Regulating Pot: How Hard Should States Fight Against Washington?

State lawmakers do not have it easy when it comes to figuring out how to regulate pot. Whether it is medical cannabis in Utah or recreational marijuana in New York, there is always the nagging issue of violating federal law. How hard should states fight against Washington and its current pot mandates? Opinions vary.

Virginia was the latest state to raise this question for NORML, the nation’s leading advocacy group for marijuana legalization. GOP lawmakers in Virginia recently killed a bill that would have offered state-legal marijuana businesses some measure of tax relief in terms of writing off business expenses. Why? The lawmakers have been evasive in their answers, but it is most likely due to conflicts between federal and state law.

Federal Taxes and Business Expenses

The federal tax code allows legitimate businesses to write off their expenses. This is to say that the costs of doing business are subtracted from total revenues so that businesses are only paying taxes on their profits. But there is a catch: a business deemed illegal under federal law isn’t eligible to write off its expenses. Thus, state-legal marijuana businesses pay taxes on their total revenues rather than just their profits.

Of course, this is with the understanding that they report their business activities to Washington. Some probably do while others do not. At any rate, the Virginia bill would have given marijuana businesses in the state the ability to write off their expenses for state tax purposes. Why would the legislature kill the bill?

Most states defer to federal tax code on multiple levels. For instance, they defer to federal regulations when it comes to determining what constitutes taxable income. It is just easier to follow the federal rules than need to come up with their own. In cases where states defer to federal rules regarding business expenses, adopting legislation contrary to those rules could inadvertently lead to taxpayers running afoul of federal law due to confusing state laws.

Already Thumbing Their Noses

NORML and other pot advocacy groups are understandingly frustrated when state lawmakers kill any bills that would advance their agenda. At the same time, advocacy groups fail to understand the precarious position states are in. More than three-dozen states with legal cannabis programs are already thumbing their noses at Washington. It is only because federal authorities have chosen to turn a blind eye that no action has been taken against them.

Lawmakers in Utah are very cognizant of that fact. According to the operators of Utah marijuana dispensary Beehive Farmacy, state lawmakers are intent on keeping their program medical-only. They are also committed to strictly regulating medical cannabis in Utah so as to avoid as many potential conflicts with Washington as possible.

About half the states with legal medical cannabis also allow recreational consumption. They have gone one step further in their fight against Washington, throwing the doors to pot consumption wide open. It is ironic that so many of these states firmly believe Washington should not tell them what to do, yet they turn around and strictly regulate marijuana businesses. What is good for the goose is apparently not good for the gander.

At the end of the day, we are left with the question of how hard states should fight against Washington on the pot issue. States choosing to fight hard enough generally get what they want anyway – at least where marijuana is concerned. But a successful pot fight could lead to a psychedelics fight. What comes next? How far will the states push the boundaries of their right to self-govern? Time will tell.