By Josh Harkinson | Published in OCNorml
In February, 2009, the US Department of Justice announced that it would no longer raid medical marijuana dispensaries that abided by state laws, sparking a boom in quasi-legal cannabis investments that I detail today in “Joint Ventures” (my feature from the January/February print magazine that’s now online). Even so, the fast- growing grey-market in ganja could be about to get pruned. The Internal Revenue Service is reportedly auditing some of California’s largest and most reputable medical pot dispensaries, examining their compliance with an obscure section of tax law aimed at drug dealers. Dispensary owners say that the provision, if strictly applied, could effectively snuff out the nation’s burgeoning medical marijuana industry.
Enacted in 1982, the year that President Ronald Reagan declared a “War on Drugs,” section 280E of the federal tax code explicitly bans any tax deductions related to “trafficking in controlled substances.” Though 280E predated the legalization of medical marijuana in California and other states, it has remained “like a dagger held at the throat of every medical cannabis organization,” says Steve D’Angelo, the founder of Oakland’s Harborside Health Center, which recently underwent an audit by the IRS that targeted its compliance with the provision. “If 280E is applied literally and strictly, it has the potential to close down Harborside and every other medical cannabis dispensary.”
According to Americans for Safe Access, a nonprofit group that advocates on behalf of medical marijuana users and growers, the IRS has recently launched audits of several other large dispensaries in California based on 280E. (The IRS did not return a phone call last week). “I think it’s a new front [in the War on Drugs],” says Caren Woodson, the ASA’s director of government affairs. “We’re nervous that this is going to have a big effect.”