US Government Avoids Marijuana Legalization Because It’s Earning More Money Under Prohibition

There's still not enough support to legalize marijuana across the nation.

US Government Avoids Marijuana Legalization Because Its Earning More Money Under Prohibition
Photo by Carol M. Highsmith's America, Library of Congress collection via rawpixel.com

Now that nine states have legalized marijuana for recreational use, with others, like New York, expected to follow suit in the next legislative session, it seems like it would be more of a hassle these days for the U.S. government to maintain its prohibitionary standard. Depending on who you ask, more members of Congress than ever before are excited about the possibility of legalizing marijuana at the nation level, but the fact remains there still is not enough support in either chamber to put pot in the ranks of legitimate commerce in a manner similar to alcohol and tobacco. But more than 60 percent of the population supports this reform. So, what is the real hold up? According to a recent report from Motley Fool, it could be because Uncle Sam is earning more money with marijuana being illegal than it would under a taxed and regulated system.

Sure, there are countless conspiracy theories to explain why the federal government still refuses to legalize marijuana at the national level. Some believe that the alcohol, tobacco and pharmaceutical companies are paying off the lawmakers on Capitol Hill to prevent the herb from being pulled from the black market. While this may have been true in the past, it seems unlikely that such underhanded dealings are happening now, as large corporations connected to these sectors are presently investing in the cannabis trade. Constellation Brands, maker of Corona; Molson Coors; Imperial Brands, the company behind the Kool and Winston cigarette brand; and GW Pharmaceuticals, creators of the first-ever FDA-approved cannabis medicine, are all getting into the ganja game.

Others believe the federal government is simply looking out for our best interest,  that it’s worried that marijuana legalization will lead to increased crime, higher addiction rates and more hazardous roadways as a result of stoned driving. And there is also the issue of us still not fully understanding the pros and cons of the cannabis plant, so government health officials worry that allowing adults to consume marijuana freely might lead to a nation of mental defectives. These are just some of the excuses that lawmakers on the Hill often give to get out of supporting marijuana legalization.

But Uncle Sam and all of his suits and cronies are doing nothing to get to the bottom of any of it.

The real reason Congress isn’t budging on marijuana could have more to do with a section of the U.S. tax code (280E) that continues to rake marijuana businesses over the coals. Highly profitable cannabis operations are being forced to pay well over half their earnings to the Internal Revenue Service (IRS). If they don’t, they can be shut down and even prosecuted.

“With the exception of cost of goods, which typically represents a small percentage of expenses, [marijuana] businesses are unable to take any additional deductions,” wrote MF journalist Sean Williams. “If profitable, this can lead to an effective tax rate perhaps as high as 70% to 90%! Expansion at the state level with effective tax rates this high could provide the federal government with more annual tax revenue than if the drug were legalized and taxed at a lower rate.”

There have been amendments introduced in the past aimed at allowing state complainant cannabis businesses to take normal deductions. But these efforts have been rejected.

“It’s all about the money,” Williams wrote. “While I certainly can’t prove that this is the big sticking point on Capitol Hill, it’s likely to be a difficult hurdle for the industry to overcome.”

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