Over the past couple weeks we have discussed marijuana, the business opportunities, and the heavy tax costs they pay to exist. Today we are tackling the topic of government intervention in this industry. One short sentence can explain it all:
Government is smothering the legal marijuana industry!
It is 2019, and the majority of the US has legalized marijuana in medicinal form. A portion of those states have legalized it for recreational use as well*. With legal options within those states, the opportunity to launch businesses within this niche should be available, right? Unfortunately the answer is no.
The federal government currently classifies marijuana as a schedule 1 controlled substance**. That means any marijuana based business in a state that has legalized the drug is still seen as illegal federally. For that reason, federal government is smothering the growth of these businesses.
Earlier this week, I noted the loss of tax cuts that the marijuana business faces (found here). In some cases, these businesses can see a tax rate reaching up to 90%! Rates like this could kill the average business, how is the marijuana industry expected to survive?
Anyone considering a legitimate marijuana business in a state where it is fully legal may now have many doubts. Chances are that budding entrepreneurs may never legitimize their company for this reason. That is exactly where the government is pushing these businesses! If an entrepreneur will make more money through under-the-table sales, why would they care to try? If these sellers do not form a full company, government will not see the bounce back they want from taxes.
How can we turn these issues around? Ultimately, legalizing marijuana at federal level would be the best choice. However, with the way government works, that is highly unlikely to happen any faster than it currently has. Federal needs are much deeper than a simple vote. They need more clinical trials into the benefits of marijuana to make those changes. At the same time, the studies need it to be removed as a controlled substance to be able to dig further into the good it can do**.
In the meantime, if the government at state and federal level want to keep reaping the financial benefits of the marijuana industry, there are some changes that can be made now.
The government needs to relax it’s rules against the marijuana industry in legal states. If they allow business to flourish with legal tax cuts, more companies will sprout up to fill the void. They will see more income through the sheer volume of new business than they would have from denying them these tax breaks. Regulation without overregulation is key!
Good business is good for the government too. If they make it easier to enter (and remain in) the industry, more will become legitimate companies.