Week in Review: IRS Penalty Fight, Wait-and-See in Washington State & 2 More MJ Lawsuits

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By John Schroyer

The IRS refuses to budge on a controversial – and confounding – tax penalty, officials in one Washington city give medical marijuana businesses a break, and two new lawsuits seek to dismantle Colorado’s recreational MJ industry.

Here’s a closer look at several notable developments in the cannabis industry over the past week.

Tax Man Cometh

A medical marijuana dispensary suffered a blow this week when the IRS reaffirmed its position that cannabis companies must submit payroll taxes electronically or face a 10% penalty.

The dispensary, Denver-based Allgreens, pays its taxes promptly in cash but can’t do so electronically because it’s been unable to secure a bank account.

The penalty can have a brutal financial impact.

“It’s an expensive problem, because it’s 10% of the amount you’re turning over for payroll taxes,” said Jim Marty, a CPA with around 100 clients in the industry. “Certainly, there are payrolls in the millions of dollars” in some states.

While landing a bank account is sure-fire way to avoid the situation, there are other solutions.

Hank Levy, a California CPA, said he has a few cannabis clients who use their personal checking accounts for payroll purposes, specifically so they can avoid the penalty that Allgreens is fighting.

“We don’t really advocate that people run their payroll through personal bank accounts,” Levy cautioned. “But it’s not a bad thing to do.”

Waiting for a Solution

A few dozen MMJ dispensaries in Tacoma got a temporary reprieve when local officials decided to delay their efforts to shut the businesses down.

The city wants to first see if state lawmakers will approve a regulatory scheme for Washington’s medical cannabis industry in the current legislative session.

Tacoma, like Seattle and several other local governments, has been grappling for years to find a balance between allowing dispensaries to operate and the lack of state oversight of the MMJ industry.

But since there’s a bill currently in the state House (it’s already passed the Senate) to establish such a regulatory structure, Tacoma officials decided to hold off and see what happens.

This isn’t necessarily great news for dispensaries, however.

Under the terms of the bill, all of Washington’s MMJ dispensaries would be shuttered. To make up for that, the state cap on the number of rec stores – 334 – would be increased, but it’s not clear by how much. The bill would also dramatically reduce the amount of marijuana a given patient is legally allowed to possess.

For those reasons, cannabis activists are fuming. Sensible Washington has called the bill “unwanted and regressive,” and vowed to recruit its thousands of volunteers to lobby on behalf of a competing measure.

So there may be a solution in sight for Washington’s medical cannabis businesses. Just not the solution they want.

Rec Under Attack

Colorado’s recreational industry is under siege.

Two lawsuits were filed on Thursday in federal district court seeking to shut down the state’s MJ industry, coming on the heels of legal action initiated against Colorado’s rec law by Nebraska and Oklahoma recently.

But the latest lawsuit takes aim at businesses and entrepreneurs, including those who run rec shops.

Jerry Olson, who was named as a defendant in one of the suits, said he’s not quite sure why he’s being targeted.

Olson operates a dispensary in the small mountain town of Frisco that has been in existence since 2009. He’s has been working on setting up a recreational shop that will be located across the street from a Holiday Inn.

The owner of the Holiday Inn doesn’t like the idea of having a rec shop nearby and tried to prevent Olson from obtaining a license by complaining vocally in city council meetings. That didn’t work, and that tactic was dropped recently, Olson said.

Now, the hotel’s owner is teaming up with a Washington DC-based organization called Safe Streets Alliance in a new lawsuit, just one of the two that were filed on Thursday.

The hotel alleges that it’s already had booking cancellations that have cost it at least $50,000 in income, because high school ski teams visiting the area don’t want to stay in lodging next to a rec shop.

But that allegation doesn’t make sense to Olson.

“It’s rare to see a business owner complain about a windfall,” Olson said. “Most all the hotel people I’ve spoken to in Colorado have noticed an upturn in bookings, not a downturn in bookings because of recreational marijuana.”

Olson, however, might simply be a convenient target for national foes of cannabis. David Thompson, an attorney for Safe Streets, said at a press conference on Thursday that the “overriding purpose” of the lawsuits is to bring an end to the rec industry in Colorado, and even suggested there might be further lawsuits in Washington State.

Cannabis advocates aren’t taking this lightly: On Friday morning, the Marijuana Policy Project called for a boycott of Holiday Inn.

John Schroyer can be reached at johns@mjbizmedia.com