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In Denver, with the recent legalization of marijuana, it seems as if dispensary owners would be rejoicing. Instead, many of them are complaining and throwing up their hands in frustration because of outdated tax laws that eat deeply into their profits.

Many marijuana businesses are paying up to 70 percent of their profits to the Internal Revenue Service (IRS). Because of an old law that was put in place to keep criminal drug dealers from reducing their tax liability to profit off the government, many pot shop owners are unable to deduct regular business expenses. Normal business expenses like rent, utilities, payroll salaries and business supplies are among the deductions that cannabis business owners are unable to take advantage of because of the convoluted and somewhat discriminatory laws and stereotypes about marijuana.

Part of the problem lies in a law that was passed in 1982 by Congress. This law was created after a convicted drug dealer filed a claim in tax court that he should be able to write off many of his operational expenses, such as his phone, travel, and packaging. The IRS, still to this day, prohibits credits and deductions to businesses that illegally traffic in drugs. Unfortunately, this includes legal marijuana businesses.

Rachel Gillette, executive director of the Colorado chapter of the National Organization for the Reform of Marijuana Laws (NORML) said,

“There’s no reason that they should be taxed out of existence by the federal government.”

Gillette recently represented a business owner who was levied an $866,000 tax bill, which was more than half of the business owner’s profits for the prior year. She and the business owner are still in negotiations with tax officials.

In the 23 states that allow the sale and use of medical and recreational marijuana, there are some laws where possession is still considered a federal crime. As a result, many dispensary owners cannot even open bank accounts with any funds that come from their businesses. When it is time to file taxes, owners can either pay what the IRS says they owe or try to get around the laws and risk getting audited. Of course, marijuana shop owners can take their chances and attempt to fight the IRS in court, however, very few have been successful.

Colorado and several other states have made recent changes at the state level to allow marijuana business owners to deduct their expenses on their state tax returns. However, there is still a lot of work that needs to be done to create federal legislation to rectify the discrepancies in federal tax law that pertain to marijuana dispensaries.

There is still a lot of criticism and opposition to the legalization and sale of marijuana. That opposition is delaying crucial progress that would keep hard working business owners operational. In the meantime, some dispensary shop owners are being taxed out of business.

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