Tag: 280e

Reform the 280e Tax Code: The Feds Should Stop Profiting off Illegal Cannabis

While the huge sales numbers in legal states make headlines, they don’t tell the real story about the cannabis industry. The macro numbers of gross profits and revenue demonstrate the potential of the industry, but hidden within record-breaking sales reports are the trials and tribulations facing small businesses and entrepreneurs. Regulatory hurdles and over taxation are extremely burdensome to the industry, but the biggest obstacle to unleashing the potential of the cannabis industry (save for prohibition) is the 280E IRS tax code that prohibits cannabis businesses from deducting normal business expenses from their federal taxes.

While giant corporations, especially multinational ones, may be able to weather their tax burden, mom and pops are surviving on very small profit margins after they pay their taxes. Rolling Stone reported on how the 280E tax code allows the United States federal government to reap billions of dollars because of cannabis’ illegality at the federal level:

Because of the discrepancy between state and federal law, legal marijuana businesses are often stuck paying twice as much as normal businesses – effective rates of up to 70 percent – in federal taxes. Exactly how much extra tax revenue makes it to the feds because of marijuana’s illegality is not entirely clear. But last December, the Congressional Joint Committee on Taxation responded to a request from Colorado Senator Cory Gardner with the projected additional amount that will be collected from legal cannabis businesses between 2018 and 2027 if the drug remains federally illegal: $5 billion.

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The federal government’s legal weed windfall can be traced back to a little tax code provision called 280E, which says that anyone trafficking in Schedule I or Schedule II drugs cannot take deductions or receive credits on their taxes. It was written in the 1980s to prevent the Scarfaces of the world from writing off the cost of packaging for methamphetamine. But now that a majority of states have legalized the medical or recreational sale of marijuana, the 280E tax provision has become a key point of contention between the federal government and state-legal businesses.

So where did the Joint Committee on Taxation’s numbers come from? Several marijuana industry groups have done their own estimates of 280E’s impact, but the numbers that seem closest to what the JCT put out were developed by a Washington D.C. economic research firm hired by Tom Rodgers, a Native-American advocate and lobbyist. About 15 years ago, Rodgers was the whistleblower in the infamous Jack Abramoff case, helping authorities to uncover criminal lobbying and bribery activities that ultimately led to convictions for 21 people, including a congressman and two former Bush White House officials. These days, Rodgers has expanded his oeuvre to include some work on behalf of the cannabis industry. In 2016, in conjunction with a chain of Colorado marijuana dispensaries called the Green Solution, Rodgers commissioned the research firm to develop an analysis of 280E in the hopes of ultimately getting the provision repealed.

While we’ve seen cannabis legalization gain popularity, political support has also increased. We’ve seen Congress pass protections from federal arrest and prosecution for medical providers and the House has passed protections for adult-use businesses and banking services (but the Senate needs to catch up). Eventually, we’ll see some movement on the 280E tax code. Hopefully soon, Uncle Sam will stop profiting from keeping cannabis illegal and give the hard-working members of the cannabis industry, the same tax deductions that other businesses enjoy. If the cannabis community will make a point to support locally-owned cannabis boutiques like Kind Leaf, that money will flow back into local communities, where that green can do the most good.

Oregon Creates More Cannabis Jobs While California Suffers Losses

Legalizing and regulating cannabis has many economic and societal benefits as bringing cannabis out of the illegal market creates jobs, generates revenue and decreases harmful arrests, prosecutions, and jailings. It isn’t all happy unicorns and rainbows for the burgeoning industry however as overregulation and over taxation still hinder hard-working entrepreneurs’ ability to fully unleash the potential of the market, especially the federal 280e tax code that prevents the deduction of normal business expenses. The dastardly 280e tax code hits retailers the hardest, especially small businesses, so please support craft cannabis boutiques like Kind Leaf as much as you can.

Cannabis commerce has been implemented in several ways and it is difficult to get all of the details correct, especially while cannabis remains illegal under federal law. Some states have limited licenses while others, namely Oregon, initially set up system with relatively low barriers to entry, to bring in as many people into the regulated market as possible.

Opening up the cannabis industry to as many licensees as possible has been great for consumers, bringing prices down, but the competition has made making profits difficult. Oregon regulators eventually started limiting cultivating licenses, but with so many actors already in the market, the Beaver State still has low cannabis prices.

While Oregon certainly hasn’t gotten everything right, I think that it is safe to say that the state has done a better job than California. Oregon’s Southern Neighbor, unfortunately has been too slow to issue licenses and taxes definitely too damn high. As Jefferson Public Radio reports, the two states’ different methods have led to job markets going in the opposite direction as the Oregon cannabis industry continues to grow while California’s cannabis jobs actually decreased:

Although recreational marijuana has been legal in Oregon for about six years, the industry continues to see job growth. Meanwhile, California’s marijuana job numbers decreased in 2019.

That’s according to a new report by Leafly, a Seattle-based cannabis publication and phone app, which recorded a 20 percent increase in marijuana industry jobs in Oregon last year.

Leafly uses state data and market sizes to estimate the number of full-time equivalent jobs in the legal marijuana industry — including farmers, trimmers, and botanists, as well as administrative staff. It doesn’t include workers who primarily work with hemp or CBD products.

Oregon, with 18,200 industry jobs, experienced a 20% increase while California, with 39,800 jobs, suffered 8,000 job losses. Leafly’s report pointed to local California regulations, especially with 2/3 of localities banning retail businesses as the culprit. Also, compared to Oregon’s maximum 20% tax rate, California’s cannabis taxes, which can range between 45% to 80% depending on your product and locality, is just too damn high.

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United States Government Collects Billions from Cannabis Businesses, Time to Treat them Fairly

The cannabis community and industry has made some great achievements in recent years, thanks to a ton of hard work by advocates and entrepreneurs. While those of us in the trenches can take pride in ending harmful arrests and helping generate revenue for our communities, it can be a bit frustrating when so many people think that political change is inevitable and that making a living in the cannabis industry is easy.

The truth of the matter is that we have improved our cannabis laws thanks to decades of hard work and sacrifices by a lot of people, many of whom haven’t lived to see the fruits of their labor. People that don’t know folks directly involved in the cannabis industry, are often under the impression that retailers, processors, and growers are just raking in big bucks; they have no idea the amount of work it takes to just stay afloat, let alone make a decent profit. Cannabis industry entrepreneurs are shattering the “lazy stoner” stereotypes by putting in long hours and sacrificing so much to forge their own American Dream.

Unfortunately, hard working business people are trying to earn a living with one hand tied behind their backs as they are often prevented from having access to ordinary banking services and they are taxed at an exorbitant rate thanks to the 280e IRS tax code as Quartz reported:

Although marijuana is illegal under federal law, cannabis businesses in the United States still pay federal taxes on gross income. They are not allowed any deductions or credits for business expenses, by law, which can mean an effective federal tax rate as high as 90%.

The US government collected an estimated $4.7 billion in taxes from cannabis companies in 2017 on nearly $13 billion in revenue. Unlike most American businesses, which pay electronically or by check, most of these marijuana firms are unbanked and were forced to pay their federal taxes in cash, something the IRS is still trying to get a handle on.

Change will eventually come, thanks to many people putting in a ton of work, but reforms really can’t come fast enough. A banking bill has a chance to pass Congress this year, but it’ll take the cannabis community and their supporters to step up and demand change. You can help by contacting your United States Senators. If you are an Idaho voter, please let Senator Mike Crapo know how much you support legalizing normal banking services for state-regulated cannabis businesses. People’s livelihoods literally depend upon it.