© Ganjapreneur 

Over a decade ago, states like California and Colorado embarked on a new revenue journey by regulating medical and adult-use cannabis sales. These pioneering states demonstrated how cannabis regulation could generate significant tax revenue while creating legitimate business opportunities. The cannabis industry quickly became a reliable source of state funding, with Colorado alone collecting over $387 million in taxes and fees in 2020 (Colorado Department of Revenue, 2021).

During the COVID-19 pandemic, as state budgets were devastated by economic shutdowns, many jurisdictions looked to cannabis as a fiscal lifeline. Regulating increased as states sought to fill decimated coffers, recognizing cannabis businesses as “essential” while simultaneously viewing them as convenient tax targets. This dichotomy revealed the uncomfortable relationship between governments and the cannabis industry, valued for revenue but still stigmatized in policy.

Paying More, Receiving Less

© MAPC

The inequality facing cannabis businesses is perhaps most starkly illustrated by Section 280E of the Internal Revenue Code. In 2022, cannabis businesses paid approximately $1.8 billion more in federal taxes compared to similarly-sized businesses in other industries due to this provision (PR Newswire, 2023). This tax code, originally designed to prevent drug traffickers from claiming business deductions, now penalizes legitimate, state-licensed enterprises.

Yet despite contributing disproportionately to government coffers, these same businesses are systematically denied access to standard services and allowances available to other industries. Cannabis entrepreneurs cannot access traditional banking services, obtain Small Business Administration loans, or claim standard business deductions. They are, quite literally, paying more and receiving less, contributing to tax revenue while being treated as second-class businesses.

Cultural Appropriation in Policy

© MCBA

The relationship between government and cannabis mirrors a long-standing pattern in American history: the willingness to extract value from marginalized communities while refusing to acknowledge harm or extend equal treatment. Just as rhythm and blues music was often appropriated without crediting or fairly compensating Black creators, cannabis culture is being monetized by governments without addressing the criminalization harm that requires repair.

Every time cannabis businesses turn around, there’s another debate or fight against increasing taxes. Local municipalities, states, and special districts all view cannabis as an easy target for additional revenue, often without consideration for the industry’s already precarious financial position. These tax burdens are inevitably pushed onto consumers because businesses, operating on thin margins due to 280E and other restrictions, cannot absorb additional costs while remaining viable.

The Threat to Regulated Cannabis

© MJ Biz Daily

The end result of this unsustainable tax burden is predictable and already visible in many markets. Overtaxed products become unaffordable, pushing consumers back to unregulated “legacy” markets where products are priced more economically. This dynamic devastates small businesses that lack the runway or capital to weather these storms, leading to consolidation and market exit.

Without meaningful action at the federal level, including banking reform, 280E repeal, and comprehensive regulation, the government will be responsible for the regulated cannabis industry’s demise. This would represent not just a business failure but a policy failure, as the promises of regulation, controlled access, product safety, economic opportunity, and tax revenue, would be lost.

The ultimate irony is that government at all levels seems eager to enjoy the “rhythm” of cannabis, the tax revenue, the jobs created, the economic activity, while refusing to acknowledge the “blues,” the devastating impact of criminalization on communities of color and the need for equitable industry participation as a form of restorative justice. Until this fundamental disconnect is addressed, the cannabis industry will continue to face existential challenges despite its proven economic and medicinal benefits.

 

 

 

Written by: Frederika Easley and Veronica Castillo