Cannabis Administration And Opportunity Act: What The Proposed Federal Cannabis Bill Would Mean For Hemp
BY SHAWN HAUSER AND JACE POHLMAN, VICENTE SEDERBERG
Shawn Hauser, Partner at HIA Member law firm Vicente Sederberg and Jace Pohlman examine how the federal cannabis bill (COCA) could impact the emerging hemp industry.
On July 14, 2021, Senators Chuck Schumer (D-NY), Ron Wyden (D-OR), and Cory Booker (D-NJ) released the discussion draft of historic federal cannabis bill, the Cannabis Administration and Opportunity Act (CAOA). The CAOA would not only end cannabis prohibition but would also establish a regulatory framework for cannabis under the U.S. Food and Drug Administration (FDA) and the Alcohol and Tobacco Tax and Trade Bureau (TTB). It also includes comprehensive restorative justice provisions, including grants, loans, and other funding programs for disadvantaged and minority businesses, record expungement, petitions for resentencing, and other measures intended to repair the decades of harm caused by the War on Drugs.
While unlikely to pass in this Congress, the momentous legislation gives us a roadmap for how the U.S. will ultimately regulate cannabis and is a key step forward in determining the appropriate federal framework.
With hemp already federally legal, a primary policy issue is how marijuana and hemp—two varieties of the cannabis plant—would be distinguished under a federal regulatory regime. In this article, we lay out the CAOA’s key provisions governing hemp, related cannabis product regulation, and areas where legislators specifically seek industry feedback to inform the best policy approach.
Industry stakeholders have until September 1, 2021 to provide feedback. We strongly encourage participation in this important opportunity to shape federal cannabis policy.
Distinction between Cannabis and Hemp Under the CAOA
Cannabis above 0.3% THC would be regulated differently than low-THC hemp as “cannabis.” The term “cannabis” is defined in the CAOA so that it excludes hemp. Hemp remains subject to a separate regulatory framework governed primarily by the U.S. Department of Agriculture (USDA) and FDA. The federal hemp framework was established by the passage of the Agricultural Improvement Act of 2018 (2018 Farm Bill).
Under the CAOA, marijuana and THCs derived from marijuana, would be removed from the Controlled Substances Act (CSA). Hemp, hemp-derived THC, and hemp derivatives were removed from the CSA under the 2018 Farm Bill. This means the CAOA would historically legalize all cannabis and remove it from CSA control.
Most of the CAOA regulations over cannabis would not apply to hemp and hemp products.
Through the CAOA’s federalism approach, states have authority to control cannabis regulations within their borders (including possession, production, and distribution). States still retain the ability to exercise primary regulatory authority over hemp under the 2018 Farm Bill. The CAOA does not allow states to prohibit interstate transfer of lawful cannabis or cannabis products through its borders for lawful delivery into another state.
Regulatory Oversight of Hemp and Cannabis
The FDA already has primary regulatory authority over all hemp and hemp derivatives. The FDA is currently in an ongoing process evaluating the science and safety of CBD and hemp derivatives in order to determine potential regulatory pathways for hemp. FDA maintains that under current law, CBD cannot lawfully be included as an ingredient in foods or dietary supplements, but CAOA would provide a legal pathway for CBD in dietary supplements (described in the next section).
The CAOA transfers regulation of cannabis from the Drug Enforcement Agency (DEA) to the FDA, the TTB and the Bureau of Alcohol, Tobacco, Firearms & Explosives (ATF) within the Department of Justice—giving the agencies similar regulatory and enforcement authority as they have with alcohol and tobacco. The CAOA sets a minimum age of 21 for purchase of cannabis products.
The TTB would enter into a Memorandum of Understanding with the FDA governing their responsibilities for cannabis and cannabis product regulations. Both agencies would have jurisdiction over certain cannabis product labeling, marketing, and consumer information.
The FDA would assume primary regulatory responsibility over the manufacture and marketing of cannabis products under the newly established “Center for Cannabis Products.” The Federal Food, Drug, and Cosmetics Act (FDCA) would regulate all cannabis products except for cannabis-based drugs. Hemp products remain subject to standard FDCA provisions governing foods, drugs, dietary supplements, and devices. The Center for Cannabis Products under the FDA would regulate cannabis and potentially hemp products. Although FDA has current regulatory power over hemp products, they have yet to release those regulations. Under the CAOA, they may elect to release product regulations covering all aspects of the plant instead of two separate regulatory schemes. The CAOA’s regulations over manufacturing and marketing of cannabis products includes:
- Minimum national Good Manufacturing Practices
- Product standards
- Directions for Use
- Registration and Listing
- Labeling regulation
- Sale and distribution
- Record keeping and reporting
Cannabis products could not be marketed as dietary supplements, but hemp and CBD products could be. However, cannabis product manufacturers could make structure/function claims (a claim describing how a product affects the normal structure or function of the body—i.e., this product supports the immune system) about the benefit of their products like with dietary supplements. As with dietary supplements, these types of claims would be permitted so long as they are adequately substantiated such that they are not false and misleading.
Any products intended for use or marketed as for use in the treatment or prevention of disease in humans or animals, whether cannabis or hemp, remain regulated as drugs.
Providing a Legal Pathway for CBD in Dietary Supplements
Hemp products remain under the authority of the FDA. The CAOA would amend the definition of “dietary supplement” under the FDCA to remove the prohibition of hemp-derived CBD as an ingredient in a dietary supplement. The FDCA prohibits the inclusion of an ingredient in both foods and dietary supplements where the ingredient was an active ingredient in an approved drug or publicly studied for use in a drug. The FDA applies this provision to CBD because CBD was the active ingredient in an approved drug (Epidiolex). CAOA would exclude hemp-derived CBD from this prohibition, allowing it to be lawfully regulated as a dietary supplement as long as other requirements are met.
Notably, the bill does not remove the prohibition barring the inclusion of CBD as an ingredient in food.
Because this provision is limited to hemp-derived CBD, other hemp-derived cannabinoids that were publicly studied or approved as drugs prior to being marketed in commerce would still be prohibited from regulation as food or dietary supplement ingredients.
The legislation subjects hemp-derived CBD to existing new dietary ingredient standards requiring a pre-market new dietary ingredient notification (NDIN) to FDA substantiating that the ingredient is reasonably expected to be safe, based on the history of use or other safety evidence for use of the ingredient, as directed under the product labeling or suggested use.
Calls for the FDA Secretary to set recommended daily serving limits for CBD dietary supplements through an interim final rule. Any product containing CBD over that limit would be considered adulterated and unlawful, and NDINs would not be accepted for products exceeding the serving size limit.
In establishing the serving size limit threshold, FDA is authorized to consider whether the review of NDINs for products containing higher levels of cannabidiol may be “unduly burdensome.’’
The FDA is tasked with developing packaging and labeling requirements for CBD dietary supplements through an interim final rule.
Overall, the FDA will have more control over product safety, including labeling and packaging requirements, as well as more enforcement tools to support enforcement over noncompliant CBD products (including synthetics).
Notably, the CAOA does not open up a pathway for CBD in food or address the federal regulation of inhalable hemp products. Both product types are currently under the jurisdiction of FDA but are not currently recognized as lawful products.
Addressing the “Work-In-Progress” Issue: Hemp Exceeding 0.3% Delta-9 THC
Calls on the Secretary of Treasury, along with other agencies, to create a process and regulations for lawful delivery of hemp that inadvertently exceeds the 0.3% legal limit of THC (Work in Progress Hemp) to licensed cannabis enterprises for proper processing of those products.
The proper regulation of such Work in Progress hemp is a current unsettled and problematic issue for the hemp industry. (Read more about the HIA’s legal cases pushing back at the DEA‘s overreach into this matter)
Cannabis and Hemp Taxation
The CAOA establishes a significant tax on cannabis producers, an excise tax starting at 10% for the first year and increasing annually by 5% in the next five years, ultimately reaching 25%, when it would shift to a per-ounce (flower) or per milligram (extract) rate. Tax reductions would apply to businesses with under $20 million in sales. State and local governments would also retain the authority to establish their taxes. Producers of hemp and hemp products are not subject to the new tax scheme.
Conforms rules related to tax-free use of non-beverage alcohol to also apply in the production of cannabis and hemp products. This means industrial non-beverage alcohol, which is used in the manufacturing of hemp products, will not be taxed as a were beverage-type alcohol.
Establishes a drawback of the cannabis tax for products that were processed to remove THC, including those that would qualify as hemp after processing (products 0.3% THC or less). These drawbacks act as tax refunds for businesses that receive and handle products that would test as “cannabis” (>0.3% THC) under the CAOA but process the cannabis to remove the THC concentration to render it a commodity that would qualify as “hemp.”
Legislators Request Hemp Industry Feedback on CAOA
Feedback is requested relating to the following provisions of the CAOA:
Definition of “cannabis” within the FFDCA and its interaction with the definition of hemp.
Cannabis defined as: — (i) all parts of the plant Cannabis sativa L., whether growing or not; (ii) the seeds thereof; (iii) the resin extracted from any part of such plant; and (iv) every compound, manufacture, salt, derivative, mixture, or preparation of such plant, its seeds or resin. (B) The term ‘cannabis’ does not include – (i) hemp, as defined in section 297A of the Agricultural Marketing Act of 1946.”
The term “hemp” means the plant Cannabis sativa L. and any part of that plant, including the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with a delta-9 tetrahydrocannabinol concentration of not more than 0.3 percent on a dry weight basis.”
Appropriate classification and regulation of synthetically derived THC.
Any additional interactions and considerations for hemp.
Suggestions on how to best divide responsibilities between the acting agencies (FDA, TTB, and ATF) to avoid duplication of administrative and compliance burdens.
Industry stakeholders are encouraged to submit their public comments before September 1, 2021 by emailing Cannabis_Reform@finance.senate.gov.
Read more of this article from Vicente Sederberg and get their support submitting your public comment.