Marijuana Industry Taxation: Beyond the Cause
Introduction to Conflicts Surrounding Marijuana Regulation
Marijuana. Cannabis. Hemp. Ganjah. Its earliest recorded use was in 2,700 B.C. by Chinese Emperor Shen Nung, the Father of Chinese Medicine. Cannabis was also popular among the ancient Greeks and Romans and was later adopted throughout Asia and the Middle East. Marijuana now takes many forms and its use is both varied and widespread throughout the world; the United States has regulated it since the 19th century.
A Very Brief History of U.S. Marijuana Regulation
U.S. regulation of the sale of cannabis as a drug began as early as 1860. Despite early objections by the American Medical Association, the Marihuana Tax Act of 1937 levied the first tax on the sale of cannabis in the United States. In 1969, the U.S. Supreme Court deemed the Marihuana Tax Act unconstitutional in Leary v. United States, but that ruling had ramifications that Timothy Leary most likely did not expect. Although the Marihuana Tax Act was repealed by Congress in the Comprehensive Drug Abuse Prevention and Control Act of 1970 (CDAPCA), under Title II of the CDAPCA (“The Controlled Substances Act”), marijuana was classified as a Schedule I controlled substance and prohibited for any purpose.
In 1996, Proposition 215 (the “Compassionate Use Act”) made marijuana legal in the State of California if used for medicinal purposes under certain circumstances. These circumstances include treatment of cancer, AIDS, chronic pain, arthritis, migraines, anorexia, spasticity, glaucoma, or any other illness for which marijuana provides relief. It must be prescribed by a licensed physician.
In 2003, SB 420 created the Medical Marijuana Program (MMP), which expanded the Compassionate Use Act’s affirmative defenses to federal criminal prosecution, established limits on the quantity of marijuana that both patients and caregivers can possess, and created rules regarding Marijuana cooperatives and collectives. The MMP also imposed a duty on California counties to develop a volunteer identification card program to identify patients qualified to use marijuana for medicinal purposes and primary caregivers licensed to prescribe it.
California’s counties and cities, however, were the ones charged with adopting policies that regulate the marijuana dispensaries. Some have chosen to allow the growing and sale of marijuana, others limit the number of dispensaries, and others still have issued temporary bans or land use moratoria (claiming the dispensaries to be public nuisances under Government Code section 65858). The result is that numerous cities and counties are now embroiled in litigation on this issue.
Although the Fourth District Court of Appeal ruled in County of San Diego v. San Diego NORML (2008) that California’s medical marijuana laws are not preempted by federal law under the Supremacy Clause, marijuana dispensaries still operate on uncertain ground on issues ranging from land use and zoning, banking and taxation. The disparity in marijuana-related laws and regulations on the federal, state and local levels means that everyone in the marijuana industry must exercise vigilance when maneuvering this complex environment.
Tax Representation for Marijuana Growers and Distributors
- Tax Return and Informational Returns - Preparation and Counseling
- Licensing issues
- Entity Formation
- Criminal and Civil Tax Representation
- Banking and bookkeeping matters