Washington Regulators Change Marijuana Laws to Appease Feds

The Washington State Liquor Control Board is making a few changes to keep their rules more in-line with federal laws. In particular, they are changing where marijuana retail stores will be allowed to operate. This will protect marijuana businesses and keep Washington on-track to begin issuing licenses at the end of this year.

When they first began to develop rules for legal marijuana, Washington tried to depart slightly from the federal rule that no one is allowed to sell drugs within 1,000 feet of a school. They wanted to allow stores to count the 1,000 feet along the road, instead of "as the crow flies". This would've allowed more marijuana stores to operate; however, now they are changing their minds.

If the federal government plans on enforcing their 1,000 feet rule "as the crow flies", then Washington doesn't want any of their retail stores to get harassed. As such, they are changing the rules to be more reflective of the federal law.

Even with the new rule change, Washington is on track to finalize its rules and start accepting applications for licenses in November. The hope is that the new rules will allow Washington marijuana businesses to operate without fear of federal prosecution. They also wish to calm the federal government's fears about newly legalized marijuana.

Feds Look to Legalize Marijuana Industry Banking

Washington's banks and financial institutions are still hopeful that they will be able to do business with legalized marijuana businesses without fear of prosecution. Deputy Attorney General James Cole told Congress that banks and financial institutions have been afraid to let marijuana-related businesses open accounts for fear of criminal prosecution.

This has been an ongoing problem since 1996 when California voters made it legal to use medical marijuana. Federally insured banks and other financial institutions were at risk for being prosecuted for drug racketeering, and thus refused to do business with medical marijuana dispensaries.

Since the Justice Department first announced its more permissive marijuana enforcement policy, marijuana advocates have been quick to point to banking issues as a roadblock to success. Legitimate marijuana businesses that operate on a cash-only basis are open to criminal activity, such as tax evasion, money laundering, and theft. It also presents a public safety concern because cash-only businesses could result in the presence of firearms and other weapons.

In addition to banking issues, the Justice Department is still trying to figure out how they will protect states where marijuana is still illegal from being infiltrated with legal marijuana from neighboring states. DEA chiefs are certain that "when marijuana will be fully legal to buy, diversion of the drug will explode". 

New DOJ Policy Doesn't Change Taxes for Marijuana Businesses

The DOJ's announcement that it does not plan to prosecute individuals and businesses in states that have legalized marijuana has many in Washington breathing a sigh of relief. Unfortunately, the federal response does little to change the IRS's opinion of the pot industry. While there has been no IRS announcement regarding the legalized marijuana industry, there is no indication that they plan to lay off the tax attack they have levied against marijuana income.

Some say that the federal tax situation is perhaps the biggest threat to the legalized marijuana business and could force the entire industry underground. Businesses that are not allowed to take tax deductions are caught paying hefty taxes and subject to IRS audits and scrutiny. Yet if the federal government wants to prevent an underground or black market from emerging, they need to treat legalized marijuana as a business—in every sense, including taxes.

If the IRS allowed marijuana businesses and growers to operate as legal businesses, then those owners would be allowed to deduct business expenses, such as rent, salaries, and other expenses. As it stands now, they are not allowed these important deductions, but are still taxed on the income they receive

There are currently a few ways around the IRS taxes; however, none of them are ideal and create headaches and potholes for newly emerging marijuana businesses. Some have chosen to run other businesses and sell marijuana on the side, other have toyed with operating as a nonprofit social organization or a cooperative. Unfortunately, unless the laws change quickly, it seems that the IRS could doom an entire industry before it even begins.

Justice Department Gives Green Light to Washington Legalized Marijuana

The Justice Department announced today that it has made its decision regarding marijuana in states that have legalized it. Even though marijuana is still illegal under federal law, the Justice Department will allow individuals in Washington and Colorado to use, grow it with a license, and even buy marijuana, so long as it is kept away from kids, federal property, and the black market. This is a huge win for Washington's newly emerging legalized marijuana market.

The Justice Department's green light gives these states the right to license growers and sellers without the fear of federal punishment, prison time, and asset seizure. It also encourages other states that are seeking to legalize marijuana in the upcoming years, such as Alaska who is already slated to vote on it next year.

This new marijuana policy is being referred to as a "trust but verify" approach between the federal government and the states that legalized marijuana. The government expects the states and local authorities to implement strong and effective regulations regarding marijuana use. It also expects them to apprehend those individuals who break these regulations or who abuse them. If states do not handle these individuals sufficiently or if a black market emerges that becomes dangerous, the federal government may seek to challenge the regulatory structure.

The federal government's main priorities involve preventing the distribution to minors and preventing the diversion of marijuana outside of the legal states to illegal states. They are also going to be vigilant in preventing authorized marijuana activity from being used as a cover for trafficking other illegal drugs. In addition, they are also concerned with drugged driving and with preventing marijuana growth and possession on public land or federal property. 

Tax us PLEASE: Marijuana Industry Pleads to Capitol Hill

"Tax us PLEASE"

That's the message that the marijuana industry and their backers want the federal government to hear. Since marijuana remains illegal under federal law, Washington's newly legalized marijuana industry wants the federal government to consider taxing it like alcohol and adding billions to the federal treasury. Not a bad proposal for a government looking for some extra cash. They're also hoping to cash in on some much-needed federal tax deductions in the process. 

The marijuana industry wants to be treated like every other legitimate business. They want to tax their product and take tax deductions for income like other small businesses. The idea is gaining momentum on Capitol Hill and has many legislators salivating over the extra revenue that taxing legalized marijuana could yield.

In the House of Representatives, there are already two pieces of legislation pending. The first would legalize marijuana, tax it, and regulate it nationally. Unfortunately, most in Washington do not expect this to pass anytime in the near future.

The other bill is called the Small Business Tax Equity Act and this would allow the IRS to give marijuana businesses some much-needed breaks on federal income taxes. If it passes, they could deduct their rent and other business expenses from federal taxes.

Marijuana advocates argue that if marijuana businesses are not treated like other businesses across the United States, then they are doomed to fail.

Since Attorney General Eric Holder has yet to announce how the federal government will respond to states like Washington who have legalized marijuana, marijuana sellers, growers, and distributors risk prison sentences or having their assets seized. In fact, federal DEA agents raided four medical marijuana dispensaries in Washington just last month.

“There’s not really any other industry in the country – let alone one that can bring in tens of billions of dollars in tax revenue – that’s standing up and raising its hand and saying we’re ready to step up to the plate and help the country solve its problems, but we are. We hope that Congress will hear us.

---Steve DeAngelo, Executive Director of the Harborside Health Center Marijuana Dispensary