How do Federal cannabis laws affect us in Colorado?

Category: Blog

Often called a “State Rights” issue, Colorado has led the nation in developing regulated cannabis industry.  The Federal government has not interfered with states like Colorado whose citizens and legislatures have implemented cannabis reforms.  But cannabis is still a Schedule 1 controlled substance on the federal level, which has important ramifications for Coloradans:

  1. No research.  US doctors are prevented from doing even basic research since Schedule 1 is designated for drugs with “no medicinal value.”  Despite policy statements from medical organizations around the country encouraging de-scheduling for research purposes, we still can’t gain a basic understanding of dosing, drug interactions, efficacy and other features that would be provided by clinical research.
  2. IRC 280e.  This gets a little accounting- technical, but cannabis businesses pay a big tax penalty.  All businesses in the US start with this formula to arrive at paying income taxes:

Revenue minus

Cost of Goods Sold (COGS)

=Gross Profit

minus ordinary expenses (salaries, rent, etc.)

=Net Profit         most businesses  pay taxes on this number

The 280e rule applies to cannabis business. It disallows any deduction for Ordinary Expenses, so businesses pay taxes on Gross Profit, meaning much higher taxes.  Why is that important?  Businesses have to charge more for products to cover the additional taxes, unnecessarily raising the cost of cannabis medicine for everyone.

  • Banking.  The Federal Reserve controls the banking system. Why do customers have to pay cash for their purchases at dispensaries?  None of the traditional banks will allow cannabis businesses to bank with them.  Credit card companies take the same approach:  hands off.  Dealing with so much cash is a public safety issue, too.

Congress will probably fix these problems in the next few years.  It can’t come soon enough for everyone involved.