One obstacle for marijuana companies is Section 280E of the U.S. tax code, which was passed in 1982.
Section 280E reads as such:
No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is conducted.
In plain English, this tax code disallows businesses that sell a federally illicit substance from taking normal corporate income tax deductions, save for cost of goods sold, which tends to be a small percentage of revenue. As a Schedule I substance, marijuana is wholly illegal, prone to abuse, and has no recognized medical benefits. That leads to some profitable pot companies paying an effective tax rate of as much as 70% to 90%. As a result, U.S. marijuana businesses aren’t able to put their operating income to work like a normal business, which can constrain hiring, expansion, and even orders to resupply product.
Cannabis businesses in the U.S. are also plagued by having very limited banking options. Even though nearly two-thirds of U.S. states have legalized marijuana in some capacity, banks fear the criminal and/or financial repercussions of providing basic banking services to pot companies. This has left much of the industry underbanked and reliant on cash.