Conflicting Federal and State Laws Affects on the Medical Marijuana Industry
While nearly half of the states in the US have legalized the use of marijuana for medical purposes, it is still illegal under federal law, and federal officials are making it a lot harder for marijuana businesses to operate.
Twenty-two states and the District of Columbia have enacted laws to legalize medical marijuana, and two states have legalized the recreational use of marijuana. Even in states where marijuana is legal, for medical or recreational use, the federal government’s stance on the drug has caused significant challenges for marijuana businesses and affiliates.
Under the federal tax code, known as 280E, marijuana businesses cannot file for several tax deductions, resulting in significantly increased income tax rates. The tax code was originally meant for illegal drug dealers, however now is causing grief for marijuana businesses. Businesses are able to deduct costs for growing marijuana, but are not able to deduct expenses for expenses including marketing and advertising or rent. Additionally, marijuana operations are inundated with operating as a largely cash-only operation, since banks are skittish of working with these businesses since they are considered illegal at the federal level. Running a business with large amounts of cash on-hand makes marijuana businesses more vulnerable to theft. The additional risk can cause increased expenses with higher interest rates and money used for security purposes.
Additionally, federally controlled water cannot be used for marijuana farms. The decision was made by the US Bureau of Reclamation in May, saying that it was necessary to comply with federal laws and rules keeping marijuana illegal, even in locations where farms are legal under state law. The ruling will not only be an inconvenience, it will cost marijuana farmers more money. The farmers are expected to take additional steps such as drilling wells or tapping into a city’s water supply, which is more expensive for these farmers.
In the US, the National Institute of Drug Abuse (NIDA) controls the research of marijuana. Researchers who wish to study the plant’s effects are required to get the marijuana from a farm at the University of Mississippi, contracted by the federal government. This is the only federally legal marijuana farm in the US. Receiving approval to obtain supplies can take months and even years. Earlier this year, in order to meet the rising demand, the Drug Enforcement Act (DEA) raised the amount of the drug that can be grown at the farm from 21 kilograms to 650 kilograms. However, the process for researchers could be significantly sped up if the government did not require approval and allowed additional farms to grow the plant.
The House of Representatives passed an amendment to restrict the DEA from interfering with medical marijuana programs that are legal under state laws, however the agency continues to raid businesses that are compliant with state laws. This is a constant concern for individuals running marijuana businesses that are legal under state law. Additionally, physicians have claimed that DEA officials have threatened to revoke their license to prescribe certain drugs if they do not sever all ties with marijuana programs. Three Massachusetts doctors have claimed that they were visited by agency officials, of which two dropped their positions held with medical marijuana dispensaries.
The conflicting state and federal laws is causing serious issues for marijuana businesses that are legal under state law. Until the laws align, marijuana businesses will be burdened with challenges caused by these conflicting laws.
