The cannabis industry paid $1.8 billion in overtaxes in 2022

According to cannabis research firm Whitney Economics, the cannabis industry paid over $1.8 billion in additional taxes in 2022 alone. And beware, spoilers: this article does not have a happy ending. Cision PR Newsletter reports that number is expected to increase to $2.1 billion in 2023.

As The High Times continues to write with deep frustration, the legal cannabis industry has largely failed to create an accessible business model. Mass exodus is occurring in California and other states as legal cannabis companies like Jerry Garcia’s heritage brand leave the state due to exorbitant taxes and red tape. Despite ongoing efforts to help communities hardest hit by the war on drugs enter the legal marketplace, if prominent brands can’t turn a profit, how are we supposed to survive the financial and mental turmoil that comes with… face jail time for a non-violent cannabis crime, start a new life? Should you make a decent living?

Why are cannabis company taxes so damn high? Don’t forget that your pretty pre-rolls and vegan edibles are still technically a Schedule I substance, meaning cannabis “has no current accepted medical use and high potential for abuse,” according to the Feds. This is scientifically inaccurate and regressive, not to mention hypocritical, given that there are currently medical marijuana programs in 38 states and Washington DC. The taxes imposed on people in the legal market show that legalization is not the utopia we had hoped for and that they could help the black market that continues to thrive. Overtaxing legal cannabis companies not only harms business owners, but also drives up prices, isolating potential customers.

Cannabis businesses are subject to federal tax rule 280E, which “penalizes dealers in Schedule I or II drugs by prohibiting the deduction of “ordinary and necessary” business expenses — such as bottom-line deductions — after gross receipts have been reduced by expenses. According to Bloomberg Tax, this results in.” essentially a federal income tax liability calculated on the basis of gross income, not net income.

Adding the stress of 280E on top of other hurdles in the cannabis business such as B. Difficulties in accessing banking services and regulations that impede any interstate trade make it impossible for many companies to make a profit in the legal cannabis business. Effective tax rates are often in excess of 70% for cannabis retailers.

As reported by the Cision PR newsletter, 24.4% of cannabis operators surveyed said they were profitable. And last year it’s only going to get worse; the figure was 42%. And while it’s tempting to blame the post-pandemic economy, other industries are actually thriving. US corporate earnings in 2022 posted the widest margins since the 1950s, according to Bloomberg.

As warned earlier in this article, don’t expect the legal market to break through and get better any time soon. Whitney Economics is releasing a survey later this month that suggests cannabis companies are just holding out and shouldn’t expect positive change anytime soon.

“The cannabis industry is in a state of extreme economic distress and the current regulatory and tax environment is unsustainable, even in the short term,” said Beau Whitney, chief economist at Whitney Economics, according to a press release. He adds that many state markets are “on the brink of systemic collapse.” The report suggests that tax reform is the only solution to the problem. With the right tax laws, the cannabis industry could bring in billions — and not just for the government to collect taxes. Whitney Economics predicts that with the right reform of 280E and cannabis policy, industrial employment will increase and economic activity will increase by $35.2 billion over ten years.

Reuters reports that three Senate Democrats introduced legislation in July 2022 to remove cannabis from the Controlled Substances Act, thereby removing Code Sec. 280E. The Cannabis Administration and Opportunity Act would impose a 25% peak excise tax on products sold by large cannabis companies. At the time of reporting it is still pending.