportation to create a standard for cannabis-impaired driving that can be adopted by the states within three years, unless the Secretary is unable to create a standard in three years due to lack of available research. If a rulemaking has not been completed in three years, the Secretary must update Congress every two years regarding the feasibility of creating such a standard. 

Justice, Immigration, and Enforcement Provisions

Criminal Penalties for Cannabis Possession - The discussion draft included a felony charge for the distribution or possession of ten or more pounds of cannabis without a federal permit or the required state proof of payment of taxes, punishable by a fine of not more than $10,000 and up to five years in prison. Stakeholders provided feedback indicating that a fairer sentencing regime would include an intermediary misdemeanor sentence before the felony charge. The introduced legislation changed the weight quantity to qualify a person for felony cannabis distribution or possession charge under the section from 10 pounds to 20 pounds. It added a misdemeanor charge for people possessing between 10 and 20 pounds of cannabis, punishable by up to one year in prison and/or a $50,000 fine. People convicted of illegally possessing 20 or more pounds of cannabis would be subject to a sentence of up to five years in prison and/or a $100,000 fine. These changes ensure that the fines are greater than the value of any illegally diverted cannabis. 

Resentencing and Expungement Process - This section provides that a court shall automatically, after a sentencing review, expunge each federal cannabis conviction, vacate any remaining sentence, and resentence the defendant as if this law had been in place prior to the original sentencing. Previously, a court would have been required to conduct a sentencing hearing to consider a motion to expunge.

Expungement Exception - The discussion draft included an exception to the expungement eligibility for people who, as a part of their cannabis sentence, had received an aggravating factor pursuant to 3B1.1(a) of the United States Sentencing Guidelines. The introduced version directs federal courts to consider mitigating factors before barring a person from receiving a sentence and conviction expungement. Specifically, a person who received an aggravating role adjustment in their original sentence would not be eligible for expungement, unless a federal court conducting the sentencing review finds mitigating factors, including the age of the person at the time or arrest, conviction, or adjudication, the individual’s role in the prior offense, and whether it was the person’s first federal cannabis offense.

Immigration Provisions - The discussion draft included provisions ensuring that cannabis could not be considered a controlled substance for purposes of immigration laws, but did not set up a mechanism by which a person who had received a deportation order based on a cannabis-related offense could rescind that deportation order.

The introduced version enables a noncitizen who has received a deportation order based on a cannabis-related offense to file a motion to reconsider that decision. If the motion to reconsider is filed within 30 days of the removal order, the motion may allow for cancellation of the deportation order.

Hiring and Training Local Law Enforcement - The introduced version recognizes that enforcing cannabis-related laws will continue to be an evolving challenge for state and local law enforcement agencies. As the federal government decriminalizes cannabis, illicit cannabis production will continue in various and changing forms. To help state and local law enforcement keep their communities safe from traffickers involved in unlawful cannabis production, the introduced version creates a new grant program for smaller law enforcement departments to hire officers, investigators, and community outreach specialists to combat illicit cannabis production. It directs the Attorney General to develop education programs and technical assistance for these agencies, and creates a grant program to pay for this training.

Small Business Administration Provisions

The discussion draft established two programs to be implemented by the Small Business Administration (SBA), following similar provisions proposed in the House-passed MORE Act. The Cannabis Opportunity Program would provide funding to eligible states and localities to make loans to assist small businesses in the cannabis industry owned by socially and economically disadvantaged individuals. The Equitable Licensing Grant Program would provide funding to eligible states and localities to implement cannabis licensing programs that minimize barriers for individuals adversely affected by the War on Drugs. To be eligible for these SBA grants, states and localities must take steps to create an automatic process to expunge criminal records for cannabis offenses and violations for individuals under criminal supervision for cannabis offenses.

The introduced legislation makes a number of technical clarifications to these provisions. In addition, it expands eligibility for the Cannabis Restorative Opportunity Program to provide loans and technical assistance to any small business owned and controlled by socially and economically disadvantaged individuals operating in an eligible state or locality. It also requires GAO to conduct an annual study of the Cannabis Restorative Opportunity and Equitable Licensing Grant Programs and report to Congress.

Finally, it establishes a new 10-year intermediary lending pilot program in which SBA would make direct loans to eligible intermediaries that in turn make small business loans to startups, businesses owned by individuals adversely impacted by the War on Drugs, and socially and economically disadvantaged small businesses. SBA would also be required to make grants to intermediaries in the program for the purpose of providing marketing, management, and other technical assistance to borrowers.

Public Health Provisions

The discussion draft included a number of provisions related to public health and research. Because of its Schedule I status under the CSA, public health research relating to cannabis has been severely hampered in the past, despite the fact that a significant number of Americans consume cannabis products today under both medical and adult-use programs. It is critical that policymakers and the public have a clear understanding of the public health challenges and opportunities with respect to cannabis. The introduced bill seeks to make up for lost time in cannabis research by robustly funding these efforts.  

It is also critical that federal health regulators have the tools necessary to address public health challenges, and to ensure that cannabis products are as safe as possible and to restrict youth access. The introduced bill takes into account many of the comments received related to these issues, and builds on the discussion draft by clarifying and expanding on these public health and research policies. 

Supporting cannabis research - Stakeholders have emphasized the lack of rigorous research on cannabis and its health effects, many of which have stemmed from the current scheduling of cannabis and limitations on the cannabis available for research. The discussion draft established grants to support research on the short- and long-term health effects of cannabis, which remains in the introduced legislation. The introduced legislation also includes several additional provisions to support, expand, and coordinate cannabis research by directing the Centers for Disease Control and Prevention (CDC) and National Institutes of Health (NIH) to conduct research on cannabis and establishing entities to coordinate research across NIH and the federal government at large. The introduced legislation further directs HHS to increase the availability and diversity of cannabis products for research purposes.
Supporting public health and preventing cannabis use by minors - The discussion draft legalizes a cannabis market for individuals ages 21 and above. The introduced legislation includes additional provisions to prevent and reduce cannabis use among minors and other public health challenges associated with cannabis, such as driving while impaired. These provisions include launching national media campaigns to educate the public, awards to states and nonprofits for prevention and intervention programs, directing CDC to support surveillance and other evidence-based activities, and restricting the marketing of cannabis products to minors.
Clarifying FDA responsibilities - The discussion draft directed the Food and Drug Administration (FDA), through a new Center for Cannabis Products, to regulate cannabis products. The introduced legislation builds out FDA responsibilities, such as by specifying the types of issues FDA standards for cannabis products should address. The introduced legislation further clarifies that industry will be able to continue to market cannabis products that are also food, provided all applicable FDA requirements for food are met. In addition, the legislation establishes transition periods for cannabis products and medical cannabis already regulated by states in order to ensure the continued availability of such products during the transition to the FDA regulatory framework.
Education Infrastructure Provisions

The discussion draft requested comments on options to steer research funding to colleges and universities, and in particular, whether research funding should be prioritized for Historically Black Colleges and Universities (HBCUs) and other institutions associated with historically disadvantaged communities. Stakeholders submitted a number of comments in response. 

The introduced legislation builds on the expressed interest in the discussion draft by authorizing robust funding for cannabis research that will help to provide significant public health and safety benefits. The legislation establishes a new competitive program for institutions of higher education to develop or enhance the necessary cannabis research infrastructure and requires the Secretary of Education (ED) to give priority to minority-serving institutions (MSIs), including HBCUs, and under-resourced institutions of higher education. Necessary infrastructure for cannabis research can include equipment, cultivating cannabis, construction or upgrading of laboratory facilities, and storage and security needs, among other uses. This program will help HBCUs and other MSIs to enhance their infrastructure to conduct research on cannabis benefits.

Labor Provisions

Similar to provisions relating to alcohol and tobacco, the discussion draft required a producer, processor, or wholesaler of cannabis products to obtain a permit from the Treasury Department before commencing business, conditioned on compliance with all cannabis laws. Violations of such laws may result in suspension or revocation of a permit, based on the severity of the violation. The introduced bill adds a requirement that a federal permittee 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 (OSHA). Permittees who have violated such laws are required to notify the Secretary of the Treasury within 30 days of a finding of a violation. Coordination rules require the Department of Labor and National Labor Relations Board to coordinate with the Department of Treasury in establishing suspension and revocation guidelines for such violations and in enforcing those provisions. 

Workplace Safety - The introduced legislation includes a new section on workplace health and safety. Included in this new section are requirements for OSHA and National Institute of Occupational Safety and Health (NIOSH) to jointly issue guidance for cannabis industry employers, including indicating existing OSHA standards that apply to cannabis industry employers. The introduced legislation promotes workplace safety training for at-risk and hard to reach workers by including cannabis as a targeted topic for Susan Harwood OSHA training grants. The introduced legislation provides additional funding for NIOSH required studies on how legalization impacts the health and safety of workers.
Grants for community-based education, outreach, and enforcement with respect to the rights of workers in the cannabis industry - The introduced legislation creates a grant program, administered by the Department of Labor, to provide funding for public or private nonprofit organizations to educate workers and employers in the cannabis industry of their rights under federal, State, and local civil rights, labor, and employment laws and connect and refer workers to additional services to assist them in pursuing their rights. Grant funding is available for not more than three years, and each grant is capped at $300,000.

Veterans Provisions

The discussion draft required the Department of Veterans Affairs (VA) to offer medical cannabis recommendations to veterans pursuant to state medical cannabis programs. The introduced legislation refines this provision to require the VA, no later than 180 days after enactment of this Act, to update all applicable regulations, guidance, memoranda, and policies to authorize physicians and healthcare providers to provide medical cannabis recommendations regarding participation in cannabis programs authorized under federal and state law. 

The introduced legislation also requires the VA to carry out a series of clinical trials on the effects of medical cannabis on the health outcomes of veterans diagnosed with chronic pain and post-traumatic stress disorder. 

Tax and Operations Provisions

Cannabis Operations - The introduced legislation includes a number of additional conforming amendments and clarifications related to licensed cannabis operations, specifically:  

Under the discussion draft, all licensed cannabis businesses were required to pay taxes every two weeks and maintain a surety bond for the potential excise tax liability. The introduced legislation removes the requirement to maintain a bond for any cannabis business that had less than $100,000 in excise tax liability in the prior year and reasonably expects excise tax liability in the current year to be below such amount. The provision also provides for quarterly excise tax filing for licensees with less than $100,000 in excise tax liability, and annual filing for licensees with less than $10,000 in excise tax liability. A related provision establishes that cannabis excise tax liability on cannabis product inventory represents a first lien by the federal government. 

Present law establishes special authority and limitations for Treasury officials responsible for alcohol and tobacco excise tax collection. Among other things, these rules prohibit any Treasury official responsible for collecting excise taxes from having an interest in a regulated alcohol or tobacco business. The introduced legislation incorporates conforming amendments to apply consistent treatment for Treasury officials with respect to cannabis operations. 

The introduced bill clarifies that the Treasury Department shall be responsible for cannabis anti-diversion enforcement, and expands requirements that Treasury study the effect of disparate state cannabis excise tax rates on diversion and noncompliance. 

Stakeholders submitted comments noting that the fair trade practices rules applicable to cannabis producers and wholesalers may be construed to conflict with certain state laws intended to provide equity or other assistance under state social equity programs. The introduced bill incorporates rules similar to rules currently applicable to permitted malt beverage producers and wholesalers, and provides that in the case of certain fair trade practices limitations, such limitations will only apply if a similar limitation exists under state law. 

Cannabis Excise Tax and Administration - Stakeholders offered feedback on the use of “THC measurable cannabis products” in the discussion draft for purposes of determining the tax applicable to non-plant material. The introduced legislation revises the operation of the cannabis products excise tax to remove the concept of “THC measurable cannabis products.” Instead, after the five-year phase-in period, the rules generally apply a weight-based tax determination for unprocessed cannabis plant material, and a THC content-based tax for any cannabis product that is an extract, concentration, or other derivative. The introduced legislation also contains a number of clarifications to prevent avoidance of cannabis or other excise taxes, specifically: 

Revising the existing definition of tobacco rolling papers and cigarette tubes to include any rolling paper or tube intended for use in a cannabis cigarette. 

Providing that in the case of any tax recalculated under the constructive price rules (meant to prevent manipulation of tax in non-arm’s-length transactions), any additional tax assessed may be collected by either party to the transaction. 

Banking, Housing, and Community Development Provisions

The bill removes cannabis from the schedule of controlled substances, meaning that cannabis-related financial transactions and services would no longer be proceeds from an unlawful activity. To clarify that cannabis is not an illegal substance and minimize confusion among financial institutions, the bill requires the Financial Crimes Enforcement Network (FinCEN) to update its guidance or issue new regulations that: (1) ensure that it is consistent with the purpose and intent of the Act to decriminalize cannabis; (2) specifies how to facilitate the deposit and movement of cash held by cannabis-related legitimate business or service provider; and (3) does not inhibit financial services to a cannabis-related legitimate business or service provider in the United States.  The section also preserves FinCEN’s authority to require financial institutions to submit Suspicious Activity Reports, as appropriate. It would also require the Federal Financial Institution Examination Council to develop uniform examination procedures for depository institutions that provide financial services to cannabis-related legitimate businesses and service providers consistent with FinCEN’s updated guidance.

Communities affected by the War on Drugs and low- and moderate-income communities disproportionately lack access to financial services and capital, face barriers to job opportunities in the financial services sector and discrimination in financial services. In order to reinvest in these communities, the bill would encourage financial institutions to provide financial services to small or minority-owned businesses. The bill would provide additional funding to Community Development Financial Institutions and as well as make additional investment in minority depository institutions to provide these organizations with the capital necessary to reach small and underserved businesses and consumers. In addition, individuals affected by the War on Drugs face challenges accessing housing and economic opportunities, which can lead to high housing cost burdens, rates of homelessness, and reduced opportunities to become homeowners and create generational wealth for their families.  The bill directs the Secretary of Housing and Urban Development to establish a grant program to provide communities whose residents have been disproportionately affected by the War on Drugs with additional funding to address the housing, economic, and community development needs of residents affected by the War on Drugs.
 
This bill would expand employment opportunities at banks and credit unions by reducing barriers to employment based on past minor criminal offenses, including that criminal offenses that have been expunged, sealed, or dismissed is not a bar to be eligible to work for an insured bank or credit union.

The bill would prohibit financial institutions from discriminating against an individual on the basis of race, color, religion, national origin, and sex, and ensure individuals are able to enforce the anti-discrimination provisions in court.  The bill would also prevent financial institutions from denying financial services to someone simply because of a past conviction for a non-violent cannabis offense.