Select Page

Death and Taxes…and the Death of Taxes

by | Sep 29, 2022 | Taxes

How Section 280E Harms the Legal Cannabis Industry

As Benjamin Franklin once famously declared, “in this world, nothing is certain except death and taxes.” He neglected to mention that those “certain” taxes often resulted in uncertainty for those who pay them.

In an industry defined by barriers to entry, constant legal challenges, and burdensome regulations and restrictions, an outdated tax code is the last thing legal cannabis businesses need.

Behold: Internal Revenue Code (IRC) Section 280E.

Deep in the Internal Revenue Service’s mountain of tax provisions (known as the Internal Revenue Code) lies a little-known provision that has consequential implications for legal cannabis businesses. Section 280E is simple—those “trafficking” Schedule I and II substances are prohibited from claiming tax deductions and credits when paying federal income tax. Since cannabis is still categorized by the federal government as a Schedule I substance under the Controlled Substances Act, even businesses that operate legally under state authority and regulation are subject to prohibitionist federal policies like Section 280E. Further, most states (even those with legal cannabis) conform their tax laws to Section 280E, extending restrictions into state tax deductions.

For the typical non-cannabis business calculating their federal tax liabilities,the cost of goods sold (COGS) and “ordinary and necessary” business expenses (such as employee salaries, rent, insurance, etc.) are deducted from their taxable income. Under Section 280E, cannabis businesses are only permitted to deduct COGS, while those ordinary and necessary expenses are deemed non-deductible. Examples of ordinary and necessary expenses that all other businesses typically deduct from their tax liability include employee salaries, utilities, license fees, and professional services. As a result, cannabis businesses pay a substantially higher amount of federal income taxes compared to non-cannabis businesses—total rates as high as 75-80% according to some reports. 

Combine this reality with other tax burdens, like state corporate income taxes, state sales taxes, state excise taxes, and local sales taxes, it’s abundantly clear that cannabis businesses face a taxation nightmare. The current tax environment recognizes the cannabis industry as a cash cow—but by no means is this cow free to graze. By maintaining prohibition, the federal government is athanksble to generate more tax revenue on the backs of cannabis businesses,  to Section 280E.

A few states have brought some tax relief to cannabis operators by decoupling their state tax code from Section 280E. In 2019, California eliminated the state’s conformity with Section 280E, allowing cannabis businesses to deduct their ordinary and necessary expenses when paying state income taxes. Oregon’s adult-use legalization ballot measure included a provision that exempts cannabis businesses from Section 280E restrictions within the state tax code—and even allows them to deduct expenses for any federal deduction that would otherwise be disallowed under Section 280E.

States that have legalized cannabis should waste no time in addressing this prohibitionist and predatory tax provision. Decoupling from Section 280E is a straightforward, albeit incomplete, path toward putting cannabis businesses on a level playing field with the rest of the economy. It’s a relatively easy legislative fix that can bring significant relief to struggling entrepreneurs and gain favor with cannabis-conscious voters. At the federal level, relieving legal cannabis businesses of Section 280E restrictions would be a significant and underrated achievement. 

With federal legalization unlikely to occur anytime soon, the cannabis industry is in dire need of some wins—even if that only involves an exemption from a small federal tax provision. The cannabis industry and voters nationwide won’t let it go unnoticed.

Normalizing Nature

by | Aug 23, 2022 | Democracy, Social Stigma

Embracing Discomfort to Drive Change

“If the hideous monster Frankenstein came face to face with the monster of marijuana he would drop dead of fright.” Harry J. Anslinger.

Mr. Anslinger, the infamous father of cannabis prohibition, ignited an era of ignorance, fear-mongering, and injustice with his notorious role at the Federal Bureau of Narcotics. Together with future like-minded prohibitionists like Presidents Nixon and Reagan, Anslinger and his allies transformed the American psyche: provoking terror, inflaming racist tropes, and using outright deception to drive a rift between society and cannabis—a plant that has been alongside civilizations for millennia. 

Fortunately, the era of “Reefer Madness” and “devil’s lettuce” is ending; citizens are clearing the mist of government-sponsored disinformation, and the political motivations behind prohibition are now more apparent than ever. Today, an overwhelming majority of Americans live in a state where cannabis is legal in some form, with 19 states having legalized cannabis for adult-use, and many more recognizing its medicinal value. There is no doubt that those who choose to remain in the Plato-esque cave of prohibition are choosing to be detached from reality.

Even with growing social acceptance of the plant in recent years, publicly associating oneself with cannabis is difficult for many and impossible for others. Despite the rapidly-accelerating legalization movement, cannabis continues to carry a lot of baggage with respect to employment, social norms, and stereotypes. Much of the nation’s workforce can still be fired and discriminated against for cannabis use—even for doctor-approved medical applications. Entrepreneurs and professionals are currently building legal cannabis business empires, but simply cross a state border and that entrepreneurial spirit quickly becomes a criminal conspiracy. Even with a supermajority of support across America, cannabis consumers are often portrayed as lazy and unintelligent. Further, an individual’s support for legalization does not preclude any stereotypes they may hold regarding cannabis use.

Aside from factual inaccuracies, negative stereotypes for cannabis disregard personal responsibility and autonomy. These stigmas simply blame a flower for any shortcomings that an individual may face—redirecting blame to avoid nuance. To help dispel some stereotypes, and normalize nature, I’d like to share my experience with Anslinger’s “monster of marijuana.” Sharing personal experiences is often uncomfortable, but necessary to move the needle forward. More on that later.

I, like many in my generation, first tried cannabis at an admittedly too-young and immature stage of life, and we had the occasional run-in throughout college. With my curious inclinations, I educated myself about cannabis at a fairly young age and long before I actually used it. I gravitated toward more esoteric aspects of cannabis than most; I developed a keen interest in the plant’s history, its use as a medicine, and its budding re-acceptance in society.

After endless hours of conducting my own research and confronting the bold-faced lies of a society gone wrong (and with a little nudge from legalization in my home state), I detached myself from the myths propagated by the War on Drugs. I soon discovered that with a healthy amount of caution and education, this flower and I got along quite well. Cannabis did not make my brain foggy—it made my thoughts clearer and more abstract. Cannabis did not make me lazy—it made me more introspective and willing to address my flaws. And much to the disappointment of some propagandists, cannabis did not bring me to the edge of psychosis—but it did make me question things. After nearly two decades in a flawed education system, growing up with endless access to technology and social media, and entering my formative young-adult years during a once-in-a-century pandemic and social turmoil, I had a difficult time thinking for myself, or truly thinking at all. Responsible cannabis use changed that—a concept understood by the legendary astronomer Carl Sagan, who viewed cannabis as a tool to “produce the serenity and insight, sensitivity and fellowship so desperately needed in this increasingly mad and dangerous world”.

In this respect, cannabis came to me not as a means of detachment, but as a tool for re-engagement. I continue to find myself more self-reflective, better able to focus, and more prone to immerse myself in abstract chains of thought. I’m a lifelong introvert; cannabis has amplified this tendency where it benefits me and dampened it where it hinders me. It sings a sweet lullaby, but when used responsibly and with the right intentions, cannabis can also smack some sense into you. Oh, and all of the commonly-known benefits? Those are nice too.

So, why is any of this relevant? The most profound conclusion I’ve come to after diving into the cannabis world, especially the public policy realm, is that more stories like this need to be shared; stories of personal experience and raw truth that aren’t restrained by dogma and artificial social pressures. There will always be a place for well-mannered debate and public policy discussions—but social acceptance of cannabis, by my assessment, has reached an inflection point. To cross the rubicon, there needs to be a vocal “coming out” among cannabis users, patients, and enthusiasts.

History teaches us that in a properly functioning democracy, widespread changes in social sentiment lead to meaningful public policy reforms, but only when those social changes are transparent, resolved, and loud. Just look to the many civil rights and personal freedom movements over the last century—rooted in courageous social groups and galvanized by key individuals.

While cannabis is currently enjoying some significant attention and reform, it isn’t nearly enough. With less than 10% of Americans believing that cannabis should remain illegal, why does federal criminalization persist? Why are people arrested, fired from their jobs, shamed by friends and family, and stigmatized for something so clearly supported by the masses? Two reasons: our representatives in government have become increasingly detached from public demands and entrenched in partisan bickering and posturing, and because for many people, cannabis is still something to whisper about. To overcome stigmas and translate public opinion into public policy, more of us need to share our personal stories. By increasing awareness of what we have in common, we reject the notion of increasing polarization. Today, the continued illegality of cannabis is purely a symptom of democracy in disarray. Sharing our experiences serves a righteous purpose: to educate, and compel action. As Nelson Mandela once said, “Education is the most powerful weapon which you can use to change the world”.

As more people openly share their experiences, society at large can be tuned-in to what some might find an uncomfortable truth—that a hell of a lot of people use this little flower. You know them: your grandparents; your mentors; your doctors; and your public servants. The social embrace of cannabis among users and abstainers alike relies on communication, especially from the former. So, I invite you to share in the moment. The path to normalizing nature lies in those of us who might feel apprehensive in sharing our truths —many of us have become captives in our own minds. The ever-flowing social conversation around cannabis can only take the next leap forward if it has vocal, unapologetic advocates. Have the audacity to share your story, even if just with one person. While it may be uncomfortable, embracing discomfort today can encourage change tomorrow.

 

Cannabis, COVID, Community . . . and Cheers!

by | Mar 8, 2022 | Community, Consumption Lounges

“Sometimes you want to go; Where everybody knows your name; And they’re always glad you came; You want to be where you can see; Our troubles are all the same”.

Just like Norm and Frasier in Cheers, everyone craves the feeling of being welcomed into a space with familiar people and familiar struggles – a community. Places of worship, fitness centers, book clubs, the local dive bar…each have their own distinct reasons for bringing people together, but they represent community all the same. Cannabis consumers are no different. Just as Norm and Frasier might grab a beer with friends, others might be inclined to puff, puff, pass. 

Publicly accessible spaces that allow cannabis use are a growing trend across the country, and a key component in developing communities.

Seeing the phrase “cannabis consumption lounge” might evoke mental images laced with prohibitionist undertones – a dark, smoke-filled room, littered with dirty bongs and passed-out stoners. Given sensible regulations and licensing opportunities, this image could not be further from the truth. Instead, picture a restaurant that serves spreadable cannabis butter; a comedy club that offers a higher level of laughter; a quaint cafe where customers can pair a joint with their coffee; or a tasting room where customers can observe the flavor profiles of craft cannabis strains…pinkies up. 

In an industry plagued by stigmas and ignorance, businesses like these can portray credibility to skeptics and foster acceptance throughout society. Communities are places where people come together in common interest, with common experiences – the cannabis community is no different. A collection of patients, wellness purveyors, armchair philosophers, connoisseurs, and first-time users. Consumption lounges bring people together

Consumption lounges are not only nice places to visit and socialize – for some, they are an essential element of maintaining health and wellness in a legal way. Those who rent or reside in federally-subsidized housing face severe penalties for consuming cannabis at home, even for medical purposes; in this respect, consumption lounges become a safe haven for medical patients as well.

The problem is (as of March 2022), only half of the states that have legalized cannabis for adult-use have permitted this type of business. In an industry increasingly reliant on innovation, public policy must create opportunities, not build barriers. Consumption lounges, just like retail dispensaries and cultivation operations, can be vehicles for job creation, tax revenue, and reductions in crime. 

As the world begins to emerge from the fallout of a global pandemic and the division it created, building sources of community becomes paramount. Cannabis can deliver. The value of cannabis was legitimized partially through dispensaries being labeled “essential” businesses during the era of COVID-19 – but more can, and must, be done.

Upon reaching the decision to issue licenses, policymakers’ jobs are far from finished. Sensible regulations encompassing employee education and safety training, air quality and ventilation standards, and anti-intoxicated driving efforts can ensure that these businesses are safe, accessible, and fun social environments for cannabis consumers to visit – novice or otherwise. Lawmakers must not stop innovating after baseline cannabis legalization; there is an entire universe of economic opportunity and social benefits that come with consumption lounges. Bringing responsible cannabis use out of the shadows is not without challenges, but it’s high time that we provide a path toward normalization. 

Cannabis needs communities, and communities need cannabis. Because sometimes you want to go where everybody knows your name, and they’re always glad you came.