Tax Code Discriminates Marijuana Business

Last Tuesday, Washington and Colorado was the first two states to legalize the recreational use of marijuana. According to the state law, businessmen in the states, also known as ganjapreneurs, can now open marijuana dispensaries for the public to consume. Under the federal law, possession of marijuana is still illegal and this is really a challenge for dispensary owners.

Forbes contributor and partner at Wood LLP, Robert Wood, said that these dispensaries, even though considered as legal, still cannot operate as legal businesses and they will still be labeled as drug traffickers. Operating a marijuana dispensary has been baked in the said code. Section 280E of the United States tax code which was added in the 1980s says that there will be no deduction in the dispensary owner’s gross income.

Because there is no deduction in business expenses, it cripples the dispensary’s ability to turn a profit but there is still a loophole in this. If the dispensary has another business aside from distributing marijuana on the premises, there can be a deduction relating to those businesses. This allows the dispensary owners to subtract the majority of their rent expenses. If you’re thinking of selling paraphernalia, it does not count as a separate business. Owners of marijuana dispensaries in Washington, Colorado and the 16 states that sell medicinal marijuana needs to jump through hoops in order for them to have a viable business model. Choosing to enter in this kind of business can be very risky. Just make sure to comply on what the law is saying and you’re good to go.