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U.S. Tax Court Rejects Cannabis Businesses, but Bankers Want in on Legal Weed

As financial institutions pressure lawmakers to allow state-legal canna-businesses access to banking services, a new judicial ruling complicates the industry’s cash issues even further.

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Photo via iStock/ liorpt

The fight for cannabis legalization in America is gaining new ground every day. At the local, state, and even national level, the U.S. is soaked in green rush growth and medical marijuana advancements. But in the financial sphere, strict adherence to federal regulations and a long-standing stigma have continually prevented any significant progress on the problems of marijuana-related banking and taxation.

Complicating those issues even further, a ruling from a U.S. tax court judge released this week will make it more difficult for legal weed businesses to square up with Uncle Sam come tax season.

According to Marijuana Business Daily, Judge Richard Morrison ruled against now-closed Colorado medical marijuana dispensary Altermeds after the pot shop owners had attempted to file standard business tax deductions on the non-cannabis products that they sold, namely rolling papers, pipes, and other smoking accessories.

Tax officials have long denied deductions from cannabis businesses under Code 280E, which restricts any illegal business from writing off standard expenses in tax filings. Altermeds’ owners argued that pipes were not included under the definition of illicit items covered in 280E, but Judge Morrison disagreed, writing in his decision that he considered paraphernalia as part of the marijuana business.

For state-legal weed businesses around the country, the deduction denial is yet another strain on an already tenuous relationship with finances and banking. Despite repeated efforts from cannabis advocates and lawmakers, federal law restricts banking institutions from working with marijuana businesses, leaving growers and dispensary owners around the country counting their payroll, taxes, and profits in cash.

Just last week, the House Appropriations Committee rejected an amendment to the 2019 budget that would have allowed banks to work with weed companies without worrying about losing federal insurance. But while U.S. judges and legislators have been slow to act on securing financial stability for state-legal ganjapreneurs, banking professionals have begun to see the light.

According to MJBizDaily, a number of influential finance industry lobbying groups, including the Independent Community Bankers of America and the American Bankers Association, have lent official support to cannabis finance reform. With millions upon millions of dollars in assets currently locked out of federally-insured institutions, bankers are beginning to see the huge potential profits behind legal pot.

Back in Colorado, however, the former owners of Altermeds will now have to cough up nearly $470,000 in back taxes and penalties.

As the proliferation of marijuana reform laws continues to spark the creation of new cannabis businesses across the country, reconciling the costly differences between state law and federal financial regulations will be instrumental in bringing the once-controversial plant fully into the American mainstream.