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  • Steve Baghoomian

Can The Federal Government Raid and Shut Down My Business, After Investing So Much Money?

Photo by Andy Feliciotti on Unsplash

Yes. However, the odds of this actually happening are incredibly slim. Despite some of the bluster from former Attorney General Jefferson Beauregard Sessions III back in 2018, his rescission of the Cole Memo turned out to be a nothing-burger. The federal government continues to take a hands-off approach to states that have chosen to legalize and regulate their own marijuana industries. In fact, it has been several years since the federal government has intervened in state-authorized cannabis operations, save for the occasional raid on unscrupulous operators.

By no means should the above paragraph be construed to mean the federal government will make it easy for you to operate your state-licensed marijuana business. To the contrary, the federal government has made it nearly impossible for operators to use the banking system and actively enforces a taxation scheme that makes retail cannabis operations virtually unsustainable.

Cannabis Banking:

Although the number of banks and credit unions opening their doors to state-licensed marijuana businesses is steadily increasing (currently 411), this is a far cry from what the industry actively needs to operate now that it is coming out of the shadows. This has created a situation unique to the marijuana industry in that proprietors are forced to lug around large cases of cash and nowhere to deposit it. And to our clever readers, misstating the source of your income to a bank is itself a federal offense with severe penalties.

IRS Tax code 280E:

Internal Revenue Code §280e (IRC 280e) is also a major roadblock the federal government imposes on the profitability of state-licensed marijuana businesses. In short, §280e forbids businesses from deducting otherwise ordinary business expenses from gross income associated with the “trafficking” of Schedule I or II substances, as defined by the Controlled Substances Act. As shown below, the inability to deduct ordinary business expense like employee wages may increase a business’ effective tax rate to upwards of 70%.

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