Yesterday, Rep. David Joyce (R-OH), co-chair of the Congressional Cannabis Caucus, filed a new version of the bipartisan Strengthening the Tenth Amendment Through Entrusting States (STATES) Act, referred to as the “STATES 2.0 Act.”  First presented to Congress in 2018 (following then-Attorney General Jeff Sessions’ rescinding of the Cole Memo), the STATES Act was originally intended to simply exempt from the federal Controlled Substances Act (“CSA”) enforcement against any person or business in compliance with state, territory or tribal law regarding cannabis.  The bill now goes further by making such activities legal and proposing a federal regulatory scheme.

The STATES 2.0 Act intends to give states the ability to “determine their own destiny for the cannabis markets.”  The revised bill, however, also gives responsibility to the federal government to be the primary regulator of cannabis, including by taxing and tracking interstate trade through the Alcohol and Tobacco Tax and Trade Bureau (“TTB”)¹ and further regulating “marijuana products” through the Food & Drug Administration (“FDA”).  To achieve these objectives, the STATES 2.0 Act would:

1. Remove from the definition of “marijuana” any cannabis manufactured, produced, possessed, distributed, dispensed, administered or delivered in compliance with state or tribal law, effectively descheduling under the CSA cannabis that is legal under state and tribal law subject to certain exceptions (such as employing individuals under the age of 18 in cannabis operations or distributing cannabis to individuals under the age of 21 other than for medical purposes);
2. Allow states and tribes to control whether the substance is permitted in its jurisdiction;
3. Permit interstate commerce of cannabis where the originating and destination states or territories are jurisdictions where cannabis is legal;
4. Prohibit the distribution of cannabis at certain transportation safety facilities (e.g., rest areas, truck stops);
5. Regulate “marijuana products” – which include any product made or derived from cannabis intended for human or animal consumption – through the FDA.  Specifically, the STATES 2.0 Act would give the FDA the authority to regulate marijuana products that are drugs or cosmetics consistent with existing FDA law for drug and cosmetic products, and to regulate food or dietary supplements consistent with the FDA’s authority relating to food containing alcohol. “Marijuana products” that are not drugs, food or dietary supplements, or cosmetics (e.g., potentially certain flower and vape products and other non-ingestible products) would be subject to new FDA regulations for testing, manufacturing, and marketing, but would not be subject to premarket approval by the FDA;
6. Require the Comptroller General to study the effects of cannabis legalization on traffic safety;
7. Make clear that such businesses and their activities shall not be deemed unlawful, nor shall proceeds from such businesses be considered proceeds of a crime; and
8. Exempt cannabis businesses operating in compliance with state or tribal laws from Section 280E of the IRS Code.

Notably, the STATES 2.0 Act’s findings section provides for a federal excise tax that does not exacerbate the existing “punitive tax structure” of state-legal cannabis.  This tax is to be administered and collected by the TTB.  However, the draft text does not expressly authorize such a tax, or provide any federal tax rate on cannabis.  The bill does contemplate in various sections that TTB and FDA will regulate the cannabis space similar to how they co-regulate alcohol.

If the STATES 2.0 bill were to pass, in addition to the changes noted above, we would expect an infusion of industry funding from the capital markets and more broad participation by ancillary actors still on the sidelines (such as insurance companies and banks).  Additionally, US stock exchange listings could drop their bans on listing such companies.  

As congressional consideration of the STATES 2.0 Act occurs, Dentons is ready and available to provide further guidance and advice.  As always, current and prospective clients are welcome to reach out with any questions.

1. Sec. 2 paragraph 7 indicates the bill’s intent for TTB to be the primary regulator with respect to federal taxation; however, the full scope of TTB’s authority is not further elaborated in the text. We would expect, consistent with the bill’s intent, TTB’s scope of responsibilities will be made more express in an amendment to the bill or in subsequent regulation relating to the bill, if passed.  ↩