Marijuana Profits Up in Smoke Under IRS rules

Voters in Oregon, Alaska, and Washington, D.C., will decide Tuesday whether to legalize the sale of recreational marijuana. But any new pot shops that voters approve may not be able to survive a drug war-era tax code that already threatens many businesses in Colorado and Washington state.

Under this tax code the federal government stands to make more money from the sale of marijuana than those legally selling it. And that could be enough to shut down many shops.

“It’s almost like they want us to fail,” said Mitch Woolhiser, while walking through his store called Northern Lights Cannabis Co. in Edgewater, Colo. “Everything I do is aimed at keeping us in business because if I don’t, then (the feds) win. And I’m not going to let them win.”

Woolhiser believes the federal government is actively seeking to undermine his business.

Woolhiser first opened shop in 2010, selling medical marijuana. He started selling recreational pot when it became legal in Colorado at the start of this year. Last year, his business didn’t earn a profit. Had he been selling anything but cannabis, he would not have owed federal income tax, as he ended up with a loss.

Instead, he ended up paying close to $20,000 to the IRS because of a 1980’s tax code called 280E.

“I believe that the feds extend the drug war through 280E,” said Jordan Cornelius, a Denver accountant who has worked with Woolhiser and many other marijuana companies in Colorado. “If (the federal government) can’t put them out of business legally when voters are mandating these businesses to move forward, it’s very easy to put them out of business financially.”

It’s unclear that the federal government is actively enforcing this tax code in an effort to undermine the legal business, but that is the effect.

– Read the entire article at USA Today.