It's Tax Day. No company likes handing money over to the tax collector, but for Oakland-based Harborside Health, settling up with the Internal Revenue Service represents a unique kind of headache. Like many successful retail operations, Harborside — which brought in $44 million in revenue in 2016 — owes millions of dollars in taxes to federal, state and local governments. Unlike most other companies, Harborside has to count and hand-deliver those millions of dollars to the IRS and other authorities in cash.
That's because legal marijuana businesses have to pay taxes under IRS code 280E, the same category reserved for illegal drug traffickers. Cannabis is categorized as a Schedule I substance under the Controlled Substances Act. While more than half of the states in the U.S. have legalized some form of medicinal marijuana, and several others have passed laws permitting recreational cannabis use, under federal drug laws the sale of cannabis remains illegal.
Harborside is one of thousands of companies involved in the $6.7 billion legal cannabis industry forced by disparities in state and federal law to conduct nearly all transactions in cash. As a result, thousands of companies have in the past week counted and delivered millions of dollars in cash to their respective IRS offices and state tax authorities. Those offices then have to count all that cash again — a process that's taxing IRS resources as well.
The volume of cash payments coming into the IRS from the legal cannabis industry this year has prompted the IRS to increase its cash-counting capacity at offices in Denver and Seattle. (Colorado and Washington have both legalized the sale of cannabis for recreational purposes, boosting industry revenues.) It's a sign of a larger problem facing a nascent but booming industry that continues to have trouble utilizing the traditional banking industry despite explosive growth.