Repubican Nancy Mace (R-SC) sponsors new cannabis bill, the States Reform Act

The Official Press Release

SRA-Press-Release-11_15_21

Here’s her twitter post

 

Marijuana Moment report

Several Republican members of Congress introduced a bill on Monday to federally legalize and tax marijuana as an alternative to pending far-reaching Democratic-led reform proposals and scaled-down GOP cannabis descheduling legislation.

Rep. Nancy Mace (R-SC) is sponsoring the bill—titled the States Reform Act—along with a handful of initial Republican cosponsors. It would end federal marijuana prohibition while taking specific steps to ensure that businesses in existing state markets can continue to operate unencumbered by changing federal rules.

Unlike more modest measures previously championed by some of Mace’s GOP colleagues, this legislation—an updated draft version of which was obtained by Marijuana Moment over the weekend—represents an attempt to bridge a partisan divide. It does that by incorporating certain equity provisions such as expungements for people with non-violent cannabis convictions and imposing an excise tax, revenue from which would support community reinvestment, law enforcement and Small Business Administration (SBA) activities.

“This bill supports veterans, law enforcement, farmers, businesses, those with serious illnesses, and it is good for criminal justice reform,” Mace said in a statement on Monday. “The States Reform Act takes special care to keep Americans and their children safe while ending federal interference with state cannabis laws.”

Read the full report and details at

Republican Lawmakers File Bill To Tax And Regulate Marijuana As Alternative To Democratic Proposals

 

The Reason Foundation have published the following FAQ about the Act

Frequently asked questions about the States Reform Act, a proposed marijuana bill

Rep. Nancy Mace (R-SC) unveiled the States Reform Act, a proposal to remove marijuana from the auspices of the federal Controlled Substances Act.

 

Geoffrey Lawrence
Senior Policy Fellow

Today, Rep. Nancy Mace (R-SC) unveiled the States Reform Act, a proposal to remove marijuana from the auspices of the federal Controlled Substances Act. This fundamental change in U.S. drug policy would effectively remove most federal restrictions against marijuana and state-licensed marijuana businesses.  Rep. Mace’s bill goes on to set up a process whereby marijuana would be regulated at the federal level, like alcohol, and would allow for an interstate marijuana market among states that choose to participate.

The States Reform Act has garnered attention as the first prominent bill sponsored by a House Republican to end the federal prohibition of marijuana, which could help give the proposal some political advantage in its efforts to secure bipartisan support. Congressional Democrats have previously introduced various marijuana legalization proposals, including the Marijuana Opportunity Reinvestment and Expungement (MORE) Act, and currently have draft language for the Cannabis Administration and Opportunity (CAO) Act. At this time, however, many observers believe neither of the proposals being led by congressional Democrats will be able to secure the necessary Republican votes for passage in the Senate. Any marijuana legalization proposal would need to secure the support of at least 10 Senate Republicans in order to overcome a potential filibuster.

The States Reform Act proposed by Rep. Mace already carries at least six Republican co-sponsors, with more support expected. Thus, it’s possible Mace’s Republican-backed States Reform Act may be able to break some of the political gridlock and attract a broad, bipartisan coalition to implement this needed policy.

Below are a number of the frequently asked questions about marijuana legalization and Rep. Mace’s proposed bill:

  • Would the States Reform Act make marijuana legal nationwide?

The States Reform Act would remove marijuana and all cannabinoids from the federal Controlled Substances Act entirely, but marijuana would remain prohibited under many state versions of the Controlled Substances Act. To date, 20 states have removed marijuana from these laws for adult use and an additional 18 allow marijuana to be dispensed to qualified medical patients with a doctor’s recommendation. In states that do not allow commercial marijuana activity or possession for certain individuals, those restrictions would remain in place unless and until those states make their own statutory changes. That means marijuana would remain widely prohibited in states without adult-use marijuana programs. Even if a resident purchases a marijuana product in a state where it is legal to do so, that resident would be prohibited from bringing that marijuana product into a state that retains a legal prohibition against marijuana.

  • What major complications affecting the legal marijuana industry would be changed by the States Reform Act?

Marijuana’s current classification as a Schedule 1 substance under federal law automatically triggers a wide range of limitations even for the state-legal marijuana industry. Federal anti-money laundering statutes and regulations require financial institutions to perform additional scrutiny over entities or transactions they have reason to believe could involve the trafficking or distribution of any Schedule 1 substance. This reporting is time-consuming and costly to perform and any financial institution that offers financial services to a marijuana business could also face aiding and abetting charges. As a result, many financial institutions have chosen not to offer accounts to businesses they believe are involved in the marijuana industry, even if they are fully licensed and compliant under state law. Federal regulation of financial institutions has also prevented new financial institutions from receiving deposit insurance and Federal Reserve accounts when those institutions aim to service the marijuana industry.

Similarly, all businesses that traffic in a Schedule 1 or Schedule 2 substance are precluded from claiming a deduction of their business expenses under the “Ordinary and Necessary” standard generally applicable to entities filing income taxes. Instead, Internal Revenue Code Section 280E allows these entities to deduct only the Cost of Goods Sold from their Gross Income when calculating federal income tax liabilities. The result is that state-legal marijuana businesses are penalized on their federal income tax and must pay that tax on a modified gross receipts basis. Even marijuana businesses that operate at a loss may face substantial income tax liabilities.

Removing marijuana from the Controlled Substances Act entirely, as the States Reform Act would do, automatically solves these issues and allows state-legal marijuana companies to access financial services and calculate federal income taxes just as similarly situated businesses in other legal industries

  • How would marijuana be regulated under the States Reform Act?

The Alcohol and Tobacco Tax and Trade Bureau (TTB), a division of the Treasury Department, is designated as the primary regulatory body for marijuana by the States Reform Act. The TTB would be responsible for tracking all marijuana inventory through a seed-to-sale tracking platform similar to what is currently used by state regulatory systems administering adult-use marijuana programs. Typically, these platforms use radio frequency identification tags affixed to every plant or package containing a marijuana product and record all transfers of inventory at either the wholesale or retail level, and match declarations between buyers and sellers. These platforms are currently monitored by state regulators and allow them to run forensic data analytic programs to inspect for deviations in declared yields or conversions such that regulators can spot potentially illegal diversions of regulated inventory by any licensee. The TTB would track inventory in a fashion similar to existing state regulators and coordinate the transfer of any inventory between state regulatory systems in the event products are wholesaled between licensed marijuana businesses located in different states with marijuana programs in place.

As a partner to the TTB, the Bureau of Alcohol, Tobacco, Firearms and Explosives would be renamed to the Bureau of Alcohol, Tobacco, Cannabis, Firearms and Explosives and would investigate and potentially prosecute illicit trafficking in marijuana.

In sharp contrast to other proposals for federal legalization, the States Reform Act would specifically preclude extensive regulation of most marijuana products by the Food and Drug Administration. Section 201 stipulates that the FDA will have no more authority to regulate marijuana products than it does for alcohol unless a product is marketed as a medical product. These provisions will allow state regulatory systems to continue to address safety concerns, production methods, facility inspections and final product testing for potential impurities.

Sections 202 and 203 designate the federal Department of Agriculture as the appropriate regulator for the raw cannabis plant as it is growing. State licensing and regulations will continue in place for cannabis cultivation facilities, although state programs would additionally need to submit the details of their regulatory plan to the federal Department of Agriculture for approval, as is currently done with state hemp programs.

Finally, Section 206 of the States Reform Act creates a regulatory safe harbor for existing marijuana products so state-licensed businesses can continue selling these products before federal rulemaking is completed without fear of federal prosecution. This important protection even applies to state-licensed entities that engage in interstate commerce of regulated marijuana products, implying that states would be able to begin establishing interstate markets upon passage of the States Reform Act.

  • Could a consumer in one state order marijuana products from another state?

The States Reform Act creates a pathway for consumers in states with adult-use marijuana programs to purchase or order products they like from other states with adult-use marijuana programs. Upon receipt of a federal license from TTB, marijuana companies will gain the ability to engage in interstate commerce. Many specifics of how this interstate commerce will operate are left to the rulemaking process, but it should generally be anticipated that consumers will gain access to marijuana products created in other states.

  • What would the tax rate be under the States Reform Act?

Section 5901 establishes a new federal excise tax on marijuana products at a rate of 3 percent of the products’ value.  This would be assessed at the point of wholesale transfer between a producer and another producer, distributor or direct customer. The excise tax must be based on the fair value of the underlying products in an arms’ length transaction, which the Treasury Secretary will gain the ability to determine through rule. Effectively, this may mean the Treasury Department will determine a prevailing market price per unit of weight for various products based on periodic surveys. Several states, including Colorado and Nevada, follow a similar approach for the administration of marijuana excise taxes.

  • How difficult would it be to get a federal license to produce marijuana under the States Reform Act?

Section 302 clarifies that the TTB “shall issue” a federal license to operate a marijuana business to any applicant that is not specifically excluded by a narrow range of criteria. These criteria include: (1) the likelihood that that applicant will never commence operations based on lack of business experience, financial standing or trade connections; (2) any proposal to operate in a state where marijuana is not legal; (3) a fraudulent misrepresentation of information within the application; or (4) the applicant has been convicted of a felony offense relating to marijuana within three years prior to application or a misdemeanor offense within one year of application unless the underlying action was lawful under state law. This “shall issue” standard makes approval the agency’s default decision for licensing applications unless the agency can prove one of the disqualifying criteria is relevant to a particular case.

Section 302 further clarifies that all existing state-licensed marijuana businesses in good standing shall be issued a federal license through the TTB upon application. This grandfathering provision will ensure continuity of operations and growth opportunities for existing state-licensed marijuana businesses.

The Secretary of the Treasury will be able to charge licensing fees sufficient to cover the cost of the Department’s regulation through the TTB. These amounts will be determined by rule but are restricted within the first three years of the agency’s regulation to no more than $10,000. In addition, the Department must waive these licensing fees for any applicant that meets the Small Business Administration’s definitions for a small business or a socially or economically disadvantaged business.

  • Does the States Reform Act do anything specific to protect veterans’ access to marijuana?

The States Reform Act contains several provisions of particular concern to veterans of the armed forces.  Section 601 precludes any federal agency from denying employment to a veteran based solely on the reason that the veteran consumes or has consumed marijuana. Section 602 expressly allows doctors within the Department of Veterans Affairs to recommend marijuana products to patients who may benefit from the use of these products.

  • If marijuana is legalized federally, what would happen to people who have been convicted of federal marijuana crimes in the past?

Section 101 requires all Federal districts to expunge the records of practically all nonviolent federal marijuana arrests or convictions within one year of passage. This would be accomplished without the need for individuals to retain legal counsel or submit an application to remove the record of their specific offenses.  Instead, all qualifying records would be automatically expunged. The bill provides for only a limited range of exceptions, such as for individuals who are or have been associated with foreign drug cartels or who were convicted of driving under the influence of marijuana on federal property.

  • How would the States Reform Act empower previous victims of the war on drugs?

Various provisions of the States Reform Act would combine to create pathways of restorative justice for victims of the war on drugs. First, all nonviolent criminal records would be expunged for these individuals, removing significant barriers for these individuals to engage in healthy and productive behaviors like attending college, applying for a home or business loan, or securing lucrative employment. Further, these individuals would even gain the ability to pursue a license to operate federally licensed, legal marijuana businesses to make productive use of their knowledge of the marijuana market. Finally, many of these individuals may even be able to qualify for assistance in launching a new marijuana business through a Small Business Administration loan and through a waiver of licensing fees.

Source:  https://reason.org/faq/frequently-asked-questions-about-the-states-reform-act/

 

K&L Gates Analysis Published In The National Law Review  Today

In the Weeds: The States Reform Act of 2021, The Latest Comprehensive Cannabis Reform Bill

On 15 November 2021, Representative Nancy Mace (R-SC) introduced a comprehensive cannabis reform bill: the “States Reform Act” (SRA). As discussed in further detail below, the SRA would deschedule cannabis from the Controlled Substances Act (CSA) (and all implementing regulations) yet preserve states’ authority to regulate or prohibit cannabis (similar to the legal framework for alcohol); expunge past cannabis convictions; grandfather in existing state licensees; apply a federal excise tax of 3%; and revise the Federal Food, Drug, and Cosmetic Act (FFDCA) to create a pathway for cannabis-infused foods, drugs, dietary supplements, and “designated state medical cannabis products.”

KEY FEATURES OF THE SRA

Descheduling Cannabis; Expungement

Like other comprehensive reform bills, such as the “Marijuana Opportunity, Reinvestment, and Expungement (MORE) Act” and the discussion draft of the “Cannabis Administration and Opportunity Act” (CAO), the SRA would remove cannabis from the CSA. However, unlike those proposals, it would also amend the CSA to expressly exclude cannabis. Currently, the CSA excludes distilled spirits, wine, malt beverages, and tobacco from the meaning of “controlled substance” under the CSA; the SRA would do the same for cannabis. Moreover, the SRA would conform to federal law accordingly, make any inconsistent regulations invalid, and require the U.S. Attorney General to “administratively revise current regulations” within 30 days of enactment to conform. Such revisions would be expressly excluded from the Administrative Procedures Act.

Similar to the CAO and the MORE Act, the SRA would apply its changes to the CSA retroactively to any “offense committed, case pending, [and] conviction entered,” including for juveniles, prior to enactment. However, the retroactivity provision would apply only to nonviolent offenses and expressly excludes any person who worked for a drug cartel. The federal government would be required to dismiss any eligible pending charges and convictions awaiting sentencing.

Consistent with the CAO and the MORE Act, the SRA would direct each federal district to expunge each conviction or adjudication for a nonviolent cannabis offense that was entered by the relevant federal court prior to enactment.

States’ Authority to Regulate Cannabis

The SRA would expressly preserve the authority of states to regulate, and even prohibit, the possession, use, sale, distribution, manufacturer, delivery, and related activities of cannabis within its own borders. However, similar to federal rules for alcohol, it would allow cannabis to be transported through a state to a jurisdiction in which cannabis is lawful, in conformity with federal regulations that will be implemented to govern such transit. Each state would also be able to determine the age limit for purchase of adult-use products, although the federal government would withhold 10% of funding for highways to any state that allowed any person under 21 to purchase adult-use products. Moreover, advertisements could not be directed at any person under the age of 21.

Regulatory Framework

The Food and Drug Administration (FDA) “shall have the same authorities with respect to cannabis products that it has with respect to alcohol and no more.” With respect to cannabis-infused foods and dietary supplements, FDA would be required to issue rules regarding lawful serving sizes. The measure would grandfather in existing medical cannabis products that conform to state law or the U.S. Pharmacopeia, similar to what was achieved by the Medical Gas Safety Act. FDA would have authority to regulate and certify “designated state medical cannabis products,” as well as determine serving sizes, but certified products could be sold interstate. Medical cannabis products that do not qualify for the grandfather provisions or certification, however, would be subject to FDA’s existing authorities, regulations, and procedures for new drugs or new uses of drugs.

The Alcohol and Tobacco Tax and Trade Bureau (TTB) (renamed the Bureau of Alcohol, Tobacco, and Cannabis Tax and Trade Bureau) would be responsible for granting permits for the import, export, sale, delivery, or transportation of cannabis across state lines and in international trade; overseeing labeling requirements; collecting taxes; and implementing a track-and-trace program to deter and detect diversion. Any person who holds a state cannabis license to produce, distribute, warehouse, or transport cannabis would be entitled to receive a permit from the TTB. New applicants, however, would need to meet various criteria, including an ability to comply with federal law; commence operations quickly, in conformity with state law; and not have been convicted of a “disqualifying offense.” If a permit is denied, an applicant would be entitled to a hearing and an appeal. The SRA would also implement a temporary safe harbor for any person engaging in interstate commerce in cannabis products or designated state medical cannabis products until the TTB issues final regulations.

Additionally, the SRA would expressly categorize raw cannabis as an agricultural crop, subject to regulation by the Department of Agriculture. The SRA would also ensure that raw cannabis is regulated similarly to raw barley, hops, and grains and includes dual specialty crop designation, pursuant to mandatory rulemaking by the Department of Agriculture. States would be the primary regulator of raw cannabis production, upon approval of production plans by the federal government.

Taxation and Revenue Spending

Like other comprehensive reform proposals, the SRA would impose a federal excise tax. However, in contrast to other proposals, the SRA would implement a single tax rate of 3% and expressly prohibit Congress from increasing the rate for at least 10 years. The tax would be levied at wholesale and based on the removal price of the cannabis. Revenues from the excise tax would be used to fund the Crisis Stabilization and Community Reentry Grant Program, the Edward Byrne Justice Assistance Grant Program, the Community-Oriented Policing Service Program, and the Small Business Administration (SBA) to fund loans for cannabis businesses and service providers under the SBA’s 7(a), (b), and (m) programs. Additionally, revenues would help fund small-business investment companies, including guarantees of debentures eligible under the Small Business Investment Act.

Pathways for Adult-Use Cannabis Products

To create a pathway for cannabis-infused foods and dietary supplements, the SRA would amend several aspects of the FFDCA. First, the measure would exclude cannabis from the FFDCA’s drug preclusion provision (Section 301(ll) of the FFDCA). This amendment would lift the FFDCA’s prohibition on incorporating THC and CBD (both of which are active ingredients in approved drugs) into foods. Second, the bill would exclude cannabis from the definition of “food additive” under Section 201(s) of the FFDCA. By doing so, FDA would not need to provide premarket approval nor would cannabis need to be deemed generally recognized as safe (GRAS) before incorporating it into foods (interestingly, the SRA would also deem cannabis to be GRAS). Fourth, the SRA would require FDA to issue a rule to clarify intended conditions of use for whole-plant cannabis extracts and individual cannaboinoids extracts used for dietary supplements. This provision is intended to facilitate the sale of cannabis products as dietary supplements. To date, other measures have not included provisions expressly addressing these aspects of the FFDCA.

CONCLUSION

The SRA is the newest comprehensive reform bill, and it contributes new ideas to vigorous policy discussion on Capitol Hill, particularly with respect to pathways for adult-use cannabis products and grandfathering existing state-lawful medical products.

Last December, the House of Representatives passed the “MORE Act” by a vote of 228–164, making it the first time either chamber of Congress has approved a measure to deschedule cannabis since enactment of the CSA. In May, Representative Dave Joyce (R-OH) and Representative Don Young (R-AK) introduced the “Common Sense Cannabis Reform for Veterans, Small Businesses and Medical Professionals Act”. A few months later, in July, Senate Majority Leader Chuck Schumer (D-NY) and Senators Cory Booker (D-NJ) and Ron Wyden (D-OR) introduced a widely anticipated discussion draft of their comprehensive reform bill, the: the “CAO.” The senators have been soliciting input from stakeholders over the last few months, and we expect a revised draft to be introduced into the Senate in the near term. We also anticipate consideration of the “MORE Act” by the House of Representatives sometime in 2022.

The next steps on reform legislation remain to be seen with the midterm elections less than one year away, but public opinion continues to favor descheduling cannabis and regulating cannabis commerce.

Copyright 2021 K & L Gates

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