Booming Cannabis Job Market Constrained By Feds
-by Michael Penner
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The legal cannabis industry continues to add jobs rapidly. In 2017 there were 122,200 estimated cannabis industry jobs. By 2022 that estimate increased to 428,000. California ranks first, and Colorado second, in the list of states with the most cannabis industry jobs. In states where marijuana is legal, the tax revenue has been a windfall. But pot is still illegal at the federal level, and it puts serious pressure on legal cannabis business.
One tax law of particular note is IRC Section 280E. It can make it financially painful to do business at all. IRC Section 280E reads as follows:
“No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I or II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is conducted.”
It essentially says a business cannot take the normal federal deductions for expenses such as employee salaries or inventory if the business is engaged in the production or distribution of Schedule One substances. Schedule One substances (often written Schedule I) include LSD and Cocaine. Without the ability to take such deductions, these businesses can end up with an effective tax rate of 70%.
The conflict that exists between state and federal law when it comes to cannabis legalization also forces marijuana dispensaries to operate on a cash basis. No financial institution wants to risk being targeted by the feds for violating the Controlled Substances Act, but giving financial services and resources to a legal marijuana business puts them squarely at risk for doing so. Unfortunately, all that cash makes dispensaries and their workers attractive targets for thieves, causing the business to incur yet another burden: that of the security of their patrons and employees.
America has been moving more toward universal de-criminalization of marijuana, but if things are kept in limbo, with conflicting state and federal laws, the job creation power of the legal cannabis industry will not be fully realized.