Article by Madison Margolin, LA Weekly
California is likely to see a boon to its weed economy in the coming years, with the industry expected to topple $6 billion by 2020. But for many looking to cash in on green, tax code 280E is a major buzzkill.
The tax code 280E specifically targets illegal drug traffickers. Regardless of whether your cannabis enterprise is legal under state law, the federal government still deems marijuana a Schedule I controlled substance, so it’s taxed accordingly. Under 280E, cannabis industry insiders who run businesses that touch the plant — dispensary owners, growers, product manufacturers — can deduct “cost of goods sold,” but no other “ordinary and necessary” costs related to running a business, such as payroll, rent and electricity.
Growers are least affected by 280E, since the majority of their expenses — paying trimmers and buying soil, nutrients and other necessities for cultivating cannabis — go into the cost of goods sold, namely, the actual bud. Dispensary owners, on the other hand, struggle the most with 280E.
“It’s been tough. You can only deduct for buying cannabis wholesale,” says Oliver Summers, who operates a mom-and-pop dispensary in Sun Valley. “The trick is, we’re not really buying stuff for the shop. We don’t really buy anything except for the Staples run, or the Smart & Final run.” The idea is to keep all non–bud-related expenses to a minimum.