Newswise – After passing new legislation in April allowing banks to provide services to cannabis companies in states where the drug is legal, the U.S. House of Representatives has signaled it may be high time to remove business barriers for the cannabis industry.
The bill, dubbed the SAFE Banking Act, comes after a major lobbying effort by the American Bankers Association, and is still making headway in the Senate.
Carissa Cartalemi, owner and operator of Star buds Medical Marijuana Dispensary in Baltimore says the bill is a step in the right direction, addressing some of the obstacles facing dispensaries like his. But there is a long way to go.
“Because medical cannabis is still federally illegal, we weren’t able to use credit and debit card processors, online ordering, or many of the financial services that most businesses take for granted,” says Cartalemi, who, along with partners Megan Rogers and Vincent Lidie, opened Star Buds in 2018.
Raising capital to start the business was also a challenge, she says. It was not possible to get a traditional business loan from a bank. Instead, she worked with a consultant to find a private equity investor who would take on cannabis businesses, she says.
“There are additional hurdles for us in terms of funding because cannabis is still illegal at the federal level,” Cartalemi says. “We are forced to start and be creative every day in how we conduct our business.
CPA and lecturer in accounting Samuel Handwerger at the University of Maryland’s Robert H. Smith School of Business, says its cannabis industry clients have made do with it, using credit unions for banking and raising capital through credit unions. private investors.
While the latest bill offers cannabis businesses a financial reprieve, Handwerger says it doesn’t address the biggest problem plaguing them — the Section 280E tax code, which prevents businesses from deducting expenses. conventional commercial gross income associated with “trafficking” Schedule I or II substances, as defined by the Controlled Substances Act.
“The industry needs this to change because otherwise the cost of buying legal cannabis will forever be higher than it should be as these companies absorb the tax through their profits,” he says. . “The bottom line is that they have to charge accordingly in order to be able to generate an adequate profit at the end of the day for these investors, so it’s really unfair to the whole market.”
That’s not an unrealistic goal, Handwerger says, especially given the growing public support in recent years for decriminalized or legal marijuana.
In one 2020 survey led by Gallup, 68% of Americans supported the idea of legalizing marijuana, up from 12% in 1969. Thirty-six states have legalized medical cannabis and 17 states now allow adult recreational use, according to the National Conference of State Legislatures.
Whether a state-by-state approach or sweeping federal legislation offers the best path to repealing Section 280E remains to be seen. States can take the matter into their own hands and ease the burdens imposed by the tax, Handwerger says, but that’s only for the state tax at a rate that’s typically only a fraction of the federal tax burden.
Handwerger says that since “most states define taxable income using the federal code, you’ll solve the whole puzzle by asking Congress to change the tax code.” Activists will get more bang for their buck by focusing their efforts at the federal level, getting to the root of the problem, he says.
Cartalemi agrees and says recent banking reform, coupled with increased scrutiny of tax laws, can help improve public perception and gain greater national support for the cannabis industry.
“I think federal law — it guides everything, including people’s opinions,” Cartalemi says. “We need to pass this legislation at the federal level so everyone can see that our business should be treated like any other business.”