This July Senators Chuck Schumer (D-N.Y.), Ron Wyden (D-OR), and Corey Booker (D-N.J.) proposed a new cannabis reform bill called the Cannabis Administration and Opportunity Act (CAOA). It’s a robust 163-page piece of legislation that addresses almost every issue facing the legal cannabis industry in the US: descheduling the substance, expungement of non-violent criminal records, establishing tax rules, improving industry equity, and transferring regulatory authority of cannabis from the Drug Enforcement Agency (DEA) to the Food and Drug Administration (FDA).
However, while the aim of the CAOA is in the right place, the scope of it made many experts skeptical of its political practicality. It is labeled as a “discussion draft,” has been called a “liberal wish list” by some analysts, and was criticized by others as having been “designed to fail” (see: Weed Between the Lines, Jul 22).
“It is close to everything that progressives want while providing little reason for Republican senators to back the measure,” Jaret Seiberg, a Cowen Washington Research Group policy analyst, wrote of the CAOA.
That’s what prompted Colorado Governor Jared Polis to write Senators Schumer, Wyden and Booker. In a response letter he sent during a public comment period that ended on September 1, Governor Polis expressed support for the CAOA—despite its limited chances of moving forward without significant reform. But he also urged the senators to narrow their scope of focus and address several important, specific issues first, as they refine (and better define) the CAOA.
“I am thrilled that you are bringing forward a long-term, comprehensive solution that deschedules cannabis while enhancing social equity pathways,” the governor wrote in the letter. “I hope that you will first focus your efforts on the two biggest barriers to the success of the cannabis industry: banking and IRS Code Section 280E.”
These two barriers are the largest hurdles currently facing cannabis businesses, not just in Colorado, but across the nation, according to Polis.
“Congress’ inaction on banking and tax reform is stifling small businesses, holding back innovation and entrepreneurialism, and perpetuating public health and safety issues,” Polis wrote in his letter.
Banking has been an overt obstacle for cannabis businesses since states like California and Colorado started medicinally legalizing the substance in the 1990s. Because of the Schedule I status of cannabis, any bank who accepts funds from a cannabis business risks losing their charter or license. As such, most dispensaries are unable to access regular banking or credit union services—like direct deposit, checks, or credit card transactions—forcing the vast majority of cannabis businesses to deal in dangerously large quantities of cash. That’s disconcerting when one considers that total domestic medical and recreational cannabis sales topped $17.5 billion, just in 2020.
“Because of antiquated federal banking regulations, almost all cannabis transactions are cash-based,” Polis wrote. “Not only are cash-only businesses targets for crime, cannabis businesses are further disadvantaged compared to other legal businesses by being unable to open bank accounts or obtain loans at reasonable rates.”
The sooner that cannabis businesses can access those banking services, the safer these businesses and their employees will be, Polis argues. The Safe and Fair Enforcement (SAFE) Banking Act, which is currently in the Senate under review by the Committees of Jurisdiction, would address this issue. And, unlike the CAOA, the SAFE Banking Act is actually an official bill and has already been voted through the House.
“The cannabis industry is simply too large to be prohibited from banking opportunities, and the Senate must remedy this harm by bringing this measure up for a vote in the Senate Committee on Banking, Housing, and Urban Affairs immediately,” the governor wrote.
Polis then addressed the issue of “IRS Code Section 280E.” Created in the 1980s to prevent drug dealers from writing off expenses on their taxes, today this law prevents state-legal cannabis businesses from deducting any labor expenses, benefit expenses, building costs, insurance lines, or even office supplies. Which results in a nearly 90 percent tax rate for cannabis businesses operating in the U.S., severely limiting profit margins for one of the most lucrative industries in the country.
“The cannabis industry has been stymied by 280E,” Polis wrote. “Congress must swiftly act to pass any measure, a number of which have been introduced in past sessions, to make an exception for legal cannabis businesses from 280E.”
Polis urged Senators Schumer, Wyden and Booker to try and push the SAFE Banking Act or the Marijuana Opportunity Reinvestment and Expungement (MORE) Act forward first. After all, these bills are already moving through the Capitol with bipartisan support. The CAOA, by contrast, is still just a discussion draft, without any real timeline attached to it.
Senator Booker, however, disagrees that either of those bills should be passed before the CAOA.
“I don’t know about other members of the Senate,” Booker said at a press conference. “But I will lay myself down to do everything I can to stop an easy banking bill that’s going to allow all these corporations to make a lot more money off of this, as opposed to focusing on the restorative justice aspect.”
Governor Polis lauded Booker for the CAOA’s restorative justice aspect and many other elements of the draft bill. But, he maintained that more achievable legislation is already on the floor.
“Legislation to address these [banking and tax] issues has more bipartisan support than ever before and can be passed in the short-term as you continue to work on the details of the CAOA,” Polis wrote.
