With a looming congressional vote on a massive revision of US tax structure, the issue of the inequitable taxation on state-legal cannabis businesses has charged to the fore.
And with good reason: a typical American business pays 30% of its "taxable income" in taxes, which means the amount of income after deductible business expenses are subtracted. On the other hand, a typical state-legal cannabis business (a licensed business in one of the 29 states + the District of Columbia where medicinal and/or recreational cannabis has been approved by its voters) are not allowed to take those deductions, and are thus taxed at a typical rate of 70%.
The National Cannabis Industry Association (NCIA) has created a simple illustration to demonstrate the effect of this unequal tax burden (see below)
The federal government argues that because cannabis is a Schedule I drug, 280E is a valid way to discourage this "illegal activity". Cannabis business advocates are joined by libertarians such as Grover Norquist and Roger Stone, conservatives from Dana Rohrabacher to the National Review, and of course, social liberals all the way to the ACLU in consistently and increasingly loudly denouncing the 280E tax as unfair and an infringement on states rights.
Finance expert and cannabis investor Ruth Epstein describes the law's negative effects on investment in the soon to be $20 Billion+ industry: "The uncertainty as to the ability of cannabis companies to work with banks and other financial institutions, coupled with the effect of 280E on overall profitability, have had a dampening effect on investor enthusiasm, and have markedly slowed the flow of capital into cannabis companies in the U.S." Epstein is a partner at BGP Advisors.
Norquist, the renowned tax-reform advocate, had supported cannabis legalization for a decade when he told Marijuana Business Daily: "...we have been supportive from the beginning of getting rid of that particular tax policy. We ought to strip out that discrimination against marijuana production, sale and use, and allow states to have a conversation about what works and what doesn’t and what they want to do."
Now, a bipartisan amendment sponsored by Cory Gardner (R-CO) has been attached to the tax reform bill which would exempt cannabis companies from 280E as long as they're fully compliant with state laws.
Experts agree that despite all the stunning advances toward the end of Cannabis Prohibition, it could be a challenge to get to 51 votes on this tax measure. Stay tuned.