I'm getting serious about starting my pot business. What's my biggest challenge?
THERE ARE MANY. To start with: banking, tax fairness, bankruptcy, trademarks, and even regulatory certainty. The pot trade has access to none of these things. You also have black-market competition, premium costs for real estate and insurance, civil and criminal asset forfeiture as a general looming threat, and not-so-great access to professional services. Most of this is because marijuana is illegal on the federal level.
The cannabis game is not easy. The lack of banking services may be the single worst obstacle for anyone who doesn't own an armored car firm. You must deal in literal piles and piles of cash. This creates safety issues and headaches when it's time to pay employees and vendors, keep books, and pay taxes. Although Colorado and Oregon's state senators introduced a cannabis banking bill this summer, it's looking underdoggish.
The second largest challenge for pot merchants is probably tax fairness. You cannot deduct normal operating expenses like rent, payroll, and utilities. The only write-off allowed is for "costs of goods sold," and the Internal Revenue Service (IRS) defines this in an especially miserly way for weed. Being taxed on gross receipts, more or less, is brutal. It's interesting that while marijuana is illegal under federal law, the IRS does accept these tax dollars.
Cannabis businesses are also taxed oppressively on the local level. In Oregon, recreational cannabis is going to be taxed between 17 and 20 percent—in a state that hates sales tax. There are also myriad fees: application and annual licensing fees to the Oregon Liquor Control Commission and the Oregon Health Authority in the several thousands of dollars, and another $3,750 if you wish to be in Portland.
There's also no federal protection for most cannabis trademarks. The US Patent and Trademark Office will refuse your "scandalous" application and pocket the filing fee. So if your company's cannabis products or strains are trendy or potent or cheap or remarkable in any way, your intellectual property is not protectable across state lines.
And if your pot business fails, the courts have repeatedly held that bankruptcy is not an option. Pot entrepreneurs are not privy to the fresh start our system affords everyone else. Courts have also held that if the federal government wishes to seize a pot business' assets, even if that business is wholly licensed and compliant with state law, the feds may do so at any time.
Those are just a few of the challenges. Of course, there is tremendous upside too, especially for smart and creative people who can tolerate risk. Things may ease up in the next few years, or Chris Christie may be elected president and force everyone back underground. It's a challenging industry like that.
Vince Sliwoski is an attorney with Harris Moure; send your cannabis legal questions to firstname.lastname@example.org.