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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.

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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.

(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 20-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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Legal Marijuana States See Reduced Workers’ Compensation Claims, New Study Finds

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Legalizing marijuana for adult use is associated with an increase in workforce productivity and decrease in workplace injuries, according to a new study partly funded by the federal government.

In a working paper published by the National Bureau of Economic Research, researchers looked at the impact of recreational cannabis legalization on workers’ compensation claims among older adults. They found declines in such filings “both in terms of the propensity to receive benefits and benefit amount” in states that have enacted the policy change.

Further, they identified “complementary declines in non-traumatic workplace injury rates and the incidence of work-limiting disabilities” in legal states.

These findings run counter to arguments commonly made by prohibitionists, who have claimed that legalizing marijuana would lead to lower productivity and more occupational hazards and associated costs to businesses. In fact, the study indicates that regulating cannabis sales for adults is a workplace benefit by enabling older employees (40-62 years old) to access an alternative treatment option.

“We offer evidence that the primary driver of these reductions [in workers’ compensation] is an improvement in work capacity, likely due to access to an additional form of pain management therapy,” the study, which received funding from the National Institute on Drug Abuse, states.

The implementation of adult-use legalization seems to “improve access to an additional channel for managing pain and other health conditions, suggesting potential benefits on populations at risk of workplace injuries,” it continues.

The study is based on an analysis of data on workers’ compensation benefit receipt and workers’ compensation income from
2010 to 2018 as reported in the Annual Social and Economic Supplement of the Current Population Survey.

“Our results show a decline in workers’ compensation benefit propensity of 0.18 percentage points, which corresponds to a 20 percent reduction in any workers’ compensation income, after states legalize marijuana for recreational use. Similarly, we find that annual income received from workers’ compensation declines by $21.98 (or 20.5%) post-[recreational marijuana legalization]. These results are not driven by pre-existing trends, and falsification exercises suggest that observing estimates of this magnitude is statistically rare.”

Researchers said that they’ve found evidence that cannabis use increases post-legalization among the age cohort they studied, but no such spike in misuse. Further, they found a decline in post-legalization prescriptions for medications used to treat chronic pain, indicating that some people are using marijuana as a substitute for traditional painkillers.

“We hypothesize that access to marijuana through [recreational marijuana laws] increases its medical use and, in turn, allows better management of symptoms that impede work capacity—e.g., chronic pain, insomnia, mental health problems, nausea, and so forth,” the study says. “Chronic pain management is likely to be particularly important in our context as this is the health condition most commonly reported among medical marijuana users.”

Beyond decreasing workers’ compensation claims and costs, legalization also is a boon to the economy by adding jobs in legal states.

The cannabis industry added more than 77,000 jobs over the past year—a 32 percent increase that makes the sector the fastest in job creation compared to any other American industry, according to a report released by the cannabis company Leafly last week.

Starting A Business? Study Finds Marijuana May Help—And Hinder

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Marijuana Industry Sees Record Jobs Gains In 2020 Despite Pandemic, New Report Shows

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The marijuana industry added more than 77,000 jobs over the past year—a 32 percent increase that makes the sector the fastest in job creation compared to any other American industry, according to a new report from the cannabis company Leafly.

In total, there are now approximately 321,000 full-time jobs in the marijuana sector across 37 states that have legalized the plant in some form. The data bolsters one of the common, bipartisan arguments in favor of reform: legalizing and regulating cannabis is an economic plus.

Via Leafly.

But Leafly’s report—which is based on an independent analysis by journalists, data experts and labor economists at Whitney Economics—is all the more striking considering that it shows significant job growth amid the coronavirus pandemic. At a time when unemployment rates have risen and businesses have been shuttered across the U.S., the marijuana industry has proven resilient.

“We’re proud of the cannabis industry as a bright spot for so many after a difficult 2020 for everyone,” Leafly CEO Yoko Miyashita said in a press release. “The essential cannabis industry is our nation’s unseen and unrecognized economic engine, creating good, full-time jobs that have helped to keep people and local economies afloat.”

“It’s time that our federal policies reflect this reality, and we legalize cannabis while ensuring equity and participation for those disproportionately affected by the War on Drugs, so everyone can benefit from this rapidly growing industry,” she said.

In the past four years, the number of full-time jobs in the marijuana industry has jumped by about 161 percent. While California’s cannabis market has the lion’s share of jobs in the sector (about 58,000), that spike is also largely attributable the state-level legalization movement, which has opened up industries from Massachusetts to Illinois in that time.

Illinois, which has consistently seen record-breaking marijuana sales since retail sales launched last year, added more than 8,000 full-time cannabis sector jobs alone.

There are now more cannabis workers in the U.S. than dentists (127,200), EMTs (260,600) or electrical engineers (314,400), the report found.

Via Leafly.

In one of the more notable findings, while marijuana sales increased demonstrably—increasing 71 percent from 2019 to 2020—the pandemic did take a hit on staffing.

“The pandemic ultimately drove increased sales industry-wide. But social distancing, occupancy limits, and shelter-in-place orders limited the ability of staff members to occupy a public retail space and work closely together,” the report says.

“In some cases, a reverse dynamic came into play,” it continues. “Some booming businesses reported staffing shortages as employees themselves fought off the virus, quarantined due to contact tracing, showed signs of possible infection, or were forced to stay at home due to underlying medical conditions.”

Even as the industry has seen significant gains in consumer purchases, however, Leafly identified a major area of concern among advocates: racial and gender disparities have persisted in the marijuana market.

While there’s limited data at the state level on these demographic trends, an independent database maintained by Cannaclusive found that while black Americans represent about 13 percent of the national population, fewer than two percent of the population own existing cannabis companies.

“The cannabis industry must show true commitment to equity as it expands, so the wealth generated by this new opportunity will uplift minority communities,” the report says. “If it cannot, we will continue to see these communities struggle in the shadow of white supremacy without a fair shot.”

New York Governor To Send Amended Marijuana Legalization Plan To Lawmakers Amid Criticism

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Starting A Business? Study Finds Marijuana May Help—And Hinder

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A new study out of Washington State University suggests cannabis may inspire entrepreneurs to come up with big, bold business ideas—but could also lead them down a rabbit hole of wishful thinking.

Researchers found that entrepreneurs who were frequent marijuana consumers came up with business pitches that were more original but less feasible, according to a panel of experts who scored the ideas.

“Beyond their innate creative aptitude, entrepreneurs may attempt to enhance their creativity,” says the study, which will appear in the March 2021 issue of the Journal of Business Venturing. “Despite generating more original ideas, we found that cannabis users’ ideas were less feasible.”

Also important variables, the study found, were an entrepreneur’s passion, which may heighten creativity at the expense of feasibility, as well as their past entrepreneurial experience, which tended to increase idea feasibility but rein in creativity.

The findings “provide insight into the creative benefits and detriments associated with being a cannabis user,” the study says, “suggesting that cannabis users—especially those who are passionate about exploring new venture ideas or those with relatively little entrepreneurial experience—may benefit from non-users’ insights to develop the feasibility of their ideas.”

To test the effects of marijuana on business-idea generation, researchers had 254 entrepreneurs come up with “as many new venture ideas as possible” based on virtual reality—a prompt provided by researchers. Participants had three minutes to generate ideas, then selected the idea they believed to be their best. Two “expert raters” then evaluated the chosen pitches for originality and feasibility.

Reachers say their findings support one of the study’s core hypotheses: that there are differences between how cannabis users and non-users arrive at business ideas. “Cannabis users are more impulsive, disinhibited, and better at identifying relationships among seemingly disparate concepts,” the study proposes. “However, these differences and cannabis users’ diminished executive functioning likely detracts from idea feasibility.”

Notably, the researchers did not ask participants to consume marijuana in the study setting itself. Rather, to compare cannabis-users to non-users, researchers split participants into two groups: those who had used marijuana less than five times in their lives and never in the past month (non-users) and those who’d consumed more than five times in their life and at least twice in the past month (users).

“Unlike alcohol, where health organizations have established standards for heavy drinking,” the study notes, “scholars have yet to reach a consensus on what constitutes a cannabis user versus a non-user.”

Because the study was merely observational, it also cannot determine whether marijuana use was in fact the cause of the differences between the two groups’ ideas. It may be that some other trait or traits explain both a person’s idea generation and their decision to consume cannabis.

The study’s cannabis user group comprised 120 people, or 47.2 percent of all participants. Researchers attempted to control for certain other factors, such as gender, age, education and technological familiarity.

While the findings suggest that, overall, cannabis can both inspire originality and limit feasibility, the outcomes were influenced strongly by what researchers described as “entrepreneurial passion for inventing” as well as their “entrepreneurial experience.”

“Cannabis users’ diminished idea feasibility compared to non-users was significant in those with low entrepreneurial experience,” the study’s authors wrote, “but not in those with high entrepreneurial experience.”

Similarly, “cannabis users’ lower idea feasibility was signifiant at high entrepreneurial passion for inventing but not low entrepreneurial passion for inventing,” the study found.

“Entrepreneurial passion for inventing appears to play a role in channeling cannabis users toward idea originality but away from idea feasibility,” it says. “Conversely, entrepreneurial experience appears to attenuate the positive relationship of being a cannabis user with idea originality and its negative relationship with idea feasibility.”

As the study itself acknowledges, many successful business leaders and visionaries have credited the inspirational powers of cannabis. Apple luminary Steve Jobs, for example, “noted that his use of cannabis helped him feel ‘relaxed and creative.’” (Biographer Walter Isaacson also quoted Jobs as saying another drug, LSD, was “one of the most important things in my life. … It reinforced my sense of what was important—creating great things instead of making money.”)

On the other hand, researchers argue that cannabis use can be a double-edged sword. “Regular cannabis use is associated with numerous detrimental effects, such as the potential for dependence and addiction, risk of motor vehicle accidents, mental and respiratory health problems, as well as memory and other cognitive impairments.”

Benjamin Warnick, assistant professor at Washington State University’s Carson School of Business and lead author of the study, said in a press release that the research is “the first study we know of that looks at how any kind of drug use influences new business ideation,” adding that “there is still much to explore.”

“Clearly there are pros and cons to using cannabis that deserve to be investigated further,” Warnick said. “As the wave of cannabis legalization continues across the country, we need to shed light on the actual effects of cannabis not only in entrepreneurship but in other areas of business as well.”

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Photo courtesy of the Drug Policy Alliance, Sonya Yruel

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