Limiting Federal Regulation of Cannabis.

• Author: Litman, Victoria
• Position: BRIEFLY NOTED

A change in the federal status of cannabis plants that are considered psychoactive--legally called marijuana--appears to be inevitable. A vast majority of states have passed legislation to regulate marijuana use in medical or recreational settings. On the federal level, numerous bipartisan pieces of legislation have been introduced in recent years, including several that would remove it from the federal Controlled Substances Act (CSA) and regulate it at the federal level.

However, no major changes to federal marijuana prohibition have yet gained passage. Federal acceptance of cannabis extends only to so-called "industrial hemp," which is produced for its fiber and contains minimal amounts of the psychoactive chemical tetrahydrocannabinol (THC).

Last October, the White House issued a "Statement from President Biden on Marijuana Reform." It announced a pardon of all prior federal offenses of simple marijuana possession, urged governors to do the same, and asked the secretary of health and human services and the attorney general to initiate an administrative process to review how cannabis is currently scheduled. The statement contemplated federal law change but noted that if those changes happen, "important limitations on trafficking, marketing, and under-age sales should stay in place."

Most of the proposed congressional legislation and Biden's statement presume that a federal law change, even a scheduling change initiated by the Drug Enforcement Administration, must be accompanied by significant federal regulation of cannabis. However, the best federal policy to develop a successful national cannabis marketplace would be to remove it from the CSA and regulate it in a manner akin to alcohol.

Priorities/ Over 90 percent of states have passed some form of cannabis liberalization legislation. So far, it has been impossible to judge the success of the myriad state policies in creating a functioning legal cannabis market because of significant continued barriers resulting from federal prohibition. Under Internal Revenue Code Section 280E, cannabis businesses are disallowed ordinary business deductions except for the Cost of Goods Sold, resulting in an effective tax rate that can exceed 70 percent even if they are legal in the state.

Cannabis companies also have difficulties in obtaining bank accounts. Although banks can provide financial services to state legal cannabis businesses, they are disincentivized from doing so by regulatory burdens...