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How Marijuana Businesses Can Win Tax Fairness Under Trump Plan

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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.

Restricted Analysis For Marijuana Moment Patreon Supporters Only

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.

(Analysis contains 1,200+ words and an embedded spreadsheet tracking lawmakers’ past marijuana votes).

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UPDATE: Neither the House nor the Senate voted on a 280E amendment as part of consideration of tax reform legislation.

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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

Marijuana business advocacy groups like the National Cannabis Industry Association and the New Federalism Fund are mounting lobbying campaigns to build support for 280E reform on Capitol Hill.

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.

COMPLICATIONS

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.

COMPROMISE APPROACHES

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.

TIMING

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.

OUTLOOK

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.

Marijuana Moment is made possible with support from readers. If you rely on our cannabis advocacy journalism to stay informed, please consider a monthly Patreon pledge.

Tom Angell is the editor of Marijuana Moment. A 15-year veteran in the cannabis law reform movement, he covers the policy and politics of marijuana. Separately, he founded the nonprofit Marijuana Majority. Previously he reported for Marijuana.com and MassRoots, and handled media relations and campaigns for Law Enforcement Against Prohibition and Students for Sensible Drug Policy. (Organization citations are for identification only and do not constitute an endorsement or partnership.)

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Feds Warn More CBD Companies Over Health Claims

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The Federal Trade Commission (FTC) sent letters on Tuesday ordering three companies to stop making unfounded health claims about their CBD products.

“It is illegal to advertise that a product can prevent, treat, or cure human disease without competent and reliable scientific evidence to support such claims,” FTC said in a press release about the action.

Please visit Forbes to read the rest of this piece.

(Marijuana Moment’s editor provides some content to Forbes via a temporary exclusive publishing license arrangement.)

Photo by Kimzy Nanney.

Marijuana Moment is made possible with support from readers. If you rely on our cannabis advocacy journalism to stay informed, please consider a monthly Patreon pledge.
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Colorado Sold Twice As Much Recreational Marijuana As Medical Cannabis Last Year

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The share of legal marijuana sales in Colorado that came from the recreational market in 2018 significantly outpaced those from the medical market, according to an annual government report released on Monday.

In fact, there were about two times as many adult-use sales of flower compared to medical cannabis purchases—a new milestone for the state.

Colorado’s Marijuana Enforcement Division (MED) said that 288,292 pounds of bud were sold last year for recreational purposes, while 147,863 pounds were sold to medical marijuana patients. For comparison, in 2017, recreational consumers purchased 238,149 pounds and 172,994 pounds were sold to patients.

That means the recreational-medical gap increased 73 percent in one year.

Via MED.

Overall, 436,155 pounds of cannabis were sold in 2018, compared to 411,143 pounds in 2017.

In part, the trend can be attributed to the ongoing expansion of Colorado’s adult-use cannabis market since the state’s first recreational shops opened in 2014. Medical cannabis sales were notably higher than recreational sales in that first year of implementation, with just 38,660 pounds coming from the adult-use market and 109,578 pounds being sold to medical patients.

Medical and adult-use sales were roughly even in 2016. But by 2017, recreational sales accounted for 58 percent of the market. And last year, they represented 66 percent of the market.

MED also found that licenses for recreational marijuana facilities increased by three percent (47 licenses) while medical business licenses declined by eight percent (77 licenses).

Via MED.

“Data collection continues to be a priority at the MED,” Jim Burack, director of the program, said in a press release. “This ongoing analysis and compilation of industry information helps inform the public and contributes to our outreach efforts to stakeholders.”

The report also showed that the adult-use market is the primary destination for individuals purchasing edibles. Eighty-six percent of edible sales came from recreational consumers. And from July-December 2018, 75 percent of cannabis plants were cultivated for adult use.

The market shift isn’t unique to Colorado. An Associated Press analysis from June detailed how states across the country that have established recreational marijuana programs are seeing the number of medical patients decline as more consumers transition to the adult-use market.

That may be partially explained by individuals who sought out medical cannabis recommendations choosing not to renew their registration after recreational marijuana shops became available. To that point, a recent study found that many customers at recreational dispensaries are consuming cannabis for the same reasons that registered patients do, such as to alleviate pain and sleep issues.

The concern for some advocates, however, is that adult-use legalization could drive up prices for patients, or leave them with fewer product options tailored to therapeutic use as demand for high-THC products increases.

“When states pass adult-use legalization we are seeing many patients leave the strict controls of the medical programs,” David Mangone, director of government affairs at Americans for Safe Access, told Marijuana Moment. “Patients must already pay out of pocket for cannabis, and any added cost like a registration fee for a medical card or renewal can make the process of obtaining medicine extremely burdensome and costly.”

“States like Colorado must continue to provide adequate benefits to patients to ensure the medical program remains robust,” he said.

Mangone added that “as states pass adult-use programs it is important that they continue to understand and appreciate the needs of patients.”

“A common frustration for many is not what happens in terms of access to cannabis, but rather what happens in terms of access to specific products. Products and flower with a high-THC content have a wider market appeal, but may not necessarily benefit the existing medical market.”

That said, one interesting finding from this latest MED report is that medical and recreational consumers alike seem increasingly interested in concentrates, with the units of such products sold to both nearly doubling from 2017 to 2018. Concentrates are sold at a much higher rate in the adult-use market, but the potent products evidently have growing appeal across the board.

Gov. Jared Polis (D) recently celebrated tax earnings from marijuana sales, touting the fact that the state has amassed more than $1 billion in cannabis revenue that has been allocated to various social programs.

And the marijuana market is continuing to evolve in state. Polis signed legislation in May allowing for home deliveries of cannabis products as well as social consumption sites.

The governor said last month at a conference with governors from around the country that the new delivery law could help mitigate impaired driving.

After Legalizing Marijuana, Colorado Saw ‘Significant Decrease’ In Opioid Prescriptions, Study Finds

Photo courtesy of Kimberly Lawson.

Marijuana Moment is made possible with support from readers. If you rely on our cannabis advocacy journalism to stay informed, please consider a monthly Patreon pledge.
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Credit Unions Won’t Be Punished For Working With Marijuana Businesses, Federal Regulator Says

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Regulators won’t punish credit unions simply for working with marijuana businesses that are operating in compliance with state laws, the head of the federal agency that oversees the financial services providers said in a new interview.

National Credit Union Administration (NCUA) Chairman Rodney Hood also suggested that Congress could entirely resolve banking issues in the cannabis industry by federally descheduling marijuana.

“It’s a business decision for the credit unions if they want to take the deposits,” Hood told Credit Union Times, adding that the financial institutions must follow existing federal guidance and ensure that the businesses they choose to service are not violating anti-money laundering laws or other rules.

“We don’t get involved with micro-managing credit unions,” he said.

While the comments don’t signify a new shift in policy, and don’t take into account the fact that the Justice Department still maintains authority to potentially prosecute credit unions that allegedly violate the law by banking marijuana proceeds, they are the latest indication of a growing consensus that federal action is needed to clarify the situation.

Uncertainty around banking in the state-legal marijuana market has been a hot topic in the 116th Congress.

Legislation that would shield banks and credit unions that take on cannabis clients from being penalized by federal regulators was approved by the House Financial Services Committee in March, and the Senate Banking Committee held a hearing on the bill last month. That panel’s chair, Sen. Mike Crapo (R-ID), said last week that he agrees a solution for the industry is necessary.

Though the NCUA head didn’t endorse specific legislation to give credit unions peace of mind when dealing with cannabis businesses, he did float the idea of descheduling marijuana as one way to provide unambiguous clarity for financial institutions.

“Hood said that Congress could remove all ambiguity if it enacted legislation to declassify marijuana,” the trade publication reported after its interview with the official.

Separately, the independent federal agency recently took one proactive step toward reforming policy partly in response to state-level legalization efforts. In a notice published in the Federal Register last week, NCUA proposed changing its rules so that individuals with prior low-level drug convictions would be allowed to work at credit unions.

Though bank and credit union representatives are calling for enhanced clarity when it comes to cannabis banking, more financial institutions do seem willing to take the risk anyway, with federal data showing a notable uptick in the number of marijuana-servicing banks in the last quarter.

Federal Agency Proposes Letting People With Drug Convictions Work At Credit Unions

Marijuana Moment is made possible with support from readers. If you rely on our cannabis advocacy journalism to stay informed, please consider a monthly Patreon pledge.
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