Members Of Congress Seek To Help Cannabis Businesses With Tax Reforms

Debra Borchardt , CONTRIBUTOR, I write about retail and cannabis. 

Opinions expressed by Forbes Contributors are their own.

Members of Congress on Thursday tried to throw the cannabis industry a legislative lifeline on taxes. The Small Business Tax Equity Act of 2017, introduced in the House by Rep. Carlos Curbelo (R-FL) and Rep. Earl Blumenauer (D-OR) and in the Senate by Sen. Ron Wyden (D-OR), Sen. Rand Paul (R-KY), and Sen. Michael Bennet (D-CO) today, would allow state-legal cannabis businesses to take normal business deductions like any other legal business. Known as 280E, the tax code provision prevents cannabis businesses from taking normal business deductions related to sales.

Section 280E originated during the Reagan years when a convicted cocaine trafficker wanted to take a tax deduction for his illicit business. Congress rejected the idea and created 280E to keep other drug dealers from trying to do the same thing. It basically says that a person can't take a business deduction if that business trades in a controlled substance.

Since marijuana is classified as a Schedule 1 controlled substance, marijuana companies have been unable to take the standard deductions that most companies take for granted. "Cannabis businesses aren't asking for tax breaks or special treatment," said National Cannabis Industry Association (NCIA) executive director Aaron Smith. "They are just asking to be taxed like any other legitimate business. NCIA and its members appreciate this strong support for a fair approach, and we're especially proud to newly gain that support from Rep. Curbelo."

If you aren't a business owner you may not realize that this is typically how profits are calculated. They start with gross income, subtract expenses to determine taxable income and then pay taxes on this final amount. Since cannabis companies cannot deduct expenses, they pay taxes on the higher amount, which can sometimes be 70% or more, according to NCIA.

"State-legal cannabis businesses have added tens of thousands of jobs, supplanted criminal markets, and generated tens of millions in new tax revenue," Smith said. "States are clearly realizing the benefits of regulating marijuana and we are glad to see a growing number of federal policy makers are taking notice."

Dan Devlin, co-founder of cannabis edible company Zoots said, "Our industry contributes to local communities just like any other sector, and it's estimated the legal marijuana industry will contribute $730 million in tax revenue to Washington alone in 2018-2019. However, current tax codes place legal marijuana businesses at a disadvantage to succeed and make profits because we're not permitted to deduct standard businesses expenses from our federal taxes. It's important we are taxed fairly and this legislation could have a huge impact on the industry's potential to grow and prosper."

The New Federalism Fund, a non-profit organization, believes that that 280E is an example of federal overreach into state-based industry. "We intend to do everything we can to help get this bipartisan legislation passed," said Neal Levine, Chairman of the New Federalism Fund. “Thanks to the groundwork laid by Rep. Curbelo, Rep. Blumenauer, Sen. Wyden and Sen. Paul, we have the opportunity to create a fair and equitable tax system for an industry that employs over 100,000 people in 28 states and contributes hundreds of millions of dollars in tax revenue each year.”

In addition to this legislation, Rep. Blumenauer introduced the Marijuana Tax Revenue Act was in the House, and it would establish a federal excise tax on cannabis, starting at 10% and rising to 25% in the fifth year after passage.

Other pieces of legislation include the Regulate Marijuana Like Alcohol Act, introduced in the House by Rep. Jared Polis (D-CO), which would regulate marijuana like alcohol by inserting marijuana into the section of the U.S. Code that regulates "intoxicating liquors." The oversight authority would move to the Bureau of Alcohol, Tobacco, Firearms and Explosives, and away from the DEA. It would also establish a permitting system to cover the cost of that oversight.

Earl Blumenauer

The Responsibly Addressing the Marijuana Policy Gap (RAMP) Act, introduced by Sen. Wyden and Rep. Blumenauer in their respective chambers, is more encompassing and covers a broad range of issues at the federal level, including banking and tax fairness for businesses, civil forfeiture and drug testing for federal employees. The two Oregon officials see the provisions in this bill, collectively, along with the other two bills introduced today, as the "Path to Marijuana Reform."

The Marijuana Revenue and Regulation Act, introduced by Sen. Wyden, contains the provisions included in the Marijuana Tax Revenue Act and the Regulating Marijuana Like Alcohol Act. "The flurry of bills on the Hill today are a reflection of the growing support for cannabis policy reform nationally," said Smith.

While all these pieces of legislation have been introduced, the industry is mostly focused on April 28th, the day that the Rohrabacher-Farr Amendment could expire. This amendment has kept the Department of Justice from spending any money on taking action against cannabis businesses in states when it has been legalized. It will be renamed the Rohrabacher-Blumenauer Amendment and it must be included in the spending package for FY2017 in order to keep the provision from expiring.

Do these bills have a chance of advancing? With conservatives in charge of the subcommittees that would need to move them forward, the odds may not be good. Rob Kampia Executive Director of the Marijuana Policy Project said that they almost have the votes to pass the McClintock-Polis Amendment in the house. This legislation protects adult-use marijuana the same way the Rohrabacher-Farr Amendment does. Kampia said that in 2015, the House rejected it with a 206-222 vote. The vote count now stands at an indecisive 196-195 with 44 votes unknown. He doesn't have a good vote count for the Senate, but it is slightly more democratic.

Smith believes that with polls showing Americans overwhelmingly approving of legalizing marijuana, lawmakers could begin to respond more favorably to marijuana legislation.

Forbes: Members Of Congress Seek To Help Cannabis Businesses With Tax Reforms