In the past five years, twenty-nine states and the District of Columbia (DC) have voted to legalize medicinal marijuana; and seven states and DC have legalized recreational marijuana use. The federal government has historically classified cannabis, whether in the form of marijuana, hashish or hash oil, as an illegal controlled substance. However, in 2011, the Department of Justice (DOJ) changed its policy regarding the enforcement of the Controlled Substances Act in states where marijuana is legal. The Cole Memo explained the DOJ’s new policy of not prosecuting or seizing assets from marijuana businesses and users that complied with state law.
Continue Reading Medicinal marijuana patients’ protection from federal enforcement extended through the end of the fiscal year on September 30.
Recreational Cannabis — Section 280E and Tax Efficient Structuring
I. The Conflict: The Long Arm of Federal Law
Recreational cannabis businesses operate in a world of conflicting state and federal laws. Several states have legalized recreational cannabis, yet, under federal law, cannabis remains an illegal Schedule I drug under the Controlled Substances Act (CSA). The CSA created five classifications of controlled substances. These classifications range from Schedule I to Schedule V, with varying qualifications for a substance to be included in each. The criteria for a Schedule I controlled substance includes a high potential for abuse, a lack of currently accepted medical use, and a lack of accepted safety for use under medical supervision. Controlled substances in Schedules II through V generally have a lower potential for abuse and/or some degree of currently accepted medical use. On April 4, 2016, the Department of Health and Human Services, the Drug Enforcement Administration (DEA), and the Office of National Drug Control Policy issued a letter indicating the DEA intends to reconsider the classification of cannabis in the first half of 2016. It is unclear if the DEA will continue to classify cannabis as a Schedule I drug, reclassify it to a different schedule, or remove it from the five schedules of controlled substances. Legalization at the state level does not protect recreational cannabis businesses from federal prosecution. The federal government continues its war on drugs and drug trafficking. This war currently includes cannabis. Cannabis businesses need cannabis to be removed from the schedules of controlled substances in order to eliminate the threat of federal prosecution.
State legalization rules are limited in scope to in-state purchase and consumption in an effort to “legitimize” the legislation and avoid federal intervention. For instance, state laws in Oregon and Washington do not permit a recreational cannabis consumer to acquire cannabis in Washington and later consume it in Oregon. States have carefully drafted their laws to prohibit importing or exporting cannabis. It is not so easy, however, to prevent federal intervention in all respects, and the long arm of federal law is felt most deeply in two areas: taxation and banking. This article addresses the tax challenges.Continue Reading Recreational Cannabis — Section 280E and Tax Efficient Structuring