Following the repeated failure of Congressional Republican plans to pass healthcare legislation, all eyes on Capitol Hill have turned to a tax reform agenda that President Trump and GOP lawmakers are now pushing.
Some marijuana policy observers believe the overhaul provides an opportunity for cannabis businesses to finally break free from a 1980s provision — known as 280E — that forces them to pay a much higher tax rate than companies in other industries.
WHAT IS 280E?
Enacted in 1982, Section 280E of the Internal Revenue Code states:
No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is conducted.
While it was initially intended to stop drug cartel leaders from writing off yachts and fancy cars, today its plain language means that that growers, processors and sellers of marijuana — which is still a Schedule I substance under federal law — can’t take business expense deductions that are available to operators in other sectors.
And it doesn’t matter if they are strictly in compliance with state or local policies. Federal law is federal law.
As a result, cannabis businesses often pay an effective tax rate upwards of 65-75 percent, compared with a normal rate of around 15-30 percent.
HOW 280E REFORM COULD HAPPEN THIS YEAR
Over the past several Congresses, standalone bills to amend the provision so that it doesn’t apply to state-legal businesses have earned increasing numbers of cosponsors, but haven’t received hearings or votes.
Now that a broader tax reform package is on the agenda with the support of Congressional leadership and the White House, advocates and industry operators are pushing to attach a 280E fix to the moving vehicle.
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Learn which five GOP House members and three Democrats cannabis businesses need to target with advocacy efforts to win a key committee vote on 280E reform language.
Plus: See which three GOP senators reformers could pick up key votes from.
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UPDATE: Neither the House nor the Senate voted on a 280E amendment as part of consideration of tax reform legislation.
With support from the targeted House and Senate members named above, cannabis businesses would succeed in attaching 280E reform language to the tax plan at the committee level before the legislation reaches the floor.
THE LOBBYING PUSH
But they aren’t alone. Powerful conservative anti-tax crusader Grover Norquist is also working on the issue. In an interview earlier this year, he said he has “brought it up with leadership” but hadn’t yet gotten solid indications that House Speaker Paul Ryan or other members are on board with the plan.
But that could change if a significant number of GOP members make it clear that fixing 280E is important enough to them that they’d make their support for the overall bill contingent on it.
“Marijuana could get into that [tax reform] package if some of the libertarian Republicans made that a condition of voting for the whole package,” Norquist said.
Marijuana businesses that could stand to benefit from a 280E fix and want to bolster the campaign would likely do well to focus resources conducting grasstops and grassroots outreach in the districts of those House Ways and Means Committee and Senate Finance Committee members singled out in the section above.
In addition to the tough legislative math in House and Senate committees detailed previously, 280E reform advocates may encounter a bigger problem: The deficit.
While rescinding the provision’s application to state-legal cannabis providers is a matter of basic fairness, it would also, on its face, amount to a large tax cut from current rates for those businesses. And that could be a roadblock to success, as Republicans are already struggling to find ways to pay for broader tax cuts they are proposing in the plan.
While most legalization advocates would gladly agree to a federal sales tax on legal marijuana to make up for the 280E fix, the kinds of broader changes needed to existing drug laws seem far beyond the scope of the tax package.
An even simpler pitfall for 280E reform is that even if it is successfully attached to the broader tax legislation, there is no guarantee that the bill will be enacted. Healthcare reform efforts that GOP leaders put a lot of stake and effort into passing have fallen short on several occasions in recent months. Budget proposals necessary for clearing a legislative path for the tax bill to advance have only very narrowly been approved by the House and Senate, meaning that leadership has very few votes to spare when negotiating the finer points of the legislation.
If reformers aren’t able to earn enough support for a full 280E carveout for cannabis businesses, there are two potential compromise approaches they may consider.
One would be to push for a reform that only protects medical cannabis, and not recreational marijuana, businesses. While that would certainly leave a significant portion of the industry behind, it may be more palatable to certain lawmakers. GOP Sen. Susan Collins or Maine, for example, said during a 2014 committee debate on a marijuana banking amendment that she would have supported the measure if it only protected medical cannabis businesses. But, because of its broader reach, she voted against it.
Similar concerns led to the complete removal of banking language between last year’s version of the comprehensive Senate medical cannabis bill known as the CARERS Act and this year’s introduction of new legislation, according to marijuana lobbyists.
Another potential compromise, floated by former Joint Congressional Committee on Taxation staffer Pat Oglesby would enact a 280E fix but maintain the non-deductibility of marijuana businesses’ advertising expenses. NORML has signed off on the plan.
This will all move fairly quickly. The House bill will be introduced this week, and the Ways and Means Committee is set to begin marking up the legislation on Monday. The Senate will move sometime after that. Lawmakers have said they plan to have a bill on President Trump’s desk by the new year.
The chances of attaching a 280E fix to the broader tax reform plan are non-zero, but broader political factors and whip count math mean that it will be far from an easy task.
A serious, targeted and well-funded lobbying effort aimed at four Republican House members, three Democratic House members and three Republican senators is needed to ensure any chance of success.
Cypress Hill Rapper Who Opposed California Legalization Opens A Marijuana Store
On Wednesday, rapper B-Real of Cypress Hill and Prophets of Rage will celebrate the grand opening of his new “Dr. Greenthumb” recreational marijuana dispensary in southern California.
It’s the latest stage in what’s been a significant evolution for the prominent cannabis-friendly musician, who less than two years ago declared himself opposed to the state’s marijuana legalization ballot measure that is making his new venture possible.
In a press release issued Friday advertising “an all day blowout” at Dr. Greenthumb in Sylmar, California, B-Real is described as “a prominent figure at the forefront of cannabis legalization for over two decades.”
“We have a lot of history behind us as it relates to music and the pro-legalization movement,” B-Real said, according to the statement.
That history includes opposing Proposition 64, which legalized marijuana for adults 21 and over and also paved the way for regulated commercial storefronts like the one B-Real is opening.
In the run-up to the November 2016 election, where Prop. 64—also known as the Adult Use of Marijuana Act—passed with more than 57 percent of the vote, the rapper used social media to agitate against its passage.
These are the lines in between the lines. Read up Cali! People from out of our state have no clue but people in Washington can relate pic.twitter.com/v4rWHLsLLb
— B Real ™ (@B_Real) October 11, 2016
On October 10, 2016, less than a month before Election Day, the rapper shared an image on social media that claimed Prop. 64 “helps keep the drug cartels in business,” “sets up HUGE growing operations for rich white people, destroying small businesses” and “turns rights into priviledges” [sic].
“Read up Cali!” B-Real wrote on Twitter, where he posted the image that claimed “This is NOT Legalization. VOTE NO.”
B-Real’s opposition was similar to anti-legalization messaging coming from other marijuana advocates, many of whom claimed that the measure was a corporate giveaway that would harm small-and-medium producers. At least some of that has come to pass as the cannabis economy adapts in response to the new reality of broader legalization.
But B-Real seems to have adjusted to the new reality almost immediately.
On Election Night, after cannabis ballot measures won in California, Maine, Massachusetts and Nevada, he posted a message of congratulations.
“Although I’m someone that was and is concerned about prop 64, California made history tonight and to that I tip my hat,” he wrote.
In an e-mail sent via a spokeswoman in response to Marijuana Moment’s questions about B-Real’s evolution on California legalization, the rapper took a free-market approach. He opposed Prop. 64 because of legalization’s regulations and taxes, he explained.
“I was opposed to it at the time because some of the new regulations and penalties along with overwhelming taxation which seemed to be unfair to smaller businesses,” he wrote. “Additionally, a number of other complicated issues that are just now being addressed with new and changing policies. I still think there are things that need further due diligence to give the small business owner a chance at succeeding before the big businesses start to come into play.”
A week after the election, B-Real released a record that, according to a press release, “passionately advocates for marijuana legalization across all 50 states.”
In promotional material for “Prohibition Part 3,” B-Real appeared in a photoshopped image smoking marijuana in public—an act that, were he to do it in real life, is punishable only by a $100 citation thanks to Prop. 64.
And earlier this year, B-Real gave an interview to a New Zealand-based website in which he declared that legalization has “been great.”
“For most of us that have been in the culture for a long time, we’re just seeing and waiting for more of the regulations to happen to know how it’s going to operate officially,” he told Under the Radar. “Right now all the rules and regulation aren’t implemented and in place so we’re just taking it as each day comes and try to be informed and being a step ahead. But it’s been great, a lot of people are happier.”
Regulated and taxed commercial sales of marijuana began in California on January 1.
B-Real, whose musical repertoire with Cypress Hill includes “Hits from the Bong,” “Dr. Greenthumb” has been trying to enter the marijuana-dispensary business since 2015.
In February of that year, he won a lottery drawing to open one of the first medical-cannabis dispensaries in Santa Ana, in Orange County, California.
But by September 2016, shortly before B-Real’s public disavowal of marijuana legalization, the dispensary had still yet to open.
Now, thanks to the passage of Amendment 64 over his own objections, B-Real will be able to sell cannabis to adults over 21 years of age regardless of whether they have a doctor’s recommendation.
“I never changed that stance, but I do have a brand that myself and my partners have been building for a number years in the cannabis industry aside from my over 20 years of advocacy,” B-Real said in his statement to Marijuana Moment about his concerns with the measure. “My intention was always open a shop when the right opportunity presented itself and that we could be fully compilant [sic]. This would ultimately allow me to have a landing place for our brands in the cannabis community for recreation and medicinal consumers.”
The rapper also said that he plans to use some of the proceeds from the new retail operation to “give back to the community and create programs for the youth and show the positive impact from the cannabis community and break some of the still existing opposition.”
“Good can come from this community and we plan to educate through our example,” he said.
Photo courtesy of Festivalsommer // Biha.
Workplace Deaths Drop After States Legalize Medical Marijuana
Workers appear to be safer in states that have legalized medical marijuana, according to a new study.
The research, scheduled to be published in the International Journal of Drug Policy in October, is the first of its kind to explore the relationship between medical cannabis laws and workplace fatalities.
Analyzing data from the Bureau of Labor Statistics from 1992 to 2015, a team of researchers found that workplace deaths declined by about 34 percent five years after a state legalized medical cannabis. The trend was most pronounced among workers between the ages of 25 and 44.
“The results provide evidence that legalizing medical marijuana improved workplace safety for workers aged 25–44.”
Because no previous studies have specifically investigated the relationship between legal cannabis and workplace fatalities, the researchers said the results could have gone either way.
Would legalizing cannabis put more workers at risk given the “short-term effects of marijuana use on psychomotor performance and cognition,” or might it lead to fewer workplace deaths in light of what we know about the use of cannabis as a substitute for alcohol and prescription drugs?
Theoretically, if people use marijuana as an alternative to alcohol or pharmaceuticals like opioid-based painkillers, the risk of impairment on the job could be lower, the researchers wrote.
And the data seems to back that up. Though the exact cause behind the trend warrants further research, one finding seems to substantiate the substitution theory: rates of workplace fatalities were lower in states that include pain as a qualifying condition for medical marijuana.
“Specifically, legalizing medical marijuana was associated with a 19.8 percent reduction in the expected number of workplace fatalities among workers aged 25–44 if pain was included as a qualifying condition; if pain was not included as a qualifying condition, the association between legalizing medical marijuana and workplace fatalities was not statistically significant.”
The researchers also observed that states where collective cultivation of cannabis is permitted experienced fewer workplace fatalities, indicating that ease of access may play a role in mitigating these incidents.
How this study could impact public policy
As more states have pushed forward with efforts to legalize cannabis, a conversation has been brewing about employment rights in legal jurisdictions. Courts in numerous states with medical marijuana laws on the books have affirmed employers’ right to terminate workers who test positive for marijuana metabolites, even if they’re registered patients. A handful of states, including Arizona and Illinois, have gone the opposite direction, however, granting employment protections to medical cannabis patients.
More recently, drug reform advocates have been pushing for anti-discrimination policies that would protect marijuana consumers in the workplace. A bill introduced by Rep. Charlie Crist (D-FL) last month would ensure that federal workers wouldn’t be penalized for using cannabis off-the-clock in a legal state, for example.
Part of the logic behind blanket bans on marijuana use is that it is an impairing substance that could jeopardize worker safety. Evidence to support that claim is lacking, and this new study offers a fresh perspective on the debate.
Photo courtesy of WeedPornDaily.
Washington State Prepares To Rewrite Marijuana Testing And Packaging Rules
Marijuana regulators in Washington State will entertain sweeping changes to how marijuana is tested, processed, packaged and sold in one of the U.S.’s oldest recreational marijuana markets, officials announced late Wednesday.
Recreational cannabis has been sold in regulated retail outlets in Washington since 2014. Consumers there pay one of the country’s highest tax burdens, generating nearly $400 million in revenue through the first three years of legalization, as the Stranger reported in late 2017.
But medical marijuana patients have long complained about limited product availability. And a recent string of testing labs suspended for erratic results that allowed unsafe product to reach retail shelves has shaken confidence in product safety.
“Requests from the industry have…been received regarding testing requirements, and changes in testing requirements in other states have prompted further review of WSLCB rules for potential adjustment,” the new notice from the Washington State Liquor and Cannabis Board said. “Additionally, the WSLCB has heard from the medical marijuana patient community that they would like to see additional product types or levels of potency that are not currently supported by the regulatory structure.”
“For these reasons, changes to products, serving amounts in packaging, and other related requirements may be considered,” the regulators announced Wednesday.
Wednesday evening’s notice is the initial notification of potential rulemaking, and “no rule language is offered at this stage of the process.”
Members of the public can submit comments or proposals until October 24. No proposed rules changes are expected to be filed until “on or after October 31,” the notice said.
“Following the comment period, the agency will send out and publish the proposed rules, establish a comment period on the proposed rules, and hold a public hearing before the rules are adopted,” according to the agency.
Until then, the agency “will consider the following topics for potential rulemaking changes,” according to Wednesday’s notice:
- Lot and batch sizes;
- Fields of testing and pass/fail level adjustments;
- Potency testing requirements;
- Pesticide testing requirements for all cannabis products;
- Heavy metals testing requirements;
- Sample deduction requirements;
- General testing rule adjustments;
- Product, THC serving limits, and packaging requirements; and
- “Other related rule changes that may be necessary or advisable,” according to the notice.
Whatever “further adjustments” the agency will propose are meant to “increase efficiencies in testing” and “increase the availability of compliant [cannabis] products,” the notice said.
Anyone interested in submitting comments or proposed rules can contact Joanna Eide, Policy and Rules Coordinator, at [email protected].