The CAOA Is Back: Congress Should Deschedule Cannabis NOW

On July 16, 2026, Senators Cory Booker, Chuck Schumer, and Ron Wyden reintroduced the Cannabis Administration and Opportunity Act, commonly called the “CAOA.” The bill has 17 original Senate sponsors and would remove cannabis from the federal Controlled Substances Act, establish a new federal regulatory and tax system, expunge certain federal cannabis convictions, expand access to banking and Small Business Administration programs, and direct substantial federal revenue toward communities harmed by cannabis prohibition. 

The CAOA is not new. Versions of it were introduced in the previous two Congresses. This version, however, arrives at an especially important moment. The federal government is considering a much narrower approach centered on Schedule III, while the new federal hemp restrictions scheduled to take effect in November threaten to dismantle much of the existing hemp-product market. The CAOA takes a fundamentally different position: cannabis should not merely be moved to a less restrictive schedule. It should be removed from the schedules altogether. 

That is the correct starting point.

But this is a 278-page bill, not a simple repeal of federal prohibition. It would replace one federal cannabis system with another one. Yes, the new bill is significantly more rational than the current system, but it is also complicated, expensive, and potentially burdensome for smaller businesses.

Descheduling is different from rescheduling

As most readers know, the distinction between rescheduling and descheduling is critical.

Moving marijuana from Schedule I to Schedule III would recognize accepted medical use and could provide meaningful tax and research benefits. It would not, however, federally legalize ordinary state-licensed adult-use cannabis. Schedule III substances remain controlled substances, and businesses handling them generally remain subject to federal registration, prescription, manufacturing, recordkeeping, and distribution rules.

The CAOA would go much further. It would remove marijuana and tetrahydrocannabinols in cannabis from the Controlled Substances Act entirely. The Attorney General would have 180 days to complete the conforming rulemaking, but the removal would be treated as effective as of the date of enactment for covered offenses, pending cases, convictions, and juvenile adjudications. 

That would end the legal fiction that cannabis has no accepted medical use and belongs in the same legal category as the most dangerous controlled substances.

It would also eliminate the application of Internal Revenue Code § 280E to lawful cannabis businesses. Section 280E denies ordinary business deductions to businesses trafficking in Schedule I or II substances. Once cannabis is no longer scheduled, the basis for applying § 280E to cannabis disappears. The sponsors expressly identify elimination of the cannabis industry’s current deduction restrictions as one of the bill’s primary business reforms.

For many operators, eliminating § 280E would be one of the most immediate and economically significant consequences of the bill.

States would remain in control, but not entirely

The CAOA would not require every state to legalize cannabis.

Unfortunately, states could continue prohibiting cannabis production, possession, and sales within their borders. While this “states rights” position is currently popular in policy circles, I think it is the wrong approach. States should not be able to prohibit products that are both federally lawful and lawful in other states. Cannabis entering a state for sale, storage, use, or consumption would remain subject to that state’s laws just as if it had been produced there. Federal law would also continue to punish significant trafficking outside state or federal authorization. 

However, states and Indian Tribes could not prohibit cannabis from being transported through their territory while moving between lawful markets. This is a necessary but limited interstate-commerce protection. The bill would not immediately create a completely open national cannabis market. A company could not simply ship products into a state that prohibits them. It would, however, reduce the ability of prohibition states to obstruct lawful commerce merely because a shipment passes through them.

Cannabis would become federally regulated, not deregulated

Descheduling does not mean that the federal government would step away from cannabis. The CAOA would create an extensive federal regulatory structure.

The Food and Drug Administration would establish a new Center for Cannabis Products within 90 days. The Center would oversee manufacturing, product safety, labeling, distribution, sales, adulteration, misbranding, inspections, records, corrective actions, and recalls. 

The Alcohol and Tobacco Tax and Trade Bureau would oversee federal permits, taxation, and trade practices. The legislation also contains diversion controls and gives federal agencies authority over cannabis products moving outside lawful state or federal systems. 

Among other things, the bill would:

• Prohibit recreational sales to people under 21;
• Prohibit retail sales of more than ten ounces in a single transaction;
• Prohibit cannabis products containing alcohol, caffeine, or nicotine;
• Establish federal labeling and packaging standards;
• Authorize inspections, seizure, corrective action, and mandatory recalls; and
• Require manufacturers and importers to maintain records and report certain product removals and corrections. 

Existing state-law cannabis products would receive an 18-month transition period if they were marketed under state law shortly before enactment. That transition is important, but businesses should not confuse it with permanent grandfathering. Products would eventually have to comply with the new federal framework. 

Federal taxes could be substantial

The bill would impose a federal excise tax on cannabis products.

The general rate would begin at 10% for the first two years, increase to 15%, then 20%, and ultimately reach 25%. After the initial period, the tax would convert into an equivalent weight- or THC-based structure tied to prevailing market prices. 

Qualifying domestic manufacturers would receive a credit equal to 50% of the tax on an eligible amount, subject to annual phase-in limits. For eligible production, that would effectively reduce the rates to 5%, 7.5%, 10%, and 12.5%. The credit would initially apply to up to $2 million in tax and phase up to $5 million in later years. 

The reduced rate helps, but the overall tax structure is still aggressive. Cannabis businesses already face substantial state excise taxes, local taxes, licensing fees, testing expenses, and compliance costs. Adding a federal tax that can reach 25% could strengthen illicit markets and place smaller operators at a disadvantage.

Removing § 280E while imposing a federal excise tax is still likely to be a net improvement for many operators. But the industry should not assume that federal legalization automatically means low taxes or inexpensive compliance.

Banking and access to capital would improve

The CAOA would significantly improve access to financial services.

FinCEN would be required to update its marijuana-banking guidance within 180 days, and federal banking regulators would develop uniform examination procedures for institutions serving lawful cannabis businesses. Banks would still have anti-money-laundering, customer-identification, and suspicious-activity obligations, but cannabis activity would no longer be treated as inherently criminal. 

The bill would also prohibit the Small Business Administration and participating lenders from denying otherwise available loans, guarantees, development services, microloans, disaster assistance, and other programs solely because the applicant is a lawful cannabis business or cannabis service provider. 

These provisions are extremely important. Cannabis businesses currently pay higher banking fees, face unstable payment processing, struggle to obtain ordinary commercial loans, and are often excluded from federal small-business programs available to virtually every other lawful industry.

Expungement and restorative justice are central to the bill

The CAOA contains important social equity provisions. It would require federal courts to expunge covered federal cannabis convictions and related arrests dating back to May 1, 1971. People currently incarcerated for qualifying federal cannabis offenses could seek resentencing or release. 

The bill would also protect access to federal benefits, reduce immigration consequences associated with cannabis use and possession, permit VA health-care providers to recommend participation in lawful cannabis programs, and create a Cannabis Justice Office within the Department of Justice. That office would administer grants for job training, reentry services, legal aid, and other programs benefiting communities disproportionately harmed by the War on Drugs. 

Federal cannabis reform that ignores the people punished under prohibition is incomplete. I am happy that the bill contains substantive equity provisions. 

WHAT ABOUT HEMP?

The new CAOA also attempts to address the federal hemp crisis scheduled for November.

Section 803 would establish a “total tetrahydrocannabinol equivalent” standard that includes delta-8 THC, delta-9 THC, delta-10 THC, THCA, and other substances with similar bodily effects. Most finished hemp products would qualify as hemp only if they contain no more than one milligram of total THC per 100 grams. Unprocessed plant material that has only been harvested, dried, cured, or trimmed could contain up to 0.7% total THC.

Those thresholds would not preserve the current hemp-product market unchanged. Many full-spectrum, intoxicating, and cannabinoid-rich products would no longer qualify as “hemp.”

Under the federal law scheduled to take effect in November, many products excluded from “hemp” return to Schedule I. Under the CAOA, cannabis itself would be descheduled. A product that exceeds the hemp threshold would generally move into the regulated cannabis system rather than becoming federally prohibited contraband.

That is a much more coherent approach. It recognizes that the meaningful question is how a product should be regulated, not whether one version of the cannabis plant should be legal while another version of the same plant should trigger the Controlled Substances Act.

The bill would also create a pathway for hemp-derived CBD to be marketed as a dietary supplement, subject to an FDA-established daily serving threshold, new dietary ingredient notification, and labeling and packaging requirements. FDA would also be directed to develop guidance for evaluating CBD as a food additive. 

My view

Cannabis should be descheduled. Full stop.

The federal government should stop pretending that cannabis prohibition is a workable public-health policy. It is not. It has produced arrests, incarceration, unequal enforcement, illicit markets, banking instability, distorted taxation, and enormous barriers for patients, consumers, researchers, and lawful businesses.

Schedule III is progress, but it is not the final answer, and at this moment in time it feels like “too little, too late”. Moving cannabis from one controlled-substance schedule to another preserves the core federal contradiction. Descheduling resolves it.

The CAOA gets that issue right. It also appropriately preserves state authority, addresses expungement, creates a lawful CBD pathway, opens banking and SBA programs, and prevents products that fail a revised hemp definition from automatically becoming Schedule I substances.

Still, Congress should be cautious about replacing prohibition with excessive taxation and regulatory complexity. A federal excise tax reaching 25%, layered on top of state and local taxes, is too high. A multi-agency permit system can easily become a gatekeeper that favors large, well-capitalized companies at the expense of small businesses. Social-equity grants and small-business credits are valuable, but they will not overcome a system whose basic operating costs exclude the very businesses Congress says it wants to protect.

Additionally, as I stated above, I think the “states’ rights” approach in which individual states can completely opt-out is wrongheaded. I’m in the minority on this policy issue, and I recognize that it is a useful political tool; however, people should not be prohibited from possessing and distributing products that are lawful under both federal law and the laws of most other states. 

The best cannabis reform policy is straightforward: keep products away from minors, require standardized quality control and testing, and require uniform labels that tell adults what they are buying. We do not need to recreate the burdensome parts of alcohol, tobacco, pharmaceuticals, and state marijuana licensing all at once.

What happens next?

The CAOA is a proposal, not law. Its 17 original Senate sponsors are Democrats, and the bill has no Republican original sponsors. Given its breadth, cost, tax provisions, and restorative-justice components, passage in its current form will be difficult without meaningful bipartisan support. In fact, the odds of it passing are depressingly low. However, this bill does continue the momentum and expand the cannabis conversation. 

Cannabis businesses should not change their operations today based on the bill. They should, however, pay close attention.

The CAOA is important for the cannabis debate. The question should no longer be whether cannabis belongs in Schedule I or Schedule III. The question should be how to regulate cannabis sensibly after removing it from the Controlled Substances Act.

That is the debate Congress should be having.

July 17, 2026