IRS Say's No Deductions for MMJ Collectives...

In a potentially crushing blow to the burgeoning medical marijuana industry, the IRS has ruled that MMJ dispensaries cannot deduct standard business expenses such as payroll, security or rent.

Harborside Health Center, one of the nation's largest medical marijuana dispensaries and considered a model for the industry, is on the hook for $2.5 million in taxes from 2007 and 2008. That is $2 million more than the Oakland, Calif.-based company paid for those tax years.

“I see only two outcomes here,” said Steve DeAngelo, director and chief executive of Harborside. “Either this IRS assessment has to change or we go out of business. There really isn’t a middle ground for us.”

DeAngelo says the ruling will likely be appealed. He has 90 days to respond to the ruling.

The IRS ruling is based on an obscure portion of the tax code -- section 280E -- passed into law by Congress in 1982, at the height of Reagan administration’s “war on drugs.” The law, originally targeted at drug kingpins and cartels, bans any tax deductions related to "trafficking in controlled substances."

Although 16 states and the District of Columbia have passed laws allowing medical use of marijuana, the federal government still considers it a Schedule I drug, the most restrictive category with the harshest penalties.

The Internal Revenue Service refused to comment on the specific case, but letters sent from Andrew Keyso, IRS deputy associate chief counsel, to some members of Congress spell out the official position:

“Section 280E of the Code disallows deductions incurred in the trade or business of trafficking in controlled substances that federal law or the law of any state in which the taxpayer conducts the business prohibits. For this purpose, the term “controlled substances” has the meaning provided in the Controlled Substances Act. Marijuana falls within the Controlled Substances Act.”

The news has spread rapidly through the cannabis community and is likely to have a chilling effect on businesses.

“We are all a bit nervous and frustrated,” said Ken Estes, owner of Patient To Patient Group Collective in San Jose, Calif. “We have tried to comply with every city, state and federal law. We ask for input from all the agencies. But we are still being punished for operating a legitimate business.”

Harborside, which celebrated its fifth anniversary Monday, serves 94,000 patients with 84 full-time employees and brings in about $22 million in annual revenue. According to DeAngelo, the center, set up as a not-for-profit business, pays about $1.1 million in taxes to the city of Oakland, $2 million to the state of California and $500,000 to the federal government.

“We have no complaint about the taxes we pay," DeAngelo said. "We are doing our part. All we ask is that we be treated like any other business enterprise. To treat us like criminals makes is simply wrong. Drug kingpins and cartels don’t file taxes. We do. But no business, including ours, can survive if it is taxed on its gross revenue. The IRS is trying to tax us out of existence.”

Keith Stroup, legal counsel and founder of NORML, the nation’s largest marijuana advocacy group, says the IRS ruling is likely to stifle the quasi-legal industry and force people back onto the black market.

“You know, Al Capone was taken down by the IRS, not by the FBI or the police. And I can assure you that Steve DeAngelo is no Al Capone,” Stroup said.

Stroup believes the move also could make it more difficult for the medical marijuana industry to capture significant capital investment. Medical marijuana is now a $1.7 billion market, according to a report released this year by See Change Strategy, an independent financial analysis firm that specializes in new and unique markets. The figure represents estimated sales of marijuana through dispensaries in states with medical marijuana laws.

Although the IRS declined comment, Stoup says NORML has received e-mails from other dispensaries that are currently being audited and will likely receive similar rulings. “Harborside is one of the biggest, so that is why the IRS targeted them first,” Stroup said. “But there are other dispensaries that will suffer the same fate unless Congress acts.”

Some members of Congress have taken up the cause.
Reps. Pete Stark, D-Calif., Barney Frank, D-Mass., and Jared Polis, D-Colo., have introduced legislation to ensure the medical marijuana industry is treated like any other business.

Two Republican presidential candidates — Ron Paul and Gary Johnson — also support the legislation.

Stark’s bill, the Small Business Tax Equity Act, authorizes medical marijuana dispensaries to take the full range of business expense deductions.

“You’d think that a time of record budget deficits that the IRS would be happy that a legal business is doing the right thing and paying its taxes," Polis said. "Instead, the IRS seems intent on destroying a successful and legal business that creates jobs and strengthens our economy."

The confused legal situation is “an un-American loop of nonsense,” says Jerome Handley, a tax attorney in Oakland who has more than 100 clients in the medical marijuana industry. “My advice to my clients is simple: Document everything … and stay out of the spotlight.”

William Panzer, an Oakland tax attorney who helped author California’s medical marijuana law, Proposition 215, also successfully fought the IRS in a similar case in 2007.

In that case, U.S. Tax Court Judge David Laro declared that Californians Helping to Alleviate Medical Problems (CHAMP), a medical marijuana provider, could deduct the majority of employee costs as caregiving expenses. The IRS sought $426,000 in back taxes and penalties, but CHAMP ended up paying a tax assessment of less than $5,000.

“This law is not about protecting citizens from criminals. It is a concerted effort by the federal government to crack down on a legitimate business,” Panzer said.

DeAngelo points out the apparent craziness of the law. “The IRS allows me to deduct my cost of purchasing cannabis, which is the controlled substance they say is illegal. But I can’t deduct my payroll or my rent? That, clearly, defies logic and common sense.

"Besides," DeAngelo added, "have you ever heard of a drug trafficker that actually files a tax return? Me neither."

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Rhode Island Say's No to Medical Marijuana Patients!

State-run medical marijuana dispensaries will not be coming to Rhode Island after Governor Lincoln Chafee scrapped the plan for fear it was illegal under federal law.

Chafee, who had earlier vowed support for the measure, said he decided the state's planned dispensaries could violate superseding federal law and become a target of federal law enforcement efforts.

"Federal injunctions, seizures, forfeitures, arrests and prosecutions will only hurt the patients and caregivers that our law was designed to protect," the governor said in the statement late Thursday.

Before his reversal, Chafee had hoped to implement a 2009 law passed by Rhode Island's General Assembly allowing marijuana distribution through three state-run, so-called "compassion centers."

The measure authorized growing and selling [medical] marijuana to patients with debilitating illnesses, such as cancer, AIDS, and glaucoma.

Currently, 16 states and the District of Columbia allow for medical marijuana use.

One of them is Montana, where in March federal agents raided state-sanctioned medical marijuana greenhouses and dispensaries in several cities, prompting an outcry from legalized pot suppliers. The busts, the first since Montana legalized marijuana for medical purposes in 2004, appeared to mark a reversal of federal policy set in 2009 that tolerated state-approved dispensaries.

Threatening a similar crackdown in Rhode Island, both the U.S. Department of Justice and Rhode Island's U.S. Attorney, Peter Neronha, this year said commercial operations such as the state-run dispensaries would be potential targets of "vigorous" criminal and civil enforcement efforts by the federal government.

Dropping the dispensary plan means that patients in Rhode Island will have to continue to grow their own marijuana, buy the drug illegally from "street" dealers, or acquire it from over 2,500 licensed caregivers in the state. Many have said they would prefer to use dispensaries for a convenient, safe, regulated option for quality marijuana.

Medical marijuana advocates decried Chafee's decision.

"We are shocked, outraged and really hurt all at the same time," JoAnne Leppanen, executive director of Providence-based Rhode Island Patient Advocacy Coalition, told Reuters.

Keith Stroup, legal counsel with the National Organization for the Reform of Marijuana Laws, or NORML, a Washington, D.C.-based marijuana smoker's lobby, said his group was disappointed with Chafee's action.

"He's using the threat of federal enforcement somehow coming into the state as a justification to refuse to implement the medical marijuana dispensary provisions that previously have been approved," he said.

But long-time opponents including state Representative Doreen Costa cheered the plan's demise.

"I am very happy that he did that," said Costa, a Republican, who said some of her constituents did not want a dispensary in their district.

"Mainly the concern was, in the state of Rhode Island, marijuana is illegal, period. So if he wanted to open up the compassion centers, people would go buy the marijuana and I know they would be selling it on the street," Costa said.

(Source)

Certified Med's Vs."Fire" of unknown origin?

Fifteen years after medical marijuana was legalized in California, there are still few regulations governing safety standards. It has fallen to concerned people within the industry to take charge of their own health and safety certification. Santa Cruz Mountain Naturals, a medical cannabis collective in Aptos, CA, has chosen to undergo evaluation by the Clean Green Certified third-party medical marijuana inspection program for safety and legal compliance.

The Clean Green Certification Program, created by California medical cannabis compliance lawyer Chris Van Hook, is setting a new standard for medical cannabis quality control. The independent third-party verification program assures medical cannabis bearing its label is grown without harmful chemicals and fertilizers, and is compliant with strict quality control and legal practice standards from seed to final patient.

In order for collectives including Santa Cruz Mountain Naturals to get Clean Green Certified status, they must also be inspected for safety and cleanliness. They must assure their legal compliance with medical marijuana standards in California by having demonstrable policies in place for non-diversion of product into the illegal market. They must have a documented "closed loop" arrangement showing that their product is grown by members and distributed to members, and everyone involved has a current doctor's recommendation. Further, they are required to have a method of controlling access to the facility.

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Prez Mumbles, Fumbles and Punts Medical Cannabis Q:?

For all his Kennedy-esque "uhs" and "ahs," President Barack Obama... stuttering, not stentorian, when an audience member dished him a question on medical marijuana.


And it wasn't even particularly stressing. "If you can't legalize marijuana, why can't you just legalize medical marijuana?" asked a woman in Cannon Falls, Minnesota. That was the stumper after which Obama was literally left stammering.

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C.A.M.P. thugs pat themselves on their back…

If you are a Medical Marijuana patient on the Central Coast its been hard to watch, but it’s been a busy week for the Santa Cruz and Monterey county C.A.M.P. folks let’s take a t look at their work. “ A drug cartel marijuana grow worth on Hecker Pass about $5 million got the axe Wednesday when Santa Cruz County sheriff's deputies and state drug agents raided it, authorities reported.

The grow, on the 1000 block of Hecker Pass Road, was terraced across an acre and fenced off with mesh and netting, according to the Sheriff's Office.

Deputies found more than 5,000 cannabis plants in the garden. There also was a camp with shotgun rounds, rat poison, pesticides and other debris, the Sheriff's Office reported.”

Also on Wednesday morning, an armed group of 16 state thugs wearing military camouflage took part in the annihilation of four illegal cannabis agricultural sites in the foothills above Watsonville. Of the four two were inside Mt. Madonna County Park, while the other two grows were on private property that borders the park.

Authorities collected approximately 20,000 cannabis plants on Wednesday. Still green and attached to their root balls.... dirt and all, and pegged it with an estimated street value between $25 and $30 million. This is just a sad attempt to justify next year’s budget with bad data, if they trimmed all of that plant matter down, to just the smoke able flower after drying it, as all do... it would have been a fraction of that weight.

The goon squad was part of an entity known as "Campaign Against Marijuana Planting" or CAMP, a program that has been destroying both “illegal” marijuana camps and medical marijuana grows throughout California since 1983.

The grow sites were located with old-fashioned reconnaissance patrols that take place between January and June.
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Kern County Board of Cowards Bow To Ignorance!

Well the Kern County Board of Supervisors voted its conscience on Tuesday, passing an ordinance that will ban storefront medical marijuana collectives in unincorporated Kern County and outlaw the sale of edible marijuana products.

Now medical cannabis advocates will have their turn.

Attorneys for cooperatives have promised a two-pronged attack on the supervisors' ordinance.

They plan to file a lawsuit blocking its enactment. And they say they will also launch a referendum drive that could stop the ordinance in its tracks.

Kern County Elections Division Chief Karen Rhea said opponents of the ordinance to ban medical marijuana collectives would need to collect 17,350 signatures from registered Kern County voters before the ordinance goes into effect Sept. 8 to block enactment of the law.

If medical marijuana advocates succeed in collecting the signatures, Rhea said, the ordinance would be sent back to supervisors and -- if supervisors did not repeal it -- the question would proceed to an election at which voters could approve the ban or overturn it.

Deputy County Counsel Devin Brown said the medical marijuana ban law would remain off the books until the election is decided.

That is exactly what happened in Butte County.

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AZ. A.G. and the "Good Ol Boy's"... Do the Two step on your rights

Arizona Attorney General Tom Horne asked a court today to shut down medical cannabis clubs, claiming they're "blatantly illegal" under Arizona's medical marijuana law.

The motion, filed in Maricopa County Superior Court, names four clubs and an individual: "The 2811 Club, The Arizona Compassion Association, Yoki A Ma' Club, the Arizona Compassion Club and Michael R. Miller." Horne wants a judge's ruling that the clubs aren't legal and an injunction to stop them from the "selling, producing, transporting, transferring or possession of medical marijuana."

Horne was asked to look into the legality of clubs last month by Will Humble, director of the state Department of Health Services, who reportedly became concerned about the clubs after reading a New Times article.

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The “Letter of the law” Vs The state spirit of the laws:

The DEA's interpretation that cannabis has no presently acknowledged medical use and has a “high“ potential for misuse will probably be appealed through the courts. In the interim, mr. obama administration's position is not to obstruct medical marijuana growth and use that abide by the letter and spirit of state and local laws.

The problematic issues arise when the “letter” of the law is inconsistent with the essence. Various – certainly not all of the 16 state MMJ statutes (plus D.C.) make it easy for recreational users to obtain medical cannabis recommendations.

Whether those ambiguities came from good-faith, yet incompetent efforts to implement a responsible system, or whether they are deliberately exploitative of medical marijuana to achieve effective legalization, is up for us to guess and can only truly be known by those who wrote the laws. One thing seems painfully obvious, though … such laws frequently permit far more than the public realizes or the DOJ will stomach.

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Boulder Boots 1/3 MMJ Collectives..."High Standards"?

Boulder Co city officials have rejected more than 1/3 of the applications from people seeking to run medical marijuana dispensaries or growing operations in the city, slowing the pace of what once was seen as a Wild West-style rush for riches.

Ten months after the initial 119 business-license applications were turned in by Boulder's November deadline -- set when the City Council last year approved sweeping new regulations for the budding industry -- 40 medical marijuana companies have licenses to operate.

So far, 41 of those 119 applications, from existing businesses that had opened prior to adoption of the new rules, have been rejected for reasons that include zoning problems, incomplete paperwork and -- in about half of the cases -- the sometimes extensive criminal records of owners, operators and investors.

City officials say the vast majority of the 38 applications that remain in their queue have passed their initial background checks and are well on their way to being awarded business licenses.

As for those medical marijuana business owners who have been denied licenses, some have closed shop or moved to cities with less stringent rules. Some fired or bought out employees and partners with problematic pasts.

And many others are appealing the city's decisions -- a tactic that allows them to stay open and keep their fingers in Boulder's multimillion-dollar marijuana industry while they plot their next steps.

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