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The Story of COVID-19, Tax Revenue, and the Green Wave

By Olivia Zitkus - Apr 10, 2021 at 6:45AM

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There are some serious financial incentives for states to legalize cannabis sales.

For American multistate operators like Curaleaf Holdings (CURLF 3.02%) and Green Thumb Industries (GTBIF 4.87%), the illegal status of cannabis at the federal level poses severe restrictions on how they run their businesses. These companies have found ways to succeed despite federal law, however, such as vertically integrating operations in specific states that have legalized recreational or medical uses of marijuana. 

Now that 16 states and D.C. have legalized adult-use marijuana and over 30 have permitted it for medical use, it's become difficult for other states to bypass the massive potential tax revenue that could come from licit sales. This is especially true in the wake of the COVID-19 pandemic, which required immense amounts of state spending and earned many states less tax revenue than in years prior; state tax collections were down 5.5% in fiscal year 2020.

Dr. Chanda Macias is a medical cannabis advocate, researcher, and dispensary owner. She joined Corinne Cardina and Olivia Zitkus on a March 19 episode of Fool Live to talk about what taxing marijuana could (and should) look like in the future.

Olivia Zitkus: This touches back on something you had mentioned earlier which is taxes. My question is how do taxes factor into the market for cannabis? Do you think that higher taxes on cannabis will stymie the industry at all as it tries to take market share from the black market? That's a big concern but we've got a lot of states looking to cannabis to generate tax revenue. That's a question on a lot of minds in 2021, I think.

Dr. Chanda Macias: Definitely. What's interesting, Olivia, about the taxation issue is that because we saw the impacts of COVID-19 and more programs continue to expand to generate revenue or tax dollars for their different states that we know that there's different taxing tiers. That's why it's important that we're present when this legislation is being formed to make sure we're having our voice heard in affordable healthcare for all patients since it's not subsidized by insurance. Now, I can talk about taxation or the 280E as well. Not only we're addressing taxes from the patient level, but from the business perspective with the 280E which is basically stating that we're a legal business, and we're going to be taxed in a different structure, that has severe consequences especially on small businesses that came out before to function in that arena. What that means in a nut shell is that there is cost of goods sold and there's business expenses that you can write off typically. In the cannabis industry, your business expenses, you cannot write off. So you still are taxed at the higher level, at the illegal tax rate, and you're expected to survive in this industry. Again, it goes back to see why women and minorities are being left behind in this industry is because they just don't have the resources to actively participate.

Corinne Cardina has no position in any of the stocks mentioned. Olivia Zitkus has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Green Thumb Industries. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Green Thumb Industries Stock Quote
Green Thumb Industries
GTBIF
$10.98 (4.87%) $0.51
Curaleaf Holdings, Inc. Stock Quote
Curaleaf Holdings, Inc.
CURLF
$5.93 (3.02%) $0.17

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