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With legalization slowly spreading across the country, many major news outlets have started paying attention to what many have called the Green Rush. The Green Rush is a cannabis-related reference to the previous gold rushes and silver rushes that saw thousands of people transplant themselves and even their families in the hope of getting rich quick off of precious metals.
Now, entrepreneurs and investors are flocking to states with legal cannabis and cannabis businesses in the hopes of making a profit. Much like with earlier rushes, the Green Rush creates has already left some people broke after they invested their savings in an opportunity to get rich.
There are many ethical concerns with those who solely see cannabis as a source of income. However, that is not the focus of this specific article. Instead, the issue at hand today is how the IRS limits the ability of cannabis businesses to truly thrive, even in states with legalization laws.
Running any kind of business is an expensive undertaking. You have to invest a lot of your own time and money into a business to really make it thrive. Business owners typically offset what they invest through the use of tax write-offs, deductions, and credits. Unfortunately, the ability to write off business expenses of any sort is not available to cannabis businesses.
Any company involved with the sale of Schedule I substances, a list which still includes cannabis, is not allowed to take standard corporate tax deductions. In other words, cannabis companies have to pay ridiculously high taxes, especially when compared with mega-billion dollar corporations that often avoid almost all of their tax liability.
In 2017, cannabis businesses reported $13 billion in sales. The IRS pulled in over a third of that in $4.7 billion worth of taxes. In a humorous twist, that income has caused headaches, because the cannabis businesses, denied bank accounts, almost universally had to pay in cash. Business owners have to plan for a significant amount of their revenue to go straight into taxes, with little regard for anything other than the cost of the product they sell when it comes to deductions.
As more states have created legalization frameworks, more companies have sprung up that deal directly with cannabis. The federal government is currently reaping massive benefits from state legalization measures. By keeping cannabis illegal at the federal level, policymakers can effectively bulk up the IRS’ coffers without angering the average person too much. Unfortunately, that makes it hard for small businesses to thrive in legal cannabis markets.
Since it is very unlikely that the federal law that prevents companies selling Schedule I substances from using most standard deductions will change, it is high time that the schedule status of cannabis itself did. Unfortunately, legal cannabis has become a major cash producer for the federal government in a way that many people may not have anticipated and even fewer understand.
All of that extra income just serves as yet another reason for the government to hold off as long as possible on changing the scheduling status of cannabis. While government officials continue to rake in the money, innocent people get arrested, families get broken up, and lives are unnecessarily destroyed over the prohibition of a plant. As even more States move toward legalization, the voices of cannabis businesses in those States will hopefully become loud enough to force change at a federal level. It is clear that as a country, we still have a long way to go regarding developing a rational drug policy.
For previous Ladybud articles that discuss taxes, click here.