JEFFERSON CITY, Mo. (July 21, 2021) – Missouri Gov. Mike Parson vetoed a bill that would eliminate the state’s conformity with Internal Revenue Code (IRC) Section 280E. The enactment of this law would have implemented a small but important state tax relief measure for medical marijuana businesses.
Federal tax Section 280E forbids businesses from deducting otherwise ordinary business expenses from gross income associated with the “trafficking” of Schedule I or II substances, as defined by the Controlled Substances Act. The IRS applies Section 280E to state-legal cannabis businesses. That means that marijuana growers, processors and sellers are unable to deduct expenses from their taxes that businesses in other sectors can write off. The only deductions that cannabis businesses can take are the costs of goods sold.
Missouri policy currently reflects this federal approach.
Sen. Andrew Koenig (R-St. Louis) introduced Senate Bill 226 (SB226) in January to make several changes in the state tax code. Under one provision in the proposed law, licensed state cannabis firms would be allowed to take deductions on their Missouri taxes, just like any other business. Missouri Medical Cannabis Trade Association executive director Andrew Mullins told Marijuana Moment the bill would simply “put medical cannabis businesses on a level playing field with all other small businesses across the state when it comes to taxes.”
The enactment of SB226 would have removed a barrier facing Missourians who want to start marijuana businesses in the state by lowering their tax burden. This would further incentivize the market and allow it to expand despite continued federal prohibition efforts.
Different versions of the bill were passed in the House and Senate. A conference committee hammered out a compromise that was approved on May 14. It went to Parson’s desk on May 25. On July 9, the Republican governor vetoed the bill.
Parson didn’t mention the marijuana provisions in his veto message. His veto revolved around tax relief provisions for businesses impacted by city-wide or county-wide public health restrictions. He said that the section’s “broad construction” would lead to several problems and create “significant unintended consequences that could greatly harm localities.”
Parson said he supported several provisions in the bill, including a sales tax exemption for some cancer treatment devices, changes to aircraft property taxation, and changes in sales tax remittance filing periods. He did not mention support for the provisions relating to cannabis.
EFFECT ON FEDERAL PROHIBITION
The fact that Missouri has a medical marijuana program in the first place flies in the face of federal cannabis prohibition.
Under the federal Controlled Substances Act (CSA) passed in 1970, the federal government maintains complete prohibition of marijuana. Of course, the federal government lacks any constitutional authority to ban or regulate cannabis within the borders of a state, despite the opinion of the politically connected lawyers on the Supreme Court. If you doubt this, ask yourself why it took a constitutional amendment to institute federal alcohol prohibition.
The legalization of medical marijuana in Missouri removed a layer of laws prohibiting the possession and use of marijuana, but federal prohibition remains in effect. This is significant because FBI statistics show that law enforcement makes approximately 99 of 100 marijuana arrests under state, not federal law. When states stop enforcing marijuana laws, they sweep away most of the basis for 99 percent of marijuana arrests.
Furthermore, figures indicate it would take 40 percent of the DEA’s yearly budget just to investigate and raid all of the dispensaries in Los Angeles – a single city in a single state. That doesn’t include the cost of prosecution. The lesson? The feds lack the resources to enforce marijuana prohibition without state assistance.
A GROWING MOVEMENT
Colorado, Washington state, Oregon and Alaska were the first states to legalize recreational cannabis, and California, Nevada, Maine and Massachusetts joined them after ballot initiatives in favor of legalization passed in November 2016. Michigan followed suit when voters legalized cannabis for general use in 2018. Vermont became the first state to legalize marijuana through a legislative act in 2018. Illinois followed suit in 2019. New Jersey, Montana and Arizona all legalized recreational marijuana through ballot measures in the 2020 election. Earlier this year, New York, New Mexico, Virginia and Connecticut legalized marijuana through legislative action.
With 36 states allowing cannabis for medical use, and 18 legalizing for adult recreational use, the feds find themselves in a position where they simply can’t enforce prohibition anymore.
The lesson here is pretty straightforward. When enough people say, ‘No!’ to the federal government, and enough states pass laws backing those people up, there’s not much the feds can do to shove their so-called laws, regulations, or mandates down our throats.
The passage of SB226 demonstrates another important strategic reality, Parson’s veto notwithstanding. Once a state legalizes marijuana – even if only in a very limited way – the law tends to eventually expand. As the state tears down some barriers, markets develop and demand expands. That creates pressure to further relax state law. These new laws represent a further erosion of unconstitutional federal marijuana prohibition.
