Comments on the Proposed Cannabis Administration & Opportunity Act (“CAOA”)
This summer, a working group of prominent United States Senators proposed a new bill to legalize marijuana at the federal level. Building on earlier iterations of the MORE Act, the draft Cannabis Administration & Opportunity Act (“CAOA”) constitutes the most comprehensive federal reform proposal to date. A detailed summary of the measure can be found here.
To their credit, the Sponsoring Offices have sought public comments on the draft CAOA. Anyone wishing to submit comments should send them to Cannabis_Reform@finance.senate.gov by September 1, 2021.
As noted in an earlier post, Professor Scott Bloomberg and I have written an article that is directly relevant to the CAOA. See Legalization Without Disruption: Why Congress Should Let States Restrict Interstate Commerce in Marijuana. Now we have also submitted a comment to the Sponsoring Offices that highlights the problems identified by our article and introduces the solution we propose to address those problems. The full comment is reprinted below, but it can also be downloaded here:
Bloomberg and Mikos Comments on CAOA
Senators Booker, Wyden, & Schumer:
We are professors at Vanderbilt University Law School and the University of Maine School of Law who research, write, and teach about cannabis law. We thank you for the opportunity to submit comments on the proposed Cannabis Administration and Opportunity Act (“CAOA”). Both of us are strong proponents of ending federal cannabis prohibition and believe that the CAOA would be a monumental step in the right direction for our nation’s drug policy.
We write, however, to apprise the Sponsoring Offices of an overlooked threat the CAOA poses to the states’ regulatory authority and to the entrepreneurs now operating in state-regulated cannabis markets, especially social equity license-holders. The threat is not found in the express text of the CAOA itself; rather, it stems from a constitutional doctrine that the CAOA would suddenly activate: the Dormant Commerce Clause (“DCC”). In a nutshell, the DCC bars the states from unduly restricting interstate commerce in any given market. For the last 25 years, the states that have pursued reforms have operated under the assumption that the DCC does not apply to their cannabis regulations because Congress has forbidden interstate commerce in cannabis. Pursuant to this assumption, states have adopted a variety of regulations that directly or indirectly restrict interstate commerce in cannabis, including, most notably, bans on interstate sales of cannabis and limits on out-of-state investment in local cannabis businesses. These restrictions have helped the states to control the operation and structure of their respective cannabis markets to safeguard public health, promote social equity, and pursue other important policy goals.
Once Congress repeals the federal prohibition on cannabis, however, the assumption underlying these state regulatory regimes will no longer hold. The DCC will be unleashed upon the states, threatening to invalidate a wide range of state regulations and the policies they serve. Indeed, it is difficult to overstate the ramifications this development would have for state regulators and the companies that have built their businesses around existing state regulatory programs. In our forthcoming law review article, Legalization Without Disruption: Why Congress Should Let States Restrict Interstate Commerce in Marijuana, we identify five ways in which the DCC would negatively disrupt existing state cannabis programs:
- The DCC would eviscerate a key component of state social equity programs. The DCC would threaten the nascent social equity licensing programs states have adopted to boost minority participation in their cannabis markets. Such programs favor residents of local communities that have been disproportionately harmed by the war on drugs—a form of geographic discrimination the DCC plainly would not allow. While we applaud the Sponsoring Offices’ decision to provide funds for state social equity programs in the CAOA, we believe that funding would prove more effective if states were allowed to continue to award cannabis business licenses to in-state residents who have been disproportionately harmed by cannabis prohibitions in the past.
- The DCC would create dangerous gaps in the regulation of the cannabis industry. The DCC could be used to challenge a wide range of state cannabis regulations that directly or indirectly burden interstate commerce, from licensing rules to labeling requirements. When those challenges prove successful, the DCC could create regulatory gaps, namely, situations in which there are no state or federal laws governing key activities of the cannabis industry. Although the CAOA would eventually plug some of these gaps, it will take time for federal agencies to study, draft, and promulgate new federal regulations to govern the cannabis industry.
- The DCC would trigger a race to the bottom among the states. By opening the door to interstate commerce in cannabis, the DCC will suddenly force states to compete for cannabis businesses. To attract the cannabis industry and the jobs and tax revenues the industry creates, states will be tempted to loosen the regulations they have previously imposed on the industry, setting in motion a race to the bottom where health, safety, environmental and other objectives are sacrificed.
- The DCC would greatly diminish the value of investments entrepreneurs have made in existing state cannabis programs. The DCC could suddenly make obsolete investments that thousands of entrepreneurs have made in existing state regulatory systems. For example, some states have required licensees to construct expensive indoor-grow facilities to participate in their local cannabis markets. Once the DCC is unleashed, however, states will no longer be able to block companies from producing cannabis elsewhere, under very different rules. Thus, a business that spent tens-of-millions of dollars to build an indoor cannabis production facility in a state may suddenly see the value of its investment plummet, as firms from other states where cannabis can be produced more cheaply outdoors start to ship their wares into the state.
- The DCC would prematurely end ongoing experiments states are conducting in the regulation of cannabis markets. The DCC could pressure states to abandon novel approaches to regulating the cannabis market, because courts may find that such novelty imposes an undue burden on interstate commerce in cannabis. As is perhaps most relevant to the CAOA, the pressure to harmonize state regulations would deprive federal policymakers of the benefit states now provide as laboratories of democracy. Indeed, the CAOA discussion draft seeks input on how to “[d]esign . . . the track and trace regime to prevent cannabis diversion while minimizing compliance burdens,” and on “[w]hether and how a single federal track and trace regime could replace the various, complex, state-based seed-to-sale tracking systems.” We think the best answers to these difficult questions, and others like them, would be found by allowing states to continue their regulatory experiments following federal legalization.
Our article discusses each of these concerns in much more detail, but it also provides a simple and well-tested way for Congress to forestall these disruptions. Congress has the authority to suspend application of the DCC. And while Congress has exercised this authority sparingly, it has not hesitated to do so when a change in federal law threatens to disrupt an industry that has traditionally been regulated by the states. Most significantly, in the McCarran Ferguson Act of 1945 (“MFA”), Congress suspended the DCC’s application to state regulation of “the business of insurance” after the Supreme Court reversed long-standing precedent and held that insurance was a form of interstate commerce and was thus suddenly subject to the DCC.
We recommend that Congress do the same for “the business of cannabis” in the CAOA. Specifically, drawing from the language of the MFA, we recommend adding the following provision to the CAOA:
Declaration of Policy
(A) Congress hereby declares that the continued regulation and taxation by the several States of the business of cannabis is in the public interest, and that silence on the part of the Congress shall not be construed to impose any barrier to the regulation or taxation of such business by the several States.
(B) Section A shall expire seven (7) years after this Bill becomes law, unless renewed by Congress.
Section (A) of our proposal contains language that the Supreme Court has previously interpreted as fully suspending the application of the DCC to state regulations of a given market. The inclusion of this language would leave no doubt about Congress’s intention to preserve state regulatory authority in this policy domain.
While we believe that suspending the DCC is necessary to forestall the disruptions noted above, we also believe that state and federal lawmakers and cannabis businesses could successfully adapt to interstate commerce if given the time to do so. For this reason, Section (B) limits the duration of the authority conferred by Section (A). Thus, our proposal would not foreclose interstate commerce in cannabis. Instead, our proposal would give state, federal, and private actors time to prepare for interstate commerce and would thereby foster a more orderly transition to a national marketplace. Congress could, of course, renew or extend the suspension of the DCC, but by including a sunset clause, our proposal would put the onus on champions of state-based cannabis markets to convince Congress that it should continue to suspend the DCC after 7 years (or whatever time period Congress selects).
Importantly, Congress could easily insert this provision into the CAOA as presently written, without making further changes to the bill.
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In sum, we urge the Sponsoring Offices to include our proposed statutory language in the CAOA (or other reform legislation) to ensure that federal cannabis legalization does not inadvertently disrupt the cannabis reform programs states have pioneered. If you have any questions about our proposal, please do not hesitate to contact us.
Associate Prof. of Law
University of Maine School of Law
Robert A. Mikos
LaRoche Family Chair in Law
Vanderbilt University Law School
 Professor Mikos is the LaRoche Family Chair in Law at Vanderbilt. His CV and biography are available at https://law.vanderbilt.edu/bio/robert-mikos. Professor Bloomberg is Associate Professor of Law at the University of Maine. His CV and biography are available at https://mainelaw.maine.edu/faculty/profile/scott-bloomberg/. The views expressed in this comment are those of the authors and not necessarily of their respective institutions.
 A copy of the article is attached to this comment. It is also available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3909972.
 CAOA Discussion Draft, p. 28.
 The MFA is codified at 15 U.S.C. § 1011-1015.
 We use the term “business of cannabis” here, rather than “business of marijuana,” which we use in our article, because the CAOA defines “cannabis” to exclude hemp, making the terms “marijuana” and “cannabis” interchangeable.
 Importantly, Section 111 of the CAOA would not suspend the DCC altogether. That section would allow states to decide whether and to what extent (i.e., medical or adult-use) marijuana is legal within the state, but it would fail to insulate key state marijuana regulations from DCC challenge. See Bloomberg & Mikos, Legalization Without Disruption, at 41-42.
 Importantly, our proposal would allow states to pursue interstate commerce in cannabis even before the expiration of the sunset clause (e.g., through interstate compacts), but only if the states consented. See Bloomberg and Mikos, Legalization Without Disruption, pp. 46-47. In other words, our proposal would leave the decision of whether to participate in interstate commerce in the hands of the states.
 The sunset clause also ensures that our proposed language does not render Section 111 of the CAOA surplusage. If and when our provision sunsets, Section 111 will ensure that states can continue prohibiting marijuana, should they so choose.