Archive for September 27th, 2012

There are three things you’ll find in almost annoying abudance in every mountain town: soul patches on the men, dreadlocks on the women, and weed. Lots and lots of weed.

In Colorado, however, you can’t limit the love of marijuana to the denizens of its ski towns. To wit: in Denver — where medical marijuana has been legal since 2000 — there are more dispensaries within the city limits than there are Starbucks in the entire state.

Now, with state tax revenues lagging and criminal justice costs rising, Colorado is turning to an unlikely, albeit logical, solution to its woes: weed for all.

This November, residents of Colorado will vote on Amendment 64, which would legalize and regulate marijuana sales just as it’s done for booze and cigarettes. The goal, quite obviously, is to raise tax revenue. Just how much tax revenue is anyone’s guess:

State analysts project somewhere between $5 million and $22 million a year. An economist whose study was funded by a pro-pot group projects a $60 million boost by 2017.

The cause of the confusion, of course, is because buying recreational marijuana is currently illegal, nobody can be certain what the market for legal weed will be. Muddling matters further, there is no guarantee that those currently buying illegal marijuana would shift their loyalties to legalized outlets. After all, if I learned nothing else from the film “Pineapple Express” — and I didn’t — it’s that the pot smoker-drug dealer bond is a strong one forged through loyalty, trust and PlayStation, and is unlikely to be cast aside so capriciously.

Should the legislation pass — and right now, it looks possible but not likely — it will be fascinating to sit back and watch the state-wide elation greeting free-market marijuana be quickly destroyed by the heavy hand of the IRS. As we’ve discussed before, the Service has used a little known Code section, Section 280E to be specific, to deny all of the tax deductions related to medicinal marijuana dispensaries, effectively taxing the business on 100% of their revenues.

The same section would apply equally to legal recreational sales, because marijuana will remain on the federal controlled substance list, and thus the IRS would be able to wield Section 280E to deny any and all deductions related to “trafficking” in the drug. With a string of recent successes in the Tax Court featuring medicinal dispensaries, the IRS would have a strengthened resolve to pursue recreational sellers of the drug, and likely tax them out of existence.

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