Marijuana’s Black Market is Thriving. The U.S. Tax Code is Partly to Blame.
Legal cannabis businesses have plenty of challenges to contend with: complicated permitting processes, application fees, and the encroachment of illicit competitors, for starters. But one often overlooked roadblock is the U.S. tax code itself which, even in marijuana legal states, still treats cannabis as a crime.
Writing in the Los Angeles Times, cannabis legalization advocate and dispensary owner Steve DeAngelo explains how an arcane section of the U.S. Tax Code has prevented cannabis businesses from taking advantage of deductions afforded to other businesses.
“Under Section 280E of the code, cannabis businesses are not allowed to take tax deductions on normal business expenses like employee salaries, rent and utility bills because the federal government considers their trade illegal drug trafficking -- even where cannabis sales are legal under state law,” he writes.
The result is an effective tax rate that can reach as high as 90%, pushing some state legal cannabis companies out of business and giving oxygen to the black market for weed.
“A legalization wave is sweeping across America because states recognize the positive benefits of cannabis and the social harms caused by criminalization. But the unfair IRS tax provision is one factor keeping the underground industry alive,” DeAngelo concludes. “Consumers still face unnecessary hazards because they don’t know what they’re buying. There are no legal protections for buyers or sellers. And of course, the government doesn’t get a cut of those revenues.”