Authors: Alex Buscher, Esq & Andrew Janson, Esq.
Disclaimer: This article is for general information and education purposes. Nothing in this article is legal advice and should not be relied upon as such.
On December 4, 2020, the House passed H.R. 3884 (https://www.congress.gov/bill/116th-congress/house-bill/3884), the Marijuana Opportunity Reinvestment and Expungement (MORE) Act of 2019. If enacted, the MORE Act would make sweeping changes to federal law to decriminalize and deschedule marijuana entirely. Most notably, it removes “marijuana” and “tetrahydrocannabinols” from the federal Controlled Substances Act (CSA) and amends the Internal Revenue Code to regulate marijuana like tobacco (you can read our full summary of the changes here) (https://www.buscherlaw.com/more-act-summary).
This is a big moment for marijuana legalization. With Democratic control of the Senate and the presidency, it is more likely now than ever that legislation like the MORE Act will pass. Despite their past opposition to it, both President Biden and Vice President Harris have expressed a willingness to decriminalize marijuana.
How Marijuana Is Regulated Under the MORE Act
Overall, the Act takes a very hands-off approach, making only as many changes as necessary to make marijuana federally legal. The first major change is the removal of “Marihuana” and “Tetrahydrocannabinols” from the federal CSA. Along with this, the Act states that both marijuana and THC would thereafter be deemed inappropriate for inclusion in any other drug schedule.
The second major change is to sections of the Internal Revenue Code regulating tobacco products and cigarette papers (IRC, 26 U.S.C. § 5701 et seq.). To bring marijuana within the ambit of the tobacco regulations in the IRC, the Act adds “cannabis products” to the definition of “tobacco products” in 26 U.S.C. § 5702(c). Going one step further, the Act also states that all references in the IRC to “manufacturers of tobacco products” or “the manufacturing of tobacco products” should also apply to manufacturers of cannabis products. Thus, any provisions of the IRC applicable to “tobacco products” or tobacco product manufacturers would likewise apply to cannabis products and cannabis product manufacturers.
These changes do not extend beyond the IRC in the MORE Act as written. Other federal statutes covering tobacco (like the Tobacco Control Act of 2009) are untouched and as a result, “cannabis” as a specific legal subject is left largely unregulated by the MORE Act. This is promising, as the bill stays well away from the heavy-handed overregulation that often finds its way into this industry.
Implications of the MORE Act
As written, the MORE Act would effectively solve three major problems facing marijuana businesses today: access to banking services, access to bankruptcy protections, and access to business tax deductions.
If you’ve owned or worked with a marijuana business in the last few years, you’re probably familiar with how difficult it can be to obtain normal banking services. Federally insured banks won’t work with marijuana businesses at all for fear of triggering federal RICO laws. Many banks are hesitant to work with hemp businesses for the same reason. If marijuana and tetrahydrocannabinols were no longer federal controlled substances, banks would have less to be concerned about, and would likely begin servicing the industry.
As long as marijuana remains illegal under federal law, any protection or benefit available under federal law is unavailable to marijuana businesses. Courts have consistently denied access to bankruptcy proceedings as a result, making it very difficult for lenders in the industry to recoup their investments in the event of a bankruptcy. As with banking, removing marijuana as a controlled substance would open bankruptcy as an option for marijuana businesses.
No More 280E Restrictions
Under Section 280E of the U.S. Tax Code, certain deductions and credits are prohibited for any business that traffics in controlled substances, as that term is defined in the CSA. Although a 2018 case, Patients Mutual Assistance Collective (d.b.a. Harborside Health Center) v. IRS, clarified that marijuana businesses could make deductions for the “non-trafficking” portions of their business, many are still forced to operate on much tighter margins than businesses in other industries. Removing marijuana from Schedule I would reduce this burden.
A New Era for Cannabis Infused Products
Industry members are well aware of the explosion in popularity of foods and cosmetic products infused with CBD or other cannabis derivatives. Note, however, that even if the MORE Act passes, regulation of these products will not suddenly fall to the states alone.
Currently, the FDA regulates all foods, drugs, cosmetics, and dietary supplements under the federal Food, Drug, and Cosmetic Act (FDCA). Despite their widespread availability, many ingestible products infused with CBD or hemp extract are still illegal under the FDCA.
For example, many CBD processors manufacture and market CBD products as dietary supplements. Under Section 321(ff) of the FDCA, dietary supplements are a special subset of food permitted to make claims about their ability to affect the structure or function of the human body. However, dietary supplements are not permitted to contain any substance that has been approved as a drug by the FDA (subject to some limited exceptions). Since CBD is an active ingredient in the FDA-approved seizure medication Epidiolex, any dietary supplement containing CBD that advertises itself as such is violating this section of the FDCA, per FDA enforcement letters.
Similarly, Section 331(II) of the FDCA prohibits the introduction of food products to which an approved drug has been added. CBD food products are therefore also illegal under the FDCA for the same reason.
The MORE Act does nothing to change this. Instead, broad legalization of marijuana and tetrahydrocannabinols would expand the reach of the FDCA to cover edible THC products in addition to the hemp-derived products it currently covers. The drugs Marinol and Syndros both contain dronabinol, a man-made form of THC, and GW Pharmaceuticals are in the process of conducting clinical trials in the U.S. for Sativex, a THC drug intended to treat spasticity in patients with multiple sclerosis.
If the MORE Act passes and marijuana and tetrahydrocannabinols are no longer controlled substances, the FDA will still have jurisdiction over them. The existence of these THC-containing drug products would make all THC-containing foods illegal under the FDCA for the same reason as CBD-containing foods or dietary supplements.
Business owners, attorneys, and other members operating exclusively in the marijuana industry may have been insulated from these considerations in the past; after all, as long as marijuana remains federally illegal, the whole ball game is under state law. But as decriminalization becomes increasingly likely—whether under the MORE Act or similar future legislation— the FDA will make its role in the cannabis industry known.
Buscher Law provides effective, efficient, and affordable legal representation to businesses in the hemp industry. Our attorneys can help you with general business matters, state and federal regulatory compliance, and more. Visit our website at www.buscherlaw.com or contact us today (https://www.buscherlaw.com/contact) for a free consultation.