Harborside Health Center is nationally recognized as a leading example of a responsible cannabis business. In May 2016, the Department of Justice dropped a four year attempt to seize Harborside property after the city of Oakland rallied behind founder Steve DeAngelo and his hyper-successful retail operation.

Steve-DeAngelo-new-book-Cannabis-Manifesto

Beginning today, June 6th, lead Harborside attorney Henry Wykowski returns to the SF Federal Building court room to fight one of the most detrimental aspects prohibiting the success of legal cannabis: Internal Revenue Code 280E.

U.S. Code § 280E: “No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is conducted.”

The cannabis industry has been well aware of IRC 280E, and this week’s court battle aims to highlight how this particular tax code should not be applicable to legal cannabis businesses. IRC 280E has resulted in a back tax bill of $2.4 million for Harborside Health Center.

“Section 280E was passed during the height on the War on Drugs, many years before California and twenty-four other states legalized the use of medical cannabis,” said Henry Wykowski, lead attorney for Harborside Health Center. “It was meant to apply to drug dealers, not state-sanctioned cannabis dispensaries. Ignoring the intent of Congress, the IRS has chosen to apply 280E to legitimate cannabis businesses.”

Many experts believe that Wykowski’s plan is to attack the federal definition of cannabis companies. Currently, cannabis retailers are considered as “Drug Trafficking Organizations,” despite being providers of a state-approved controlled substance.

Henry Wykoski, Lead Attorney for Harborside Health Center

Henry Wykoski, Lead Attorney for Harborside Health Center

The Internal Revenue Service’s imposition of IRC 280E on cannabis businesses prohibits legal entities from writing off normal business expenses on their tax deductions. Cannabis Reports has previously detailed the ramifications of IRC 280E in a whitepaper discussion.

Ultimately, tax law is up to the discretion of Congress, and is not subject to enforcement exemptions. With IRC 280E, the intention of Congress is very clear: no tax exemptions for businesses working with Schedule I or II substances.

Steve DeAngelo, Harborside Health Center

At this point, it seems that Congress must re-legislate a cannabis exception to 280E, or the DEA must re-schedule cannabis to Schedule III so that 280E no longer applies.

Congress has certainly approved scheduling exceptions in the past, most notably with tobacco and alcohol, which kill a combined 558,000 people a year according to the Center for Disease Control and National Institute of Health .[1][2]

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Cannabis has never been ruled as a direct cause of death in the history of modern medicine, yet remains listed as a Schedule I drug with no “proven” medical efficacy and a high risk for addiction.

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[1] Center for Disease Control and Prevention. Feb 2016 Infographic: http://www.cdc.gov/tobacco/data_statistics/fact_sheets/health_effects/tobacco_related_mortality

[2] NIH: National Institute on Alcohol Abuse and Alcoholism. Jan 2016 Statistics: https://www.niaaa.nih.gov/alcohol-health/overview-alcohol-consumption/alcohol-facts-and-statistics