The nascent marijuana industry faces a number of issues in four states where the drug has been legalized for personal use. Colorado, Washington, Oregon and Alaska all have enacted legislation that permits the growth and sale of cannabis through recreational marijuana dispensaries. Business owners have encountered significant obstacles in a trade that is expected to grow at a compound annual rate of 30% between 2016 and 2020.
Marijuana is illegal at the federal level. States rights have enabled voters to legalize the use of cannabis for personal consumption. However, the possibility of prosecution exists for industry participants who run afoul of the tight regulatory environments adopted by each state. Classified as a Schedule l drug, cannabis is federally viewed as a dangerous drug that has no accepted medical use and presents the greatest risk for physical and/or psychological dependence. The U.S. Department of Justice under President Obama has relaxed its stance on cannabis enforcement. However, any hint of operational impropriety subjects business owners to federal scrutiny and laws that supersede state laws.
The marijuana industry is heavily taxed. Recreational dispensaries that offer the sale of the plants coveted flowers, or buds, face tax rates up to 70%. Furthermore, the Internal Revenue Service (IRS) disallows any deductions for businesses that deal with the distribution of illicit substances. States such as Washington levy their own high excise tax rates, initially 37%, against the sale of cannabis, and collections have exceeded expectations. Revenues in Colorado from the recreational marijuana industry for 2016 were predicted to come in at around $70 million.
Big banks will not extend services to marijuana purveyors. The refusal of financial institutions to accept marijuana-related deposits stems primarily from the drugs illegal federal status. Additionally, banks are wary of peripheral activity associated with the sale of cannabis. Concerns revolve around potential sales to children, increased incidences of impaired driving and the funding of criminal enterprises.
In January 2016, Colorado state officials attempted to assist a credit union in catering to the cannabis industry’s needs. The institution was seeking approval of a master account that would allow it to conduct business with other banks and accept deposits. A federal judge threw out a lawsuit against regulators who refused the credit unions petition. Other legislative efforts aimed at facilitating banking relationships for marijuana-related businesses have stalled.
Sky-high tax rates on the sale of cannabis open up significant opportunities for illegal sellers. A $30 eighth-ounce of marijuana in Colorado is subject to a tax of 8.59%, or a 29% effective rate. In Colorado, 59% of marijuana users turn to state-regulated dispensaries to purchase product. The remaining cannabis users resort to underground acquisitions of the drug, an ounce of which legally can be given to another adult.
What occurs beyond a states borders sparks other concerns. As much as 80% of marijuana legally grown in Oregon is processed and illegally shipped to other states, where black market sales evade taxation on both sides of the transaction.
Cash, Crime and Security
Due to the lack of a banking relationship, all transactions involving the growth, processing and sale of cannabis are consummated in cash. Proprietors must pay employees, vendors and the state revenue departments without the means of electronic transfers from checking or credit card accounts. The accumulation of massive cash stockpiles presents safety risks to owners tasked to store and transport stacks of legal tender. Security measures such as armed guards and cameras have been beefed up at the retail level, and at tax offices where payments must be made in person.
Crimes in Denver and Seattle have risen considerably since marijuana became legal. Seattle police statistics showed a 25% cumulative jump in property crimes in 2013 and 2014, with a 50% increase in auto thefts. Although more criminal activity cannot be directly correlated to the legalization of cannabis, industry growth hinges largely on the repeal of federal marijuana laws and the tolerance level of a new presidential administration.
News Moderator: Katelyn Baker
Full Article: 5 Challenges Recreational Marijuana Dispensaries Face
Author: Thom Tracy
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