Marijuana legalization saga sees more businesses created with roadblocks on the federal side

Jacob Greene
Published Nov 15, 2023

Tax Code

Section 280E of the federal tax code, which was passed in 1980, says that a business is unable to use deductions or credit if they are engaged in an illegal business. This means that businesses that sell marijuana or the related products have no chance to make deductions, such as building maintenance or contractor costs. The IRS has started allowing the cost of goods sold deductions, but no other allowances. The tax code has been taken to federal court, but it was upheld. This can mean that a cannabis business can see 70 percent of profits going to this.

Banking Access

Any business in the marijuana arena is not allowed to use banks. The federal laws that are applicable would consider them liable for aiding and abetting in money laundering. No business in this industry is able to have company credit cards and no merchant accounts mean there are large stockpiles of cash on hand. If the federal government wants to pursue a company, they will be able to seize all the companies money quickly via civil asset forfeiture. Real criminals can target the business for a pure theft of funds, which could be violent and harm innocent people.

Insurance Woes

The insurance industry, which has heavy federal regulation, is not allowed to insure companies in the cannabis industry. The liability protections that such insurance gives are not available to them and it leaves them open to litigation. The owners of the business can see themselves in court, which would not have happened as often if they had insurance. There is not a large issue of this, but it is a normal part of business in all other industries. Insurance companies have protected companies targeted in schemes and paid innocent people when companies are liable for what has occurred.

Legislative Protection

While many hope that public opinion will keep federal law enforcement from starting massive sweeps, there is a legal block in place to help with this. The Rohrabacher-Farr Amendment was passed in 2014 and prohibits the Department of Justice from spending money to interfere with state legalization. This has to be renewed every year and people are aware of how Congress has fights that can lead to this not happening. There is a bipartisan effort in Congress to protect what has occurred. They have not passed federal level legalization, but they have been making steps towards that goal.

Funds Seizure

Even though there have been state level reforms on civil asset forfeiture laws, there is a federal program that allows local law enforcement to bypass this. It can allow a police officer to watch a person leaving a business that sells marijuana and then find a reason to pull them over. The officer can then take the money under the civil asset forfeiture program and the person will never see it again. While there could be some relief on the state level, these are considered funds from a criminal enterprise under federal law. This would be legal extortion.

While there have been many changes for the cannabis industry in the past decade, it is still being harmed by the federal level issues. People need to be made aware of this when they are working to get their state to make changes. The federal level of the marijuana issue is costing legal business owners money and giving them risks they should not have to deal with. The federal courts are upholding the laws and there are no Constitutional issues. The problem is that Congress needs to make changes that the business owners need or the federal issues will continue.

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