Cannabis Retailers Under Duress: The Problem And The Solution

By Beau R Whitney, Whitney Economics.

  • Even though there are record revenues and record state tax receipts, cannabis retailers are struggling.

  • IRS Section 280e puts a heavy burden of additional federal business taxes on cannabis retail businesses.

  • The greatest share of business risk is borne by main street: smaller businesses, and women & BIPOC-owned businesses.

  • IRS Section 280e puts the effective tax rate for cannabis operators at between 60% – 70%. Retailers are hit hardest by this policy.

  • Data on cannabis retailer sales tax payments in Oregon indicate that retailers are increasingly falling behind on their payments.

  • On average, retailers are behind nearly $20,000 in state taxes. How will they suddenly be able to pay an annual average of $146,000 in Federal taxes?

High Federal Tax Burdens are a Direct Existential Threat to Cannabis Retailers.

The crushing weight of federal business taxes on cannabis retail businesses across the country is an existential threat. IRS Section 280e, which is not well-known outside of the cannabis industry, has a crippling impact on main street cannabis retailers. Section 280e prohibits cannabis businesses from taking a large number of common tax deductions for business expenses. Legal, labor, security, rent, marketing and administrative expenses cannot be deducted. By not allowing these deductions, the effective tax rate for cannabis operators often approaches 60% – 70%. Retailers are hit hardest by this policy.

The Solution is Federal Tax Reform of Section 280e

Record sales do not necessarily reflect a healthy industry. The key to leveling the playing field for small businesses, and especially women & BIPOC owned businesses, is providing tax relief quickly. Cannabis businesses should not be burdened by punitive federal taxes. The time for 280e reform is now: reasonable cannabis tax policy will provide economic and social benefits that extend well beyond the cannabis industry. 

The Issues Associated With IRS Section 280e Are Not New

When previous …

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