Florida Rep. Matt Gaetz: Time to remove cannabis-industry-punishing 280E from tax code

Published: Nov 8, 2017, 11:11 am • Updated: Nov 8, 2017, 11:11 am

By Matt Gaetz, Guest Commentary

In 1981, a Tax Court judge ruled on tax deductions taken by Mr. Jeff Edmonson, a man with a unique business: the large-scale distribution of drugs. For the tax year in question, he had sold over a million tablets of amphetamine, a hundred pounds of marijuana, and nearly a pound of cocaine.

Mr. Edmonson was clearly busy — but not too busy to do his paperwork. His tax return deducted business costs, such as miles he had driven for work, and office equipment he purchased. The Tax Court rules on taxes, not the legality of a person’s profession — so many of his deductions were ruled perfectly acceptable.

Since this was 1981 — the zenith of bad hair and the War on Drugs — the verdict gave drug hawks a collective case of indigestion. While Congress scrambled to close tax loopholes to offset the costs of tax reform, they decided to kill two birds with one stone. Tax legislation passed in 1982 included section 280E, prohibiting traffickers of Schedule 1 and Schedule 2 drugs from deducting business expenses.

At the time, this small was mostly a symbolic victory. Few lawmakers thought it would have long-term ramifications. How could lawmakers have predicted how much the marijuana world would change in 35 years?

Instead of waiting for Mr. Edmonson to cruise down the block, twenty-three states and the District of Columbia now have laws allowing some form of marijuana use. Fourteen states have taken steps to decriminalize marijuana.

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The legal cannabis industry, worth approximately 7 billion dollars in 2016, employs tens of thousands of people, and some analysts believe the industry will be worth over 50 billion dollars within a decade. As soon as 2020, the cannabis industry is likely to generate more new jobs than the entire manufacturing industry. This explosive business growth is astonishing, especially considering the burden 280E puts on canna-businesses.

Developing new and efficacious medicinal strains and products is hard, time-consuming, and expensive. Just ask health supplement companies — it’s not easy and not cheap to make multivitamins smaller and more potent. But vitamin companies and health businesses can deduct research and development costs from their taxes. Canna-businesses cannot. Nor can they deduct wages paid to employees, the cost of office space, or any deduction available to nearly every other American business.

This is unfair to cannabis businesses, who end up paying higher tax rates than any individual or corporation. Small dispensaries effectively pay higher tax rates than Bill Gates or Walmart. It’s unfair to consumers, who foot the bill for these exorbitant taxes through higher costs and lessened choice. And it’s unfair to the government, too, because it promotes “creative accounting” and tricky, tax-evading workarounds, rather than making it easier for companies to pay their fair share.

But on a deeper level, this is about far more than being able to take a Research and Development tax deduction. When we disincentivize research, we close the door on medical breakthroughs. The wide array of conditions successfully treated by medical marijuana is growing — from glaucoma and chemotherapy-induced nausea, to multiple sclerosis, chronic pain, and more. After years of delay — years that could have been avoided with better marijuana laws — research is finally being done into medical marijuana’s use as a potential treatment for PTSD, helping the brave men and women of our Armed Forces who brought too much of the war home with them. What other cures are out there, waiting to be unlocked? How many American lives could we save, if we simply started treating the marijuana industry and canna-businesses fairly? We can’t fully grasp the medical potential of cannabis without more research — let’s encourage research, not block it.

With tax reform one of the highest priorities of Congress, it’s time to remove 280E from the tax code. It’s time to stop punishing and hobbling this booming industry. It’s time for the government to stop picking winners and losers, and it’s time to let the cannabis industry grow and expand.

Matt Gaetz is Congressman for Florida’s First Congressional District, who has filed legislation to reschedule cannabis as a Schedule III substance.

Learn more about 280E

Topics: cannabis industry, commentary, Florida, irs, IRS code 280E, Matt Gaetz, rescheduling, research, Schedule I