Craft cannabis boutiques like Kind Leaf, their customers, and local communities are hurt by the dreaded IRS 280E tax code that prohibits most normal business tax deductions for cannabis retailers. While the effective 70%+ tax burden is bad enough, the headlines about record-breaking sales often leads legislators, policymakers, and voters to support higher local taxes and fees (often aided by large multinational corporations that are better suited to withstand the unnecessary costs). Cannabis businesses are often forced to pass along expenses to their customers in an effort to stay in business while the headlines about the money being brought in by the industry provide a misleading picture of the real world economic situation. Unfortunately, the United States Supreme Court refused to hear Colorado dispensary Standing Akimbo‘s challenge of the unfair 280E tax burden, but one silver lining was Justice Clarence Thomas’ concurring opinion that questions federal cannabis prohibition altogether, as NBC News reported:
“Clarence Thomas, one of the Supreme Court‘s most conservative justices, said Monday that because of the hodgepodge of federal policies on marijuana, federal laws against its sale or cultivation may no longer make sense.
“‘A prohibition on interstate use or cultivation of marijuana may no longer be necessary or proper to support the federal government’s piecemeal approach,’ he wrote.
“His views came as the court declined to hear the appeal of a Colorado medical marijuana dispensary that was denied federal tax breaks that other businesses are allowed.”
Justice Thomas, from his statement:
“At issue here is a provision of the Tax Code that allows most businesses to calculate their taxable income by subtracting from their gross revenue the cost of goods sold and other ordinary and necessary business expenses, such as rent and employee salaries. But because of a public-policy provision in the Tax Code, companies that deal in controlled substances prohibited by federal law may subtract only the cost of goods sold, not the other ordinary
and necessary business expenses. See 26 U. S. C. §280E. Under this rule, a business that is still in the red after it
pays its workers and keeps the lights on might nonetheless owe substantial federal income tax.”
Justice Thomas is correct in concluding that cannabis businesses do not enjoy “equal treatment” under the law and that federal prohibition is un “unstable” policy that lacks coherence. Congress needs to step up and reform the IRS tax code and allow normal banking services. Hardworking small business owners and those that support them are unnecessarily seeing money flow to Washington, D.C., instead of remaining in their local communities where they can do the most good. Everyday we take a step closer to ending Reefer Madness prohibition, but common sense in government can certainly move at a snail’s pace far too often.