Tax Analysis of the MORE Act
Here’s a very good analysis of Rep. Nadler’s new version of the MORE Act from the Tax Foundation: Less Should be MORE with Federal Cannabis Taxation.
A five-percent excise tax to the Feds is a very small vigorish to pay in exchange for descheduling, legal banking, protection from RICO suits and prosecution, and especially the loss of 280E thereby allowing normal business tax deductions for Cannabis companies.
The net federal tax to a commercial marijuana company is substantially reduced by the MORE Act, even including the 5-8% federal excise tax.
Being able to deduct operating expenses could lower marijuana companies’ federal tax burden to 35% from 70%. Hopefully consumers will see some of that savings. The increase in ROI of that 5% is 35%, a seven-fold return. Homegrowers won’t be paying that tax, only commercial operators and imports (plus duty).
The social equity provisions stripped by Rep. Gaetz in the last version of the MORE Act, an attempt to compensate for the profoundly racist impact of marijuana prohibition the last 84 years, are back. The benefits are not race-specific, but defined more by marijuana criminal convictions and class.
Here’s an analysis of each state’s marijuana tax policy the from Tax Foundation.
Here’s my analysis of the current version of the MORE Act
Although we’ll never get “our” XXI Amendment, or “our” DSHEA, this preamble to the new MORE Act is a pretty good start:
“The Congress finds as follows:
(1) The communities that have been most harmed by cannabis prohibition are benefiting the least from the legal marijuana marketplace.
(2) A legacy of racial and ethnic injustices, compounded by the disproportionate collateral consequences of 80 years of cannabis prohibition enforcement, now limits participation in the industry.
(3) 37 States, the District of Columbia, Puerto Rico, Guam, and the U.S. Virgin Islands have 10 adopted laws allowing legal access to cannabis, and 15 States, the District of Columbia, the Commonwealth of the Northern Mariana Islands, and Guam have adopted laws legalizing cannabis for adult recreational use.
(4) A total of 47 States have reformed their laws pertaining to cannabis despite the Schedule I status of marijuana and its Federal criminalization.
(5) Legal cannabis sales totaled $20,000,000,000 in 2020 and are projected to reach $40,500,000,000 by 2025.
(6) According to the American Civil Liberties Union (ACLU), enforcing cannabis prohibition laws costs taxpayers approximately $3.6 billion a year.
(7) The continued enforcement of cannabis prohibition laws results in over 600,000 arrests annually, disproportionately impacting people of color who are almost 4 times more likely to be arrested for cannabis possession than their White counterparts, despite equal rates of use across populations.
(8) People of color have been historically targeted by discriminatory sentencing practices resulting in Black men receiving drug sentences that are 13.1 percent longer than sentences imposed for White men and Latinos being nearly 6.5 times more likely to receive a Federal sentence for cannabis possession than non-Hispanic Whites.
(9) In 2013, simple cannabis possession was the fourth most common cause of deportation for any offense and the most common cause of deportation for drug law violations.
(10) Fewer than one-fifth of cannabis business owners identify as minorities and only approximately 4 percent are black.
(11) Applicants for cannabis licenses are limited by numerous laws, regulations, and exorbitant permit applications, licensing fees, and costs in these States, which can require more than $700,000.
(12) Historically disproportionate arrest and conviction rates make it particularly difficult for people of color to enter the legal cannabis market-place, as most States bar these individuals from participating.
(13) Federal law severely limits access to loans and capital for cannabis businesses, disproportionately impacting minority small business owners.
(14) Some States and municipalities have taken proactive steps to mitigate inequalities in the legal cannabis marketplace and ensure equal participation in the industry.
10 SEC. 3. DECRIMINALIZATION OF CANNABIS.11 (a) CANNABIS REMOVED FROM SCHEDULE OF CONTROLLED SUBSTANCES.—” […]
What’s the 5-8% excise tax going to fund? This:
“PART OO—COMMUNITY REINVESTMENT GRANT PROGRAM
SEC. 3052. AUTHORIZATION.
(a) IN GENERAL.—The Director of the Cannabis Justice Office shall establish and carry out a grant program, known as the ‘Community Reinvestment Grant Program’, to provide eligible entities with funds to administer services for individuals adversely impacted by the War on Drugs, including—
(1) job training;
(2) reentry services;
(3) legal aid for civil and criminal cases, including expungement of cannabis convictions;
(4) literacy programs;
(5) youth recreation or mentoring programs; and
(6) health education programs.
(b) SUBSTANCE USE DISORDER SERVICES.—The Director, in consultation with the Secretary of Health and Human Services, shall provide eligible entities with funds to administer substance use disorder services for individuals adversely impacted by the War on Drugs or connect patients with substance use disorder services. Also eligible for such services are individuals who have been arrested for or convicted of the sale, possession, use, manufacture or cultivation of a controlled substance other than cannabis (except for a conviction involving distribution to a minor).”
In the last version of the MORE Act, Rep. Matt Gaetz (R-FL) gutted the following social equity provisions:
“SEC. 3053. FUNDING FROM OPPORTUNITY TRUST FUND.
The Director shall carry out the program under this part using funds made available under section 9512(c)(1)9 and (2) of the Internal Revenue Code.
SEC. 3054. DEFINITIONS.
In this part:
(1) The term ‘cannabis conviction’ means a conviction, or adjudication of juvenile delinquency, for a cannabis offense (as such term is defined in section 13 of the Marijuana Opportunity Reinvestment and Expungement Act of 2021).
(2) The term ‘eligible entity’ means a nonprofit organization, as defined in section 501(c)(3)19 of the Internal Revenue Code, that is representative of a community or a significant segment of a community with experience in providing relevant services to individuals adversely impacted by the War on Drugs in that community.
(3) The term ‘individuals adversely impacted by the War on Drugs’ has the meaning given that term in section 6 of the Marijuana Opportunity Reinvestment and Expungement Act of 2021.”
At the current estimate of $20 billion in states with regulated marijuana and assuming that the price holds firm despite massive savings in cost and risk, (and besides the $3.6 Billion in enforcement cost savings) that additional $1 billion the first year is going to:
“(1) 50 percent to the Attorney General to carry out section 3052(a) of part OO of the Omnibus Crime Control and Safe Streets Act of 1968.
[~$500 million, for job training, reentry services, legal aid for civil and criminal cases, including expungement of cannabis convictions, literacy programs, youth recreation or mentoring programs, and health education programs, see above]
(2) 10 percent to the Attorney General to carry out section 3052(b) of part OO of the Omnibus Crime Control and Safe Streets Act of 1968.
[~$100 million, for substance use disorder services (rehab), see above]
(3) 20 percent to the Administrator of the Small Business Administration to carry out section 6(b)(1) of the Marijuana Opportunity Reinvestment and Expungement Act of 2021.
[~$200 million, for SBA loans and technical assistance for individuals adversely impacted by the War on Drugs, “CANNABIS RESTORATIVE OPPORTUNITY PROGRAM”]
(4) 20 percent to the Administrator of the Small Business Administration to carry out section 6(b)(2) of the Marijuana Opportunity Reinvestment and Expungement Act of 2021.
[~$200 million, for SBA to use to provide any eligible State or locality funds to develop and implement equitable cannabis licensing programs that minimize barriers to cannabis licensing and employment for individuals adversely impacted by the War on Drugs, “EQUITABLE LICENSING GRANT PROGRAM”]
Ironically, once implemented marijuana entrepreneurs with pot-growing felonies will not only be allowed into marijuana programs, unlike in the hemp industry, but SBA will also give them money to do it. Yes, just like before the 2018 Farm Bill, adult-use marijuana will again be more legal to grow than hemp. Congress should take this opportunity to fix what it hath wrought for hemp in the 2018 Farm Bill, such as allowing drug felons and 1% max THC.
Congress recognizes how badly the states failed on social equity for those most impacted by marijuana laws, instead often rewarding the wrong people for the wrong reasons:
“(b) CANNABIS RESTORATIVE OPPORTUNITY PROGRAM; EQUITABLE LICENSING GRANT PROGRAM.
(1) CANNABIS RESTORATIVE OPPORTUNITY PROGRAM.—The Administrator of the Small Business Administration shall establish and carry out a program, to be known as the ‘‘Cannabis Restorative Opportunity Program’’, to provide loans and technical assistance under section 7(m) of the Small Business Act (15 U.S.C. 636(m)) to assist small business concerns owned and controlled by socially and economically disadvantaged individuals that operate in eligible States or localities.
(2) EQUITABLE LICENSING GRANT PROGRAM.— The Administrator of the Small Business Administration shall establish and carry out a grant program, to be known as the ‘‘Equitable Licensing Grant Program’’, to provide any eligible State or locality funds to develop and implement equitable cannabis licensing programs that minimize barriers to cannabis licensing and employment for individuals adversely impacted by the War on Drugs, provided that each grantee includes in its cannabis licensing program at least four of the following elements:
(A) A waiver of cannabis license applications fees for individuals who report an income below 250 percent of the Federal Poverty Level for at least 5 of the past 10 years and who are first-time applicants for a cannabis license.
(B) A prohibition on the denial of a cannabis license based on a conviction for a cannabis offense that took place prior to State legalization of cannabis or the date of enactment of this Act, as appropriate.
(C) A prohibition on restrictions for licensing relating to criminal convictions except with respect to a criminal conviction related to owning and operating a business.
(D) A prohibition on cannabis license holders engaging in suspicion less cannabis drug testing of their prospective or current employees, except with respect to drug testing for safety-sensitive positions required under part 40 of title 49, Code of Federal Regulations.
(E) The establishment of a cannabis licensing board that is reflective of the racial, ethnic, economic, and gender composition of the eligible State or locality, to serve as an oversight body of the equitable licensing program.”
Release and expunge, including juveniles:
“SEC. 10. RESENTENCING AND EXPUNGEMENT. (a) EXPUNGEMENT OF NON-VIOLENT FEDERAL CANNABIS OFFENSE CONVICTIONS FOR INDIVIDUALS NOT UNDER A CRIMINAL JUSTICE SENTENCE.
(1) IN GENERAL.—Not later than 1 year after the date of the enactment of this Act, each Federal district shall conduct a comprehensive review and issue an order expunging each conviction or adjudication of juvenile delinquency for a non-violent Federal cannabis offense entered by each Federal court in the district before the date of enactment of this Act and on or after May 1, 1971. Each Federal court shall also issue an order expunging any arrests associated with each expunged conviction or adjudication of juvenile delinquency.
(2) NOTIFICATION.—To the extent practicable, each Federal district shall notify each individual whose arrest, conviction, or adjudication of delinquency has been expunged pursuant to this subsection that their arrest, conviction, or adjudication of juvenile delinquency has been expunged, and the effect of such expungement.
(3) RIGHT TO PETITION COURT FOR EXPUNGEMENT.—At any point after the date of enactment of this Act, any individual with a prior conviction or adjudication of juvenile delinquency for a non-violent Federal cannabis offense, who is not under a criminal justice sentence, may file a motion for expungement. If the expungement of such a conviction or adjudication of juvenile delinquency is required pursuant to this Act, the court shall expunge the conviction or adjudication, and any associated arrests. If the individual is indigent, counsel shall be appointed to represent the individual in any proceedings under this subsection.
(4) SEALED RECORD.—The court shall seal all records related to a conviction or adjudication of juvenile delinquency that has been expunged under this subsection. Such records may only be made available by further order of the court.
(b) SENTENCING REVIEW FOR INDIVIDUALS UNDER A CRIMINAL JUSTICE SENTENCE.
(1) IN GENERAL.—For any individual who is under a criminal justice sentence for a non-violent Federal cannabis offense, the court that imposed the sentence shall, on motion of the individual, the Director of the Bureau of Prisons, the attorney for the Government, or the court, conduct a sentencing review hearing. If the individual is indigent, counsel shall be appointed to represent the individual in any sentencing review proceedings under this subsection.”
“(c) EFFECT OF EXPUNGEMENT.—An individual who has had an arrest, a conviction, or juvenile delinquency adjudication expunged under this section— (1) may treat the arrest, conviction, or adjudication as if it never occurred; and (2) shall be immune from any civil or criminal penalties related to perjury, false swearing, or false statements, for a failure to disclose such arrest, conviction, or adjudication.”
It would be great if the above could be done even posthumously, so families can clear the name of a dead relative.
Even those ashamed of using a specific Mexican term in use since the 1850s over a general European one get a bone tossed their way, handing long-dead Harry Anslinger a linguistic win:
“SEC. 11. REFERENCES IN EXISTING LAW TO MARIJUANA OR MARIHUANA.
Wherever, in the statutes of the United States or in the rulings, regulations, or interpretations of various administrative bureaus and agencies of the United States—(1) there appears or may appear the term ‘‘marihuana’’ or ‘‘marijuana’’, that term shall be struck and the term ‘‘cannabis’’ shall be inserted; and
(2) there appears or may appear the term ‘‘Marihuana’’ or ‘‘Marijuana’’, that term shall be struck and the term ‘‘Cannabis’’ shall be inserted.”
All in all, it’s damn fine bill worthy of our support. Especially after 84 years of a racist unconstitutional law with a devastating impact on society. No ethical commercial grower should oppose this over 5% excise tax when they get so much more in return.