Department of Justice Issues Warning Letters to Dispensaries: Close or Face Criminal Charges
Federal prosecutors served several medical marijuana dispensaries in California with warnings that if they did not cease operations within 45 days, they would face criminal charges and potential confiscation of their property. The feds are becoming increasingly intolerant of the California medical marijuana system, as I previously discussed here.
At least 12 dispensaries in San Diego alone have received notices by letter from the U.S. attorney, stating that among other things, ”Real and personal property involved in such operations are subject to seizure by and forfeiture to the United States … regardless of the purported purpose of the dispensary.”
Even though 16 states and the District of Columbia have approved medical marijuana laws, California seems to be the primary target of the recent federal crackdowns, perhaps because marijuana is the state’s $1 cash crop. The federal government retains the ability to enforce the federal laws because of the concept of preemption, meaning that any relevant federal laws in a certain area take precedence over state laws. This is because of the Supremacy Clause in the Constitution, which states that the U.S. Constitution, U.S. treaties, and federal laws are ” the supreme law of the land.”
IRS Ruling on Medical Marijuana
This comes on the heels of an IRS ruling regarding the inability of dispensaries to deduct ANY business expenses. The ruling is based on a 29-year-old provision of the tax code prohibiting any tax deductions related to “trafficking in controlled substances.” The provision was clearly intended for expenses related to drug cartels, drug kingpins and the like. What this means for run of the mill marijuana dispensaries is that any necessary and ordinary business expenses, such as rent, payroll, or security, for example, are not deductible. If the ruling is upheld, many dispensaries will be on the hook for millions of dollars in back taxes.
It will be interesting to see whether the federal government follows through with its threats, or if there will be changes in the relevant laws.
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