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2021 could be a big year for CBD reform in the US

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2021 could be a big year for cannabis reform in the US. The Democratic Party, which now controls Congress and the presidency, has signaled for some time that cannabis reform is one of its top priorities, and the US public supports cannabis reform in unprecedented numbers.

Two years have now passed since the signing of the 2018 Farm Bill, and the CBD industry is still held back by lack of federal regulatory guidance on products. With frustrations mounting over the Food and Drug Administration (FDA)’s slow pace, Congress could take matters into its own hands by passing legislation to move the industry forward.

While dozens of new bills have been introduced already for the 2021 legislative sessions, the reform efforts discussed below were chosen based on their potential impact (factoring in state population, for example), and our assessment of their likelihood of success.

For example in Florida, the third largest US state by population, multiple bills to legalise recreational cannabis have been introduced in the state legislature. But governor Ron DeSantis, a Republican, has frequently voiced his opposition, making it highly likely that he would veto any reform efforts the legislature might pass in that direction and, as a result, these bills are not included in this round-up.

Hemp and CBD reform efforts

Passing federal legislation to permit CBD as a dietary supplement

The FDA has expressed interest in permitting CBD as a dietary supplement, but the current structure of the Food Drug and Cosmetics Act (FD&CA) limits its ability to do so. Were Congress specifically to allow CBD as a dietary supplement, however, that would clear the obstacles currently faced by the FDA.

The Hemp and Hemp-Derived CBD Consumer Protection and Market Stabilization Act (HR 8179)—introduced in September 2020 with a list of bipartisan sponsors who run the gamut of political ideologies—would have amended the FD&CA to allow “hemp, cannabidiol derived from hemp, and any other ingredient derived from hemp” as an ingredient in dietary supplements.

For various reasons—particularly the Covid-19 pandemic—little progress was made by the FDA in this regard in 2020. Outgoing FDA officials recently said more data was still needed on CBD to regulate it effectively, a sentiment expressed repeatedly by the agency throughout 2020.

If the lack of action on CBD products by the FDA continues into 2021, Congress may be inclined to take matters into its own hands.

HR 8179 was reportedly gaining momentum in Congress, as demonstrated by the rate at which it was adding co-sponsors (up to 30 bipartisan co-sponsors by the end of 2020). However, the bill never made it to a committee vote and died when the 2019-2020 legislative session ended.

It was reintroduced for the 2021-2022 legislative session as HR 841, with the same text, same sponsor, and many of the same co-sponsors, of whom it currently has 20 (14 Democrats and six Republicans). Two congresspeople who originally co-sponsored HR 8179 are no longer in office, nine are no longer co-sponsors, and one new co-sponsor has been added – the representative from Washington DC, present in the last legislative session but not a sponsor at that time, who can sponsor bills but not cast a binding vote.

Regulating CBD products in California

California is somewhat of a trendsetter. Not only is it the largest state by population and the largest economy in the US, it also has a long, storied history with the Cannabis sativa plant. Yet more than two years after passage of the 2018 Farm Bill, California has yet to pass comprehensive legislation to regulate CBD products. If California were finally do so in 2021, it could have a big impact on the CBD industry.

Assembly Bill 45 is the latest Californian attempt to regulate hemp products after several bills have failed in years past, allowing CBD products to go largely unregulated. A twin bill, Senate Bill 235, was subsequently introduced in the upper chamber. They are currently the only bills introduced in California that would regulate CBD products.

AB 45 would allow CBD in dietary supplements, food, drinks, cosmetics, and pet food. However, it would ban smokable hemp flower, “processed smokable products” (including e-cigarettes with nicotine), and products that contain tobacco, nicotine or alcohol.

The bill is not clear on CBD vaping products since such products are technically not “smokable” products, and the reference to e-cigarettes specifically says “with nicotine,” which is banned separately.

The bill also includes strict advertising restrictions and specific labelling requirements.

It is sponsored by Democratic Assemblywoman Cecilia Aguilar-Curry, who also sponsored a similar bill (AB 2028) in the last session, when it passed the Assembly but failed in the Senate.

One major change from AB 2028 to AB 45 is the new version’s ban on smokable hemp, which Aguilar-Curry has said was included at the behest of governor Gavin Newsom, who holds veto power should the legislation pass through the legislature. The smokable hemp ban is reportedly a compromise Aguilar-Curry is willing to make to move the previous legislation forward.

While that ban may be unpopular with many in the industry, Aguilar-Curry appears to be taking lessons learned from her previous attempts at passing CBD legislation and trying to shape a bill that is more likely to pass the legislature and be signed into law by the governor.

FiscalNote rates SB 235 as “more likely to pass” than other bills in California due to its Democrat Senate sponsor Brandon Allen’s effectiveness in passing bills. It gives AB 45 above-average pre-floor scores, meaning it is likely to reach the floor in each chamber.

Raising the federal THC threshold of hemp

The federal Hemp Economic Mobilization Plan Act (HEMP Act) was introduced in December 2020 by Republican senator Rand Paul of Kentucky to amend the 2018 Farm Bill to increase the legal THC threshold of hemp from 0.3% to 1.0%. The bill would also shift the focus of THC testing from the plant to the end product.

The loosening of these restrictions would obviously make life easier for hemp farmers and processors. It would eliminate current worries over possible enforcement against processors if the THC level went over 0.3% at any time during the extraction process – currently a major worry for that part of the industry.

Although it is unclear how much support the HEMP Act has in Congress, the mere possibility of raising the federal THC limit is already having an impact. Some state lawmakers are already trying to adjust their hemp legislation in case the federal limit is raised and have cited the HEMP Act as a reason for doing so.

Several states are looking at raising their THC thresholds, or at least building in flexibility to their hemp laws should the federal limit be raised. For example, a bill introduced in Kentucky would increase the THC threshold to 1.0%, and a bill in North Dakota would eliminate the 0.3% threshold in favour of leaving it to the discretion of the agriculture commissioner.

If a state were to raise the THC threshold higher than the federal limit, however, it would set up a conflict between state and federal law. Hemp that might be legal in a state with a higher threshold could theoretically trigger enforcement action by the US Department of Agriculture (USDA) or the Drug Enforcement Administration (DEA). Or the federal government could take a hands-off approach, as with cannabis in states where it is legal. These state bills, therefore, make tracking the HEMP Act even more interesting.

Because the HEMP Act was introduced so late in the 2020 legislative session, it is difficult to draw any conclusions from its failure to launch. It did not gain any co-sponsors or make it to any committees where its support could be better judged.

However, state lawmakers are already being influenced by the possibility of an increase in the THC threshold, so there may be more support for it than meets the eye.

Cannabis reform efforts

Federal decriminalisation

The legislative reform effort that will undoubtedly catch the most headlines this year will be the possibility of federal decriminalisation of cannabis.

There is a significant difference between legalisation and decriminalisation – and decriminalisation is the only one on the table at US federal level.

That would make cannabis legal at federal level, but states would still be free to make it illegal within their borders. Federal legalisation would mean cannabis would be legal in all states, and the federal government would establish a legal market for recreational cannabis. That is not going to be discussed any time soon.

While there may be significant regulatory progress made on cannabis this year, do not expect floodgates to open in 2021.

The Marijuana Opportunity Reinvestment and Expungement Act (MORE Act), which would decriminalise recreational cannabis on the federal level by removing it from the Controlled Substances Act, passed the House of Representatives at the end of 2020 but was not taken up by the then Republican-led Senate.

However, the Democrats now have a slim majority in the Senate, and some powerful Democratic senators, including majority leader Chuck Schumer, recently announced that comprehensive cannabis reform will be a priority in the new Senate.

The potential impact of federal decriminalisation would obviously be momentous and historic, not just for the US but for cannabis worldwide.

However, due to the Senate filibuster rules, such legislation will almost certainly need 60 votes to pass. That means that all Democratic senators plus ten Republicans would have to vote in favour. The odds of getting such a consensus seem slim—but not impossible.

The federal decriminalisation efforts could have a significant impact on shaping cannabis reform, though, even if full legalisation is not achieved. It could act as a bellwether on how strong the support for cannabis reform is in Congress and may set the table for Democrats to push through more incremental—yet impactful—reform on the federal level.

For example, a bill such as the one introduced by Republican representative Greg Steube of Florida that would reschedule cannabis from Schedule I (alongside heroin and LSD) to Schedule III (on a par with anabolic steroids and the anaesthetic ketamine) might be an appealing compromise.

The Strengthening the Tenth Amendment Through Entrusting States Act (STATES Act), which would decriminalise cannabis if in compliance with state law (the tenth amendment preserves states’ rights to legislate as they see fit on issues not explicitly controlled by the federal government), was sponsored last session by four still-serving Republican senators and could likewise be a fall-back option.

Allowing access to banking and financial services

One of the areas that could be addressed via federal legislation if decriminalisation does not materialise is access to banking for cannabis companies.

The problems have been well documented—inability to get loans, receive credit or debit card payments, or open bank accounts, putting cannabis employees at risk when operating cash-only businesses.

The Secure and Fair Enforcement (SAFE) Banking Act would eliminate such obstacles. Although it has broad bipartisan support and passed the House of Representatives in 2019 by a vote of 321-103, the bill has never made it through the Senate. However, that may change with Democrats now in control of the chamber.

Representative Ed Perlmutter, a Colorado Democrat, who sponsored the SAFE Banking Act, recently said he would try to include its provisions in the next Covid-19 relief package, and if it does not make it into the relief bill, he will introduce it again as a standalone bill.

Access to banking would be a big boon for the cannabis sector – and the CBD sector.

Even though hemp and its derivatives were legalised by the 2018 Farm Bill, some hemp and CBD businesses still face challenges accessing financial services, despite US Treasury guidance that hemp is legal and there is no regulatory reason for depriving CBD companies access.

Legalising recreational cannabis in New York

New York’s Democratic governor Andrew Cuomo has been adamant that the state will legalise recreational cannabis in 2021.

Cuomo made a similar push in 2020, but New York was among the states hardest hit by COVID-19, so those plans were delayed. With neighbouring New Jersey legalising recreational cannabis last year, the pressure on New York to follow suit has intensified.

Governors typically have a lot of control in shaping legislation on reform efforts like cannabis due to their veto power, but Democrats now hold a supermajority in the New York State legislature and could override a veto by Cuomo if they disagreed on details of the legislative framework.

Cuomo has made some of his demands for the bill known. In his State of the State 2021 book, Cuomo said his plan would include creating an Office of Cannabis Management to oversee the recreational cannabis, medical cannabis, and hemp programs; setting the legal age limit for recreational cannabis at 21; and creating social equity programs.

He estimated that his plan would create more than 60,000 jobs, generate $3.5m in economic activity, and $300m in tax revenue, though no source for those figures was provided.

Assembly Bill 1248 has been introduced, with 43 Democratic sponsors and co-sponsors. Its sponsor, Democratic assemblywoman Crystal Peoples-Stokes, has advocated for passing her bill and leaving negotiations with the governor until the end—if necessary.

The main differences between A 1248 and the governor’s own proposal centre on social equity measures, the penalty for selling cannabis to under-21s, automatically expunging past cannabis-related convictions, and specifically outlawing the use of the smell of cannabis as a reason to stop and search somebody.

In all cases Cuomo’s proposal is the less progressive—removing guarantees limiting revenue being spent only on specific equity causes, making the penalty for under-age sale of cannabis a felony rather than a misdemeanour, requiring people to apply to have convictions expunged instead of it occurring automatically, and still allowing cannabis odour to be a reason for a stop and search (under the theory that it might have been obtained illegally).

There may be a power struggle between the legislature and governor over provisions of the bill. However, both seem highly motivated to pass a bill, and the legislative supermajority makes it increasingly likely that a bill will eventually be passed.

Legalising recreational cannabis in Virginia

Virginia, the 12th largest state in the US, is emerging as one of the most cannabis- and CBD-friendly states.

In 2020, Virginia enacted laws that expressly allow CBD as a food ingredient and decriminalised simple possession of cannabis in the state. In 2021, Virginia has its sights set on full legalisation of recreational cannabis.

Because Virginia’s 2020-2021 legislative session ends on 13th February, legislators have wasted no time this year in passing legislation. A House and a Senate version of cannabis legalisation bills flew through various committees and were passed in their respective chambers on 5th February 2021.

Both versions would legalise the sale of recreational cannabis to adults aged 21 and over and create the Virginia Cannabis Control Authority to regulate the sector. The bills differ in some ways, however, and a bicameral committee will now iron out the differences and put forward a reconciled version for a vote in both chambers.

Major differences between them include when legalised possession would take effect and the ability of local governments to prohibit cannabis sales. Legalised sale of cannabis would not take place under either version until 2024. Under the House version, citizens would not be allowed to legally possess marijuana until then. However, the Senate version would allow legal possession starting 1st July 2021.

The Senate version contains a provision that would allow localities to vote on a referendum on whether to prohibit the sale of cannabis in the jurisdiction. The House version would only allow localities to limit the hours of sale and public consumption.

Governor Ralph Northam has been pushing the move to legalise and put out his own proposal in January, which was mostly included in the original legislative bills.

If the bills can be reconciled, they would be sent to the governor to be signed. Northam will then need to decide whether he will sign the bill as amended. As we have witnessed with the cannabis legalisation bill in New Jersey, though, the final negotiations between the legislature and governor can be lengthy.

What this means: As we have seen repeatedly in states and countries that have legalised cannabis, regulations take a long time to form, and black markets persist for years after legalisation. It took two years after legalisation for sales of legal cannabis to overtake sales of black market cannabis in Canada.

From an industry standpoint, cannabis products would be highly regulated, and federal guidelines would take years to develop.

More than two years after the 2018 Farm Bill passed, the CBD market is still held back by the lack of federal regulations on CBD products. This effect will likely be exacerbated by the fact that THC is a psychoactive compound.

Nonetheless, if some of the reform efforts discussed here come to fruition, they would represent massive strides forward for the CBD and cannabis sectors.

CBD-Intel provides impartial, independent and premium market and regulatory analysis, legal tracking, and quantitative data for the CBD sector.

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