
Nearly half of U.S. states have legalized marijuana in some form, whether medical or recreational. But marijuana remains illegal under federal law, and as a result, the legitimate businesses selling the drug are subject to sky-high tax rates.
Dispensaries can't deduct traditional business expenses like advertising costs, employee payroll, rent and health insurance from their combined federal and state taxes. That means dispensary owners around the U.S. often face effective tax rates of 50 to 60 percent -- and in some states, those rates soar to 80 percent or higher, according to members of the pot industry who spoke to The Huffington Post.
In other words, the federal government rakes in tax revenue from pot shops while prohibiting them from accessing the same financial benefits afforded to non-cannabis businesses.
"We now have thousands of basically small- and medium-sized businesses across the country in over 20 states that are perfectly legal, who are being discriminated against in terms of the tax system because they can’t deduct legitimate business expenses," Rep. Earl Blumenauer (D-Ore.) told The Huffington Post. "Their effective tax rate is two, maybe three times higher depending on where they are in their business cycle." Blumenauer introduced the Small Business Tax Equity Act (HR 2240) in 2013, which would allow marijuana-related businesses to make traditional tax deductions.
Federal tax code 280E, an antiquated Internal Revenue Service rule enacted in the 1980s under President Ronald Reagan's "War on Drugs" campaign, explicitly prohibits any deduction from any business that "consists of trafficking in controlled substances." Marijuana is currently listed alongside heroin and LSD as a Schedule I narcotic under the Controlled Substances Act.
"280E is left over from an earlier era, and it’s not fair," Blumenauer said. "It's time to treat marijuana like a grown-up, legitimate business, and have people play by the rules and be fair to them.”
In 2013, Blumenauer forged an unlikely alliance with conservative anti-tax crusader Grover Norquist when the Oregon lawmaker introduced his pot business tax reform bill.
"There is no reason why the tax code should deny ordinary and necessary business expenses to legitimate businesses established under state law," Norquist wrote in a letter to Congress urging the bill's passage. "The result is an arbitrary and punitive situation where legal employers face very high average effective tax rates that Congress never sought to impose on businesses."
In an attempt to better serve the marijuana businesses in Colorado, which began permitting the recreational sale of pot last month, state lawmakers approved a measure that allows dispensaries to claim some state income tax deductions, especially related to the growing of cannabis. But Colorado dispensary owners told HuffPost that their effective tax rates are still around 50 to 60 percent because anything related to the specific sale of the plant can't be deducted.
"All we want is to be treated like other businesses," said Mike Elliott, executive director for the Medical Marijuana Industry Group which represents marijuana businesses in Colorado. "The federal government doesn’t recognize our businesses as being legitimate, but they do demand our taxes. It’s really unfair treatment."
Elliott added marijuana business owners have no problem paying taxes, a widespread mentality among dispensary owners eager to convey the image that they are functioning as legitimate, law-abiding businesses. "We are on board with paying our taxes," Elliott said. "But right now these unusually high rates are just a means of punishing the businesses, a 'head in the sand' approach."
Dispensary owners are hopeful that changes in the federal tax code are coming. They point to recent statements from President Barack Obama, who said that he thinks marijuana is no more dangerous than alcohol, and Attorney General Eric Holder, who signaled that a change in federal banking access for marijuana businesses may be on the way.
“Allowing small, legal marijuana businesses to have the same tax treatment as any other small business is critical to ensuring the regulated industry can wipe out the black market," said Rep. Jared Polis (D-Colo.), who has sponsored a number of measures advocating tax and banking rights for marijuana businesses.
Not everyone is on board with offering legal marijuana businesses the same treatment when it comes to taxes. "We should give fewer -- not more -- incentives, to people cashing in on addiction. This is about creating the next big tobacco, and we want to now give them tax breaks?" said Kevin Sabet, a former senior adviser at the White House Office of National Drug Control Policy and founder of Smart Approaches to Marijuana.
As these marijuana businesses continue to pay exorbitant sums in taxes to the state and federal government, many dispensary owners say they're counting the days until the IRS decides to audit them. California's Harborside Health Center, widely considered the world's largest marijuana dispensary, lost a battle against the IRS in 2011 when it tried to deduct standard business expenses and was ordered to pay millions in back taxes.
"We haven’t gone through an audit yet," said Tim Cullen, co-owner of Denver's Evergreen Apothecary. "Of course we pay our taxes, but it just feels like it’s a matter of when, and not if, that audit occurs."
Since Colorado's recreational pot shops opened on Jan. 1, dispensaries have generated a tremendous amount of revenue for both the state and federal governments. In the first week alone, less than 40 dispensaries around the state reportedly took in more than $5 million in sales revenue, with approximately $1.2 million of that going to state coffers alone -- and those figures are from just a fraction of the more than 500 total medical marijuana shops that are eligible to apply for retail licenses in the state.
More than one dispensary owner, who requested anonymity when speaking about specific financial issues, told HuffPost that they estimated by the end of the year, they'll be paying more than $1 million in sales tax to the federal government. And for some businesses, that tax is in cash.
Since most banks refuse to work with marijuana businesses out of fear that they could be implicated as money launderers if they offer traditional banking services to the pot businesses, many owners conduct all of their transactions in cash. Beyond the burden of managing taxes and employee payroll, cash-only businesses can put retailers' safety at risk. NBC News recently detailed several heists that have occurred at Colorado dispensaries.
Rep. Ed Perlmutter (D-Colo.), an advocate for mandatory banking for marijuana businesses, said he's hopeful the recent remarks from the president and attorney general signal that at least some change is coming. He added that when it comes to these businesses, safety should be their top concern.
"The crime potential for an all-cash businesses, whether that’s robbery, burglary or assault -- a violent crime -- or tax evasion, fraud and skimming -- a white collar crime -- is pretty substantial," he said. “At the heart of the banking and tax issue is we want these businesses to be safe."
More than a dozen states are expected to legalize marijuana in the the coming years. One recent study has projected a $10 billion legal marijuana industry nationwide by 2018.
Before You Go

“I think that most small amounts of marijuana have been decriminalized in some places, and should be," he said back in 2000 in an interview with Rolling Stone. "We really need a re-examination of our entire policy on imprisonment.”
He's since spoken about the issue of marijuana and drug prohibition a number of times. Last year, he appeared in the documentary, "Breaking the Taboo," where he argued that the war on drugs has been a failure.

“I don't want to promote that but I also don't want to put people in jail who make a mistake," Paul said. "There are a lot of young people who do this and then later on in their twenties they grow up and get married and they quit doing things like this. I don't want to put them in jail and ruin their lives."


"I really believe we should treat marijuana the way we treat beverage alcohol," Robertson said in an interview with The New York Times in 2012. "I've never used marijuana and I don't intend to, but it's just one of those things that I think: this war on drugs just hasn't succeeded."
Robertson has made similar remarks on his "700 Club" show before, but the Times, like many others, perhaps felt they must have misheard him.


“[T]o me, marijuana is no different than wine," he said in an interview with High Times. "It's a drug of choice. It's meant to alter your current state -- and that's not a bad thing. It's ridiculous that marijuana is still illegal. We're still fighting for it ... It comes down to individual decision-making. There are millions of people who smoke pot on a social basis and don't become criminals. So stop with that argument -- it doesn't work.”
[H/T Marijuana Majority]

From his campaign platform:
"By managing marijuana like alcohol and tobacco - regulating, taxing and enforcing its lawful use - America will be better off. The billions saved on marijuana interdiction, along with the billions captured as legal revenue, can be redirected against the individuals committing real crimes against society."

“Marijuana should not only be legal, I think it should be a cottage industry," he said in an interview with High Times. "My wife says, and I agree with her, that what would be really great for Maine would be to legalize dope completely and set up dope stores the way that there are state-run liquor stores.”
[H/T Marijuana Majority]

While marijuana has been made legal for various uses in a number of states, the Obama administration continues to enforce federal laws across the nation. This has led to numerous raids of marijuana-based businesses, as well as prosecutions of growers and other people involved in pot.



"I think it's about time we legalize marijuana," he said. "We have to make a choice in this country. We either put people who are smoking marijuana behind bars or we legalize it, but this little game we're playing in the middle is not helping us, it is not helping Mexico and it is causing massive violence on our southern border."

"Decriminalization does not result in increased drug use. Portugal's 10 year experiment shows clearly that enough is enough. It is time to end the war on drugs worldwide. We must stop criminalising drug users. Health and treatment should be offered to drug users - not prison. Bad drugs policies affect literally hundreds of thousands of individuals and communities across the world. We need to provide medical help to those that have problematic use - not criminal retribution."



"I don't tend to say this publicly, but we can see it's a curative thing. The narcotics industry is also enormous. It funds terrorism and - this is a huge problem in America - fuels the foreign gangs," he said. "More than 85 percent of men incarcerated in America are on drug-related offences. It costs $40,000 a year for every prisoner. If they were really serious about the economy there would be a sensible discussion about legalization."

While Obama and his administration have responded to state marijuana reforms by saying they must enforce federal laws against marijuana, the president has the power to reschedule the drug, which would allow federal authorities to shift resources away from a prohibitive approach.

"However, I think we need to prioritize our law enforcement efforts," Palin said. "If somebody's gonna smoke a joint in their house and not do anybody any harm, then perhaps there are other things our cops should be looking at to engage in and try to clean up some of the other problems we have in society." While Obama has spoken repeatedly about not being interested in prosecuting small-time marijuana users, he hasn't done anything to prevent them from being busted by law enforcement in states where the drug is still illegal.

In 2012, the former president said he was fine with state legalization efforts, though he himself doesn't necessary support legalizing the drug.
“As president 35 years ago I called for decriminalizing -- but not legalizing -- the possession of marijuana,” Carter said. “Since then, U.S. drug policies have been very horrible to our own country because of an explosion in prison populations.”

"I don't have a problem with states experimenting with this sort of thing I think that's the role of states," Cuccinelli said, according to Ryan Nobles of WWBT.

“The proof will be in the policy. The war on drugs has gotten a really bad rap, when you ask people if they support the war on drugs they say no ... [Obama's] budget once again has the same old drug warrior policy ... I reject the assumption that everybody who is using drugs needs treatment or is an addict and needs to get arrested ... Not all drug use is abuse.”
He's kept up the fight for drug policy reform since.
[H/T Marijuana Majority]

“We've been fighting the war on drugs since the '60s. And guess what? Trillions of dollars later, we are losing," Sharpton said during a segment on MSNBC. "When you look at the disparities in sentencing drug offenders, hasn't this kind of injustice undermined the legitimacy of our criminal justice system?”
[H/T Marijuana Majority]

Tancredo continued, “The arguments against marijuana today are the same as the arguments against liquor years ago.”
Years later, the former congressman agreed to smoke pot on camera with a documentary filmmaker, a deal that he later backed out of.