The US House of Representatives may vote on CANNABIS Legalization this week: Here’s why it doesn’t matter!

By Shuki Greer, Esq.

The House of Representatives, or more accurately the House Judiciary Committee, announced this week that they will be holding a markup for the MORE Act on Wednesday, November 20th. The Marijuana Opportunity Reinvestment and Expungement Act (“MORE Act”) is a comprehensive legislative bill to completely overhaul the cannabis laws of the federal government. The revolutionary bill may be voted on the same day, and if it passes, the focus will shift to the Senate to pass the same.

The MORE Act has several key points. First, and most importantly, it removes cannabis from the Controlled Substance Act. It completely eliminates the criminal laws prohibiting cannabis at the federal level, while leaving room for states to create their own legal framework. Second, it creates a pathway for expungement and resentencing for existing marijuana convictions.

The bill goes further. It authorizes a 5% sales tax on cannabis sales, creating a fund that will be used to ameliorate the negative effects of the War on Drugs, create incentives for small businesses, and to support disadvantaged and marginalized people and communities.

US House of Representatives

Everyone that I’ve spoken to agrees that this bill is long overdue. The negative effects that our nation’s marijuana laws have caused are too numerous to mention. Cannabis’ medicinal and therapeutic uses are undeniable, and it’s about time that Congress does something about it.

But while the introduction of the bill may be cause for celebration, and while it may even have the support to pass the House, we are still far away from this bill becoming law. This is because unlike the Democratic-controlled House, the Senate is run by Mitch McConnell and the Republicans. Mitch famously stated that he won’t support marijuana legalization, even as he pushed for the legalization of hemp. The SAFE Banking Act, a far less controversial bill allowing financial institutions to do business with the legal cannabis industry, has completely stalled under Mitch’s watch. Mitch visited with industry leaders last month, but there is not much optimism that he will bring the SAFE Banking Act bill to a vote in the near future. While that bill remains tabled, it seems extremely unlikely that the MORE Act would ever get any traction.

Unfortunately, we are still a long way away from full federal legalization. While the list of states with medicinal and/or adult-use programs seems to increase from month to month, Washington lags behind. As long as we have presidential candidates calling cannabis a “gateway drug”, and leaders who still call it “Reefer”, cannabis will be federally illegal for years to come.

Benjamin Caplan, MDThe US House of Representatives may vote on CANNABIS Legalization this week: Here’s why it doesn’t matter!
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US Tax Court denies deduction request under §280E, but leaves the door open for future challenges

By Shuki Greer, Esq.

Last week, the Tax Court continued the line of cases denying tax deductions under Internal Revenue Code §280E. That section says that any business which is “trafficking in controlled substances” cannot receive many of the traditional deductions that a business may take. Otherwise put, this means that a company must pay taxes on all of its incoming revenue before it subtracts most of its expenses.

This law can be a severe punishment for a cannabis company that may be operating entirely legally under state law. Unfortunately, the federal government still considers them to be “drug-dealers” and holds this punitive tax measure over their heads.

The case before the tax court involved a dispensary that filed taxes and took deductions for its business expenses. The IRS sent them a bill of $1.26 million, plus another 250K in fines. The company filed suit, asking the court to declare that it did not have to pay those bills.

A divided court rejected the company’s three arguments. In addition to the majority opinion, there were two concurring opinions and two dissenting opinions. Of particular interest is the Gustafson dissent, which opens up a new avenue for declaring §280E to be a Constitutional violation. Essentially, Gustafson argues, that the 16th Amendment allows Congress to tax income. Income is defined as “gain”, or net profits, minus costs, to get those profits. So for Congress to then disallow normal business expenses, it means that they are taxing more than actual income, which violates the 16th Amendment.

This argument was only agreed to by one other Judge on the tax court, which ultimately ruled against the dispensary. However, in the future, as the public opinion shifts, the policies behind these prohibitive rules may fall away, and we may not be far away from a court coming to the opposite conclusion. Legal Cannabis companies are working tirelessly to follow the law, and they should be rewarded for doing so. Continuing the regime of these prohibitive financial policies constitutes a “subsidy for the black market.” The way to solve this problem is to shift the financial incentives in favor of operating under a legal framework, and avoiding this severe tax problem is the best way forward.

tax codes picture with calculator and tax document

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Benjamin Caplan, MDUS Tax Court denies deduction request under §280E, but leaves the door open for future challenges
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Protection for banks doing business with the cannabis industry

Bills protecting banks from federal punishment for doing business with companies in the cannabis industry are being submitted to Congress. While these bills have specific terms, they will open doors for permanent protection from punishment, which will let the industry flourish

Benjamin Caplan, MDProtection for banks doing business with the cannabis industry
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