• DC Crew

IRS Overwhelmed with 'Bags of Cash Smelling of Weed'

Recent headlines in the mainstream media confirmed what most of us already knew – that when the legalization of cannabis is over-regulated, the black market for weed not only survives, it thrives.


There are many reasons for this when it occurs, but one of the biggest deterrents to getting into the legal cannabis industry is the fact that it is still impossible to find safe and fair banking options if your business can be traced back to marijuana in any way, shape, or form.


Because cannabis is still listed as a Schedule I drug on the Controlled Substances Act, banks from the Big Apple to LA are too timid to touch it. All banks are federally regulated and the two primary regulators are the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve Board.


That’s way too many feds


As a result, many industrious cannabis entrepreneurs just keep trapping.


Another popular headline lately is that cannabis may be legalized soon at the federal level. Optimistic journalists feel that Trump might make a move on marijuana legalization to try to shore up his eroding base.


Well, a recent move by the IRS might be an indicator that it could be a while before the cannabis movement sees any sympathy from the feds and is able to bank like any other industry.


In 2017, the IRS collected $4.7 Billion in cannabis taxes based on about $13 Billion in total revenues. This year, with 33 states and Washington DC having some form of medical or recreational cannabis laws on the books, those numbers are sure to get even higher.


This year the IRS says it received over 153 million tax returns, but just 16 million of them were paper-filed the old-fashioned way. The rest were e-filed. Very few of those were for cannabis businesses.


Since those who work in this industry cannot bank their money, cannot write checks, and cannot utilize debit cards, payments to the IRS are almost always done in warm, soft cash.


Up until 2014, the feds added insult to injury by assessing a 10% penalty to cannabis companies that paid their taxes in cash. One of them successfully sued and squashed that bit of injustice for good. Still, the IRS states that it prefers to be paid with a check or credit card instead of “bags of cash smelling of weed”.

Well, we’ve got news for you Feds; we don’t like carrying around large bags of cash either.

That’s why banks were invented, right?


Just to stay on the right side of the law, cannabis companies must make an appointment with their local IRS office to make their cash payment. Once there, they are taken into a room where two IRS agents count the money.


Super efficient…


It is 9x more expensive for the IRS to process a paper-filed tax return than one that is electronically filed. Then add the cost of at least two employees dealing with each and every instance and it becomes clear that something has to give.


Instead of addressing the issue in a regulatory manner, by loosening banking restrictions on the cannabis industry, the IRS has awarded a $1.7 Million contract to a firm called The Mitre Corporation who has been tasked with alleviating the burden being caused by this flood of cash coming in.


Surely The Mitre Corp is not being hired to count every terp-soaked bill that comes in, but rather they are likely working to come up with a systematic solution or template that the IRS can then use to process what they anticipate will be a bigger wave of cash next year.


They probably wouldn’t make that investment if they thought we were going to see any significant changes to our banking options anytime soon.


Let's hope we are wrong on this one.

© 2014 by Disorderly Conduction.

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