Some Weed Shops Face 93 Percent Tax Rates

As more states legalize recreational marijuana (with President Obama's tacit approval), the tension between federal and state law is getting worse.

As more states legalize recreational and medical marijuana (with President Obama's tacit approval), the tension between federal and state law is getting worse. Legal pot businesses have been forced to deal almost entirely in cash because banks are afraid to take their money. And now dispensaries aren't even sure how to file their taxes. Normally, business get federal tax breaks on expenses, but that's not the case here. Pot shops have estimated tax rates anywhere from 60 to 93 percent.

A few members of Congress have tried to get together to fix the problem, but it's a contentious issue that doesn't have widespread support on either side of the aisle. Most Republicans are all for tax breaks, but many oppose marijuana legalization. A lot of Democrats support legalization, but some aren't as sympathetic to business owners. Republican Rep. Tim Griffin, who sits on the House Ways and Means Committee, tells Politico, "Why would we allow companies operating in violation of federal law to take federal tax breaks? It makes no sense." Democratic Rep. Earl Blumenauer has sponsored a bill to change the tax code so that weed shops can write off expenses, but only 12 members have co-sponsored it. Grover Norquist, at least, is sympathetic to pot shop owners. 

Betty Aldworth, the Deputy Director of the National Cannabis Industry Association, estimated in September that some Colorado weed shops will see tax rates as high as 93 percent this year. Walt Hickey wrote in Business Insider at the time,

The marijuana businesses want to pay taxes. If the objective of their industry is legitimacy, that's just a cost of doing business. They're also ... more than willing to pay a little extra in taxes. Again, they want legitimacy. But getting shellacked with something between a sixty and ninety percent effective tax rate is just too much.

Unsurprisingly, owners of both medical and recreational dispensaries agree. Jessica LeRoux, who owns the Denver-based Twirling Hippy Confections, complained to Bloomberg in November: "When you’re making a baked product and your overhead is eight times more than a strip club and you have more cameras than a casino, the market is already over-regulated." And if pot businesses can't afford to put out a reasonably priced product, "baked" or not, customers can go right back to illegal dealers. Larisa Bolivar, an advocate for lower state taxes on marijuana in Colorado, insists: "We want to give the marijuana industry a fair chance and not overtax it so people go back to the black market, which in Colorado is thriving. Consumers are already telling me, 'I will just go to my neighbor.'"

While Attorney General Eric Holder has promised that Obama will release guidelines for how banks should deal with weed money, there's been no word on tax rates. It's highly unlikely that Congress will step in to help. One GOP staffer who works on tax issues told Politico,

The GOP won’t want to have this conversation until they have to, and 20 states with legalized medical marijuana use isn’t going to force it yet.

Luckily, when pot shops file their taxes in April, 4/20 will be right around the corner.