Marijuana Legalization 2014: Election May Have Passed Pot, But The IRS Is Killing Marijuana Business Profits

Marijuana legalization in 2014 has been a mixed bag so far. While pot may have been passed in multiple states during the 2014 elections, it seems that the IRS is already doing its best to kill any marijuana business profits.

In a related report by the Inquisitr, the final Amendment 2 election results for Florida’s medical marijuana effort have big supporters like John Morgan responding to the controversy. Oregon’s marijuana legalization measure 91 focused on bringing recreational marijuana to the table, and Alaska also followed suit with its own ballot measure.

Marijuana sales in the United States are estimated to grow quickly to $110 billion. Big business is already crowding in on the rush to make big marijuana the next big tobacco, but government regulations and fees make starting a business high enough that the little guy can’t even dip a toe into the pool, never mind jumping in to swim with the big fish.

From the perspective of a small time entrepreneur, the applications fees are almost designed to limit applicants to the rich or well-established businesses. For example, in Colorado the application fees are only $500 but the license fee is between $3,750 and $14,000. Washington State is a little cheaper, but even then, the renewal fees are $1,000. Washington D.C. has a variety of fees that add up to tens of thousands of dollars. Successful marijuana businesses which started out of a wood shed claim “this is not a poor man’s business” and nowadays it’s estimated that having half a million in cash is necessary to be a serious contender.

The tax revenue generated by every marijuana business can amount to big money for both the federal and state governments, but according to USA Today, some shops are struggling to earn a profit at all due to the IRS.

“It’s almost like they want us to fail,” said Mitch Woolhiser, owner of pot shop Northern Lights Cannabis Co. in Colorado. “Everything I do is aimed at keeping us in business because if I don’t, then (the feds) win. And I’m not going to let them win.”

Woolhiser ended up paying $20,000 to the IRS because of a tax code called 280E. The shop opened in 2010 to sell medical marijuana, but when Colorado’s recreational marijuana laws passed earlier in the year, he suddenly could not earn a profit.

Jordan Cornelius, a Denver accountant who works with marijuana shops, said the federal government has essentially used the IRS to extend the war on drugs.

“I believe that the feds extend the drug war through 280E,” said Cornelius. “If (the federal government) can’t put them out of business legally when voters are mandating these businesses to move forward, it’s very easy to put them out of business financially. A lot of times, instead of paying a tax rate that should be 30 to 40%, they are paying rates between 80 or 90 percent. I even have a client right now that is paying more than 100% effective tax rate.”

The reason that marijuana business opportunities have become so dour is because the U.S. tax code does not allow pot shops to deduct all of their regular business expenses. Taylor West, deputy director of the National Cannabis Industry Association, says that 280E causes 70 percent of all marijuana profits to end up in the hands of the federal government.

“A lot of people think that the marijuana industry is just a license to print money,” said West. “And it’s just not the case.”