How Congress Could Help Pot Sellers Build Their Small Businesses

Current tax code, lack of access to bank accounts, hurt marijuana sellers.

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Democrats in Congress are hoping to ease the burden on small businesses this year, but two bills they have in mind would help a controversial clientele — pot sellers.

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Weed is a tricky business to begin with, but now that residents in Colorado and Washington have voted to legalize toking up for fun, small business owners say navigating around federal laws has made it all but impossible to set up shop.

Because possessing, using, growing and selling marijuana is still prohibited under federal law, dispensary owners in the 21 states that allow medicinal marijuana and the two states that approved it for recreational use, are in a pickle.

Two federal laws in particular are wearing on pot business owners around the country.

The first is that legal marijuana dispensary owners are currently barred from getting the tax breaks that other mom and pop shops can.

That, experts say, make it more difficult for these businesses to turn a profit and stay afloat.

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"Their profit margins are significantly impacted by this," says Tim Lynch, director of the CATO Institute's criminal justice program." Even though they are on equal footing with others in the marijuana business, it is more difficult for them to stay in business. They are trying to compete against black market rivals."

That is why Rep. Earl Blumenauer, D-Ore., introduced the Small Business Tax Equity Act Wednesday, which would revise a section of the tax code to make legitimate pot businesses eligible for the tax deductions other small businesses qualify for, such as payroll tax deductions or opportunity tax credits to hire veterans.

"Deal with the reality. Allow these people to practice business in a fair and equitable way," Blumenauer shouted at a press conference on Capitol Hill Wednesday.

Another bill lawmakers plan on introducing in the coming weeks would deal with a second problem marijuana business owners face. Many dispensaries have been forced to run all-cash businesses because under federal law, banks can be liable and be accused of committing a crime if they let pot-based businesses open an account without performing rigorous oversight.

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"We need to address the public safety, crime and lost tax revenue associated when these legal and regulated businesses are operating in a cash-only system," Rep. Ed Perlmutter, D-Colo., said. "We also need to provide financial institutions assurance that they can make their own business decisions without fear of regulatory penalties or criminal prosecution."

According to the National Cannabis Industry Association, forcing business owners to keep their profits in the shadows can lead to robberies and money laundering, not to mention it keeps tax dollars from flowing into the coffers of Uncle Sam.

While the legislation is similar to bills that died in committee in 2011, lawmakers say they are optimistic that changing opinions on marijuana —more than 52 percent of Americans endorse legalizing the drug— might change the conversation. They are also hoping they will be able to attach the legislation to more sweeping bills like tax reform and the farm bill that are expected to move through Congress later this year.

"There is an opportunity with lots of moving pieces in Congress. These are relatively minor technical adjustments and in times past, things like this would find their way to be part of larger pieces of legislation," Blumenauer said.

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But Stuart Taylor Jr., a legal expert at the Brookings Institute who follows marijuana legalization, says he does not believe it is possible for Congress to make such a bold policy maneuver this year.

"My general impression is that Congress is not likely to do anything to give a stamp of approval to states," says Taylor, arguing the issue is too politically potent for lawmakers still. "I think the politics is still pretty dangerous. Militant anti-drug types would denounce it. There is political cost."