aBIZinaBOX CPG – MG Retailer
aBIZinaBOX CPG – MG Retailer – we were thrilled to see one of our articles appear in MG Retailer this month, and we are grateful to Kathee Brewer, the Director of Content at CANN Media Group for providing us with the wonderful opportunity. Our columns currently appear in CannabisLaw.report, GreenmarketReport.com, and our website. We can also be found on numerous social media platforms including the FaceBook page for aBIZinaBOX – CPG, and our QBO Support page.
An excerpt from the article “The Messy State of Cannabis Financial Regulation” appears below.
Because state-legal cannabis businesses operate in violation of the federal Controlled Substances Act (CSA), they face several significant challenges other legal businesses do not. Of course, even those in compliance with state law risk prosecution under the CSA, although the risk is relatively low. Operationally, though, these businesses run into myriad problems, including confiscatory taxes that constrain them in ways not faced by any other commercial sector.
The STATES Act, taxes, and banking
Those who are pushing for federal action always should keep in mind the maxim “Be careful what you ask for. You may get it.” Everything that comes from the federal government comes with a price, and if the full price were known, those who push for change might reconsider. Consider this: The Internal Revenue Service may not agree the STATES Act’s proposed changes to federal criminal law eliminate the impact of Internal Revenue Code §280E, which disallows a deduction that is not dependent upon determination the conduct is criminal. Because of §280E, cannabis businesses complying with federal law suffer an effective federal tax rate of 70 percent. Some belief in order to make IRC §280E inapplicable, either marijuana must no longer be classified as a controlled substance, or IRC §280E must be amended.
In the 115th session of Congress, S. 3032 and H.R. 6043 are identical bills with the short title “Strengthening the Tenth Amendment Through Entrusting States Act” or the STATES Act. Effectively, and with some exemptions delineated in the act, “any person acting in compliance with state law relating to the manufacture, production, possession, distribution, dispensation, administration, or delivery of marihuana” shall not be in violation of the CSA or “any other provision of [federal] law.” Consequently, such activity can’t serve as a predicate for offenses under other laws; therefore, §280E of the federal tax code would not apply to such businesses.
BECAUSE OF §280E, CANNABIS BUSINESSES SUFFER AN EFFECTIVE FEDERAL TAX RATE OF 70 PERCENT.
Moreover, the STATES Act would allow banks and other financial services entities to transact business with cannabis companies without fear of violating money-laundering statutes.
Understanding financial institutions might want the additional language to ensure there is absolutely no confusion about the operation of the STATES Act, the drafters included a “Rule of Construction” that provides conduct in compliance with the act. Manufacturing, selling, transporting, possessing, etc., within state-legal frameworks:
(1) shall not be unlawful;
(2) shall not constitute trafficking in a controlled substance under section 401 of the Controlled Substances Act (21 U.S.C. 841) or any other provision of law; and
(3) shall not constitute the basis for forfeiture of property under section 511 of the Controlled Substances Act (21 U.S.C. 881) or section 981 of title 18, United States Code.