Bad News for Medical Marijuana

Yesterday the Associated Press reported that US Attorneys in California have sent letters ordering medical marijuana dispensaries to close. The problem is that while medical marijuana use in California is legal under state law, marijuana remains illegal under federal law.

Adding to the trouble is the results of an audit of a medical marijuana dispensary called Harborside in San Francisco. I’ve reported on the case before (most recently in March). It appears that Harborside received the results of its audit of 2007 and 2008 at the hands of the IRS: Send us $2.4 million and, oh yes, we’re auditing 2009 and 2010, too.

Under tax law, anyone who sells a Class I controlled substance cannot deduct business expenses. Effectively, you have a gross receipts income tax. And the law is on the IRS’s side here.

Harborside is appealing the results of the audit, and that appeal will likely not be heard until the end of this year or early next year. I expect the appeal to lose and the case to eventually go to Tax Court. Unfortunately for proponents of medical marijuana, the law is on the side of the IRS as are precedents.

Of course, one must wonder about the Obama Administration here. This is the same administration that publicly pronounced in its first year in office that they would not go after medical marijuana. Yeah, right.

Hat Tip: Taxdood

One Response to “Bad News for Medical Marijuana”

  1. […] I’ve reported on this issue before. In early 2011, I noted it would take a while for the cases to get to the Tax Court. In Janet Novack’s excellent summary of the situation, Ms. Novack notes that two dispensaries have filed Tax Court cases. They’ll likely be heard late this year, with decisions coming in 2013. […]