Pot is Illegal in Colorado! Well, Depending On Who You Ask

By September 19, 2014Thomas Law Firm

Some people will still say pot is illegal in Colorado. We say it depends on who you ask.

Most people are familiar with the fight between States and Federal Government that has been going on since the Federal Government was formed over who has the power to tell citizens what is legal and illegal. The 10th Amendment states “The powers not delegated to the United States by the Constitution, nor prohibited by it to the states, are reserved to the states respectively, or to the people. “ This amendment has helped shape the relationship of our Federal and State Governments, but has also been the source of conflict when discussing the legal pot markets in Colorado and Washington.

Ask the DEA about pot?

It’s illegal!  The Feds will reference The Controlled Substances Act (CSA) and point out that this act gives the Federal Government power to classify drugs under five categories that range from a schedule one substance – a drug with high potential for abuse and no accepted medical use in the United States, to a schedule five substance – a drug with low potential for abuse and has an accepted medical use in the United States.

Here are a few examples you might be familiar with:

Schedule I: Heroin, LSD, and Marijuana

Schedule II: Adderall, Hydrocodone, and OxyContin

Schedule IV: Ambien, Klonopin, and Xanax

There has been a long-running debate on this list about certain drugs being listed on certain schedules. Marijuana being listed as a Schedule I substance, means there is “no accepted medical use”. However, Colorado has been a medical marijuana state since 2001. Regardless of this law being approved by the voters of Colorado, the federal government still has the right to bust you for smoking a joint, in any state.

What happens to the money from legal marijuana sales?

Well, that’s hard to say. Most stays in cash.  The Bank Secrecy Act (BSA) is another road-block for banks and business owners working with any part of the cannabis industry. The BSA requires banks to report cash transactions over $10,000. There have been attempts to change this process through Congress and the House of Representatives but banks are unwilling to take on investments that can still be seized by federal agencies.

On the other side of this issue is the Internal Revenue Service (IRS). The IRS, a federal agency, has been collecting taxes from medical marijuana businesses, and now recreational pot sellers, in the form of “income tax” since the industry was started. IRS code states that “Income from illegal activities, such as money from dealing drugs, must be included in your income…” This means that pot shop owners have been admitting to illegal activity, if they have been paying federal taxes. This creates a conflict for many cannabis industry businesses because these shops are not allowed to deduct business expenses from their taxes, but are required to pay tax on the income.

The IRS is also feeling pressure from marijuana business that are forced to pay these taxes in cash, because banks refuse to work with them (see BSA above). Paying IRS taxes in cash is subject to a 10% fee because the money is not wire transferred – yes, you read that correctly. They are fined because they pay in cash.

It is time to have an open discussion on how to move the national cannabis industry to standard practices already in place for other industries like tobacco and alcohol. Forcing these businesses to transport and safe guard tens of thousands of dollars, IN CASH, and then penalize them for it, is risky and will likely contribute to illegal behavior.

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