Death & Taxes

During an interview earlier this week, California
Attorney General Kamala Harris acknowledged the “inevitability” of our State’s
legalization of the recreational use of cannabis. This is surely a welcome
development for California’s cannabis advocates who will rejoice if, and when, that
day occurs. But unfortunately that celebration may be short-lived if the
current conflict between federal and state law persists. Even in states such as
Washington and Colorado, where the recreational use of cannabis is legal, canna-businesses
are facing a host of financial problems caused by federal laws hindering their
success.

Lack of Access to Banking.

Banks are ultimately bound by federal
laws and thus are understandably wary of dealing with cannabis sale proceeds
for fear of violating federal law. As a result, many legal cannabis businesses have
no access to the country’s most basic banking services—e.g., they cannot apply
for a business loan or open a simple checking account—which has forced most of
these businesses to deal exclusively in cash.

In February, a memo issued by the U.S.
Department of Justice laid out strict, specific guidelines for banking
institutions to follow when providing financial services to cannabis-related
businesses. Though the guidelines were intended to make banks more comfortable
in dealing with cannabis businesses, the legal approach to banking for the cannabis
industry remains largely unsettled and has created a number of other problems
for cannabis businesses.

Getting Smoked on Taxes: Federal Tax Code 280E.

Another hurdle that is crippling the
success of cannabis business is the payment of overinflated federal taxes. Right
now medical cannabis businesses may pay 60 to 90 percent of their revenues in federal
taxes due to an obscure, old tax code provision called Section 280E.

Enacted by Congress in 1982, in
response to a notorious case where a mid level drug dealer deducted his
expenses from his taxes, this federal tax code, Section 280E, denies businesses
involved in the “trafficking” of controlled substances tax credits or
exemptions, meaning that any logistical expense associated with the sale of a
controlled substance, as defined under federal law, will no longer be
deductible.

Three decades later, this draconian law
is now being applied to state-sanctioned cannabis businesses on the basis that cannabis
is still considered illegal under federal law. The end result is that some cannabis
business owners cannot claim deductions on their federal tax returns for normal
and ordinary business expenses such as rent, utilities, and employee salaries,
which forces them to pay significantly higher taxes than other businesses.

Many finance experts in the industry
are able to distinguish this from “costs of goods sold” and thus some expenses
are deductible. The IRS has so far not expressed much interest in weighing in
on the matter except to point out that only Congress has the authority to stop
enforcing the tax code.

Conclusion:
One of the major draws to cannabis legalization and regulation is the promise
of tax revenue on the city, state, and federal level. If Congress doesn’t move
to amend the tax code, businesses are forced to continue operating in the
financial gray area, and Americans will never realize cannabis sales’ full
fiscal benefits. Therefore, it is imperative that you write your congressperson
and express these concerns!

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Hope you find this article
helpful. Contact Meital Manzuri for further help. Meital Manzuri is a Los
Angeles-based criminal defense attorney, speaker and consultant for patients,
collectives and dispensaries. If you have questions about medical cannabis or
any other criminal defense matters, she can be contacted via phone at (310)
601-3140 or www.Manzurilaw.com.