Will The Feds Shut Down The Marijuana Industry? – Conversation is brewing all around the country, especially in California, about the possibility of the federal government shutting down the cannabis industry, more specifically recreational cannabis. While there is merit to this fear, there shouldn’t be much concern about the issue if you are in the industry and practicing legally.
On February 23 White House press secretary Sean Spicer came out and said that the federal government “could” begin pressuring local and state agencies to step up their game with regards to recreational marijuana use. Needless to say, this announcement shook up the entire industry.
Had the industry taken a breath and realized what had really just happened, I think we would have all been a bit calmer. So, here is a breakdown of the reasons why I think this statement is was nothing more than a threat to the states.
Chain of Command
In case you don’t know how all the law enforcement agencies work together, here is a quick rundown. Local cops uncover crimes and criminals. If the cases are really big, they refer them to the State police. If the case is even bigger, the State police will report it to the feds. In essence, the local and state police are the lead generation for federal crimes.
There are approximately 4,000 federal agents from all agencies around the globe. At the same time there are close to 500,000 state and local law enforcement officers, who are all now getting benefits from the cannabis taxes they collect. This makes enforcement of anything regarding anything a state and local matter until the feds are alerted.
To boot, Los Angeles Assemblyman Reggie Jones-Sawyer, and many other California politicians have filed Assembly Bill 1578. This Bill basically says that local and state law enforcement officers will not be working with the feds to stop recreational from happening in the state of California. So, essentialy, even if the feds issue a mandate for state and local cops to crackdown, the logistics make it extremely difficult for the federal government.
The prize is simply too large for the government to justify shutting down an industry that it has such a stranglehold on. Most people don’t know this, including half of the industry, but cannabis companies are getting clobbered on taxes. And to make matters worse, most of these companies can’t even open a bank account to pay their taxes….
In fact, most dispensaries and other cannabis businesses typically end up paying an effective tax rate around 70%, while similar corporations pay around 30%.
Why is this? How can this be?
Well, in 1982, a convicted cocaine trafficker sued the US Government, and won, to assert his right to deduct ordinary business expenses. This really pissed off the government causing them to create U.S. tax code Section 280E with the intention of preventing other illegal drug traffickers from doing the same.
Yep, cocaine traffickers did to cannabis business taxes what meth cooks have done to buying allergy medication.
So, what is Section 280E? Here you go in a nutshell:
Even businesses that sell marijuana legally cannot deduct any of the costs for marketing, advertising, and selling. Essentially, the only deductions cannabis companies can claim are costs attributable to production activities, such as labor costs for things like seeding, planting, and cultivating.
As a result, cannabis producers, retailers, and processors are not allowed to deduct many of their expenses from their taxable income, they are taxed at a much higher effective rate than other similar types of businesses……like a 2.5 times higher rate!
- Straight Dope:
- Cannabis sales will pass the sales of the National Football League by mid next year.
- All the companies that sell this product, attributing for more than $12B in sales pay approximately 70% or twice normal corporate taxes
Getting rid of one of the fastest growing industries, who pay the absolute highest taxes would be a really poor idea. Just like the old saying, don’t bite the hand that feeds you, even if it is holding a joint in the other hand.
Will The Feds Shut Down The Marijuana Industry?
Just take a second and look at the facts. Both Obama and Trump publically stated that the issue of cannabis was in the hands of the states. Then there was an influx of
Recently it has been projected that the cannabis industry will be providing more jobs to U.S. citizens that the manufacturing industry by the year 2020. These numbers are primarily based on the medical marijuana business, not recreational. Recreational makes it easier for customers to buy product and thus increase the number of people needed to run the business.
At this point and time, this industry is run by manual labor at this point in time. Since there are no legal ways to sell product over the internet, brick and mortar stores are still the only way to purchase cannabis. These stores always need workers.
Grows are primarily run by humans as well, even with the invention of automated nutrient releases and water filtration.
In essence if they crack down on recreational marijuana would be a complete contradiction to the administrations goals for job growth in this country.
The only loophole left
The only real leg the government has to stand on is the energy crisis taking place. Currently, in the state of California, more than 9% of the state’s entire energy bill is attributed to cannabis grows, legal and illegal. These numbers are expected to be around 3-4% nationwide by the end of the decade. This is a real crisis that, if not solved, could give the feds the excuse they need to shut down the cannabis industry, for a brief period of time.
To answer your question about Will The Feds Shut Down The Marijuana Industry – In my humblest of opinions, this statement by the Spicer was nothing more than an appeasement from all the anti-marijuana voters by the president. This is nothing new as they have already come out and restated that cannabis, even CBD, is federally illegal. This has been unchanged in more than 70 years, so you do the math. Yes, at times the White House says things as appeasements, it’s part of politics.
Even if my thinking is wrong with regard to the empty threat there are other, more serious implications to the administration if they take a harder stance on recreational cannabis. They will have to explain to the American people why they shut down an industry that is growing faster than any other, paying the highest amount in taxes and providing more jobs than our most traditional industries. Not to mention they did, they would have to have the support of state and local officers to make it happen. Rest easy, this is nothing more than political PR and will pass, hopefully.