The Marijuana Tax Equity Act: Could Marijuana Go Corporate?

The marijuana business has historically been in the hands of farmers, small-production growers. Even the larger marijuana cultivators and distributors would not be on-par with big corporate agricultural organizations. However, as marijuana growing becomes legal in Colorado and Washington, and potentially nationwide, there are increasing opportunities for the business to go corporate, especially if the federal government moves towards legalization. A New York Times report explained how Canada adopted a federally regulated system for growth and sales, giving prescription holders the right to buy from large-scale corporate producers. The shift could signal a trend towards big-business, if the U.S. moves in the direction of legalization.

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What does this mean for growing trends in the United States? While federal legalization or Congressional action could help to clarify existing laws and regulations, it could also harm more loosely organized, small-producing growing companies. Our Orange County medical marijuana attorneys are experienced in representing cultivators, growers, dispensaries, and users throughout California. We are abreast of legal developments and trends that could impact our clients. While federal legislation could be an improvement for legalization, broad action could also shift growing and sales opportunities in to the corporate realm.

One of the reasons that Congress may act is to ensure broadly applicable and cohesive standards of regulation. In addition, the tax revenues alone could make it worthwhile. According to reports, Canada anticipates taxes on over 3.1 billion in annual sales. In the states, this number could be even higher. Analysts report that in Washington State alone, illicit and medical marijuana consumption led to over $1.2 billion in annual sales. In Colorado, the state is collecting $2 million a year in taxes. These tax revenues are incentive for states and the federal government to move marijuana sales and profits into the legal market.

Still, the federal government continues to classify marijuana as a controlled substance. The incompatibility of state and federal laws has created difficulties in monitoring, regulating, and enforcement, and has also become contentious among legislators, law enforcement authorities, and participants in the market. Though the Department of Justice has indicated that it will not aggressively pursue investigations, raids, and federal charges, it is also demanding that states regulate the market and distribution of marijuana. States are required to impose their own regulations to prevent interstate distribution, sales to minors, and other potentially dangerous health consequences.

Issues for growers may involve tax questions and how to account for income in an illegal business. Even the tax code denies deductions for dispensaries and the IRS is required to act in accordance with Congressional action. Until Congress acts, the marijuana business must operate, in many ways clandestinely, to shield itself from federal liabilities. Sellers have tried to find ways to get business deductions, but can still get in trouble with the IRS.

One solution is the Marijuana Tax Equity Act which would end the federal prohibition on marijuana and allow it to be taxed. This piece of legislation which was introduced in February of 2013 alongside the Ending Federal Marijuana Prohibition Act in order to remove marijuana as a controlled substance and ensure that state and federal laws are consistent.

The Los Angeles CANNABIS LAW Group represents growers, dispensaries, collectives, patients and those facing marijuana charges. Call us at 714-937-2050.

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