Cannabis Law Prof Blog

Editor: Franklin G. Snyder
Texas A&M University
School of Law

Sunday, October 21, 2018

OPINION: Medical Benefits vs. Economic Gain for Legalizing Cannabis.

AaaThere are typically two camps that exist when people argue for legalization. You have those who would want to set up a store and begin selling cannabis like the cash crop that it is, and those who couldn't care less what the strain is called as long as it stops their seizures, anxiety, opioid addiction, or whatever illness they have that is being treated by medical marijuana.

Does it matter what camp you're in? Is one more persuasive than the other? Medical marijuana seems to be the stronger camp when it comes to the act of actual legislation and implementation. That doesn't mean legislators aren't thinking about the profits, but it is easier to argue economics once you have a template thanks to medical marijuana. 

Medical marijuana began its path to legalization in the 1990's when five states, Washington, Oregon, California, Alaska, and Maine put into place their own versions of laws that legalized the use of marijuana for medical purposes. Since then, medical marijuana has appeared to be the baby step before recreational legalization. It wasn't until 2012 that recreational marijuana became legal, and even then it was only Colorado and Washington. 

Now, in 2018, we have 9 states and the District of Columbia with fully legal recreational marijuana and we seem to be on the path of increasing that number, but how? 

One obvious argument for recreational legalization is the economic boom that comes with it. Colorado boasts a $506 million dollar profit from sales since recreational stores opened in 2014, according to CNN. In this current economic climate, that number should surely convince the public that marijuana is an incredibly profitable market and states should be running to legalize it. But why aren't they? 

Fear. Marijuana is still a drug and drugs can be scary. Drugs lead to addiction, addiction leads to a downward spiral, and nobody wants their family or friends to go down that path. This argument comes in the form of driving while high. a recent Gallup pole shows that about 47% of the participants believe that driving will be less safe if there is legal marijuana. There hasn't been a scientifically proven way to determine if the driver themselves is high. We can test if there is THC present in the body but how long has it been there, is it enough to intoxicate this specific driver, and many more questions come in to play when assessing impaired driving.

Law enforcement in states with legalization have been trying to find a system that works together to maintain safety without assuming guilt. Certain states, like Colorado have implemented a legal limit of THC allowed to be present in the driver's system. Their officers have received special training, according to the state's website, that allow them to detect if a person is impaired due to drug use. This limit applies to MMJ and recreational users. The Washington Post compared two studies on the increase of auto accidents in states with legalization. The first was by the Insurance Institute for Highway Safety, the second by The American Journal of Public Health. The American Journal found no increase in fatal car crashed but the Highway Safety found a 3% increase in auto accidents. 

This is the part where people against legalization say that public safety and wellbeing is more important than money and the argument gets shut down. There is one thing that the states with recreational marijuana all have in common; they all had medical marijuana legalized before legalizing recreational use. This is how the state can test the waters for marijuana, the public reaction, the drawbacks, what the overhead costs really are, different methods that could be used in terms of patients picking up the marijuana. And when the fear of impaired driving comes out then advocates bring out a study done by the American Journal of Public Health that claimed there was a decrease in traffic fatality rates. 

Another issue that comes up when advocating to jump right into recreational use is defining the terms. Legislation is not easy to write or pass, it can be less difficult when the governing body can at least agree on definitions and terms of use, sale, and consumption. When advocates try to begin with recreational, the first issue will probably be, how can we keep this out of the hands of children. This is a very important issue, one that alcohol businesses are well aware of. The trick is that their product, while dangerous, is not on the Controlled Substances Act.  Legislators go down a never ending path when trying to legalize recreational marijuana because their audience for the bill is too large. When there is a medical marijuana bill, the same terms need to be defined, but the size of affected users is not nearly as large. This allows for the creation of what could be the template for recreational marijuana. 

With what seems to be a movement towards legalization of marijuana across the United States, the best options for states that have not created medical marijuana laws, to do so before attempting to legalize recreational marijuana. It can placate certain fears of the general public, give the legislators a template, and it opens doors to those who really need it sooner rather than later. 

--Loren D. Elkins

October 21, 2018 in Drug Policy, Federal Regulation, Legislation, Local Regulation, Medical Marijuana, Recreational Marijuana, State Regulation, Taxation, Voter Initiatives | Permalink | Comments (0)

Saturday, October 20, 2018

Weed Is Legal in Canada, But Is There Enough of It?

The move to legalize cannabis in Canada comes into effect on October 17th, but it is estimated that suppliers will not have enough weed to meet demand.

While a recent survey conducted by Statistics Canada shows that the number of Canadian cannabis users is not expected to rise significantly, Statistics Canada's National Cannabis Survey, 3rd quarter 2018, reveals that some 4.6 million Canadians or 15% of the population has used cannabis just in the past 3 months. 


According to MetroUK: Researchers from the University of Waterloo and the C.D. Howe Institute say suppliers will only be able to fulfill between 30-60% of demand. According to them, the legal cannabis supply is expected to be around 210 tonnes while total demand in the country will be about 610 tonnes.

One of the main reasons for the lack of cannabis is that the Canadian government seems to be dragging its feet in granting licenses to suppliers. This could cause quite a loss, as MetroUK reports: "[This] means the government will be losing out on an estimated $774,000,000 (£454,000,000) in tax revenues."


--Taylor Allan




October 20, 2018 in Business, Finance, International Regulation, News, Taxation | Permalink | Comments (0)

Saturday, September 29, 2018

The Latest US Territory to Legalize Marijuana Use Makes History

AaaOn Friday, a small US territory made a big splash in the country’s marijuana legalization history. According to, the Governor of the Commonwealth of the Northern Mariana Islands signed a bill into law that provides

adults over 21 years of age will be able to legally possess up to one ounce of marijuana, as well as infused products and extracts. Regulators will issue licenses for cannabis producers, testing facilities, processors, retailers, wholesalers and lounges. Home cultivation of a small number of plants will be allowed.

The article further points out that this is the first US jurisdiction “to go from having cannabis totally illegal to allowing recreational use without first having a medical marijuana program.” It was “unclear if the governor was going to sign or veto the legislation, as he had previously expressed concerns about the public safety implications of legalizing marijuana.”

Though the governor signed the recreational scheme into law, he also used his “line-item veto powers to cancel some provisions of the proposal, including one to allow a government entity to be licensed to grow cannabis, as well as a provision requiring recreational marijuana consumers to obtain $5 permits.”

Legalization advocates are hopeful about the effect this may have on other US Jurisdictions.

"This is the first legislatively enacted law in the U.S. that taxes and regulates marijuana for adults’ use, but it will be far from the last," Karen O'Keefe, state policies director for the Marijuana Policy Project, said in an interview. "New Jersey could follow suit within weeks, and as many as five more state legislatures could do so within the next year. Public support for legalizing marijuana is strong and growing, and elected officials are increasingly getting the message."

Other advocates are hopeful that the “building momentum will add pressure on the federal government to modernize its approach to cannabis.”

 --Ashleigh Morgan Williams

September 29, 2018 in Decriminalization, Drug Policy, Legislation, Local Regulation, Politics, Recreational Marijuana, State Regulation, Taxation | Permalink | Comments (0)

Nevada cannabis industry shatters revenue projections; state expects more growth to come

Nevada is the latest state to feel the economic boom of legalized cannabis, and so far it is smooth sailing for state regulators. The state fully legalized the drug beginning in January 2017 and total industry sales soared over $500 million, $425 million of which came from recreational sales alone. These numbers drastically outperformed both state projections, and first year sales of other states. The Las Vegas Review-Journal has the story

Vegas-weedIncluding recreational and medical marijuana as well as marijuana-related goods and accessories, Nevada stores
eclipsed a half-billion dollars in sales, just under $530 million, according to figures released Tuesday by the Nevada Department of Taxation.


Bill Anderson, executive director of the Tax Department, said that the industry “has not only exceeded revenue expectations, but proven to be a largely successful one from a regulatory standpoint.”


“We have not experienced any major hiccups or compliance issues,” he added. “As we move into fiscal year 2019, we expect to see continued growth in the industry by way of additional businesses opening up, and we expect revenues to continue to be strong.”

This stunning performance translated into $70 million in tax revenue for the state. To give some context to these metrics, state regulators projected $265 million in sales and $50 million in tax revenue, according to the Review-Journal. Furthermore, the states of Colorado, Washington, and Oregon–largely considered to be trailblazing states in the cannabis industry, and all with larger populations than Nevada by at least 1 million citizens–recorded first-year cannabis sales of $303 million, $259 million, and $241 million, respectively, putting them far behind Nevada's first year numbers. Perhaps most surprisingly, despite being home to Las Vegas, Nevada only collected $49 million in intoxicating beverage taxes from 2016-2017, signaling that marijuana may be a greater source of revenue for the state than alcohol moving forward.

Nevada's "sinful" tourist economy can likely be thanked for such astounding numbers, although the state's casinos have come out against marijuana use in their facilities, out of fear of losing their gaming licenses. Additionally, the state's marijuana law prohibits consumption anywhere but in private residences. State Senator Tick Segerblom told the Las Vegas Sun: “The numbers are kind of leveling off, and we need to reach the tourist market a little more. We need a venue where people can come and enjoy marijuana properly."

These results suggest a few things: first, that tourism economies can drive marijuana sales even in states with lower populations and where marijuana use is not widely supported by dominant businesses. Second, that as more states legalize cannabis they may take cues from states that have previously approved legalization in order to more efficiently bring the drug to market. Finally, that there is still much progress to be made with respect to laws surrounding marijuana consumption in states where it has been made legal. Perhaps as more states begin venturing into legalization, they will use Nevada as a model of how best to regulate, tax, and sell cannabis.

--John Robinson

September 29, 2018 in Business, Commercial Law, Decriminalization, Drug Policy, Legislation, Medical Marijuana, News, Politics, Recreational Marijuana, State Regulation, Taxation, Travel | Permalink | Comments (1)

Wednesday, September 5, 2018

How much tax should states put on marijuana?

AaaState tax regimes vary greatly on a number of traditional "sin" products like alcohol and tobacco.  Washington, for example, levies more than $35 a gallon on alcohol, versus less than $2 in West Virginia.  As for cigarettes, New York slaps each pack with $4.35 against $.30 for Virginia.  Given that states try to balance raising money (higher taxes) with keeping residents happy (lower taxes) and discouraging use (higher taxes), this is not surprising.

Now that the adult-use marijuana movement has come, states are facing similar questions.  How much tax should they put on marijuana products?  Two business scholars, Brett Hollenbeck (UCLA) and Kosuke Uetake (Yale), have a new paper, Taxation and Market Power in the Legal Marijuana Industry, which takes a look at these issues.  Here's the abstract:

In 2012 the state of Washington created a legal framework for production and retail sales of marijuana. Eight other states have subsequently followed. These states hope to generate tax revenue for their state budgets while limiting harms associated with marijuana consumption. We use a unique dataset containing all transactions in the history of the industry in Washington to evaluate the effectiveness of different tax and regulatory policies under consideration by policymakers and study the role of imperfect competition in determining these results. We document that overall demand is relatively inelastic, that restrictions on entry result in retailers with significant market power, and that cost shocks are more than fully passed through from retailers to consumers. We combine these empirical estimates to calculate the relationship between revenue and the tax rate, the dead-weight loss of taxation and the share of the tax burden that falls on consumers and producers, each of which are significantly effect by imperfect competition. We find that despite having the nation's highest tax rate, Washington still has significant scope to increase revenues by raising the tax rate on retail marijuana sales. That is, they are still on the upward sloping portion of the laffer curve. The amount of revenue generated by a given tax increase is also significantly larger due to retailer market power than it would be under perfect competition. We also find significant social costs of taxation, roughly 2 dollars are lost to consumers and producers for every dollar of tax revenue generated.

--Frank Snyder

September 5, 2018 in Research, Taxation | Permalink | Comments (0)

Tuesday, November 7, 2017

Wildfires in California expose the Vulnerability of the State’s Marijuana Industry

The devastating fires in California this month shed a spotlight on the lack of insurance coverage the marijuana industry receives. Because marijuana is still considered a Schedule I drug under the Controlled Substances Marijuana FireAct, it is almost impossible for farmers to insure the plant. The Cannabist reports that marijuana’s federally illegal status:

makes it extremely difficult, if not impossible, for most of the marijuana businesses affected by those disasters to access crop insurance, emergency bank loans, and disaster relief assistance available to other agriculture sectors.

Meanwhile, marijuana’s legal limbo has also scared away many major insurance companies from offering their services to the cannabis industry. For instance, Lloyd’s of London, a giant in the specialty insurance and reinsurance market, stopped insuring all cannabis operations in 2015, “unless and until the sale of either medicinal or recreational marijuana is formally recognized by the Federal government as legal.”

During the month of October, the fires destroyed at least 34 marijuana farms, burning thousands of acres of land on which
the marijuana was growing. Unfortunately, the farmers that own this land have been left with almost no recourse due to the preventative federal laws, despite the fact that many of the farmers have spent thousands of dollars to ensure compliance with state law.

Last week, California’s state insurance commissioner, Dave Jones, encouraged commercial insurance companies to insure marijuana businesses that are in compliance with state law, reasoning that “it’s [their] job as state officials “to make sure [they] successfully implement the legalization of cannabis.” It remains to be seen whether any insurance companies will accept his pleas, but Jones’s efforts have come too late for farmers in the current predicament.

Given the uncertain future of insurance for marijuana and marijuana related businesses, California may be able to take a note from Colorado in order to partially protect the industry from natural disasters in the future. Gerry Jones and Mark McNeely, employees of Cannabis Insurance Solutions in Denver, explained that although outdoor agricultural programs are federally insured and back, there is some leeway when it comes to indoor agricultural programs.

You have crop insurance and general liability for the building and professional liability for the people who come in and spray the crops and those kind of things. So the full gamut of coverages any other businesses would have access to," Jones said.

In Colorado, all dispensaries and cultivation operations are licensed with the state, which provides additional funding. Therefore, a business is covered if it is destroyed by a natural disaster, as long as the business is insured. It may be worth it for California to take a look at this indoor-farm workaround as a way to recoup some losses in the case of a future natural disaster, at least until there is a response from the insurance industry after the requests made by Commissioner Jones.

--Taylor Wood

November 7, 2017 in Business, Taxation | Permalink | Comments (0)

Monday, October 16, 2017

Las Vegas Dispensaries Struggle to Meet Tourists’ Demand

Essence-stripLas Vegas Dispensaries Struggle to Meet Tourists’ Demand

              Marijuana dispensaries for adult use have been operating throughout Nevada since July 1rst of this year. According to the Nevada Department of taxation, Marijuana sales have generated over $3.6 million in taxes during July month alone. Tax officials estimate that Nevada can generate up to $120 million in revenue by July of 2019.  As expected, the immense tourism industry in Nevada has largely played a role in the massive economic success surrounding the legalization of adult use. However, with success comes new problems.

The biggest challenge many dispensaries are facing right now is a supply shortage. Dispensary employees are essentially waiting for marijuana plants to grow, so they can re-stock their shelves with fresh product.

According to Stacy Castillo, the General Operation Manager at MYNT Cannabis dispensaries:

"A lot of companies are having an issue with just being able to create production products because there's not a lot of source flower out there; so a lot of companies are moving in the direction of creating more square footage so they can create more grow space and creating more product; so that's why if we do experience any kind of delay in product it's because we're waiting for the product to be made."

              But never fear, hopeful Nevada tourists! According to 3 Months into Recreational Marijuana Sales, Nevada Dispensaries Experience Pot Shortages by Olivia DeGennaro, there have been no reports of any Nevada-based dispensaries completely running out of marijuana and marijuana derivatives. Rather, dispensaries have been reported to have run out of select products. An additional problem Nevada-based dispensaries face in meeting demand is the legal battle of the distribution right of products intended for adult use. As the adult use market continues to thrive thanks to the tourism industry, representatives from established cannabis business like Castillo will continue to push for fully integrated dispensaries. By allowing full integration, dispensaries will be able to distribute marijuana products in a more cost-effective manner. In theory, these savings will be passed on to consumer (mainly tourists) which will thus continue to give Nevada a competitive edge in the tourism industry.

October 16, 2017 in Business, Local Regulation, Taxation | Permalink | Comments (0)

Wednesday, June 10, 2015

"House bill aims to keep D.C. sales of marijuana illegal"

. . . is the title of a new piece in the Washington Times.  The headline is a little misleading -- marijuana is now and will remain, for some considerable time, illegal everywhere in the U.S., the District of Columbia included.

What the author is referring to -- as the article itself makes clear -- is a spending bill pending in the House of Representatives that would continue prohibiting the D.C. government from enacting a tax-and-regulation system for marijuana.  Congress did this in the last spending bill, and the new rider seems to continue the plan:

    A House spending bill introduced Wednesday would block the District of Columbia from using any money "to legalize or otherwise reduce penalties" for possession of marijuana — a move that would keep the drug quasi-legal in the city.

    Voters approved a ballot initiative in 2014 that legalized possession of up to an ounce of marijuana in the District, however without legislative action by local lawmakers it will remain illegal to buy or sell the drug.

    The congressional rider will continue to block city leaders from pursuing legislation to regulate the sale and taxation of marijuana. A similar provision was included in a congressional spending plan adopted in December.

    Marijuana policy experts interpreted the fact the rider did not include more restrictive language as a sign Republican leaders were not interested in engaging in a larger fight over marijuana.

    "I’m pleasantly surprised that the rider that they did include was not more restrictive," said Dan Riffle, director of Federal Policies at the Marijuana Policy Project. "I fully expected them to include tougher language explicitly naming the law in the language of the rider."

    Tom Angell, chairman of the Marijuana Majority, is holding out hope that the  rider could be removed from the budget.

    "If there’s a floor vote on an amendment to strip this language from the bill, I think we have a really good shot of assembling a bipartisan majority of lawmakers who will stand up for letting D.C. enact its own marijuana policies without interference," Mr. Angell said.

That last prediction may be correct, but I doubt it.  Congressional Republicans may not want to stop D.C. residents from growing and smoking a little, but Weed Marts scattered around Capitol Hill isn't something many of them will want to see.  Add in the potential for D.C.'s chronically corrupt government to start trading licenses for under-the-table cash, and you've got a recipe for problems.

It's an interesting paradox.  In enacting the spending bill, Congressional Republicans aren't thwarting the will of the D.C, voters -- they've made no attempt to overturn what the voters did.  They merely seem to be thwarting the D.C. government, which wants to license, control, and profit from the trade.

June 10, 2015 in Federal Regulation, News, Recreational Marijuana, State Regulation, Taxation | Permalink | Comments (0)

Colorado Cuts Weed Tax, Targets Black Market

The best way to stop a black market is to allow legal prices to fall to black market levels, and Colorado has taken a step in that direction.  Forbes reports that the rate will be cut from 10% to 8%.  Gov. John Hickenlooper notes that this will reduce the retail price of state-legal marijuana.

The same article reports that the state is doing is best to avoid having to give excess taxes collected back to taxpayers instead of spending them itself.  The state is putting out a ballot initiative to avoid having to rebate excess taxes collected, something which is required under the state constitution.  

June 10, 2015 in Legislation, Recreational Marijuana, State Regulation, Taxation | Permalink | Comments (0)

Thursday, May 7, 2015

California MMJ Businesses Challenge IRS Deduction Denials

From Bloomberg BNA Daily Tax Report:

    Two California companies that own various shares in medical marijuana dispensaries are petitioning nearly $2 million in IRS-imposed tax deficiencies and penalties for 2010 and 2011.

    Northern California Small Business Assistants Inc. (NCSBA) and the Organic Cannabis Foundation LLC (OCF), both in Santa Rosa, Calif., are contesting deductions the Internal Revenue Service disallowed.

    The IRS said tax code Section 280E forbids the deductions because the companies claiming the deductions were "engaged in the illegal trafficking of marijuana during those years."

    The OCF, which in 2010 and 2011 operated a "legally permitted California business, having commenced operation of a medical marijuana treatment and dispensary center in Santa Rosa," claimed expenses under Section 162 that the IRS disallowed. The IRS sent the OCF a notice of deficiency on January 22, claiming $1,355,131 in tax deficiencies and penalties for 2010 and 2011 (Organic Cannabis Found., LLC v. Commissioner, T.C., No. 10593-15, petition, 4/23/15).

    The NCSBA in 2010 and 2011 held a 99 percent ownership interest in Napa Organics LLC, the Petting Zoo LLC and Oakland Cannabis Institute LLC, all passthrough entities operating, or attempting to operate as, medical marijuana dispensaries.  Each company also claimed expenses under Section 162 that the IRS disallowed in full, sending the NCSBA a notice of deficiency on January 22, claiming $638,048 in tax deficiencies and penalties for 2010 and 2011 (N. Cal. Small Bus. Assistants, Inc. v. Commissioner, T.C., No. 10594-15, petition, 4/23/15).

    The petitions, both filed April 23, claimed the companies "complied with all federal, state and local tax-reporting requirements" and said the businesses "reasonably and in good faith believed that they were lawfully operating their business in accordance" with those laws.

    The companies argued that the Tax Court has held that Section 280E doesn't preclude a taxpayer from deducting expenses attributable to a trade or business other than that of illegal trafficking in controlled substances simply because the taxpayer also is involved in the illegal trafficking of a controlled substance, and that California law authorizes the use, distribution, possession, or cultivation of medical marijuana.

    The petitions also argued that Section 280E is "irrational and arbitrary," "unconstitutionally vague" and "an unconstitutional use of the taxing power."

May 7, 2015 in Taxation | Permalink | Comments (0)

Saturday, April 18, 2015

When You Chase Two Rabbits at the Same Time, You Won't Catch Either One

I think it was Thomas Sowell who noted that politicians are more popular than economists because the former offer solutions, while economists can only offer tradeoffs.

One of the most difficult problems in marijuana reform is the fact that we often run after two very different goals at the same time.  On the one hand, we want to get rid of the black market for weed and the corruption and violence that accompanies it.  On the other hand, we want to carefully regulate it, avoid encouraging addiction, and raise money in taxes.  The problem is that these two goals are fundamentally incompatible.

With any addictive substance -- alcoholic beverages, drugs, even fast food -- 20 percent of consumers ordinarily consume 80 percent of what's sold.  Thus, the 20 percent of heaviest drinkers imbibe 80 of the booze, just as the 20 percent of the heaviest McDonald's eaters consume 80 percent of the Big Macs.  (Pun not intended.)  Because of their heavy consumption, the 20 percent are usually very price-sensitive.  It's not hard-core alcoholics who tend to buy the most expensive wines, beer, and spirits -- they tend to look for the stuff that will get them drunk most cheaply.

Translate this to marijuana, and we can assume that the heaviest users will tend to be the most price-sensitive.  That means that even relatively small price differences between products of similar potency will have a big effect on demand, and thus that unless legal weed prices are kept at or below the price of the illegal stuff, the black market will thrive.  To the extent those prices are propped up by restrictions on growing and selling -- as we now see in several states -- and by various taxes,  the black market remains.  And so long as the black market remains, law enforcement will be targeting those who illegally grow and possess the stuff.  The only difference is that they'll be prosecuting them for evading taxes, not drug possession.

And it works the other way.  If there's a thriving black market, it's easy to evade the regulations and to avoid paying the taxes, which means that tax revenues will be lower than expected.  That seems to be the case so far in Colorado, where reports are that marijuana consumption is up but taxes are falling well below projections.  To drive up tax revenues, the state will have to commit additional resources to combat the black market.

That fact, and some of the thoughts I've mentioned here, are discussed in this nice piece from The Upshot's Josh Barro:  Marijuana Taxes Won’t Save State Budgets.

April 18, 2015 in Drug Policy, State Regulation, Taxation | Permalink | Comments (2)

Tuesday, April 14, 2015

Legalizing Weed May Actually Benefit Taxpayers

The good news for Colorado taxpayers is that the tax money being harvested off of legalized marijuana may wind up being rebated to taxpayers in the Centennial State.  The bad news is that . . . well, the money is going to be refunded to taxpayers instead of being  turned over to the state government to spend

    The first state in the US to legalise recreational cannabis has encountered a problem: taxes raised from sales of the drug are too high.

    Sales of pot will yield estimated tax revenues of $58 million in Colorado in the current fiscal year. The money was intended to go towards projects such as school construction, law enforcement and drug education.

The revenues may now have to be returned to taxpayers because Colorado underestimated the overall amount of tax it was likely to raise when voters were asked to decide whether to legalise cannabis.

    State rules tightly regulate how much Colorado can raise and spend, described by critics as a product of “anti-tax zealotry”. The state legislature is now trying to enact new laws that would stop them from having to pay each citizen about $11 — their share of the windfall. Those who oppose giving the money back describe the situation as “refund madness”.

Damned taxpayers.  It's almost as if they think it's their money.

April 14, 2015 in State Regulation, Taxation | Permalink | Comments (0)

Tuesday, March 24, 2015

Same anti-legalization arguments, new state

As Douglas Berman pointed out, Derek Siegle, executive director of the federally funded Ohio High Intensity Drug Trafficking Area  Program, presented a guest column piece today at, in which he included nearly every argument he could imagine in opposition to ending marijuana prohibition. His article presents a wonderful (if stream-of-consciousness) summary of all the main talking points currently used by HIDTA officials around the country. This seems like a great opportunity to dispel some of the dire warnings we often hear. I’m cherry picking here, since there are so many arguments, a full response rather longish. But here are some of the more commonly used, and abused, arguments I see out there.

Not that many people are arrested for marijuana possession, so the impact on the criminal justice system isn't that great.

I never really understood this argument. It seems to be saying "we could be jailing everyone, but we really aren't doing it all that much - so that's good, right?" If it is so rarely invoked, then why allow for jail time at all? It seems to suggest that even the system recognizes that jail is not an appropriate sanction. 

Of course, lots of people (particularly African Americans) are arrested for possession, so this argument might not be as compelling for those lucky contestants who win a free police escort to their local jail. But more to the point, the criminal justice system is far more than incarceration. Jailable offenses mean court appointed attorneys or private counsel, courtroom time, and the time law enforcement spends processing cases. On the back end, it can mean the loss of personal property and money in asset forfeiture proceedings, along with probation. Even technical violations of probation rules can lead to (re)arrest and incarceration, which would not show up in the claim that possession doesn't often lead to jail time. And then there is a criminal drug conviction that could show up in background checks for jobs, school, and housing for a lifetime. 

Heavy consumers may find that the accumulation of THC in their system can affect them in a variety of ways, both physically and mentally.

If this is true, it is a compelling reason to not over-consume, but there is no reason to believe that criminalizing behavior changes people’s practices. Research has shown that teen use does not go up when penalties go down. Nebraska and Mississippi removed the possibility of jail in the 1970s, and teen use is lower in those states than in neighboring Texas, which treats possession as a crime. Studies also generally show that raising penalties for use does not deter behavior, and lowering penalties does not encourage behavior. The bottom line is that while marijuana over-consumption could possibly be a health concern, making it a crime does not deter consumption nor deal with the actual concern mentioned here - health.

Marijuana is more potent than it used to be.

There is some evidence that marijuana is more potent that it was several decades ago, but unlike both narcotic medications and alcohol — which take the lives of tens of thousands of Americans every year — there are no known incidents of overdose deaths attributable to marijuana at any time.  Despite its increased potency, it is still a safer alternative than substances we already regulate and control.

Potential tax revenue will only cover about 15 percent of the collateral costs to our community: increased drug treatment, emergency room visits, crime, traffic accidents and school "dropouts."

While it is not clear where HIDTA's statistics come from, the Congressional Research Service did an analysis of the revenue potential of a federally taxed adult marijuana market, published in November 2014, which is directly on point. It found these costs manageable with a modest tax:

Economic theory suggests the efficient level of taxation is equal to marijuana’s external cost to society. Studies conducted in the United Kingdom (UK) and Canada suggest that the costs of individual marijuana consumption to society are between 12% and 28% of the costs of an individual alcohol user, and total social costs are even lower after accounting for the smaller number of marijuana users in society. Based on an economic estimate of $30 billion of net external costs for alcohol, the result is an external cost of $0.5 billion to $1.6 billion annually for marijuana. These calculations imply that an upper limit to the economically efficient tax rate could be $0.30 per marijuana cigarette (containing an average of one half of a gram of marijuana) or $16.80 per ounce. An increased number of users in a legal market would raise total costs, but not necessarily costs per unit.

We do not know what the wholesale or retail sales rate would be under the better-known legalization effort in Ohio, or if they are comparable to prices in other parts of the country for similar products. If they were, a tax rate of 15% would be considerably higher than $16.80 per ounce. 

States that do not tax medical marijuana find that their adult consumers cheat and sign up as medical marijuana patients. And most medical marijuana patients are under 40.

First of all, the “most are under 40 argument” is simply false. According to state marijuana program statistics, the average age of patients in Colorado is 42.  The average in Montana is 47, and the average in Arizona is between 40 and 50.

Secondly, in states that have both medical marijuana and adult use, whether or not people are gaming the system is a question for regulators, not an argument in favor of maintaining the criminality of marijuana use. It is worth noting that according to research by the Toronto-based Center for Addictions and Mental Health and the Canadian Centre for Substance Abuse, there are somewhere between 400,000 and 1 million self-reported medical cannabis users in Canada, or approximately 4% of the adult population, while only around 1/10 that number are registered patients. It is hard to speculate how many adult consumers would qualify as patients. But at the end of the day, it took a medical professional - not a law enforcement officer - to recommend medical use of marijuana in the first place.   

Legalization will lead to greater use by our youth.

This statement is directly contradicted by peer-reviewed studies, which show that teen use either remained constant, or more often than not, dropped in medical marijuana states. (One interesting question is whether or not teen use of alcohol went up or down after alcohol Prohibition ended. Incidents of reported alcoholism actually did drop based on medical records from the time, but I have never seen this issue researched with respect to teen use.)

Marijuana is a gateway drug.

No anti-marijuana opinion piece is complete without the gateway drug myth, which has been repeatedly debunked by those who have actually studied it, most notably in a White House-commissioned study by the Institute of Medicine in 1999. That study found that marijuana "does not appear to be a gateway drug to the extent that it is the cause or even that it is the most significant predictor of serious drug abuse.” The gateway myth confuses causation and correlation. As recently explained by Susan Weiss, a psychologist with the National Institute on Drug Abuse, “[p]eople tend to use marijuana before they use other illicit drugs, but that’s probably because it’s much more available, and it’s the drug that people are more likely to come in contact with.” Just like alcohol does not cause people to use marijuana, marijuana does not cause use of harder drugs.

I would also point out that California has allowed practically unregulated medical marijuana since 1996 without any perceptible increase in hard drug use. 22 other states and D.C. followed. Where are all the new cocaine and heroin users ushered in by these laws? But hey, it sure sounds scary. 

Accidents and fatalities on the highway will increase if marijuana is more available as it has in Colorado.

The Colorado Department of Transportation has called out HITDA for misusing state statistics in the law enforcement agencies' repeated efforts to advance this argument. In reality, very recent research by federal government’s own National Highway Traffic Safety Administration (NHTSA) found THC-positive drivers possess no elevated risk of motor vehicle accident, after adjusting for drivers’ age and gender. NHTSA acknowledges that this is the largest US-based crash risk assessment ever performed. They also note that their findings are ‘in line’ with other well-controlled studies also finding little to no increased risk.

If marijuana is medicine why isn't it prescribed?

This is one of my personal favorites. Here’s why not:

  • The Food and Drug Administration (FDA) studies and approves or rejects drugs for prescription use.
  • It doesn't study a substance for medical benefit if the drug is already scheduled as having no medical benefits - it needs to be rescheduled first as something with at least theoretical medical benefit.
  • The DEA has the authority to reschedule marijuana, thus enabling the FDA to begin study in earnest, but refuses to do so until there are studies on its medical benefit.
  • Any studies on medical benefit (or any other use) must use marijuana provided by the National Institute of Drug Abuse (NIDA).
  • NIDA has an institutional policy, imposed by Congress, to only make marijuana available for research if that research examines its harmful effects.

The lack of study is based on the federal government’s general policy to refuse to make it available for studies on its benefits – not because marijuana actually does lack medical benefit.

Crime went up in Colorado after legalization.

No, it did not. Well, some types of crime did go up, while other categories dropped. The claim that crime increased selectively reports the data in order to fit the theory, ignoring the crime rates that dramatically fell. In fact, it's probably too early to really know what has happened to crime rates, although street cops in Denver don't seem to think it made much difference.

As I mentioned in the comments section following Doug’s post, the real problem with these sorts of arguments is that they lack any solution except "maintain the status quo – or else!" All they really do is present the possible harm to society/kids/budgets/crime rates if things change. But in reality they have been changing for decades and the sky is still, well, in the sky.  If there really were horror stories to tell based on what states have been doing since reducing criminal laws since the 70’s, or adopting medical marijuana laws since the 90’s, or legalizing marijuana since 2013, we would not be arguing about hypotheticals. 

March 24, 2015 in Decriminalization, Drug Policy, Federal Regulation, Law Enforcement, Legislation, Local Regulation, Medical Marijuana, News, Politics, Recreational Marijuana, Research, State Regulation, Taxation | Permalink | Comments (0)

Tuesday, February 24, 2015

Colorado Marijuana Business Challenges IRS Penalties

It's no story that marijuana businesses in the brave new world of quasi-legalization are getting hammered by regulators.  They exist in a kind of post-Soviet Eastern Europe, where buying and selling things has stopped being actually illegal, but is still not actually "legal."  The government won't stop you from selling pot, but they'll make sure they extort as much money as humanly possible from you in the process.

Witness the Internal Revenue Service.  This story from Bloomberg captures the dilemma that faces a lot of cannabis businesses forced to use cash because government regulators effectively cut them off from banks.  (Yes, I know the President is always suggesting otherwise, but he's not telling the truth.)  Some are fighting back:

    A Colorado medical marijuana dispensary is challenging an Internal Revenue Service penalty for failing to pay certain taxes electronically, arguing it couldn't do so because it has been unable to open a bank account.

    Rachel Gillette, the Denver attorney that represents Allgreens LLC, told Bloomberg BNA Feb. 17 that the company filed a petition with the U.S. Tax Court challenging an IRS Appeals officer's determination that the company's inability to get a bank account doesn't excuse its failure to pay employee withholding taxes electronically (Allgreens LLC v. Commissioner, T.C., No. 28012-14L, petition filed 11/24/14).

    “If you look at the penalty section of the tax code, you are entitled to abatement as long as you have reasonable cause”

    That Allgreens “cannot secure a bank account due to current banking laws is not considered reasonable cause to abate the penalty,” the IRS settlement officer, Linda Andrews, ruled in a substantive contract letter issued July 24, 2014.

    Allgreens faces a 10 percent penalty for failing to deposit Form 940 and Form 941 employment taxes via the Electronic Federal Tax Payment System as required by federal law, according to Tax Court documents obtained by Bloomberg BNA.

    The use of the EFTPS requires a bank account. Allgreens is a licensed medical marijuana business in the state of Colorado and the city of Denver, but has been unable to secure a bank account because marijuana is a Class 1 controlled substance under federal law.

    Allgreens pays its taxes in cash at a local IRS office, Gillette told BNA. “The taxpayer is a compliant business making timely tax payments and filing timely returns, but due to circumstances beyond his control, is unable to get a bank account so he can file via the EFTPS,” she said. “A compliant taxpayer is one who pays on time and pays the correct amount.”

The whole piece is worth reading.  My favorite part is where the clueless IRA staffers basically tell the taxpayers that they can avoid paying the 10 percent penalty if they  simply do a little money laundering.

On a more serious note, I doubt that this is a legal claim that can win.  Pot is still illegal, and these sorts of agency determinations are hard to challenge.  That said, the IRS's position here is genuinely appalling.

February 24, 2015 in Taxation | Permalink | Comments (0)

Monday, February 16, 2015

Can Nonprofits Get Marijuana Licenses and Tax Breaks?

If for-profit marijuana businesses face serious tax penalties because they can't deduct certain expenses, what about nonprofits?  Should nonprofits get federal 501(c) tax status if they engage in things that are illegal under federal law?

I don't know, but that's a question raised by this story out of Illinois, where a for-profit business is suing to stop a nonprofit from exploiting one of the state's licenses, claiming that it's improper for a tax-exempt group to get a sales monopoly on an illegal product. 

    A medical marijuana business is facing what's believed to be the first legal challenge in Illinois to its license to operate..

    A downstate corporation that lost out on the license argues that Shelby County Community Services Inc. is ineligible to cultivate medical marijuana because it is a not-for-profit entity, and therefore must pledge not to violate federal law.

    A state law that took effect last year authorizes production and distribution of marijuana for patients with any of about three dozen illnesses. It remains illegal under federal law, though federal authorities have stated generally that they won't prosecute businesses that comply with state laws.

    Shiloh Agronomics LLC, which is challenging the license, was formed by owners of a family farm in downstate Edgar County, including former County Board Chairman and Sheriff James Sullivan, according to his son, Chicago attorney Jude Sullivan. It sought the cultivation license awarded to Shelby County Community Services in District 10, which includes Champaign and nearby counties.

    Shiloh Agronomic's attorney, Sean Britton, sent a letter to the Illinois attorney general on Monday asking the office to take action to revoke the license, a precursor to the company pursuing the matter in court. The attorney general's office did not immediately comment Tuesday on the request.

    "It seems to me the state shouldn't be able to create a monopoly for someone who is tax-subsidized," Jude Sullivan said.

    Shelby County Community Services in Shelbyville offers residential and out-patient programs for developmentally disabled individuals. Formed in 1975, it puts its clients to work at its own plastic bag and paper plate manufacturing plants, and hopes to do the same with the cultivation center, Executive Director Tom Colclasure said.

    The agency also counsels substance abusers, but Colclasure sees no contradiction in that, emphasizing that medical marijuana is tightly controlled and only for therapeutic purposes for patients who are authorized by doctors. The cultivation center would also help fund the agency's $14 million annual budget in the face of tight state funding, he said.

    "That was our motivation," Colclasure said. "It met with our mission of helping people and also provide jobs to people with disabilities."

    In some states, the laws encourage not-for-profits to run medical marijuana facilities, to avoid the appearance of the industry being driven by profits, said Chris Lindsey, legislative analyst for the Marijuana Policy Project, a lobbying group.

    Internal Revenue Service regulations state: "If (a not-for-profit) organization engages in illegal acts that are a substantial part of its activities, it does not qualify for (tax) exemption."

    However, while medical marijuana businesses generally do not qualify for not-for-profit tax exempt status, that is a separate issue from qualifying to receive a license to operate, according to Robert McVay, an attorney who specializes in marijuana law.

    Many not-for-profits operate medical marijuana licenses in other states, he said, though they typically must pay exorbitant taxes because the IRS does not allow standard business deductions for federally prohibited activities.

This probably won't be the last challenge, given that many states give strong preferences to nonprofits in the medical marijuana arena.  One obvious question is whether a 501(c) that sells marijuana loses the tax-deductibility of its contributions.

February 16, 2015 in Federal Regulation, State Regulation, Taxation | Permalink | Comments (0)

Friday, January 30, 2015

Colorado Residents to Get Marijuana Tax Rebate

From Rolling Stone:  "The Centennial State's citizens in line to receive $7 each because  decriminalized weed was too successful":

As the residents of Colorado are about to find out, legal pot pays. The decriminalization of  marijuana in the  Centennial State has been so  successful that every Colorado adult is in line to receive a $7.63  refund, Associated Press reports (via High Times). Residents may be eligible for the refund due  to the economic stimulus provided by legal marijuana, a 30 percent tax  on that weed and a 1992 state amendment that puts a cap on how much the state  could receive from taxpayer money.

Remarkably, both Colorado's Democrats and Republicans have joined in unison  to try and repeal – or at least limit – a 1992 voter-approved amendment called  the Taxpayers' Bill of Rights that refunds citizens "when the state collects  more than what's permitted by a formula based on inflation and population  growth." In the case of marijuana revenues, the total amount is $30 million.

However, the amendment was enacted before Colorado ever imagined that  marijuana would be a taxable item thanks to a "dangerous" law, and now that $30 million in tax surplus is headed back to  the taxpayer instead of school construction. Government officials are scrambling  to bring a bill to voters that would make pot taxes exempt from that 1992  amendment, but not every Colorado resident is in favor of giving up that $7 and  change.

"I don't care if they write me a check, or refund it in my taxes, or just  give me a free joint next time I come in. The taxes are too high, and they  should give it back," Aurora, Colorado resident David Huff told High  Times.

Interesting.  We'll see how fond Colorado legislators are of marijuana taxes if they don't get to spend them.

January 30, 2015 in State Regulation, Taxation | Permalink | Comments (0)

Friday, January 23, 2015

It's Tax Season for Marijuana Businesses: Welcome to the Hellmouth

Hard to believe, I know, but the Internal Revenue Service is making life difficult for, and extracting large amounts of taxes from, marijuana entrepreneurs.  Dealing with the IRS is difficult enough when rules are nice and clear--but when the rules get vague the agency turns into something you might find in Buffy the Vampire Slayer.  

It's almost like they don't want to help your business succeed.  CNBC has a rundown of a recent conference on the topic:

    Pot may be illegal in the eyes of the federal government. But the people selling it legally still have to pay their taxes.

    Owners of recreational "adult use" marijuana operations in Colorado and Washington are preparing to file their first federal tax returns, and they're learning some hard lessons. The IRS is not allowing all the usual business deductions under what's called section 280E. The cost of growing marijuana is deductible under the federal tax code, but not the cost of selling it.

    "Labor for rolling joints is deductible," said Denver CPA Jim Marty of Bridge West, who adds that retail rent, labor and advertising are not deductible. Why does the IRS differentiate the two? "They just are making it up," he said.

    Marty joined other accountants and tax attorneys at a marijuana tax symposium in San Diego put on this week by the National Cannabis Industry Association. Some CPAs and attorneys have started challenging the IRS' special treatment of the marijuana industry.

    "These folks want to comply, they want to be part of the system, they want to pay their fair share of taxes, they just don't want to be penalized," Marty said. He admits that pretax profits in the legal pot industry "are very good—you can sell a pound of marijuana for about three to four times what it costs you to grow," but he added that without deductions for retail expenses "it puts you, at best, in the 60-70 percent tax bracket, and at worse, your tax bracket can actually exceed 100 percent."

    "I think you have to be very careful in dealing with the IRS, because 280E is the biggest threat that is happening to the cannabis industry at this time," said Henry Wykowski, a former federal prosecutor who is now an attorney for the marijuana industry in California.

    He has taken the government to court twice on the tax code, and succeeded in coming up with some legal workarounds. For example, retail pot enterprises can deduct the cost of goods for non-cannnabis retail products in their stores, like T-shirts and pipes, to help offset the lack of other deductions. "If you do not handle your deductions properly," Wykowski said, "there's no way you can make enough money to remain in business."

    Then there's the issue of how to pay the IRS the taxes it's due when you're dealing with an all-cash business. Some stores find workarounds to avoid carrying bags of cash to IRS offices (none will divulge how they do it), though Marty said cash is accepted now in some places in Colorado. "Actually, at my suggestion the IRS in Denver got cash counting machines, and now they have a separate line for cash," he said.

    Aaron Justis is president of the Buds & Roses medical marijuana dispensary in Los Angeles, which has been filing tax returns since at least 2010. Justis came to the conference to learn more. He said paying taxes has put him at a competitive disadvantage with other dispensaries. "I would say in Los Angeles, 4 out of 5 are operating illegally, so chances are they're not paying their fair share of taxes." So why does he file returns? "I'm in it for the long haul."

My favorite part of the story is perhaps the least relevant.  The Internal Revenue Service refused to accept U.S. currency--"legal tender for all debts public and private"--for paying taxes?

January 23, 2015 in Business, Federal Regulation, Taxation | Permalink | Comments (0)

Friday, December 26, 2014

Recent Posts Worth Checking Out at Marijuana Law, Policy & Reform

Wednesday, December 24, 2014

Govenments Eye Tax Windfall from Marijuana

We've talked before about the tendency of governments to look at new industries as sources of revenue.  At Forbes, tax commentator Robert W. Wood runs down some of the numbers, and why governments might not collect as much as they hope.  Here's the intro:

Taxes on marijuana are big, and it’s easy to see why. A discussion about legalizing marijuana often segues into one about tax revenues. Marijuana for medical use is legal in 23 states and the District of Columbia. Recreational marijuana is legal in DC and in four states, Colorado, Washington, Oregon and Alaska. More states will be coming.

In the meantime, cannabis—even for medical use—remains illegal under federal law. That leads to numerous legal woes for operations that are legal under state law. One sweet spot among legislators is tax revenue. It is a boon for the states. It could be a boon for the feds too.

The proposed Marijuana Tax Equity Act (H.R. 501), if passed, would end the federal prohibition on marijuana and allow it to be taxed. Growers, sellers and users would not to fear violating federal law. But dealing with taxes would be another story.The bill would impose an excise tax of 50% on cannabis sales and an annual occupational tax on workers in the field of legal marijuana.

Even if passed, one wonders if such high taxes could be collected. In the meantime, Colorado has trumpeted its tax revenues, though perhaps prematurely. It turned out that the $33.5 million Colorado projected to collect in the first six months of 2014 was too optimistic. When the smoke cleared, Colorado was missing $21.5 million in pot taxes! Yet the math isn’t difficult.

There’s a 2.9% sales tax and a 10% marijuana sales tax. Plus, there is a 15% excise tax on the average market rate of retail marijuana. If you add them up, it’s 27.9%. But much of the volume goes to black market buys where sales taxes aren’t paid. But that could change.

December 24, 2014 in Taxation | Permalink | Comments (0)

Monday, December 8, 2014

Marijuana: The New All-You-Can-Eat Buffet for State and Local Tax Collectors

Everybody loves sin taxes.  Well, not the sinners themselves, of course, but pretty much everybody else.

Because they by definition fall most heavily on the downtrodden sorts who are heavy consumers of alcohol, tobacco, and lottery tickets, they're supported by the well-to-do, who won't really pay them.  Because they're theoretically designed to help the sinners overcome their habits (and to reduce profits of the corporations who exploit them), they're supported by the social justice crowd who otherwise would strongly object to their regressive nature.

They're popular with governments, because those who wind up paying most of the taxes aren't a big voting group.  And, perhaps surprisingly, they're popular with the sin businesses themselves, because high fees discourage new entrants and help cement the status of existing businesses.  They only losers are the users -- and it's their own fault, right?

Thus, watching governments who are eyeing the new marijuana industry as a handy and uncontroversial way to balance their budgets is instructive.  At Marijuana Business Daily, writer John Schroyer has a very thoughtful piece on what's going on in Illinois (H/T Chris Lindsey):

    The marijuana industry isn’t an easy business to break into anymore.

    While the first medical marijuana states were largely unregulated – making it relatively simple to open a cannabis dispensary – most markets have created a web of rules and procedures on the industry. And with seemingly ever-increasing fees from state and local governments, it’s getting even more difficult and expensive.

    Illinois is a perfect example. On Monday, the Chicago suburb of Des Plaines decided to levy a $15,000 annual fee on any medical marijuana dispensary that wants to set up shop within its borders.

The stated reason for the fee? To offset an expected increase in costs for local cops.

    While local fees of a few thousand dollars a year are becoming common, Des Plaines now ranks as one of the first cities in the nation to formally approve a five-figure annual charge specifically to help pay for an expected increase in law enforcement costs, observers say. And it could be a sign of things to come for the industry in Illinois and elsewhere.

    “I wouldn’t be surprised if in the next state (to legalize MMJ) it’s a lot higher” than $15,000, Avis Bulbulyan, a California-based consultant who works in cannabis markets all over the country, said of local fees for marijuana businesses.

Fees Add Up

    Entrepreneurs interested in opening a dispensary in Illinois have to pay $5,000 to apply for a license with the state. If selected, they have to shell out $30,000 for the permit – plus another $25,000 annually in renewal fees.

    That means dispensaries in Des Plaines must pay $40,000 in state and local fees each year. (The state charges more for cultivation centers: $200,000 for a business license, for example.)

FundingEBookNewsletterV2 Sky High Local Fees the Future for MMJ Businesses?“There’s nothing you can really do, aside from saying, ‘Screw you, I’m out.’ And I don’t think anyone in the business is going to say that,” said Mark Cannon, the CEO of Prime Wellness of Illinois, a dispensary hoping to snag a license to set up shop in Des Plaines.

    In fact, Cannon is relieved the local fees aren’t higher.

    In Schaumburg, another Chicago suburb just west of Des Plaines, officials were toying in November with the possibility of a $100,000 fee for the single MMJ dispensary permit that the state has allowed the town to award. That possibility is still very much alive, and is slated to be discussed at a town committee meeting on Dec. 9.

    “When I heard $15,000, I thought, ‘I’m getting a break,’” Cannon said.

New Benchmark

    Cannon added that he doesn’t think the town is trying to take advantage of him; he just thinks officials are being overly cautious.

    But with multiple municipalities in Illinois establishing immense fees, it could set a new benchmark for cities in other states that may legalize MMJ in coming years.

    “What you’re seeing out of this town is not at all unique. It’s really in line with what we’re seeing across the country,” said Kris Krane, the head of the Arizona-based cannabis consultancy 4Front Advisors.

    Michael Mayes – chief executive officer of Quantum 9, a Chicago-based cannabis consulting and technology firm – said the fees are understandable to some degree.

    “I don’t necessarily think it’s the local municipalities taking advantage of the situation, it’s just that they’re preparing for the worst-case scenario,” Mayes said. “Because (marijuana is) a Schedule I federal narcotic, people are taking precautions that you may never have taken previously.”

    The irony of the Des Plaines fee for law enforcement, however, is that security requirements for medical marijuana companies are typically so strict that they actually wind up decreasing crime rates. So there might not really be an increase in law enforcement costs.

    “The research on this is pretty clear: If dispensaries are done in a way that they’re well-regulated and there’s a requirement for a high level of security, then they’re very rarely targeted for robbery,” Krane said. “They get robbed far less often than banks or liquor stores.”

    Cannon said he has “an elaborate security plan,” including surveillance cameras, shatter-proof glass for windows, and vaults inside the dispensary.

    “The city of Des Plaines is fully aware of all of the security involved in our dispensary. That still did not matter to them,” Cannon said.

Industry to Blame?

    The trend of increasing local fees in new markets may be the industry’s own fault, at least to some degree, observers say.

    In states with tight caps on MMJ businesses and extremely competitive licensing processes, some dispensary applicants offer incentives to cities in the form of sizable donations to either the municipality itself or a civic-minded charity.

    In return, these applicants hope to either get permission to do business in the city or at least a recommendation from local officials to the state that the dispensary be licensed.

    This type of behavior opens the door for local governments that want more money to implement heavy fees, as officials feel that the businesses can afford it since they’re willing to fork over so much in donations, Bulbulyan said.

    “They’re the ones offering these donations. Some are offering it to offset policing expenses,” Bulbulyan said. “The towns are starting to pick up on that.”

December 8, 2014 in Drug Policy, Taxation | Permalink | Comments (0)