Will This Be Our Year?

In 1919, a ban on alcohol exposed a cultural divide between urban and rural America and led to a spike in organized crime. Federal, state, and local governments struggled to adapt to the abrupt change in reality that came to be known as Prohibition.

The task of enforcing new regulations initially fell to the Internal Revenue Service (thus the term “revenuers” for federal agents who hunted moonshiners) before being passed to the Department of Justice (DOJ). While enforcement was concentrated in rural areas and small towns—where some folks made decent livings by operating homemade stills—urban dwellers continued to enjoy alcohol courtesy of bootleggers and speakeasies. With the end of Prohibition in 1933, after the broken bottles, blood, and dust finally settled, an article in The United States News (now U.S. News & World Report) attempted to give the citizenry an idea of how the path forward might look.

The open season for liquor-control laws is at hand. With repeal on December 5 of the Eighteenth Amendment accepted as a certainty, the states now face the problem of what to do about it. … Nine different states have adopted nine kinds of liquor laws. Already, rumblings of discontent are discernible in some of these states. And the federal government has barely made a start in caring for its share of the enforcement job. Several government offices have been accumulating data, now on the president’s desk. First steps are being taken by a Congress committee to prepare a legislative program. The whole system of federal and local governments now must undertake the herculean task of starting all over again with liquor control.

Strong disagreements developed among states over how liquor should be legalized and regulated. As a result, states passed dozens of different laws while the federal government tried to figure out what might make sense on a national level.

Sounds familiar, doesn’t it?

The “other prohibition” hasn’t been repealed yet, but no doubt Americans from the 1930s would recognize the patchwork of legislation and regulatory systems that currently define the American cannabis space. Functionally illegal at the federal level since 1937, cannabis began a long, agonizing slog toward federal legality in 1996 with passage of California’s Proposition 215. Since then, forty states, four U.S. territories, six tribal nations, and the District of Columbia have established comprehensive medical programs. Twenty-four states, three territories, six tribes, and D.C. have legalized recreational sales. Yet the federal government stubbornly refuses to yield.

For several years now, Congress has been tantalizingly close to relaxing federal laws, but hope for a new era for the industry received a healthy dousing with cold water in October, when ultra-conservative Louisiana Republican Mike Johnson was elected Speaker of the House. Johnson has voted against every piece of reform legislation save the Marijuana Opportunity Reinvestment and Expungement Act, for which he missed a committee vote and declined to vote on the floor. Nevertheless, the industry may be poised to gain some ground in banking reform and rescheduling in 2024, even without his help.

What might a new regulatory framework look like? Would it be similar to the liquor industry’s—where each state designs its own rules and regulations within federal guidelines—or could cannabis be consigned to operate under something more restrictive, where federal agencies like the Drug Enforcement Administration (DEA) and U.S. Food and Drug Administration (FDA) have primary oversight?

This year is shaping up to be an interesting one for activists, lobbyists, and the representatives who are willing to participate in a legalization conversation that has been going on for far too long.

Rescheduling

Despite widespread legalization at the state level, cannabis remains a Schedule I drug under the federal Controlled Substances Act (CSA). After President Joe Biden’s October 2022 request that the Department of Health and Human Services and the Department of Justice conduct a review of the current scheduling, HHS recommended reclassifying marijuana to Schedule III, where sale and use would be somewhat less restricted and state-legal businesses could reap some tax benefits.

“As part of this process, HHS conducted a scientific and medical evaluation for consideration by DEA,” a DEA spokesperson told news outlet The Hill in August 2023. “DEA [a division of the DOJ] has the final authority to schedule or reschedule a drug under the Controlled Substances Act. DEA will now initiate its review.”

NORML Political Director Morgan Fox noted the memo HHS delivered to the DEA, recommending the agency move cannabis to Schedule III, was so heavily redacted as to be “basically meaningless.” So without any clear explanation of what the recommendation said, it’s difficult to determine which way the DEA is leaning on the matter, Fox said.

“In a nutshell, the DEA has the final call. And while technically they’re supposed to listen to HHS on any health-related matters, the criteria by which HHS and DEA judge scheduling are significantly different and allow the DEA to input its own scientific opinion,” he said. “In some cases, the DEA response to these things has taken years, so just because there is a presidential mandate doesn’t mean they are necessarily being forced to [act soon].”

Aaron Smith, president of the National Cannabis Industry Association (NCIA), said while rescheduling would be appreciated, such a result wouldn’t address many of the industry’s major concerns. “A move from Schedule I to III under the CSA would be a historic step in the right direction,” he said. “It would provide tax relief for businesses unfairly burdened with [Internal Revenue Code] Section 280E, but it would not address other problems caused by federal prohibition. Removing cannabis from the CSA and enacting sensible regulations is the only way to bring federal law into harmony with state laws that have long made cannabis legal for adults and medical patients.”

Brady Cobb, chief executive officer at Sunburn Cannabis in Florida, maintains close ties with members of Congress who support the industry. Though he isn’t optimistic about significant legislation passing in 2024, he does believe rescheduling is a possibility—with assistance from a somewhat surprising ally.

“Rescheduling has always been the goal, if for no other reason than it doesn’t require congressional interaction at all,” he said. “Getting anything done in Congress right now requires a Hail Mary [pass], and nobody wants to see [retired football quarterback] Doug Flutie trotting out on the field. So it’s rescheduling, and we’ve got partnerships in the alcohol industry [on our side] for rescheduling and they’re controlling the process.”

Promising legislation

Bills like the Secure and Fair Enforcement Regulation (SAFER) Banking Act have been making the rounds in Congress for several years, and both industry operators and cannabis-friendly politicians expected positive action in 2023. SAFER passed out of the Senate Banking Committee in September but has yet to be taken up by the House—and, despite an earlier version sailing through the lower chamber seven times previously, some opine SAFER won’t see action if Speaker Johnson has his way.

In social media posts as far back as 2020, Johnson has made his views crystal-clear, at times suggesting Democratic lawmakers and members of their staffs were stoned while writing proposed legislation. “In Pelosi’s 1,800-page [pandemic economic stimulus package], the word ‘jobs’ appears fifty-two times but the word ‘cannabis’ appears sixty-eight times,” he posted to Twitter in May 2020. “It makes you wonder if the people who wrote it were high.”

Despite the conservative tilt in the House of late, there is room for optimism. In September, Rep. Jerrold Nadler (D-NY) and thirty-three other Democrats reintroduced the Marijuana Opportunity, Reinvestment, and Expungement (MORE) Act, which would remove cannabis from the CSA, require federal expungement and encourage states to expunge as well, and initiate a 5-percent federal excise tax that would fund loans, licensing, and individual assistance for people impacted by the war on drugs.

The following month, Rep. Nancy Mace (R-SC) and four others reintroduced the bipartisan States Reform Act. Originally presented in 2021 with only Republican support, the 2023 version of the bill would repeal federal prohibition and treat cannabis much like alcohol by placing it under the Bureau of Alcohol, Tobacco, and Firearms. Regulation of raw plants would fall to the Department of Agriculture, while product oversight would be split between the Tax and Trade Bureau (TTB) for recreational products and the FDA for medicinal products. The legislation also would facilitate record expungement for nonviolent offenses, institute a federal excise tax, and allow states to regulate commerce within their borders. Additionally, the bill includes provisions that would make cannabis accessible to veterans.

NCIA’s Smith is a fan of Mace’s bill. “It’s simple, clean, but that’s just one way to look at it,” he said. “I think things are going in the direction of alcohol and having TTB as the primary regulator.”

As a business-friendly politician, Mace appears to understand the concern of stacking even more taxes on the industry. She has proposed a modest 3-percent federal excise tax, which is expected to generate about $3 billion in revenue annually by 2030. She has the support of some heavy hitters in the Republican ecosphere, including Charles Koch’s political advocacy group, Americans For Prosperity. AFP is prepared to lobby on behalf of Mace’s bill and bring more Republicans into the mix with cannabis reform and federal legalization as potential campaign issues in 2024.

“I think there’s a tendency for lawmakers and other policymakers to try to overtax cannabis,” Fox said. “Unless higher tax rates mean higher revenue, then you’re looking at a cannabis market where there is a preexisting underground market that is flourishing everywhere and has been for many, many decades, giving consumers an underground alternative. So this is kind of a unique situation.”

Cobb also supports Mace’s bill, primarily because he believes the best way to regulate cannabis is to use a model politicians and regulatory agencies already are familiar with.

“The only way to really try to have a harmonized regulatory framework is to cut, copy, and paste everything that was done with alcohol,” he said. “So that’s why rescheduling to [Schedule III] fits perfectly in the alcohol narrative. It’s a three-tier distribution, so you have dry counties in some places, and then in some you have to buy the real stuff in a liquor store. All those nuances already exist. There’s already a regulatory system in place, there’s already a tax structure in place. In a hearing about it six months ago, Nancy Mace and others were in the House subcommittee hearing saying if you regulate it like alcohol, it could be legal tomorrow.”

But the alcohol model presents its own set of challenges. Economists Daniel Sumner and Robin Goldstein from the University of California, Davis, have been analyzing the unique dynamics of the industry since adult legalization began, capturing their findings in their 2022 book Can Legal Weed Win? The Blunt Realities of Cannabis Economics. Sumner explained that during Prohibition, California wine producers started growing a different type of grape with thicker skin so they could ship their harvest to the East Coast, where Italians and other ethnic groups continued to produce wine. After the ban was lifted the farmers went back to growing more delicate European varietals, but it took them many years to cultivate the same crops again successfully. He used the historical analogy to explain how cannabis is different from liquor when it comes to illicit-market distribution.

“One of the problems for illegal alcohol was you’re holding something that’s very, very bulky per unit of value, and the illegal [sellers] still were never able to service a large market,” he said, noting $2,000 worth of cannabis only weighs one to two pounds. “So you’re just orders of magnitude different in so far as illegal cannabis has been able to survive. Also, nobody in New York City has the stomach to go door to door and arrest people and throw people in jail for cannabis business these days when it’s legal for other people.”

Until the price of cannabis is similar in both legal and illicit markets, Sumner and Goldstein agree the underground will continue to thrive. “The price difference really can’t be overstated,” said Goldstein. “There is still a larger variety of product types in the legal market, with these weird designer products that have the latest and greatest technology, but those are just a tiny fraction of the market. There are a lot of folks who think they’re going to make a lot of money with a niche product, and you end up with a lot of people fighting for a very small segment of the market.”

A new approach

Perhaps the boldest of the bills circulating in the House is Ohio Republican Rep. Dave Joyce’s Strengthening the Tenth Amendment Through Entrusting States (STATES) 2.0 Act, which attempts to address the illicit market as part of a much grander plan. A revamped version of a bill he introduced last session, STATES 2.0 does not propose removing cannabis from the CSA. Instead, the legislation would amend the statute so it does not apply to states that have legalized a regulated market. Co-sponsored by two Democrats and two Republicans, STATES 2.0’s text indicates it also would authorize interstate commerce and institute a federal tax “low enough to not exacerbate the level of taxation set by states.” Tax revenues would be used to “offset the costs of executing the administrative functions of a federal regulatory framework for marijuana, including requirements for testing, enforcement and policing, youth prevention, and substance abuse prevention and education.” Under the proposed law, states that prohibit cannabis sale and/or use would not be allowed to interfere with transportation across their borders.

Part of the federal tax revenue earmarked for “enforcement and policing” presumably would be devoted to federal action against illicit operators, whom the bill specifically denotes as anyone who “knowingly or intentionally manufactures, produces, possesses, distributes, dispenses, administers, or delivers any marijuana in violation of the laws of the state or tribe in which such manufacture, production, possession, distribution, dispensation, administration, or delivery occurs.” Violators of state laws, the bill notes, would be subject to federal prosecution.

In addition, Joyce’s bill would specify the FDA’s authority to regulate products that are marketed as drugs, food, dietary supplements, or cosmetics and prohibit combining cannabis with mind- or mood-altering substances including alcohol and tobacco. Importantly, the legislation also would bar the application of 280E to licensed businesses in legal states, relieving operators of a significant tax burden.

“The current federal approach to cannabis policy infringes on the rights of states to implement their own laws, stifling critical medical research, hurting legitimate businesses, and diverting vital law enforcement resources needed elsewhere,” Joyce said. “The STATES Act does what every federal bill should do: Help all fifty states succeed. This bill respects the will of the states that have legalized cannabis in some form and allows them to implement their own policies without fear of repercussion from the federal government.”

Joyce, co-chair of the Congressional Cannabis Caucus, has more experience negotiating reform bills than nearly any other politician in D.C., having become curious about the issue when California Democrat Sam Farr introduced a 2015 bill to support federal medical research.

“Sam was talking about California at a time [when cannabis] was medically legal but the [United States Department of Veterans Affairs] wasn’t allowed to prescribe it to veterans,” Joyce said. “So he made a great argument for it, and I voted with him, and then someone said, ‘Get down to [then Speaker of the House John] Boehner’s office.’ [Boehner] said, ‘What the hell are you doing?’ I said, ‘Well, here are all the reasons, and I think it’s a states’ rights issue.’ He said, ‘Yeah, yeah. But don’t do it again.’ And lo and behold, look what ten years does. [Boehner’s] now part of the industry.” Now retired from Congress, Boehner sits on Acreage Holdings’ board of directors.

Joyce and House Minority Leader Hakeem Jeffries (D-NY) also reintroduced the PREPARE Act (Preparing Regulators Effectively for a Post-Prohibition Adult-Use Regulated Environment) in 2023, which they said is designed to help the federal government and the states prepare for what they believe is inevitable: the end of prohibition. The act would establish the Commission on the Federal Regulation of Cannabis and task the body with “develop[ing] a regulatory and revenue framework to ensure safe production and consumption of cannabis, which would account for the unique needs, rights, and laws of each state, and present such a framework to Congress within one year.”

According to Joyce, “When we first drafted [the PREPARE Act in 2022], it was a good way for people to wade in and set up a program so, when [cannabis] does become legal, there will be a format for the rest of the industry to follow. This isn’t rocket science, and we’re already doing something similar with beer and wine and spirits with a federal network where each state is allowed to develop [its own regulations] in the manner it sees fit, and then the federal government allows it to have interstate transfer and other things.”

Joyce is optimistic about more legislation moving through Congress soon because of all the tax revenue states have been collecting. With a current federal debt of nearly $34 trillion, Congress can’t afford to snub any potential revenue. “As my dear friend Brady Cobb says, ‘[the cannabis industry is] the only group that comes to Washington D.C. wanting to be taxed and regulated.’”

Election-year politics

In an election year, with parts of the Middle East and Europe embroiled in wars, it’s safe to say cannabis won’t be the highest priority for federal politicians. However, the topic also is not likely to be as contentious as other key issues: abortion, education, immigration, gender diversity, religious freedom, and whose name should appear at the top of each party’s ticket.

And a progressive stance on cannabis could sway some swing voters, considering an October Gallup poll found seven in ten Americans believe marijuana should be legal.

“You have to meet people where they’re at and what their problem is with [cannabis],” said Joyce. “[Nevada Republican Representative] Mark Amodei told me, ‘Well, I’ll help you, but I want to know you’re going to treat it like a casino. Everything’s on the table, and everybody comes in with clean hands.’ So I said, ‘I’m with you. That’s fine.’ We think it’s most important that everybody comes to have a seat at the table in a focused manner to be able to discuss this issue.”

Another approach to federal legalization that hasn’t been discussed openly in D.C.—but in a political environment prone to extremism conceivably could see some action this year—represents a more de facto process that utilizes executive orders. Economist Sumner said his libertarian instincts lead him to believe such a process would be not only feasible but also more efficient and practical in certain respects.

“This could be done tomorrow if the president said so. Most of what people want means just taking [cannabis] off a couple of lists, and that is an administrative action that doesn’t take legislation,” he explained. “Some people think you can’t do anything until you get a bill that passes both houses of Congress and is a compromise among a whole bunch of bad ideas. [When that happens], you get these federal regulations that are carrying a lot of baggage.”

Brady Cobb cautiously agrees.

“I think it’s a huge win the President needs and the Democratic Party needs, but I don’t think we’re going to see it fully come to fruition until October so they can score a win right ahead of the election,” he said. “When you look on the Twittersphere, everybody’s focused on whether the DEA is going to move [the plant] to Schedule III. I think the answer is yes. But then the rulemaking process has to happen. For this fledgling industry, that is the most important part of the process.”