IRS Continues to Cripple Cannabis Industry Profits
February 21st, 2014
Policy, Top News
Dispensaries in states where cannabis is legal are banned from writing off expenses related to the distribution of their product, since cannabis remains illegal by federal law governing the Internal Revenue Service. Labor, rent, health insurance, advertising and other operating expenses that are commonly written off by business are not eligible for cannabis companies. As a result, many dispensaries are stuck footing tax bills that can top 80% of their overall revenues in some cases.
The Obama Administration has instructed the Justice Department to respect state legalization, but there’s little that can be done about IRS law without the legislature. In fact, the IRS recently told lawmakers that it has no power to act unilaterally. Lawmakers are Capitol Hill aren’t likely to act anytime soon either given the high rate of disapproval among Republicans that could sideline any efforts to pass a bill.
“Why would we allow companies operating in violation of federal law to take federal tax breaks? It makes no sense,” said Tim Griffin, a Republican Representative from Arkansas that its on the House Ways and Means Committee that handles tax policy.
With this type of mentality widespread in government offices, dispensaries have been forced to try and work around the law by creating side businesses that could enable them to deduct some of their expenses. For example, some provide patient services that may involve deducting some labor hours or other shared expenses with a dispensary to offset tax liability.
In the meantime, many other companies have pending lawsuits with the IRS trying to free up their capital. Harborside Health Center – one of the largest dispensaries in the country – is seeking to deduct about 95% of its operating expenses by arguing that only about 5% of its employees’ time was spent on the actual retail sale of marijuana.
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