Marijuana profits up in smoke under IRS rules

November 05, 2014


Voters in Oregon, Alaska and Washington, D.C., legalized recreational marijuana Tuesday.

But without the support of the U.S. Congress, any of the new, voter-approved pot shops may not be able to survive a drug war-era tax code that already threatens many businesses in Colorado and Washington state.

Under this tax code the federal government stands to make more money from the sale of marijuana than those legally selling it. And that could be enough to shut down many shops.

“It’s almost like they want us to fail,” said Mitch Woolhiser, while walking through his store called Northern Lights Cannabis Co. in Edgewater, Colo. “Everything I do is aimed at keeping us in business because if I don’t, then (the feds) win. And I’m not going to let them win.”

Woolhiser believes the federal government is actively seeking to undermine his business.

“The problem is that we have passed laws that allowed these medical marijuana and recreational marijuana companies to do business,” said Mac Clouse, a University of Denver finance professor who studies the industry. “But we have all these other laws, tax laws, federal laws that make it incredibly difficult if not utterly impossible to survive.”

More states may legalize marijuana this year, but state laws don’t change federal laws.

And barring any changes from Congress, new cannabis businesses in those states, along with the established shops in Colorado and Washington state, face a large, and possibly ruinous, tax bill come April 15.