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IRS Official Notes Marijuana Legalization’s Momentum In Tax Compliance Webinar For Industry

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A top official with the Internal Revenue Service (IRS) is taking steps to help marijuana businesses stay compliant with their taxes under the umbrella of ongoing federal prohibition, and in a recent interview recognized that the legalization movement will potentially succeed in ending prohibition in “all states.”

In an informational webinar hosted by the PBC Conference, IRS Commissioner of the Small Business/Self Employed Division Eric Hylton gave candid insights on a variety of cannabis industry issues from the federal perspective. The overarching theme to his comments was that states are already legalizing marijuana regardless of federal policy, and that’s creating complications that need to be addressed.

“The challenge really there is, it’s still considered a Schedule I controlled substance under federal law,” he said. “However, when I’m talking with my employees and talking with them in our examination, we recognize that this is moving in a direction where potentially all states will have it legalized.”

In spite of the federal-state policy conflict, IRS wants cannabis business owners “to be educated” because there are tax obligations regardless of whether the federal government considers their source of income to be illegal.

To that end, IRS released updated tax compliance guidance for marijuana firms in September, and the new webinar appearance by Hylton is part of an ongoing education effort by the agency.

“There are thousands of people who are trying to jump into the marijuana business right now,” the IRS official said. “And as you become legalized throughout the country, we wanted to educate individuals.”

Hylton also acknowledged “the challenge the marijuana industry has in not having sometimes non-traditional banking relationships,” referencing the fact that, under federal prohibition, many cannabis businesses operate on a cash-only basis because financial institutions are reluctant to take on the risk of servicing a federally illicit companies.

The agency is “trying to kind of bridge that gap” in part by offering educational services, he said.

Another chief problem for the industry that came up in the interview is that while cannabis businesses are obligated to pay federal taxes, they’re unable to access tax benefits that are extended to other sectors under an IRS statute known as 280E. That policy “disallows all deductions or credits for any amount paid or incurred in carrying on any trade businesses that consist of illegally trafficking in a Schedule I or II controlled substance within the meaning of the federal Controlled Substances Act.”

Regardless of the unique challenges the emerging market faces, Hylton said that, like other industries, the vast majority of those in the cannabis sector are compliant with tax requirements, adding that he believes the percentage of marijuana businesses following the rules is “the same” as in the general population of taxpayers.

“That’s why we’re doing this educational drive and using communication and articles and webinars to assist with that because a lot of individuals want to remain complaint,” he said. “This is just a new business.”

The educational drive also helps to resolve a problem identified by a Treasury Department internal watchdog in April. The Treasury Inspector General for Tax Administration criticized IRS for failing to adequately advise taxpayers in the marijuana industry about compliance with federal tax laws. The release of the agency’s updated guidance for the industry followed five months later.

Joshua Radbod, CEO of the PBC Conference, which focuses on payments, banking and compliance challenges in the cannabis industry, conducted the new interview with the IRS official. He told Marijuana Moment that “it’s great that the IRS is not only proactively reaching out to educate the cannabis industry on cannabis specific IRS rules, but is also seeking questions and feedback.”

“This type of dialogue and interaction between government and private sector is important in any industry, and even more so for emerging, growing, and highly regulated industries such as the cannabis industry,” he said.

Radbod’s organization solicited marijuana industry questions for the IRS ahead of the webinar being recorded.

In the interview, Hylton also brought up the fact that the cash factor of the marijuana industry is onerous for the industry and for the government alike, requiring cannabis businesses to set up appointments to make in-person tax payments—something that has become even more complicated amid the coronavirus pandemic.

Treasury Secretary Steve Mnuchin has brought up the complications caused by the lack of financial services access for the cannabis industry in his calls for a bipartisan legislative fix to the banking issue, noting in congressional hearings that IRS has had to build “cash rooms” to store the deposits.

The cash complication has also led to a rise in people using cryptocurrency for marijuana transactions, Hylton said.

While legislation to resolve the issue—the Secure and Fair Enforcement (SAFE) Banking Act—has repeatedly advanced through the House as a standalone bill or as part of broader COVOD-19 relief measures, it has lingered in the GOP-controlled Senate.

In the meantime, the number of financial institutions reporting that they service state-legal marijuana businesses has declined, federal data released last month shows.

When the House approved its coronavirus legislation with the SAFE Banking Act attached, it attracted controversy, with multiple Republican lawmakers and White House officials criticizing its inclusion and arguing that it is not germane to the issue at hand.

Senate Majority Leader Mitch McConnell (R-KY) in particular has been a vocal opponent of the measure, though he’s largely focused his criticism on certain provisions of the SAFE Banking Act that require industry diversity reporting.

Democratic leaders in both chambers, however, have made clear that they’re willing to keep up the fight, and the House even highlighted the diversity component in a summary of its COVID legislation. House Speaker Nancy Pelosi (D-CA) said in July that she agrees that the banking measure is an appropriate component of the bill.

Also in July, bipartisan treasurers from 15 states and one territory sent a letter to congressional leadership, urging the inclusion of the SAFE Banking Act in any COVID-19 legislation that’s sent to the president’s desk. Following GOP attacks on the House proposal, a group of Democratic state treasurers renewed that call.

But based on Hylton’s discussion, the issue isn’t quite as partisan as it might be playing out in Congress. And there’s an eagerness on the part of the government to, at the very least, educate marijuana companies on how to stay compliant as these bigger issues and conversations unfold in the political arena.

DEA Issues Final Rule For Licensing More Growers Of Marijuana For Research

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Congress To Vote On Marijuana, Psychedelics And CBD Amendments This Week Following Committee Action

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A key House committee on Monday cleared a series of cannabis and psychedelics-related amendments for floor votes as part of large-scale spending legislation. That floor action could happen as soon as Tuesday.

However, the panel also blocked two measures on housing protections for cannabis consumers that legalization supporters hoped to see advance.

One of the most notable amendments the House Rules Committee allowed to move forward for possible attachment to appropriations legislation would remove a rider that advocates say has restricted federal funds for research into Schedule I drugs, including psychedelics such as psilocybin, MDMA and ibogaine.

The reform measure is being sponsored by Rep. Alexandria Ocasio-Cortez (D-NY), and it targets 1990s-era provision that’s long been part of spending legislation for the Department of Health and Human Services (HHS). The congresswoman attempted to eliminate the language via an amendment in 2019 only to have it defeated by Republicans as well as a majority of her party. But it’s far from the only measure being proposed this appropriations season when it comes to drug policy matters.

Some are being backed by reform advocates, while others have received sharp criticism.

One pro-reform amendment that’s advancing would encourage the Food and Drug Administration (FDA) to approve rules allowing CBD as a dietary supplement and food ingredient.

On the other side, there is a proposal from Rep. Debbie Lesko (R-AZ) to the HHS appropriations bill to eliminate a rider that’s currently in the bill that “allows federal funding to go to institutions of higher education that are conducting research on marijuana.”

The reason this measure has generated particular pushback is because research into cannabis is an overwhelmingly bipartisan issue, and top federal drug officials have repeatedly urged Congress to support policies that make it easier to study the risks and benefits of the plant. What’s more, Lesko represents a state with adult-use legalization on the books.

Activists are disappointed that two marijuana reform measures from Rep. Eleanor Holmes Norton (D-DC) are being blocked from floor consideration. Her proposals—which were aimed at appropriations legislation for the Department of Housing and Urban Development (HUD)—would have made it so marijuana possession or consumption could not be used as the sole basis for denying people access to public housing. One Norton amendment was narrowly focused on medical cannabis while a second measure would have covered all marijuana use that’s legal under state laws.

“It’s disappointing that those who rely on public support for housing will continue to be discriminated against for their state-legal choices,” NORML Political Director Justin Strekal told Marijuana Moment.

Advocates were surprised that the Rules Committee, chaired by marijuana reform supporter Rep. James McGovern (D-MA), sought to prevent a floor vote on the Norton cannabis amendments.

A committee spokesperson told Marijuana Moment that the proposals “had points of order against them and we never make amendments in order with points of order against them.”

Here are the descriptions of measures that the Rules Committee made in order for floor votes: 

Rep. Alexandria Ocasio-Cortez (D-NY): Allows United States researchers to study and examine the potential impacts of several schedule I drugs, such as MDMA, psilocybin, and or ibogaine, that have been shown to be effective in treating critical diseases.

Rep. Kurt Schrader (D-OR): Increases and decreases by $5 million, funding for the Center for Food Safety and Applied Nutrition at the FDA, to highlight the need for the Agency to proceed with rulemaking on cannabidiol (or CBD) by no later than 180 days after enactment, out of concern that the FDA has not initiated rulemaking to establish a regulatory pathway for CBD as a dietary supplement and food ingredient.

Rep. Debbie Lesko (R-AZ): Strikes language that allows federal funding to go to institutions of higher education that are conducting research on marijuana.

Rep. Doug LaMalfa (R-CA): Transfers $25 million from the Environmental Programs and Management enforcement activities account to the National Forest System account for enforcement and remediation of illegal marijuana trespass grow sites on federal lands and for the clean-up of toxic waste and chemicals at these sites.

Here are the amendments that were not ruled in order and are thus dead: 

Rep. Eleanor Holmes Norton (D-DC): Prohibits HUD from enforcing the prohibition on the use or possession of marijuana in federally assisted housing in states where marijuana is legal.

Rep. Eleanor Holmes Norton (D-DC): Prohibits HUD from enforcing the prohibition on the use or possession of medical marijuana in federally assisted housing in states where medical marijuana is legal.

Rep. Doug LaMalfa (R-CA): Prohibits funds from this section from being used to fund needle distribution programs for illegal drugs.

Rep. Ted Butt (R-NC): Prohibits federal funds from being used to purchase clean syringes for illegal drug use.

Rep. Ted Butt (R-NC): Prohibits federal funds from being used to purchase clean syringes for illegal drug use in DC.

Rep. French Hill (R-AR): Increases funding by $50 million for the Office of National Drug Control Policy’s High Intensity Drug Trafficking Areas Program. Offsets the increase with a decrease in funding of $50 million for the Electric Vehicles Fund.


Marijuana Moment is already tracking more than 1,100 cannabis, psychedelics and drug policy bills in state legislatures and Congress this year. Patreon supporters pledging at least $25/month get access to our interactive maps, charts and hearing calendar so they don’t miss any developments.

Learn more about our marijuana bill tracker and become a supporter on Patreon to get access.

Overall, these amendments were targeted for inclusion in an appropriations “minibus” bill for fiscal year 2022 to fund the Departments of Labor, Health and Human Services, Education, Agriculture, Rural Development, Energy and Water Development, Financial Services and General Government, Interior, Environment, Military Construction, Veterans Affairs, Transportation, and Housing and Urban Development.

The spending package that is now heading to the House floor for votes on Tuesday also, under its language as originally introduced in appropriations subcommittees, would allow Washington, D.C. to use its local tax dollars to implement a system of lawful marijuana sales for adults.

That stands in contrast to a budget proposal from President Joe Biden, whose administration is seeking to keep language protecting medical cannabis states from federal intervention but has excluded the provision on giving D.C. autonomy to legalize marijuana commerce.

Another provision that was added as part of the Financial Services and General Government (FSGG) spending bill would protect banks that work with marijuana businesses. Further, the committee report attached to that legislation encourages federal government agencies to reconsider policies that fire employees for using marijuana in compliance with state law.

Federal health agencies should pursue research into the therapeutic potential of psychedelics for military veterans suffering from a host of mental health conditions, a report attached to separate spending legislation that’s part of the advancing minibus package says.

Report language also directs the U.S. Department of Veterans Affairs (VA) to improve communication on veteran eligibility for home loans and report back to Congress on its progress within 180 days of the enactment of the legislation. A separate provision urges VA to expand research on the medical benefits of cannabis for veterans.

In the report for Agriculture Department funding, lawmakers took issue with the 2018 Farm Bill’s 0.3 percent THC cap for lawful hemp products and directed USDA to work with the U.S. Department of Health and Human Services (HHS) and DEA on a study of whether that threshold is scientifically backed. That report also addressed numerous other issues related to the crop.

Other report language attached to this spending package highlights the difficulty of studying Schedule I drugs like marijuana, recognizes the medical potential of cannabinoids like CBD, encourages federal agencies not to restrict the plant kratom and acknowledges the lifesaving value of syringe access programs and safe consumption sites for illegal drugs.

The appropriations process this session has seen numerous drug policy reform provisions included in bill text and attached reports—also stopping immigrants from being deported for cannabis, for example, among other issues.

A bipartisan group of congressional lawmakers recently circulated a letter to build support for an amendment to a separate Department of Justice spending bill that would protect all state and tribal marijuana programs from federal interference—going beyond the existing measure that shields only medical cannabis states that’s currently enacted into law. There are now 15 cosponsors signed on to the broader proposal, which is expected to be considered by the Rules Committee and then potentially see floor action this week.

The Commerce, Justice, Science, and Related Agencies (CJS) spending report also notes that the Drug Enforcement Administration (DEA) has moved to approve additional marijuana manufacturers for research purposes and says the committee supports ongoing research efforts on cannabis, particularly in the wake of an outbreak of lung injuries associated with unregulated vaping products.

A provision was also attached to the bill that would make states and localities ineligible for certain federal law enforcement grants if they maintain a policy allowing for no-knock warrants for drug-related cases. That policy garnered national attention following the police killing of Breonna Taylor, who was fatally shot by law enforcement during a botched drug raid.

The Rules Committee is set to take up CJS and other appropriations legislation on Tuesday.

White House Declines To Blame Marijuana Sales For Violent Crime Spike Despite D.C. Police Chief’s Comments

Photo courtesy of Mike Latimer.

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White House Declines To Blame Marijuana Sales For Violent Crime Spike Despite D.C. Police Chief’s Comments

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The White House on Monday declined the chance to blame illicit marijuana sales for a rise in violent crime in Washington, D.C.—despite the city’s police chief recently arguing that the issues are connected.

D.C. Police Chief Robert Contee suggested on Friday that part of the reason for the uptick in violent crime is connected to the illegal cannabis market, which he says has been deprioritized amid the national reform movement.

“When you have something where people get high reward—they can make a lot of money by selling illegal marijuana—and the risk is low, the risk for accountability is very low, that creates a very, very, very, very, very bad situation,” Contee argued at a press conference near the site of a shooting this month.

Advocates assert that Congress bears some blame for consistently passing a spending bill rider that bars the District from regulating retail sales after voters approved a 2014 initiative to legalize personal possession and cultivation for adults, thus relegating cannabis commerce to the illegal market.

Late last month, a House committee approved a large-scale funding bill that would allow the District to legalize cannabis sales by deleting the rider. The legislation is expected to pass the full House this week.

In any case, White House Press Secretary Jen Psaki was asked directly on Monday by a Fox News reporter whether the Biden administration thinks “that it may be time to get tougher on marijuana” in light of the chief’s comments. And she notably did not jump at the chance to vilify cannabis despite President Joe Biden’s ongoing opposition to adult-use legalization.

“We look to the crime that has been happening in D.C.—again one of the cities where we’ve seen rising violence over the past year and a half,” she said, pivoting quickly away from the cannabis query to discuss crime more generally. It’s “one we’re working in close partnership through both the [Justice Department] as well as our community violence intervention collaborative. We’re looking to address a range of causes, working in close partnership with the mayor and local police to bring crime down in our city.”

The fact that Psaki decided not to take aim at marijuana specifically, despite being prompted by comments made by one of the the top law enforcement official in the nation’s capital, is significant—if only because the administration to this point has been firmly footed in maintaining the status quo of prohibition.

Biden’s budget proposal specifically proposes continuing the longstanding Republican-led rider that has prevented the city from spending its own money to regulate adult-use cannabis commerce, for example.

Rep. Eleanor Holmes Norton (D-DC) in May blasted the president in an interview with Marijuana Moment for seeking to extend the provision blocking her city from making its own cannabis decisions, saying she is “going to be working very hard to make sure that that rider is not in the budget” that lawmakers ultimately send back to Biden’s desk.

Mayor Muriel Bowser (D) said in April that local officials are prepared to move forward with implementing a legal system of recreational cannabis sales in the nation’s capital just as soon as they can get over the final “hurdle” of congressional interference.

From advocates’ perspective, allowing D.C. to do what a growing number of states have already done by regulating cannabis could help mitigate the risks associated with enabling an illicit market to continue. Giving adults the option to purchase marijuana from a licensed retailer would make it less likely that the city would see any violent criminal activity that can be tied to illegal cannabis sales, they say.

Psaki didn’t make that point, but she didn’t seize the opportunity to target cannabis as a contributing factor to D.C. violence either.

This adds to the White House narrative on marijuana that’s evolved throughout the Biden administration.

During his presidential campaign last year, Biden ran on a pledge to enact other modest reforms such as decriminalizing cannabis possession, expunging prior records and respecting the rights of states to set their own laws. Since taking office, however, his administration has not made progress on any of those promises and has instead fired its own White House staffers over marijuana and is seeking to extend the D.C. sales block.

Biden took some by surprise by suggesting that international sports rules on marijuana may need to be reevaluated after star U.S. runner Sha’Carri Richardson was suspended following a positive cannabis test. But that’s a far cry from endorsing comprehensive reform.

Psaki, for her part, initially declined to condemn Olympics officials’ sanction on Richardson when asked about the issue at an earlier briefing with reporters. But she later told CNN that the case highlights the need to “take another look” at the rules on cannabis.

In April, the press secretary said that Biden’s campaign pledge to release federal inmates with marijuana convictions will start with modestly rescheduling cannabis—a proposal that advocates say wouldn’t actually accomplish what she’s suggesting.

On broad legalization, Psaki said recently that the president remains opposed to the reform, despite Senate leadership introducing a bill this month to federally legalize marijuana.

Sen. Cory Booker (D-NJ), one of the three leaders on the measure, said recently that he and his Senate colleagues will be talking to the White House now that they’ve released draft reform legislation.

FDA Seeks Public Input On Possible Global Kratom Ban After Domestic Scheduling Effort Stalled

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FDA Seeks Public Input On Possible Global Kratom Ban After Domestic Scheduling Effort Stalled

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After failing to get kratom prohibited domestically, the Food and Drug Administration (FDA) is now seeking public comment to inform the U.S. position on how the substance should be scheduled under international statute.

In a notice published in the Federal Register last week, the agency is soliciting feedback on a number of substances. But advocates are especially concerned about where FDA and global drug officials come down on kratom, which has been touted as a natural painkiller that works as a safer alternative to prescription opioids.

The U.S. agency doesn’t quite see it that way, however.

“Kratom is abused for its ability to produce opioid-like effects,” FDA wrote in the notice. “Kratom is available in several different forms to include dried/crushed leaves, powder, capsules, tablets, liquids, and gum/ resin. Kratom is an increasingly popular drug of abuse and readily available on the recreational drug market in the United States.”

Responses to the notice will help inform the federal government’s stance on kratom scheduling in advance of an October meeting of the World Health Organization’s (WHO) Expert Committee on Drug Dependence, where international officials will discuss whether to recommend the substance be globally scheduled.

“The FDA’s request for public comments on a matter of such importance involving the international scheduling of kratom is an extraordinary abuse of their authority,” Mac Haddow, senior fellow of public policy at the American Kratom Association (AKA), told Marijuana Moment.

He said the August 9 deadline for the responses allows “only three weeks for scientists, public policy makers and consumers to provide responses that are well researched and responsive to the complex requirements for data and information that will be considered by the WHO Expert Committee” and is therefore “unacceptable.”

As it stands, kratom is not scheduled under the federal Controlled Substances Act or under international drug treaties to which the U.S. is a party. But some advocates suspect that since FDA has been unable so far to impose a ban on kratom domestically, it may use the WHO convention as an opportunity to get prohibition enacted internationally, a move that the country would be compelled to comply with.

“If that happens, there are 37 countries that are part of that international treaty that will effectively ban kratom around the world,” Haddow said in a recent video update to supporters. “The FDA cannot get kratom scheduled here in the United States using the criteria that’s established by the Controlled Substances Act, so they’re circumventing that and going to the WHO.”

Haddow encouraged people to take advantage of the public comment period—but to remember that WHO is the target audience for those comment, not FDA.

“We want thousands of people to comment because every one of those comments will have to be packaged up and sent to the World Health Organization,” he said. “We don’t want people complaining about the FDA overreach because we can fight that battle on a separate battleground, but we want the WHO to know the powerful experiences that people have had” with kratom.

FDA, in its Federal Register notice, said the comments “will be considered in preparing a response from the United States to the World Health Organization (WHO) regarding the abuse liability and diversion of these drugs.”

Haddow told Marijuana Moment that the federal agency “is prosecuting a war on kratom to criminalize more than 15 million Americans, and they ignore the public health impacts of kratom consumers being forced to opioids with a high potential for addiction and that can be deadly.”

“More overdose deaths will occur if kratom is banned, and that is exactly what the FDA is trying to do,” he said.

On the domestic level, the House Appropriations Committee recently approved a report to spending legislation that says federal health agencies have “contributed to the continued understanding of the health impacts of kratom, including its constituent compounds, mitragynine and 7-hydroxymitragynine.”

“The Committee is aware of the potential promising results of kratom for acute and chronic pain patients who seek safer alternatives to sometimes dangerously addictive and potentially deadly prescription opioids and of research investigating the use of kratom’s constituent compounds for opioid use disorder,” it said.

It also directed the Health and Human Services secretary to continue to refrain from recommending that kratom be controlled in Schedule I.

Late last year, the Agency for Healthcare Research and Quality (AHRQ) asked the public to help identify research that specifically looks at the risks and benefits of cannabinoids and kratom.

The Centers for Disease Control and Prevention (CDC) last year separately received more than one thousand comments concerning kratom as part of another public solicitation.

FDA has on several occasions solicited public input to shape the government’s position on the international scheduling of marijuana and cannabinoids. The agency initially requested feedback on the proposal in March 2019 and then reopened that comment period five months later.

Last year, the United Nations approved a U.S.-backed WHO recommendation to remove marijuana from the most restrictive global scheduling category. However, the U.S. opposed several other cannabis reform proposals, including the one to clarify that CBD is not under international control.

D.C. Police Chief Says Illicit Marijuana Sales Tied To Violence As Congress Weighs Lifting Regulatory Blockade

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