The Discovery Channel has recently released a new television series named “Weed Wars.” The series revolves around the nation’s largest medicinal cannabis dispensary called Harborside Health Center. Harborside is a non-profit organization only keeping enough money to pay off all businesses expenses along with taxes. Everything else is giving back to the community or back to the patients either in the form of charitable donations or as services such as massages and healing treatments. Founder of Harborside and executive director of Weed Wars, Steve DeAngelo, has his mind set on showing the nation a business perspective along with health benefits that could come from using the highly controversial plant (cannabis) as medical medicine. However this is becoming more difficult for him to accomplish because Harborside is now being audited for compliance under IRS code 280E, which was designed to fight drug trafficking; not to tax dispensaries so outrageous that they would be forced to shut down. The IRS has given Harborside a bill of approximately 2.5 million dollars in taxes that must be paid in December of 2011 in order to stay in business.

Context (Historical Background on the Issue):

Cannabis or Marijuana has been frown upon since the late 1930’s when the governmentpassed the “Marijuana Tax Stamp Act of 1937.” This allowed you to sell marijuana only if you had a tax stamp, but in order to get the stamp you must have had to be either a doctor or dentist. This act was later ruled as unconstitutional because it violated citizens Fifth Amendment rights of self-incrimination. Also in 1982 under the Reagan administration, IRS tax code 280E was passed to keep drug dealers from making business deductions. The problem with the tax code is that it was made during a time which states had not fully approved the use of marijuana for medical purposes. This tax code is also conflicting with some states that have made new laws that have been passed to accepted marijuana as a drug that can be used for medical purposes only. One of the main states that are providing these services is California with more than 2500 dispensaries state wide, one of which is the largest in the nation: Harborside Health Center located in Oakland, California. And although states have passed laws, federal laws are still in place that prohibit the sale or possession of marijuana, unfortunately for Harborside federal law always trumps state law.


Harborside pays taxes that the city of Oakland has put in place; a 9.5 percent tax rate for the purchasing of marijuana with an additional 1.8 percent business-receipt tax along with payroll taxes to the city. Harborside alone last year accumulated 21 million dollars in revenue and it was all given back to the state after covering business expenses. With that said if all dispensaries like Harborside were to be evenly taxed at around 10 cents per gram for marijuana purchased, they could potentially raise up to or between 40 to 100 billion dollars in revenue that would be given back to the state which would result in a positive correlation of the state’s economy along with the national economy. Also the government would save roughly 7.4 billion dollars in expenses related to marijuana arrests, prosecutions and living expenses in correctional facilities. But with the IRS enforcing tax code 280E, dispensaries like Harborside are struggling to find a way to pay the ridiculous amounts of taxes demanded by the IRS from them. It’s not that the dispensaries don’t want to pay their taxes, it’s just they are given a small amount of time to accumulate the large amounts of money that the IRS wants from them. And if they are unable to make all necessary payments by the time they are due than the dispensaries will be forced to shut down.


Harborside Health Center has become one of the largest targets aimed at by the IRS dealing with marijuana dispensaries. Tax code 280E is allowing the IRS to tax Harborside with a whopping 2.5 million dollar tax bill even though they poses the correct permits and have made it clear to the IRS that they are a legal non-profit organization. Nevertheless the IRS takes no piety on the specific subject despite all the explicit proposals given to them as to why they shouldn’t be put under tax code 280E. Many speculate that tax code 280E may be due for a reformation with current state laws taken into consideration.

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