U.S. senators are expected to consider two far-reaching marijuana amendments to a broad Republican-led tax bill being debated on the floor this week. Both measures are sponsored by GOP Sen. Cory Gardner of Colorado, and they concern the ability state-legal cannabis businesses to take tax deductions that are available to operators in other industries.
Under current federal law, a 1980s provision — known as 280E — effectively forces cannabis businesses to pay a much higher tax rate than other companies.
The statute was originally intended to to stop drug cartel leaders from writing off yachts and expensive cars, but today its 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.
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.
The full text of both of Gardner’s measures are included below.
See Marijuana Moment’s earlier report on Gardner’s cannabis tax advocacy for background and context.
Gardner’s first amendment provides a simple exemption to the provision known as 280E for marijuana businesses that are operating in accordance with state laws:
______ SA 1609. Mr. GARDNER submitted an amendment intended to be proposed by him to the bill H.R. 1, to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018; which was ordered to lie on the table; as follows: At the end of part IV of subtitle C of title I, add the following: SEC. 13311. ALLOWANCE OF DEDUCTIONS AND CREDITS RELATING TO EXPENDITURES IN CONNECTION WITH MARIJUANA SALES CONDUCTED IN COMPLIANCE WITH STATE LAW. (a) In General.--Section 280E is amended by inserting before the period at the end the following: ``, unless such trade or business consists of marijuana sales conducted in compliance with State law''. (b) Effective Date.--The amendment made by this section shall apply with respect to taxable years ending after the date of the enactment of this Act. ______
Gardner’s second amendment is more complicated. It also provides the 280E fix for state-legal cannabis businesses, but requires that they meet a certain definition of “properly regulated” in order to qualify for the exemption:
______ SA 1639. Mr. GARDNER submitted an amendment intended to be proposed to amendment SA 1618 proposed by Mr. McConnell (for Mr. Hatch (for himself and Ms. Murkowski)) to the bill H.R. 1, to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018; which was ordered to lie on the table; as follows: At the appropriate place, insert the following: SEC. __. EXCEPTION FOR EXPENDITURES IN CONNECTION WITH CERTAIN CANNABIS RELATED TRADES OR BUSINESSES. (a) In General.--Section 280E of the Internal Revenue Code of 1986 is amended-- (1) by striking ``drugs'' and all that follows through ``No deduction'' and inserting ``drugs ``(a) General Rule.--Except as provided in subsection (b), no deduction''; and (2) by adding at the end the following: ``(b) Exception for Certain Cannabis Related Trades or Businesses.-- ``(1) Exclusion from trafficking.--Those activities undertaken in connection with a qualified cannabis trade or business shall not be considered trafficking in controlled substances for purposes of subsection (a). ``(2) Definitions.--For purposes of this subsection: ``(A) Cannabis related trade or business.--The term `cannabis related trade or business' means a trade or business that earns cannabis related income. ``(B) Cannabis related income.--The term `cannabis related income' means any income earned from the manufacture, production, cultivation, processing, refinement, transportation and delivery, distribution, testing, use, sale, or exchange of cannabis or cannabis-derived materials. ``(C) Qualified cannabis related trade or business.--The term `qualified cannabis related trade or business' means a cannabis related trade or business that meets the following requirements: ``(i) The activities giving rise to the cannabis related income of the trade or business are properly regulated under the laws of the State in which they are conducted. ``(ii) No cannabis or cannabis-derived materials owned by the trade or business are sold, exchanged, provided free of charge, gifted, donated, sampled, embedded in the sale of another item, embedded within the provision of a service, or otherwise transferred in a manner that does not give rise to cannabis related income. ``(iii) None of the activities of the trade or business are trafficking in controlled substances other than cannabis or cannabis-derived materials regulated under State law. ``(iv) To the extent that the cannabis related trade or business was in existence prior to the date of enactment of this subsection, the person who held or controlled a license described in paragraph (3)(A) in taxable years ending before such date of enactment has not had a cannabis license revoked by State licensing authorities. ``(3) Properly regulated.--The term `properly regulated' means, with respect to a qualified cannabis related trade or business, the following: ``(A) Persons engaged in the activities giving rise to the cannabis related gross receipts are licensed by the State in which they conduct such activities and such license is subject to periodic renewal. ``(B) State licensing rules impose limitations on the production and distribution of cannabis and items derived from cannabis. ``(C) State licensing rules restrict the distribution of cannabis and items derived from cannabis to minors, including-- ``(i) a minimum age on legal purchases of 18; and ``(ii) restrictions on advertising, marketing ,and promotional activities that are at least as stringent as those imposed on alcohol products in the State. ``(D) Sufficient books and records are employed by the cannabis related trade or business-- ``(i) to enable the seed to sale identification of all the cannabis or cannabis derived materials owned or used in connection with the manufacturing, production, growth, processing, refinement, distribution, testing, use, sale, or exchange activities of the cannabis related trade or business; and ``(ii) to enable the association of the income of the cannabis trade or business with the cannabis or cannabis derived materials identified in accordance with clause (i). ``(E) Personal use exemptions to the State licensing requirements, if any, contain limitations similar to those contained in section 5053(e), applied-- ``(i) by limiting the definition of any permissible transfer to another person, whether by sale, exchange, gift, sharing, concurrent use, or otherwise, to transfers between the persons who constitute family members within the meaning of section 267(c)(4) and who are not minors; and ``(ii) by substituting 8 plants for 200 gallons in each place it appears for applying a household limitation involving more than 1 adult and 4 plants for 100 gallons in each place it appears for applying a household limitation involving only 1 adult. ``(F) State licensing rules limit caregiver, agency, designation arrangements, cooperative agreements, or any other arrangement involving cannabis or cannabis derived materials purporting not to involve a trade or business to 8 plants per patient or person per calendar year. ``(4) Application to persons engaged in more than one trade or business.--The activities of all persons who are related parties within the meaning of section 52 shall be taken into account in applying this subsection.''. (b) Effective Date.--The amendments made by this section shall apply with respect to taxable years ending after the date of the enactment of this Act. ______
One or both of the Gardner amendments are expected to be considered as part of a so-called “vote-a-rama” on the Senate floor late Thursday or on Friday.
Voters In Key Congressional Districts Support Marijuana Legalization, Poll Says
With many key congressional races rated as “toss ups” by political observers, either major party could end up controlling of the U.S. House of Representatives after this November’s midterm elections.
A new poll identifies one thing that can help Republican or Democratic candidates come out ahead: Embracing marijuana legalization.
The polling firm Lake Research Partners surveyed 800 likely 2018 general election voters in 60 so-called “battleground districts,” finding that 60 percent support ending cannabis prohibition. Only 36 percent are opposed.
Medical marijuana is even more popular, with 79 percent of voters in these swing districts on board.
More to the point for politicians looking to win elections, the survey showed that 44 percent of battleground voters say they would be more more likely to vote for a candidate who supports legalization, including 26 percent who say they would be “much” more likely. Only 33 percent said they would be less likely to back a pro-legalization candidate.
The survey was conducted in February but is being released on Tuesday at Washington, D.C. event sponsored by MedMen Enterprises, a cannabis dispensary chain that commissioned the poll.
Another key finding is that 55 percent of voters say they would be “more likely” to vote if a marijuana initiative was on the ballot in their state.
The survey also tested the effectiveness of various arguments concerning legalization, determining that “the strongest pro-legalization message frame highlights how we need legalization to repair the financial and moral damage of the failed war on drugs,” according to a polling memo prepared by the firm.
Several other recent national polls have found majority support for marijuana legalization, but the new results narrowed down to key swing districts are likely to warrant special attention from candidates and political operatives.
Photo courtesy of Chris Wallis // Side Pocket Images.
Congressional Committee Blocks Marijuana Votes (Again)
Lawmakers on a key congressional committee once again blocked colleagues in the full House from being able to vote on marijuana-related amendments.
One proposed measure, filed last week, would have allowed Washington, D.C. to legally tax and regulate retail marijuana sales and another would have prevented federal regulators from penalizing federal banks from working with businesses and individuals in the legal cannabis industry.
But on Monday evening, the Republican-controlled Rules Committee, led by Congressman Pete Sessions (R-TX), continued its recent tradition of preventing floor votes on any and all measures to scale back federal cannabis prohibition.
“Everyone who knows that Congress has a responsibility to at least debate these issues should unite and help Pete Sessions find another line of work,” Congressman Earl Blumenauer (D-OR), who cosponsored both cannabis measures, told Marijuana Moment in a statement.
Sessions’s Texas district, which Hillary Clinton won in 2016, is currently considered a “toss up” by political analysts in this November’s midterm elections.
Before Monday, his panel had blocked at least 34 other cannabis-related amendments from reaching the floor for votes during the current Congress. The full House of Representatives has not been allowed to consider marijuana reform proposals since the spring of 2016.
Bipartisan groups of lawmakers cosponsored both new cannabis measures, which they were seeking to attach to legislation to fund parts of the federal government through Fiscal Year 2019.
(A third marijuana-related measure considered on Monday proposes shifting money away from forest and rangeland research toward “eradicating, enforcing, and remediating illegal marijuana grow operations on National Forest System land.” That measure was cleared for a floor vote, likely sometime this week.)
“Our federal laws are outdated. The people in this country want the law to treat marijuana as we do alcohol,” Congressman Denny Heck (D-WA), said in testimony about his marijuana banking amendment. “These large sums of cash make dispensaries an obvious target for robberies.”
He recounted the story of Travis Mason, a 24-year-old Marine veteran who was killed during a 2016 robbery at a Colorado marijuana dispensary where he was serving as a security guard.
“He managed to survive his service in the United States Marine Corps, but he didn’t survive his job guarding a store here at home,” Heck said.
“If we do nothing, this is bound to happen again.”
— Denny Heck (@RepDennyHeck) July 14, 2018
The D.C. measure was filed by Democratic Congresswoman Eleanor Holmes Norton, who represents the District of Columbia.
“This rider has unintentionally benefited violent drug gangs,” Norton said of current policy in her testimony before the Rules Committee. “For that reason, some refer to it as the ‘Drug Dealer Protection Act.’ As one marijuana dealer told the Washington Post, the rider is ‘a license for me to print money.’ Regulating marijuana like alcohol would allow D.C., instead of drug dealers, to control production, distribution, sales and revenues.”
Under a ballot measure approved by D.C. voters in 2014, low-level marijuana possession and home cultivation is legal. But because of an ongoing federal appropriations rider enacted in past years and included in the new FY19 bill, local officials have been prevented from adding a system of taxed and regulated cannabis sales.
Congressman Jared Polis (D-CO), a member of the Rules Committee, specifically moved during the meeting Monday night to make the amendment on cannabis businesses’ access to banks in order for a floor vote, but that was defeated by a party-line vote of 8 – 2.
Last night the Rules Committee blocked an amendment I cosponsored w/ @RepDennyHeck to protect financial institutions working with legal cannabis businesses. @RepJaredPolis asked for a roll call vote and EVERY Republican present voted no. What are they afraid of? Let us vote! pic.twitter.com/YDmnousHki
— Dina Titus (@repdinatitus) July 17, 2018
The marijuana banking measure had 22 cosponsors, more than any of the 276 other measures the Rules Committee considered this week. Eighty-seven amendments were cleared for floor consideration.
Sen. Jeff Merkley “Disappointed” That Democrats Blocked His Marijuana Banking Amendment
One of the U.S. Senate’s foremost champions for marijuana law reform says he is “disappointed” that fellow Democrats recently joined with Republicans in blocking his amendment to increase cannabis businesses’ access to banks.
Last month, Sen. Jeff Merkley (D-OR) offered a measure that would have shielded banks that open accounts for state-legal marijuana businesses from being punished by federal regulators for that activity even though cannabis remains illegal under federal law.
While the Senate Appropriations Committee had approved two similar amendments in previous years, the panel this time voted to table the measure with a bipartisan vote of 21 – 10, with ranking member Sen. Patrick Leahy (D-VT) and other Democrats who normally support marijuana reform objecting on procedural grounds.
“I was disappointed,” Merkley said in an interview with BuzzFeed editor Ben Smith on Monday. “We had passed this twice before.”
“We need to establish banking for cannabis because a cash economy is an invitation to money laundering and theft and cheating your employees and cheating on your taxes [and] organized crime. All bad.”
“I accompanied the owner of a company who had $70,000 in his backpack to pay quarterly taxes,” Merkley recounted in response to the cannabis banking question on Monday, which was suggested to BuzzFeed by Marijuana Moment’s editor. “It’s so bizarre going down the freeway and talking about how they have to pay their employees in cash, have to pay their suppliers in cash. It’s a bad system.”
“Everyone should agree: States’ rights on this. Let the states have an electronic system to track what these businesses are doing, not billions of dollars floating around like this.”
— Ben Smith (@BuzzFeedBen) July 16, 2018
Despite his disappointment with the measure being blocked, the Oregon Democrat, who is believed to be considering a 2020 presidential run, said that his colleagues “had a fair point to make on the policy front” in tabling the measure.
At the time, Leahy argued that spending bills such as the one before the committee should be kept “free of new controversial policy riders” and that a more appropriate forum would be an authorizing committee that sets banking laws.
“It wasn’t existing policy and therefore it was new policy,” Merkley acknowledged in the new interview.
But he pointed out that there are few other avenues available for senators to pursue the issue.
“Here’s the thing. Normally we could take these policy bills like I was putting forward [and] you could put it on the floor of the Senate as an amendment to something,” he said. “In 2017, outside of the budget process, not a single amendment was considered on the floor of the Senate… This is the end of the Senate really as a deliberative body on policy. So if you’re blocked in the Appropriations Committee, and you’re blocked on the floor, then it’s very hard to put ideas out there and say, ‘Hey vote on this. This matters.'”
The House Appropriations Committee also defeated a cannabis banking amendment last month.
See the video of Merkley’s remarks at about 19:15 into the clip below:
— AM to DM by BuzzFeed News (@AM2DM) July 16, 2018
Photo courtesy of Senate Democrats.