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.
Bipartisan Lawmakers Tell DEA To Let Researchers Study Marijuana From Dispensaries
A bipartisan coalition of lawmakers from the House and Senate sent a letter to the Justice Department on Friday, requesting a policy change allowing researchers to access marijuana from state-legal dispensaries to improve studies on the plant’s benefits and risks.
The letter, led by Rep. Harley Rouda (D-CA) and Sen. Brian Schatz (D-HI), cites feedback from federal health agencies, which have said that existing restrictions on cannabis have inhibited research. One problem in particular is that there’s only one federally authorized manufacturer of research-grade marijuana.
While the Drug Enforcement Administration (DEA) said that it is in the process of approving additional manufacturers, it’s been more than three years since they first announced that applications for more growers would be accepted and, more recently, the agency said it would have to develop alternative rules to approve proposals that have been submitted.
“At the same time, the status quo does not address a barrier to research raised by both [the National Institutes of Health] and [the Food and Drug Administration],” the lawmakers wrote in the new letter. That barrier is a ban on researchers being able to obtain marijuana from dispensaries.
“Both agencies recommended that researchers should be able to obtain cannabis from state-legal sources,” the letter states.
Today, @SenBrianSchatz and I sent a bipartisan letter to AG Barr, urging the DEA to amend current policies to improve research on cannabis.
It’s time to bring our drug research policies into the 21st century.https://t.co/bfpPUhUvQf
— Rep. Harley Rouda (@RepHarley) December 6, 2019
Further, the lawmakers said that there are “problems in industry development of licensed drugs with data from products obtained from third-parties, such as the University of Mississippi.”
“In many states, cannabis law and regulations already provide for licensing of industrial manufacturing activities, and products are available for medical use in those states, but not for research leading to FDA licensure,” they wrote.
“There is a need for a greater diversity of cannabis products so that research on benefits and risks reflects the realities of what consumers and patients are using. NIH and FDA have strongly recommended streamlining the process for conducting research and product development activities with cannabis and other Schedule I substances, and that the DEA take action to assure that interpretations of processes and policies are universally applied in local DEA jurisdictions.”
The lack of chemical diversity in the federal government’s cannabis supply has been repeatedly pointed out. One study found that the research-grade cannabis is more similar to hemp than marijuana in commercial markets.
To resolve the research issues, the coalition made two recommendations: 1) to amend internal policy “so as to allow researchers with Schedule I licenses to obtain cannabis-derived products from state authorized dispensaries for research purposes” and 2) issue guidance clarifying that hemp researchers do not need a DEA license to obtain and study hemp because it was federally legalized under the 2018 Farm Bill.
The letter requests a response from DEA by December 20.
A total of 21 members of Congress signed the letter, including Sens. Kamala Harris (D-CA) and Cory Gardner (R-CO), along with Reps. Earl Blumenauer (D-OR), Barbara Lee (D-CA) Matt Gaetz (R-FL) and Joe Kennedy (D-MA).
“Our nation’s cannabis research laws are archaic,” Rouda said in a press release. “Forty-seven states have legalized some form of cannabis consumption—we must ensure our federal agencies and other licensed institutions can comprehensively study the benefits and risks of cannabis products.”
“I thank Senator Schatz, and my colleagues on both sides of the aisle, for joining me to make this common-sense request,” he said. “It’s time to bring our drug research policies into the 21st century.”
Attorney General William Barr received a similar letter from lawmakers about the need to expand the number of federally authorized marijuana cultivators in April.
Read the lawmakers’ full letter on expanding marijuana research below:
Oregon Activists Begin Signature Gathering For 2020 Drug Decriminalization Initiative
Oregon activists have begun collecting signatures for a statewide initiative to decriminalize possession of all drugs.
Three months after petitioners quietly submitted the proposed ballot measure—titled the “Drug Addiction Treatment and Recovery Act” (DATRA)—the signature gathering process has started, with organizers deployed to Portland to raise support.
A long road lies before the activists, who need to collect 112,020 valid signatures from voters in order to qualify for the 2020 ballot. Funding and polling will decide whether they mount a full push for the decriminalization measure in the months to come.
To that end, their efforts are being helped by David Bronner, CEO of the soap company Dr. Bronner’s, who told Marijuana Moment on Thursday that he will be investing $250,000 in the decriminalization campaign. An additional $500,000 will go to a separate Oregon initiative to legalize psilocybin for therapeutic purposes.
The Drug Policy Alliance (DPA), which backed Oregon’s successful marijuana legalization initiative in 2014, is also supporting this new effort to make low-level drug possession an infraction punishable by a $100 fine with no jail time, rather than a misdemeanor. It remains to be seen how involved in the campaign DPA will be, however.
Peter Zuckerman, a chief petitioner for the decriminalization initiative, told OregonLive on Thursday that it’s not guaranteed that the campaign will proceed and that much rides on how much money the group can raise, whether there’s public support for the reform move and how staff recruitment comes together.
He said the main thrust of the measure is to take a “health-based approach to drug addiction rather than a criminal justice-based approach.”
The proposal caught the attention of Oregon’s teachers’ union, which said that it supports decriminalizing drug possession but wrote in a comment submitted to the secretary of state in October that it was not taking an official position because it’s concerned about another provision that would shift cannabis tax revenue away from schools.
DATRA would make it so most of that revenue would be used to fund addiction treatment programs.
At the same time that activists are collecting signatures and weighing whether to move ahead with the broad decriminalization initiative, another advocacy group is pushing for a measure to legalize psilocybin for therapeutic use, allowing individuals to receive treatment with the psychedelic fungus at licensed health facilities. The group launched its signature drive in September.
Advocates in Portland are also hoping to advance a local measure to decriminalize psilocybin and other psychedelics such as ayahuasca and ibogaine.
Bronner wrote in a blog post that the decriminalization and therapeutic psilocybin legalization campaigns are “already coordinating closely and conserving resources on the statewide signature drive.”
He told Marijuana Moment that “we see this as the perfect one two punch in Oregon, legalizing psilocybin therapy that has so much promise for treating drug addiction, at the same time Oregon shifts to a treatment not jail approach.”
“And 100 percent confident it’s coming together,” he said.
All of this comes amid a national movement to decriminalize psychedelics, with activists in almost 100 cities across the U.S. considering pushing for reduced penalties for substances such as psilocybin and ayahuasca. Decriminalize Nature, which is aiding in and tracking these efforts, is also receiving donations from Bronner, he said.
Decriminalization is also gaining traction on the national stage, with two presidential candidates—South Bend, Indiana Mayor Pete Buttigieg and Rep. Tulsi Gabbard (D-HI)—voicing support for the policy change. Former Housing and Urban Development Secretary Julián Castro, another candidate, recently said that he’s open to broad decriminalization, while entrepreneur Andrew Yang backs decriminalizing opioids.
North Dakota Activists Submit Measure To Legalize Marijuana In 2020
North Dakota activists submitted a measure to legalize marijuana for adult use to state officials on Thursday, an organizer confirmed to Marijuana Moment.
Legalize ND, the group behind the proposed statutory initiative, delivered the measure to the secretary of state’s office. It’s expected to be validated within days, after which point petitions will be distributed to collect signatures in support of qualifying for the 2020 ballot.
It’s been about a year since organizers began working on the measure, which would allow adults 21 and older to possess and purchase cannabis for personal use. The proposal is more narrowly tailored than a legalization initiative from the same organization that voters rejected in 2018, however.
The previous version didn’t include any restrictions on cultivation or possession, and it didn’t involve a licensing scheme. By contrast, the new measure would prohibit home cultivation, limit possession to two ounces, impose a 10 percent excise tax and establish a regulatory body to approve licenses for marijuana businesses.
“One of the largest complaints from last time was the mantra of ‘poorly written,'” Legalize ND’s David Owen told Marijuana Moment in a phone interview. “They targeted the lack of legal experience from our team and they targeted a lack of ‘qualified lawyers’ to be drafting language that would go into the state’s statutory law.”
But he said he’s confident the campaign will be successful this time around, in part because they spent months drafting the language with the North Dakota Legislative Council.
Asked what he’d say to voters still on the fence about legalization, Owen replied that it would depend on what their initial concerns were:
“If it’s a concern over home grow, well it’s simple, we don’t have that anymore. If it’s a concern of people having too much, we have a reasonable possession limit now—in their eyes, I still think possession limits are fundamentally arbitrary, but they wanted a possession limit so we have that now. If people go, ‘well what about the quality of the language?’ I can point to how it’s literally written by Legislative Council, so either every attorney who works for the state of North Dakota is incompetent or this is well written.”
In order to qualify for next year’s ballot, the group must collect 13,452 valid signatures from voters before July 6, 2020.
“I think the most important thing isn’t what it would do, but what it would stop from happening,” Owen told local radio station KFGO on Wednesday. “We currently have a system where people are unable to find a job because of a criminal record, we have a system where people are continuing to get marijuana charges and lose their housing, we have families being separated because of parents losing custody over their children for marijuana charges. That all stops when this is legalized.”
Listen to Owen’s radio interview about the new marijuana ballot measure below:
Internal polling that received outside funding, which Owen said cannot be publicly released because of the wishes of the donor, shows the initiative is “slightly ahead” among voters.
In an earlier interview with Marijuana Moment in February, Owen said that it’s “very probable that we can do it” this time around, but much of that depended on the extent to which opposition campaigns are involved and how much funding outside groups are able to offer.
Currently, North Dakota has a medical cannabis program, and the governor signed legislation in May decriminalizing low-level marijuana possession.
Photo courtesy of Philip Steffan.