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Marijuana Start Up: 3 Things You Need to Know

By Christopher Coble, Esq. | Last updated on

It's a brave new world. The District of Columbia and a majority of states have legalized the use of medical marijuana. In Oregon, Alaska, Colorado and Washington, you can now use marijuana for recreational purposes.

With several more states considering legalizing marijuana, enterprising business people are lining up to get a piece of this growing and emerging market.

So, you want to start a cannabusiness. Here are three things to know about a marijuana start-up:

1. You're Violating Federal Law

Despite several states legalizing the sale and use of marijuana for recreational or medical purposes, federal law still outlaws marijuana sales and use. The Controlled Substances Act, passed in 1970, still categorizes marijuana as a Schedule 1 drug, considered to be the most harmful substances with no medical benefits. Under this act, selling less than 50 kilograms of marijuana is punishable by up to 5 years in prison and a $250,000 fine.

However, the federal government has adopted a policy of not enforcing this law. In a spending bill approved late last year, Congress included a provision that prohibited federal drug agents from raiding state legalized marijuana retail operations. This effectively promises that the federal government won't enforce its law against marijuana.

2. Banks May Not Want Your Business

However, banks may still be hesitant to do business with marijuana companies. The Controlled Substances Act also makes it illegal for banks to take any proceeds from marijuana sale. Technically, if a bank takes your cannabusiness proceeds and puts it into a checking account or gives you a loan to fund the business, the bank is conspiring to distribute marijuana in violation of the law. While the government has provided guidelines that allow banks to do business with marijuana sellers under certain circumstances, many banks are hesitant to deal with the hassle.

Colorado has floated some pot banking plans such as state authorized cannabis cooperatives or the state chartered Fourth Corner Credit Union, but we will need to wait and see if these are viable solutions.

3. Taxes, Taxes, Taxes

Are you planning to make a lot of money? Prepare to pay a lot of taxes.

As Al Capone learned, even if your income is illegal, it is still taxable. You have to pay taxes on your marijuana start-up's income. However, you won't be able to deduct your business expenses from your taxes because marijuana is an illicit drug under federal law. A proposed Marijuana Tax Equity Act would impose a 50 percent excise tax on marijuana! This bill has yet to be passed.

In Colorado, there is a 2.9 percent sales tax, a 10 percent marijuana sales tax, and a 15 percent excise tax.

The taxes alone may make your marijuana start-up not worth the time and effort.

If you do still want to start a marijuana selling business, consult a marijuana lawyer (they really exist) or an experienced business lawyer to make sure you're complying with all rules and regulations.

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