However, no major changes to federal marijuana prohibition have yet gained passage. Federal acceptance of cannabis extends only to so‐​called “industrial hemp,” which is produced for its fiber and contains minimal amounts of the psychoactive chemical tetrahydrocannabinol (THC).

Last October, the White House issued a “Statement from President Biden on Marijuana Reform.” It announced a pardon of all prior federal offenses of simple marijuana possession, urged governors to do the same, and asked the secretary of health and human services and the attorney general to initiate an administrative process to review how cannabis is currently scheduled. The statement contemplated federal law change but noted that if those changes happen, “important limitations on trafficking, marketing, and under‐​age sales should stay in place.”

Most of the proposed congressional legislation and Biden’s statement presume that a federal law change, even a scheduling change initiated by the Drug Enforcement Administration, must be accompanied by significant federal regulation of cannabis. However, the best federal policy to develop a successful national cannabis marketplace would be to remove it from the CSA and regulate it in a manner akin to alcohol.

Priorities / Over 90 percent of states have passed some form of cannabis liberalization legislation. So far, it has been impossible to judge the success of the myriad state policies in creating a functioning legal cannabis market because of significant continued barriers resulting from federal prohibition. Under Internal Revenue Code Section 280E, cannabis businesses are disallowed ordinary business deductions except for the Cost of Goods Sold, resulting in an effective tax rate that can exceed 70 percent even if they are legal in the state.

Cannabis companies also have difficulties in obtaining bank accounts. Although banks can provide financial services to state legal cannabis businesses, they are disincentivized from doing so by regulatory burdens imposed by the U.S. Treasury’s Financial Crimes Enforcement Guidance, including the requirement to file Suspicious Activity Reports for activities that are legal under state law.

Continued federal illegality has resulted in state siloed markets and no legal interstate markets. That artificially inflates the value of each state license to sell cannabis, especially in states that severely limit the number of licenses. This state siloed outcome creates a market with significant economic and environmental inefficiencies.

Finally, federal prohibition itself results in a great deal of uncertainty and instability in the industry, deterring investment, creating perverse incentives, and limiting growth. The Food and Drug Administration claims jurisdiction over all the state legal activity but has not regulated any of it, relying on Warning Letters to intimidate operators into unclear compliance. An arbitrary and non‐​global THC standard for hemp products has led to enforcement challenges and ongoing litigation. The continued federal illegality of Delta‑9 THC has led to the development of unregulated cannabinoids like Delta‑8 THC to circumvent federal illegality.

Any law that changes the federal status of cannabis should aim to reduce the barriers that have stunted the development of state legal cannabis markets. All these issues would be alleviated with a piece of federal legislation that removes cannabis from the CSA. However, without clear limits on the reach of federal regulation, a change in federal law would not necessarily stop ongoing battles between state operators and the DEA and FDA, especially as relates to the existing state medical cannabis programs that all violate FDA drug law.

What should Congress do? / Congress should defer the bulk of the power to regulate cannabis to the states, which have been the primary regulators of cannabis for almost three decades. Starting in 1996, California voters passed Proposition 215, making it the first state to legalize the use, possession, and cultivation of cannabis by medical patients. The California State Legislature supplemented Prop. 215 with legislation in 2004 that more formally regulates medical marijuana patients in the state. In 2010, Colorado became the first state to have a formal access program for medical patients. In 2012, Washington joined Colorado in permitting cannabis use for all adults.

It took almost two decades from when California first passed Prop. 215 for Congress to address the burgeoning state legalization trend. In 2014 it passed the Rohrabacher–Farr Amendment, which limited the use of federal enforcement dollars against state legal medical cannabis businesses. By then, 29 states had passed some form of cannabis liberalization. Despite adult‐​use cannabis being legal in 21 states in 2023, there has been no congressional legislation addressing the issue.

Cannabis legalization is incredibly popular among Americans. According to the Pew Research Center, about 90 percent of Americans think cannabis should be legal. This reality, plus the perceived potential to reap additional tax revenue, has motivated state and some federal lawmakers to move forward with regulatory and tax schemes that move beyond making cannabis legal to imposing significant taxes on businesses and consumers. Consequently, in the states that have legalized cannabis, the unlicensed and untaxed market has not disappeared. (See “Why Regulation Will Likely Keep Illegal Weed Dominant,” p. 44.) This is partially due to the challenges described above, but it is also an inevitable outcome of the states and localities imposing steep excise tax rates on marijuana, sometimes hovering over 30 percent. Merely passing legislation that legalizes cannabis at the federal level will not change that dynamic.

If Congress’s goal is to create a safer national marketplace for cannabis and effectively reap potential tax revenue, federal law must support the transition into a market that does not just compete with, but merges with, the existing state markets and booming illicit markets. Even though a sizable federal excise tax would make it more difficult to reduce the presence of the illegal market, most proposed legislation includes significant marijuana taxes to be imposed on top of state and local taxes.

The Constitution / It should not be assumed that Congress has broad powers to comprehensively regulate cannabis at the federal level, and it is very plausible that such legislation would be challenged by an industry group. In Gonzales v. Raich (2005), the Supreme Court upheld the federal CSA as a permissible exercise of Congress’s Commerce Clause powers. The Court found that Congress’s powers over interstate commerce extend to medical marijuana grown by patients in California, despite that being a completely intrastate activity. To arrive at that conclusion, the Court relied on the aggregate doctrine, developed in its 1942 decision Wickard v. Filburn involving wheat cultivation. In both cases, the Court relied on the idea that, although the activity in question itself is not interstate, it has the potential, in the aggregate, to substantially affect interstate commerce.

Thanks to Gonzales, it is often presumed that Congress’s Commerce Clause powers necessarily include the power to pass a comprehensive cannabis law. These assumptions ignore that central to the Court’s reasoning in Gonzales is the CSA’s status as a comprehensive federal criminal regulatory scheme with no exceptions. Allowing a state‐​level exception would make the entire system unenforceable. By comparison, the development of the cannabis industry has not been the result of comprehensive federal coordination, but rather each state has its own unique regulatory scheme.

A more recent case involving the constitutionality of the Affordable Care Act (ACA) may be more instructive. In National Federation of Independent Business v. Sebelius (2012), the Court found that regulating health care—an interstate activity—is not a permissible exercise of Congress’s Commerce Clause power because it is not regulating existing commerce but rather compelling commerce. Although many states have legalized cannabis, some have not, and some have only a limited medical market. The anti‐​commandeering principle disallows the federal government from forcing states to pass laws against their will. A federal law that mandates comprehensive federal regulation of cannabis could violate this principle by forcing states to legalize cannabis.

The Court’s jurisprudence is inconsistent and largely depends on the Court’s makeup. Still, it’s not hard to imagine that the current Court would be more inclined to limit federal overreach and be more willing to uphold a law under Congress’s taxing clause, as it did in the ACA case. Debates about possible federal cannabis legislation must consider how the law may be evaluated under Congress’s Commerce Clause powers. Passing a law that would likely be challenged and may be found unconstitutional would further frustrate the development of a national marketplace and unified federal policy for cannabis.

Conclusion / The most promising piece of comprehensive legislation that has been introduced is the States Reform Act (SRA). It imposes the lowest federal excise tax, limits the FDA’s jurisdiction to no more than what it has over alcohol, legislatively fixes several FDA‐​related problems, and includes some criminal justice measures such as expungement of prior cannabis‐​related records. But the SRA would still require state legal medical cannabis operators to apply for a nebulous FDA certification to sell their medical products in interstate commerce.

Federal movement on cannabis reform may be an inevitability, but it is still likely several years away because of a lack of unanimity among industry operators and lawmakers about what it should entail. Despite the continued challenges for state operators from federal illegality, a delay in comprehensive legalization may be for the best: it may be as difficult to fix a federal law legalizing cannabis that has many shortcomings as it would be to pass such a law in the first place.