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From a taxation standpoint, operators of marijuana dispensaries in the United States find themselves in the midst of an interesting–and frustrating–dilemma. Although legally allowed to operate in 18 states and in Washington D.C., these dispensaries are subject to the same outdated and restrictive tax laws originally intended for dealers in hard drugs. The reason for this is a 1982 amendment to the U.S. tax code called Section 280E.

Under the guidelines set in Section 280E, businesses involved in the sale of controlled substances are not given the same tax deduction privileges as other legitimate businesses. The interesting thing about this is that although marijuana is legal in certain states, it remains a controlled substance under federal law. For a federal organization such as the IRS therefore, marijuana is still basically illegal, and people involved in dealing it–regardless of whether they do so legally or not–fall under the scope of Section 280E.

For marijuana dispensaries that struggle to make a profit, the restrictive tax laws place a heavy burden on the business’ finances. One of the biggest dispensaries in Denver for example, pays tens of thousands of dollars in taxes every year. Another dispensary in the same state failed to make a profit for three years straight and was still required to pay hundreds of dollars in taxes by the IRS the following years. These are only two examples of the challenges faced by entrepreneurs in the marijuana industry, and it seems that there is little that anyone can do.

To its credit, the U.S. tax office does offer a workaround of sorts for people who operate other businesses along with the marijuana business. If you run a dispensary for example, and you offer physical therapy or aromatherapy as well, you will be able to file deductions based on this other business. You may also be eligible for deductions on your rent if you use less than 10% of the property for dispensing marijuana.

Even with these workarounds, the restrictive tax laws still deal a heavy blow on operators of what are otherwise legitimate businesses. These laws essentially place operators of marijuana dispensaries in the same category as criminals who deal with illegal drugs, who are the types of people that Section 280E was intended to target in the first place.

It is interesting to note that these laws are still in place even in the face of mounting evidence of the benefits of marijuana as a medicinal drug. Essential for dealing with the symptoms of a wide variety of health conditions and even for easing the symptoms of chemotherapy or radiation therapy, marijuana is a valuable medicine in more ways than one. Even without taking its medicinal properties into consideration, marijuana can also help society in many ways. It can serve as a fuel and food source, hemp can be used in the production of paper and fabrics…the list of benefits goes on.

Although there are currently clamors to amend the tax laws to make them less restrictive on marijuana growers and sellers, there seems to be little progress on this front. As it stands, operators of dispensaries may have to make do with the loopholes for awhile longer.

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About the Author: Matt Brooks

Matt is a journalist from San Francisco who has specialized in marijuana policy for more than six years.

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