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.
Where Presidential Candidate Joe Sestak Stands On Marijuana
Joe Sestak, a former congressman from Pennsylvania and three-star vice admiral in the Navy, announced on Sunday that he is launching a relatively late run for the 2020 Democratic presidential nomination.
Though his record in Congress doesn’t offer many insights into where Sestak stands on marijuana policy, he took one vote in support of shielding state medical cannabis laws from federal interference, and his current campaign site proposes reforming federal laws to facilitate research into the therapeutic potential of psychedelics.
Legislation And Policy Actions
Sestak served in Congress from 2007 to 2011. In that time, he did not proactively sponsor or cosponsor any cannabis-related legislation.
The congressman was present for a vote on just one marijuana amendment attached to a spending bill—one to protect states that have legalized medical cannabis from Justice Department intervention—and he voted in favor of the proposal, even though his state had not yet enacted its own medical marijuana law.
Quotes And Social Media Posts
It’s difficult to assess exactly where the candidate stands on marijuana in part because a scan for relevant terms on his social media posts turns up nil.
Adding to the confusion is the apparent lack of public comments about cannabis policy from Sestak—at least any comments that have been reported by media.
The Philadelphia Inquirer did publish an article in 2016 that described Sestak, a former U.S. Navy admiral, as a “longtime supporter of medical access [to marijuana]—especially for vets” but it did not quote the congressman directly. That piece also noted that his position on cannabis decriminalization is unclear.
Statements on his campaign site do provide a small window into his views on the drug war more broadly.
Sestak argued that President Donald Trump’s proposed wall along the U.S.-Mexico border would be ineffective because “most illicit trafficking of drugs, humans, and weapons, actually happens right under the noses of our border security agents” at legal ports of entry.
He also partially blamed “misguided US policies and the high demand for illegal drugs in the United States” for creating crises that leave many to flee their home countries to seek asylum in the U.S.
“Our country, which sends hundreds of millions in foreign aid to these countries, must do a better job of holding Central American officials accountable for seeing that our funds are spent effectively—and that they do not become fuel for the fires of corruption and instability,” he said.
One of the most revealing positions on drug policy that Sestak has offered also comes from his campaign site: he said that he supports efforts to combat mental health conditions and addiction, and one part of that plan involves changing “federal law to allow doctors and scientists to expand research into the potential of certain psychedelic drugs to complement traditional substance abuse and other mental health treatment.”
“Anti-drug laws should never be an impediment to sound scientific research, but especially not during a public health crisis such as this one,” he said.
Discussing veterans issues, Sestak said that the country “must learn from innovative approaches taken to reduce chronic veteran homelessness like Phoenix’s ‘housing first’ strategy in which homeless veterans are given housing before being required to prove sobriety or pass a drug test,” which also seems to indicate an openness to alternative approaches to drug policy.
Personal Experience With Marijuana
It does not appear that Sestak has publicly commented on any personal experience he’s had with marijuana.
Marijuana Under A Sestak Presidency
Though some reports indicate that Sestak supports medical cannabis reform, and he took one step to protect states that have implemented such programs during his time in Congress, there are more questions than answers when it comes to the candidate’s position on marijuana.
At the very least, his willingness to vote in favor of medical cannabis protections ahead of his state enacting a medical marijuana law should give patients in legal states some sense of comfort, although his limited record on the issue raises questions about whether he’d be willing to extend those protections to adult-use states—and whether cannabis reform would be a priority of his administration at all.
That said, the fact that he included a position on psychedelics reform on his campaign website signals that he’s cognizant of the issue and that his views on broader drug policy reform may have simply flown under the radar.
Hawaii Marijuana Decriminalization Will Take Effect, Governor Says
Hawaii Gov. David Ige (D), who has at times expressed serious concerns about marijuana policy reform, announced that he will allow a legislature-passed bill to decriminalize small amounts of cannabis to go into effect.
Ige didn’t include the decrim proposal in a list of legislation he intends to veto by Monday’s deadline.
Lawmakers sent the bill, which punishes possession of three grams of marijuana with a $130 fine instead of jail time, to the governor’s desk in April. As originally introduced, it covered greater amounts of marijuana in line with decriminalization policies in other states, but was watered down as it advanced through the legislative process.
Under current law, possessing cannabis is a petty misdemeanor that carries up to a $1,000 fine.
In a press conference to discuss his veto list, Ige called the marijuana legislation “a very tough call” and said went “go back and forth” on the issue before deciding to let the bill take effect.
The governor said he would have preferred if the decriminalization proposal included provisions aimed at “young people who we would want to get into substance abuse or other kinds of programs to help them deal with drug use.”
In the end, he said, he decided “it would be best not to veto that.”
Watch Ige discuss his decision not to veto marijuana decriminalization, about 23:35 into the video below:
Some legislative leaders have expressed interest in considering legislation to legalize and regulate marijuana.
Asked by a reporter about the possibility of broader cannabis reforms in Hawaii, Ige said that the state “can benefit from not being at the head of the table.”
“We continue to learn from other states about the problems that they see with recreational marijuana,” he said, echoing concerns he has about legalization and noting that he’s been discussing the possible reform with governors from some western states that have already enacted it. “We would be smart to engage and recognize what’s happening in other states, acknowledge the challenges and problems it has raised.”
Nikos Leverenz, board president for the Drug Policy Forum of Hawaii, told Marijuana Moment that Ige should be “commended” for not vetoing the bill.
“It’s also encouraging that he’s having ongoing conversations with other governors from states that have legalized adult-use cannabis,” he said. “Hawai’i can indeed learn a great deal from other states, including the enactment of social equity measures to ensure broad local participation by women, underrepresented minorities, and those harmed by the drug war.”
Also on Monday, Ige announced that he intends to veto a bill allowing medical cannabis patients to transport their medicine between islands.
“Marijuana, including medical cannabis, remains illegal under federal law. Both the airspace and certain areas of water fall within the exclusive jurisdiction of the federal government,” he wrote. “This bill may lead travelers, acting in reliance on this provision, to erroneously believe they are immune from federal prosecution.”
Another proposal on the governor’s veto list would establish a hemp licensing program.
“There are concerns that this bill creates a licensing structure that cannot be enforced, will not meet USDA requirements for an approved industrial hemp program, and creates practical problems in the enforcement of existing medical cannabis,” he reasoned.
Finally, Ige plans to veto a bill to scale back the use of asset forfeiture, which is often used against people accused of drug crimes, with the governor calling the practice “an effective and critical law enforcement tool that prevents the economic benefits of committing a crime from outweighing consequential criminal penalties and punishment.”
USDA Sets Target Deadline To Release Hemp Regulations
The U.S. Department of Agriculture (USDA) offered new insights into its rulemaking process for hemp regulations in a notice published in the Federal Register on Monday.
Of particular note is the deadline by which USDA is aiming to release its interim final rule for the newly legal crop: August. Previously, the department simply said it would have the rules in place in time for the 2020 planting season.
“This action will initiate a new part 990 establishing rules and regulations for the domestic production of hemp,” the new notice states. “This action is required to implement provisions of the Agriculture Improvement Act of 2018 (Farm Bill).”
The hemp update update is part of a larger regulatory agenda for various agencies that’s being released by the Trump administration.
“It is great to see that USDA is on track to complete federal hemp farming regulations this year,” Eric Steenstra, president of Vote Hemp, told Marijuana Moment.
A USDA spokesperson told Marijuana Moment in an email that the August projection is the department’s “best estimate” for when the regulations will be released. It remains USDA’s intention “to have the regulations in place by this fall to allow for a 2020 planting season.”
“However, the clearance process will dictate the actual timing of the publication,” the spokesperson said.
While USDA officials have said the department didn’t plan to expedite the regulatory process despite strong interest among stakeholders, it seems to be making steady progress so far. The department said in March that it has “begun the process to gather information for rulemaking.”
USDA has also outlined the basic elements that will be required when states or tribes are eventually able to submit regulatory plans for federal approval. Those proposals will have to include information about the land that will be used to cultivate hemp, testing standards, disposal procedures, law enforcement compliance, annual inspections and certification for products and personnel.
The new update comes about six months after hemp and its derivatives were federally legalized under the 2018 Farm Bill. But until USDA releases its guidelines, hemp farmers must adhere to the earlier rules established under a narrower research-focused provision of the 2014 version of the agriculture legislation.
While the rules are yet to be published and there are therefore some restrictions on what hemp farmers can lawfully do, USDA has clarified several policies that have already gone into effect in recent months.
The department is accepting intellectual property applications for hemp products, for example. It also explained that hemp seeds can be lawfully imported from other countries and that the crop can be transported across state lines since it’s been federally descheduled.