Sec. 502. Cannabis Revenue and Regulation Act

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Subtitle E of title I of the Internal Revenue Code of 1986 is amended by adding at the end the following new chapter: Subchapter A—IMPOSITION OF TAX Sec. 5901. Imposition of tax. Sec. 5902. Definitions. Sec. 5903. Liability and method of payment. Sec. 5904. Exemption from tax. Sec. 5905. Credit, refund, or drawback of tax. Subchapter B—OPERATIONS Sec. 5911. Inventories, reports, and records. Sec. 5912. Packaging and labeling. Sec. 5913. Purchase, receipt, possession, or sale of cannabis products after removal.

Sec. 5914. Restrictions relating to marks, labels, notices, and packages. Sec. 5915. Restriction on importation of previously exported cannabis products. Subchapter C—PENALTIES Sec. 5921. Civil penalties. There is hereby imposed on any cannabis product produced in or imported into the United States a tax equal to 3 percent of the removal price of such a cannabis product sold in the United States during the 12-month period ending 1 calendar quarter before such calendar year. There is hereby imposed, notwithstanding any other law, including, but not limited to the Congressional Budget and Impoundment Control Act of 1974 ( Public Law 93–344 , 88 Stat. 297, 2 U.S.C. 601–688 ), for the 10 calendar years following the passage of this Act, a moratorium on increasing the excise tax imposed on cannabis products by this section 5901.

Such moratorium may be waived before the 10 year timeframe by a three-quarters vote to do so by both Houses of Congress. For the purposes of subsection (a), the Secretary shall impose the tax on the removal price— per 454 grams of cannabis flower, per 100 grams of cannabis pre-rolls, per 20 grams of cannabis extracts, per 10 grams of cannabis vaporizer cartridges, of 20 units of edible cannabis product, and of 20 units of cannabis topical or cosmetic product. For the purposes of subsection (c), the Secretary may, under the processes of the Administrative Procedure Act ( 5 U.S.C. 500 et seq. ), undertake formal rulemaking to establish new removal price categories and bases for cannabis products that are not covered under subsection (c)(1).

The Secretary may, consistent with the Administrative Procedure Act ( 5 U.S.C. 500 et seq. ), further clarify the application of subsection (c)(1). The tax under this section shall attach to any cannabis product as soon as such product is in existence as such, whether it be subsequently separated or transferred into any other substance, either in the process of original production or by any subsequent process. Raw cannabis not yet delivered to a producer for processing, manufacturing, or production shall not be considered a product in existence for the purposes of this subsection (d).

For purposes of this chapter: Except as provided in subparagraph (B), the term cannabis product means any article that contains or consists of cannabis. The term cannabis product does not include an FDA-approved article, industrial hemp, or the unproduced, raw agricultural commodity of cannabis. The term FDA-approved article means any article if the producer or importer thereof demonstrates to the satisfaction of the Secretary of Health and Human Services that such article is— a drug— that is approved under section 505 of the Federal Food, Drug, and Cosmetic Act or licensed under section 351 of the Public Health Service Act, or for which an investigational use exemption has been authorized under section 505(i) of the Federal Food, Drug, and Cosmetic Act or under section 351(a) of the Public Health Service Act, a combination product (as described in section 503(g) of the Federal Food, Drug, and Cosmetic Act), the constituent parts of which were approved or cleared under section 505, 510(k), or 515 of such Act, or a designated State medical cannabis product within the meaning of part J of subchapter V of chapter 9 of title 21, United States Code (the Federal Food, Drug, and Cosmetic Act).

The term cannabis has the same meaning given to the term marihuana under section 102(16) of the Controlled Substances Act ( 21 U.S.C. 802(16) ). The term industrial hemp has the same meaning given to the term industrial hemp in section 297A of the Agricultural Marketing Act of 1946 ( 7 U.S.C. 1621 et seq. ) (codified at 7 U.S.C. 5940(b)(2) ). For purposes of this chapter: The term cannabis business means a producer, importer, or export warehouse proprietor. The term producer means any person who manufactures, produces, compounds, converts, processes, prepares, or packages any cannabis product.

Subject to regulation prescribed by the Secretary, the term producer shall not include any individual otherwise described in subparagraph

(A)if the only cannabis product described in such subparagraph with respect to such individual is for personal or family use and not for sale. A producer does not mean a person who plants, cultivates, harvests, grows the raw agricultural commodity of cannabis not yet finished into a produced article for consumption. This provision shall not be constructed as precluding a cannabis farmer from also being a cannabis producer within the same enterprise. The term importer means any person who— is in the United States and to whom non-tax-paid cannabis products, produced in a foreign country or a possession of the United States, are shipped or consigned, removes cannabis products for sale or consumption in the United States from a customs warehouse, or smuggles or otherwise unlawfully brings any cannabis product into the United States. The term export warehouse proprietor means any person who operates an export warehouse. The term export warehouse means an internal revenue warehouse for the storage of cannabis products, upon which the internal revenue tax has not been paid— for subsequent shipment to a foreign country or a possession of the United States, or for consumption beyond the jurisdiction of the internal revenue laws of the United States. The term cannabis production facility means an establishment that is qualified under subchapter C to perform any operation for which such qualification is required under such subchapter. For purposes of this chapter— The term produce includes any activity described in subsection (b)(2)(A). The terms removal or remove mean— the transfer of cannabis products from the premises of a producer (or the transfer of such products from the premises of a producer to the premises of such producer), release of such products from customs custody, or smuggling or other unlawful importation of such products into the United States. The term removal price means— except as otherwise provided in this paragraph, the price for which the cannabis product is sold in the sale that occurs in connection with the removal of such product, in the case of any such sale that is described in section 5903(c), the price determined under such section, and if there is no sale that occurs in connection with such removal, the price that would be determined under section 5903(c) if such product were sold at a price that cannot be determined. The producer or importer of any cannabis product shall be liable for the taxes imposed thereon by section 5901. When cannabis products are transferred, without payment of tax, pursuant to subsection

(b)or

(c)of section 5904— except as provided in clause (ii), the transferee shall become liable for the tax upon receipt by the transferee of such articles, and the transferor shall there-upon be relieved of their liability for such tax, and in the case of cannabis products that are released from customs custody for transfer to the premises of a producer, the transferee shall become liable for the tax on such articles upon release from customs custody, and the importer shall thereupon be relieved of their liability for such tax. All provisions of this chapter applicable to cannabis products shall be applicable to such articles returned upon withdrawal from the market or returned after previous removal for a tax-exempt purpose. The taxes imposed by section 5901 shall be paid on the basis of return. The Secretary shall, by regulations, prescribe the period or the event to be covered by such return and the information to be furnished on such return. In the case of any transfer to which subsection (a)(2)(A) applies, the tax under section 5901 on the transferee shall (if not otherwise relieved by reason of a subsequent transfer to which such subsection applies) be imposed with respect to the removal of the cannabis product from the premises of the transferee. Any postponement under this subsection of the payment of taxes determined at the time of removal shall be conditioned upon compliance with such requirements, as the Secretary may prescribe for the protection of the revenue. The Secretary may, by regulations, require payment of tax on the basis of a return prior to removal of the cannabis products where a person defaults in the postponed payment of tax on the basis of a return under this subsection or regulations prescribed thereunder. All administrative and penalty provisions of this title, as applicable, shall apply to any tax imposed by section 5901. Except as otherwise provided in this paragraph, in the case of taxes on cannabis products removed during any semimonthly period for deferred payment of tax, the last day for payment of such taxes shall be the 14th day after the last day of such semimonthly period. In the case of cannabis products that are imported into the United States, the following provisions shall apply: The last day for payment of tax shall be the 14th day after the last day of the semimonthly period during which the article is entered into the customs territory of the United States. Except as provided in clause (iv), in the case of an entry for warehousing, the last day for payment of tax shall not be later than the 14th day after the last day of the semimonthly period during which the article is removed from the first such warehouse. Except as provided in clause

(iv)and in regulations prescribed by the Secretary, articles brought into a foreign trade zone shall, notwithstanding any other provision of law, be treated for purposes of this subsection as if such zone were a single customs warehouse. Clauses

(ii)and

(iii)shall not apply to any article that is shown to the satisfaction of the Secretary to be destined for export. In the case of cannabis products that are brought into the United States from Puerto Rico and subject to tax under section 7652, the last day for payment of tax shall be the 14th day after the last day of the semimonthly period during which the article is brought into the United States. Notwithstanding section 7503, if, but for this subparagraph, the due date under this paragraph would fall on a Saturday, Sunday, or a legal holiday (as defined in section 7503), such due date shall be the immediately preceding day that is not a Saturday, Sunday, or such a holiday. In the case of any cannabis products produced in the United States at any place other than the premises of a producer that has obtained the permit required under this chapter, tax shall be due and payable immediately upon production. Any person who in any 12-month period, ending December 31, was liable for a gross amount equal to or exceeding $1,000,000 in taxes imposed on cannabis products by section 5901 (or section 7652) shall pay such taxes during the succeeding calendar year by electronic fund transfer (as defined in section 5061(e)(2)) to a Federal Reserve Bank. Rules similar to the rules of section 5061(e)(3) shall apply to the $1,000,000 amount specified in the preceding sentence. If an article is sold directly to consumers, sold on consignment, or sold (otherwise than through an arm’s length transaction) at less than the fair market price, or if the price for which the article sold cannot be determined, the tax under section 5901(a) shall be computed on the price for which such articles are sold, in the ordinary course of trade, by producers thereof, as determined by the Secretary. For purposes of this section, a sale is considered to be made under circumstances otherwise than at arm’s length if— the parties are members of the same controlled group, whether or not such control is actually exercised to influence the sale price, the parties are members of a family, as defined in section 267(c)(4), or the sale is made pursuant to special arrangements between a producer and a purchaser. The term controlled group has the meaning given to such term by subsection

(a)of section 1563, except that more than 50 percent shall be substituted for at least 80 percent each place it appears in such subsection. Under regulations prescribed by the Secretary, principles similar to the principles of subclause

(I)shall apply to a group of persons under common control where one or more of such persons is not a corporation. In determining, for the purposes of this chapter, the price for which an article is sold, there shall not be included any charge for coverings and containers of whatever nature, and any charge incident to placing the article in condition packed ready for shipment. Further, there shall be excluded the amount of tax imposed by this chapter, whether or not stated as a separate charge. A transportation, delivery, insurance, installation, or other charge (not required by the preceding sentence to be included) shall likewise be excluded from the price. There shall be paid upon each payment with respect to the article a percentage of such payment equal to the rate of tax in effect on the date such payment is due in the case of— a contract for the sale of an article wherein it is provided that the price shall be paid by installments and title to the article sold does not pass until a future date notwithstanding partial payment by installments, a conditional sale, or a chattel mortgage arrangement wherein it is provided that the sales price shall be paid in installments. If installment accounts, with respect to payments on which tax is being computed as provided in paragraph (1), are sold or otherwise disposed of, then paragraph

(1)shall not apply with respect to any subsequent payments on such accounts (other than subsequent payments on returned accounts with respect to which credit or refund is allowable by reason of section 6416(b)(5)), but instead— there shall be paid an amount equal to the difference between— the tax previously paid on the payments on such installment accounts, and the total tax that would be payable if such installment accounts had not been sold or otherwise disposed of (computed as provided in paragraph (1)), except that if any such sale is pursuant to the order of, or subject to the approval of, a court of competent jurisdiction in a bankruptcy or insolvency proceeding, the amount computed under subparagraph

(A)shall not exceed the sum of the amounts computed by multiplying— the proportionate share of the amount for which such accounts are sold that is allocable to each unpaid installment payment, by the rate of tax under this chapter in effect on the date such unpaid installment payment is or was due. The sum of the amounts payable under this subsection in respect of the sale of any article shall not exceed the total tax. Cannabis products on which the internal revenue tax has not been paid or determined may, subject to such regulations as the Secretary shall prescribe, be withdrawn from the premises of any producer in approved containers free of tax and not for resale for use— exclusively in scientific research by a laboratory, by a proprietor of a cannabis production facility in research, development, or testing (other than consumer testing or other market analysis) of processes, systems, materials, or equipment, relating to cannabis or cannabis operations, under such limitations and conditions as to quantities, use, and accountability as the Secretary may by regulations require for the protection of the revenue, by the United States or any governmental agency thereof, any State, any political subdivision of a State, or the District of Columbia, for nonconsumption purposes, or by a qualified State medical cannabis patient or patients, when the cannabis product is 100 percent donated to the patient or patients, and such a donated article otherwise qualifies for use as a designated State medical cannabis product within the meaning of section 360ggg of the Federal Food, Drug, and Cosmetic Act Federal Food, Drug, and Cosmetic Act. Subject to such regulations as the Secretary shall prescribe, a producer or export warehouse proprietor may transfer cannabis products, without payment of tax, to the premises of another producer or export warehouse proprietor, or remove such articles, without payment of tax, for shipment to a foreign country, Puerto Rico, the Virgin Islands, or a possession of the United States, or for consumption beyond the jurisdiction of the internal revenue laws of the United States. Cannabis products may not be transferred or removed under this subsection unless such products bear such marks, labels, or notices as the Secretary shall by regulations prescribe. Cannabis products imported or brought into the United States may be released from customs custody, without payment of tax, for delivery to a producer or export warehouse proprietor if such articles are not put up in packages, in accordance with such regulations as the Secretary shall prescribe. Cannabis products classifiable under item 9801.00.10 of the Harmonized Tariff Schedule of the United States (relating to duty on certain articles previously exported and returned), as in effect on the date of the enactment of the States Reform Act, may be released from customs custody, without payment of that part of the duty attributable to the internal revenue tax for delivery to the original producer of such cannabis products or to the export warehouse proprietor authorized by such producer to receive such products, in accordance with such regulations as the Secretary shall prescribe. Upon such release such products shall be subject to this chapter as if they had not been exported or otherwise removed. Credit or refund of any tax imposed by this chapter or section 7652 shall be allowed or made (without interest) to the producer, importer, or export warehouse proprietor on proof satisfactory to the Secretary that the claimant producer, importer, or export warehouse proprietor has paid the tax on— cannabis products withdrawn from the market by the claimant, or such products lost (otherwise than by theft) or destroyed, by fire, casualty, or act of God, while in the possession or ownership of the claimant. No tax shall be collected in respect of cannabis products lost or destroyed, except that such tax shall be collected— in the case of loss by theft, unless the Secretary finds that the theft occurred without connivance, collusion, fraud, or negligence on the part of the proprietor of cannabis production facility, or owner, consignor, consignee, bailee, or carrier, or their employees or agents, in the case of voluntary destruction, unless such destruction is carried out as provided in paragraph (3), and in the case of an unexplained shortage of cannabis products. In any case in which cannabis products are lost or destroyed, whether by theft or otherwise, the Secretary may require the proprietor of a cannabis production facility or other person liable for the tax to file a claim for relief from the tax and submit proof as to the cause of such loss. In every case where it appears that the loss was by theft, the burden shall be upon the proprietor of the cannabis production facility or other person responsible for the tax under section 5901 to establish to the satisfaction of the Secretary that such loss did not occur as the result of connivance, collusion, fraud, or negligence on the part of the proprietor of the cannabis production facility, or owner, consignor, consignee, bailee, or carrier, or their employees or agents. In any case where the tax would not be collectible by virtue of subparagraph (A), but such tax has been paid, the Secretary shall refund such tax. Except as provided in subparagraph (E), no tax shall be abated, remitted, credited, or refunded under this paragraph where the loss occurred after the tax was determined. The abatement, remission, credit, or refund of taxes provided for by subparagraphs

(A)and

(C)in the case of loss of cannabis products by theft shall only be allowed to the extent that the claimant is not indemnified against or recompensed in respect of the tax for such loss. The provisions of this paragraph shall extend to and apply in respect of cannabis products lost after the tax was determined and before completion of the physical removal of the cannabis products from the premises. The proprietor of a cannabis production facility or other persons liable for the tax imposed by this chapter or by section 7652 with respect to any cannabis product may voluntarily destroy such products, but only if such destruction is under such supervision and under such regulations as the Secretary may prescribe. Any claim for credit or refund of tax under this subsection shall be filed within 6 months after the date of the withdrawal from the market, loss, or destruction of the products to which the claim relates, and shall be in such form and contain such information as the Secretary shall by regulations prescribe. There shall be an allowance of drawback of tax paid on cannabis products, when shipped from the United States, in accordance with such regulations as the Secretary shall prescribe. Every cannabis business shall maintain inventories required by section 471 of title 26, Internal Revenue Code, as the Secretary shall by formal rulemaking prescribe, with such inventories to be subject to verification by any Internal Revenue official during business hours, in such form, at such times, and for such periods as the Secretary shall by formal rulemaking prescribe. The formal rulemaking shall take into consideration existing State reporting and inventory tracking mechanisms and be compatible with existing State reporting and inventory tracking mechanisms to the extent possible. The formal rulemaking may allow for the creation of Federal processes and systems to supplement, and that are compatible with, existing State tracking and reporting mechanisms. Rulemaking with respect to this section 5911 shall take place pursuant to the Administrative Procedure Act ( 5 U.S.C. 500 et seq. ) and encompass Paperwork Reduction Act considerations. The Secretary shall provide an annual report on the inventories, sales, and origin of reported cannabis products. All cannabis products shall, before removal, be put up in such packages as the Secretary shall by regulation prescribe. Every package of cannabis products shall, before removal, bear the marks, labels, and notices, if any, that the Secretary by regulation prescribes, including, but not limited to, the total amount of THC or tetrahydrocannabinol. No certificate, coupon, or other device purporting to be or to represent a ticket, chance, share, or an interest in, or dependent on, the event of a lottery shall be contained in, attached to, or stamped, marked, written, or printed on any package of a cannabis product or cannabis products. Subject to regulations prescribed by the Secretary, cannabis products may be exempted from subsections

(a)and

(b)if such products are— for experimental purposes, or transferred to the premises of another producer or export warehouse proprietor or released from customs custody for delivery to a producer. No person shall— with intent to defraud the United States, purchase, receive, possess, offer for sale, or sell or otherwise dispose of, after removal, any cannabis products— upon which the tax has not been paid or determined in the manner and at the time prescribed by this chapter or regulations thereunder, or that, after removal without payment of tax pursuant to section 5904(a), have been diverted from the applicable purpose or use specified in that section, with intent to defraud the United States, purchase, receive, possess, offer for sale, or sell or otherwise dispose of, after removal, any cannabis products that are not put up in packages as required under section 5912 or that are put up in packages not bearing the marks, labels, and notices, as required under such section, or otherwise than with intent to defraud the United States, purchase, receive, possess, offer for sale, or sell or otherwise dispose of, after removal, any cannabis products that are not put up in packages as required under section 5912 or that are put up in packages not bearing the marks, labels, and notices, as required under such section. Paragraph

(3)of subsection

(a)shall not prevent the sale or delivery of cannabis products directly to consumers from proper packages, nor apply to such articles when so sold or delivered. Any person who possesses cannabis products in violation of paragraph

(1)or

(2)of subsection

(a)shall be liable for a tax equal to the tax on such articles. No person shall, with intent to defraud the United States, destroy, obliterate, or detach any mark, label, or notice prescribed or authorized, by this chapter or regulations thereunder, to appear on, or be affixed to, any package of cannabis products before such package is emptied. Cannabis products produced in the United States and labeled for exportation under this chapter— may be transferred to or removed from the premises of a producer or an export warehouse proprietor only if such articles are being transferred or removed without tax in accordance with section 5904, may be imported or brought into the United States, after their exportation, only if such articles either are eligible to be released from customs custody with the partial duty exemption provided in section 5904(d) or are returned to the original producer of such article as provided in section 5904(c), and may not be sold or held for sale for domestic consumption in the United States unless such articles are removed from their export packaging and repackaged by the original producer into new packaging that does not contain an export label. This section shall apply to articles labeled for export even if the packaging or the appearance of such packaging to the consumer of such articles has been modified or altered by a person other than the original producer so as to remove or conceal or attempt to remove or conceal (including by the placement of a sticker over) any export label. For purposes of this section, section 5904(d), section 5921, and such other provisions as the Secretary may specify by regulations, references to exportation shall be treated as including a reference to shipment to the Commonwealth of Puerto Rico. For purposes of this section, an article is labeled for export or contains an export label if it bears the mark, label, or notice required under section 5904(b). Whoever willfully omits, neglects, or refuses to comply with any duty imposed upon them by this chapter, or to do, or cause to be done, any of the things required by this chapter, or does anything prohibited by this chapter, shall in addition to any other penalty provided in this title, be liable to a penalty of $10,000, to be recovered, with costs of suit, in a civil action, except where a penalty under subsection

(b)or

(c)or under section 6651 or 6653 or part II of subchapter A of chapter 68 may be collected from such person by assessment. Whoever fails to pay any tax imposed by this chapter at the time prescribed by law or regulations, shall, in addition to any other penalty provided in this title, be liable to a penalty of 10 percent of the tax due but unpaid. Every person who— sells, relands, or receives within the jurisdiction of the United States any cannabis products that have been labeled or shipped for exportation under this chapter, sells or receives such relanded cannabis products, or aids or abets in such selling, relanding, or receiving, shall, in addition to the tax and any other penalty provided in this title, be liable for a penalty equal to the greater of $10,000 or 10 times the amount of the tax imposed by this chapter. All cannabis products relanded within the jurisdiction of the United States shall be forfeited to the United States and destroyed. All vessels, vehicles, and aircraft used in such relanding or in removing such cannabis products from the place where relanded, shall be forfeited to the United States. The penalties imposed by subsections

(b)and

(c)shall be assessed, collected, and paid in the same manner as taxes, as provided in section 6665(a). For penalty for failure to make deposits or for overstatement of deposits, see section 6656. Whoever, with intent to defraud the United States— engages in business as a cannabis business without filing the application and obtaining the permit where required by this chapter or regulations thereunder, fails to keep or make any record, return, report, or inventory, or keeps or makes any false or fraudulent record, return, report, or inventory, required by this chapter or regulations thereunder, refuses to pay any tax imposed by this chapter, or attempts in any manner to evade or defeat the tax or the payment thereof, sells or otherwise transfers, contrary to this chapter or regulations thereunder, any cannabis products subject to tax under this chapter, or purchases, receives, or possesses, with intent to redistribute or resell, any cannabis product— upon which the tax has not been paid or determined in the manner and at the time prescribed by this chapter or regulations thereunder, or that, without payment of tax pursuant to section 5904, have been diverted from the applicable purpose or use specified in that section, shall, for each such offense, be fined not more than $10,000, or imprisoned not more than 5 years, or both. Any person who possesses cannabis products in violation of subsection

(f)shall be liable for a tax equal to the tax on such articles. .

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