Bipartisan STATES Act Would Exempt State-Legal Marijuana Markets From Controlled Substances Act

The bill would remove 280E burden from cannabis businesses.

Update: The STATES Act was introduced June 7.

U.S. Sens. Cory Gardner and Elizabeth Warren have said that they intend to introduce the STATES Act, which would echo Cole Memo policy and exempt state-legal regulated marijuana markets from the U.S. Controlled Substances Act. The announcement came after the highly publicized “deal” struck between the senator from Colorado and President Donald Trump. 

“Since the campaign, President Trump has consistently supported states’ rights to decide for themselves how best to approach marijuana,” Gardner said at the time. In return for relenting on his blockade of U.S. Department of Justice appointment confirmations, Gardner said, the president agreed to move forward a piece of cannabis legislation.

So far, it remains unclear when the bill will be filed. Cannabis industry observers and stakeholders are awaiting the next steps.

Rachel Gillette, a Colorado attorney specializing in cannabis law (and a partner at Greenspoon Marder LLP), says that the STATES Act, as it's been described to her, would bring far-reaching benefits to the financial framework of the fragmented cannabis industry. While a draft of the bill does not include any plan to remove cannabis from the list of controlled substances, a Cole Memo-like policy at the federal level would ease the financial restrictions on cannabis business owners and the nascent industry at large.

“As a result of this kind of legislation, it would fix a number of problems,” Gillette says, “including limited access to banking, as well as 280E, which is the provision of the tax code that says if you’re in the business of trafficking in a Schedule-I or Schedule-II substance that’s illegal under state or federal law, that your business is not entitled to ordinary business deductions. That’s a very punitive tax treatment from the federal government. In essence, it puts people out of business.”

Legislation like the STATES Act would take care of that issue, she says.

IRS Code 280E was passed in 1982 in response to cocaine trafficker Jeffrey Edmonson’s attempts to deduct business expenses from his drug-dealing operation. (Read more on how 280E creates “an impossible situation for legitimate businesses.”)

“It doesn’t make sense to apply such an archaic law to a regulated marijuana business,” Gillette says. “By applying 280E to regulated businesses in states like Colorado, it really punishes the businesses that are trying to play by the rules—while providing a subsidy to those individuals who continue to operate in the black market.”

NORML Political Director Justin Strekal agrees, as he explained in an interview with Westword.

The wave of legalization in the U.S. has brought drug-related law enforcement to an intersection with job growth and tax revenue. The STATES Act takes a small-business approach to the ongoing debate over legalization; rather than confronting the merits of legalizing cannabis, this bill merely makes those successful and active businesses economically viable.

“We’re seeing legislators on both sides of the aisle recognizing that there needs to be a change at the federal level,” Gillette says, citing states that have legalized adult-use, medical marijuana and industrial hemp programs. “This is toothpaste that’s not going back in the tube, a horse that’s not going back in the barn.

“We really do need to see the federal government, in essence, get out of the way of states that are experimenting in the laboratory of democracy with regard to these types of cannabis law reforms.”

Top photo courtesy of Adobe Stock

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