phoenixnewtimes.com PHOENIX NEW TIMES MAY 19TH– MAY 25TH, 2022 State Licensed Dispensaries & Doctor Certifications | CANNABIS | Gap from p 39 California first legalized medicinal mari- juana in 1996, 37 states as well as the District of Columbia, Puerto Rico, Guam and the U.S. Virgin Islands, have regulated cannabis as medicine. Since November 2012, when voter approval in Colorado and Washington made them the first states to “legalize, regulate, and tax marijuana for recreational use,” 18 states, D.C., Guam and the Northern Mariana Islands have legalized adult-use, recreational pot. But as the federal prohibition is still the overarching law of the land, interstate commerce is banned, so each cannabis busi- ness must create its own self-contained supply chain and distribution network. This causes limited access to traditional banking services and leads to additional taxes and expenses that in many ways stigmatize the legal cannabis industry. Still, cannabis tax revenues have become a juggernaut that continues to expand as more states legalize and tax the product. According to the CRS report, citing information from the Institute on Taxation and Economic Policy, excise tax revenues on recreational sales nationwide surpassed $1 billion in 2018, and that does not include other localized taxes at various points along the supply chain. Since then, a number of states, including Arizona, have legalized recreational adult use. Several states that have legalized, such as Vermont, do not yet have a regulatory system for production or retail in place. When that happens, it will increase the amount of taxes collected. Other states, such as South Dakota, have voter- approved legalization bills hung up in the courts as prohibitionists attempt to halt the progress of legalization. Then there are the “hidden taxes” cannabis business owners have to deal with. ADA’s Richard highlighted a January report from Whitney Economics, a data analysis firm that specializes in the cannabis industry. Whitney highlighted policies, both explicit and implicit, that hamper business. Whitney found that only 42 percent of 396 respondents in 20 states are turning a profit. Women and people of color are bearing the brunt of that, with 62.5 percent of female-run businesses and 67.8 percent of businesses owned by people of color not turning a profit. The report cited limited access to banking and other financial services as the top reason for financial losses, but taxation and competition with “illicit” markets have contributed as well. “The reality is that a lot happens between the top line of a cannabis operation and the bottom line of a cannabis opera- tion,” Richard said. “Just because you have revenues of $1 million or $2 million a month, it does not mean that you are cashing checks for $750,000 a month. This is really, really hard work and part of the reason why it’s hard is that there is what we call the ‘cannabis tax’ for everything.” Richard pointed out that, due to the perception of cannabis as a “high risk” busi- ness, commercial real estate owners can easily double the amount charged for leasing space to marijuana businesses. Additionally, cannabis businesses have a special tax code, which does not allow them to deduct expenses that more traditional business owners take for granted. “Despite the fact that we are a legal and regulated program in 37 states, the federal government still treats us like criminals,” he said. “There are publicly traded corpora- tions with billion dollar market caps that have effective tax rates of 60 percent to 70 percent, while companies like GE, or [others], paid $0 in federal taxes last year.” Cannabis Use and Enforcement According to CRS, marijuana is the most used illicit drug in the U.S. In 2020, an esti- mated 32.8 million individuals over the age of 12 used marijuana within the previous month of its study. Since 2012, as more states legalized recreational use, adult use has increased from 6.3 percent in 2008 to 12.4 percent in 2020. But use among youths aged 12 to 17 has fluctuated between a high of 7.4 percent in 2019 and a low of 5.9 percent in 2020. “A 2019 review of existing research on the impact of marijuana legalization that revealed medical marijuana laws increase adult but not adolescent use is consistent with this view,” the report states. CRS further states that several studies found that more liberalized cannabis laws have not led to an increase in youth use, but rather may be contributing to a reduction. Legalization is also expected to lower marijuana-related arrests and expungement of records. That could lead to reduced spending for law enforcement as well as fewer low-level drug offenses in prison populations across the nation. Focusing on trends in Washington and Colorado, the states that have the most data, CRS noted that the state of Washington has seen a 65 percent drop in possession and consumption arrests since 2012, although there was a slight uptick in 2016 and 2017 before decreasing again in 2018. In Colorado, marijuana arrests decreased by 68 percent from 2012 to 2019, with the most common charge being possession under the age of 21. While most federal enforcement has become focused on large-scale criminal enterprises and reining in the black market, the federal ban can also have an effect on citizens trying to clear cannabis-related arrests from their records. According to Randal McDonald, super- vising attorney at the Post-Conviction Clinic at Arizona State University’s Sandra Day O’Connor College of Law, having a cannabis conviction can exacerbate punish- ment for other non-related charges and cause legal headaches for people in the criminal justice system. “Folks can use marijuana now, but they have to know that it’s still federally illegal,” he said. “Using it, you’re still risking certain federal rights you might have, like the right to certain jobs, the right to federal benefits, housing and student loans. Just because it’s legal does not mean that if you test positive in some situation, you won’t be forfeiting some right.” As an example, McDonald referred to a case he is familiar with in which a certi- fied medical marijuana patient was arrested for unrelated charges. Because of cannabis use, though, the patient has suffered consequences from THC showing up in his system. Those consequences could lead to additional penalties, such as increased fines or incarceration time and trouble finding housing and employment in the future. “You can still be punished for it in certain contexts,” McDonald said. Possible Federal Actions In order to address the disparity between federal and state laws, the CRS presented four recommendations for the federal government to consider: • Take no action and allow the gap to widen as more states legalize in some form; • Strictly enforce the Controlled Substances Act, thereby rendering moot efforts on a state level; • Reschedule or de-schedule marijuana in the CSA, or; • Take “smaller steps to address the policy gap, such as continuing to include appropriations provisions that restrict the U.S. Justice Department’s ability to expend funds to enforce federal law.” Since 2014, Congress has included an appropriations rider that prohibits the DOJ from enforcing federal marijuana bans in some circumstances. The rider must be renewed each year though, leaving DOJ enforcement to the political winds of Congress. According to Paul Armentano, deputy director of the National Organization for the Reform of Marijuana Laws (NORML), the ban is not a fix and the only solution is to de-schedule marijuana from the CSA. “Keep in mind that spending appropria- tion has to be renewed every year,” he said. “So while that is the law now, it’s not some- thing that necessarily will be the >> p 43 41
