States Turn to Cannabis for Tax Revenue as Federal Relief Funding Remains Elusive

The cannabis industry has found itself in an interesting position as the COVID-19 crisis unfolds. As an essential service, many dispensaries are open for business and saw healthy demand early on. Demand could wane, however, as stockpiling trends start to decline.

The federal government has thus far refused to provide relief funding to these businesses, but states governments are increasingly looking to them as tax revenue dries up.

Elusive Federal Relief Funding

Many governments have dubbed cannabis companies “essential services” that are permitted to remain open during the COVID-19 outbreak, but most companies aren’t eligible for many of the relief efforts designed to help small businesses since cannabis remains a Schedule I Controlled Substance on a federal level.

The lack of federal relief funding has become a source of frustration for many dispensary owners, particularly since they pay a higher effective tax rate than nearly any other type of business. Cannabis is subject to high state taxes and Section 280E of the IRS tax code prevents most deductions.

The good news is that there are efforts to lobby the federal government into permitting relief funding in states where cannabis has been legalized. In addition, many cannabis businesses have experienced stronger than average business early on as consumers stockpiled products.

Valuable Funding for States

The federal government may be opposed to distributing relief funding to cannabis companies, but states are turning to those same companies to shore up their own tax revenue following the COVID-19 crisis. With many businesses shut down, states are expected to see a significant revenue crunch.

MPG Consulting, a cannabis and hemp advisory firm, has floated the idea of a Cannabis-based Municipal Bond, or CMB, as a way for states to aid in the recovery of lost revenue due to the COVID-19 pandemic. The bonds would be similar to many other special tax bonds backed by tobacco, alcohol and gaming.

Source: MPG Consulting

The advisory firm published a study showing how Colorado could turn its cannabis revenue into a short-term bond capacity of $166 million and long-term bond capacity of $591 million with $123 million and $438 million available to use for education initiatives and infrastructure, according to Forbes.

Looking Ahead

The cannabis industry remains in an interesting position throughout the COVID-19 crisis. Many businesses hope that the federal government will amend its position to provide relief funding where necessary, while state governments are exploring creative ways to increase tax revenue from the industry.

This article was published by CFN Enterprises Inc. (OTCQB: CNFN), owner and operator of CFN Media, the industry’s leading agency and digital financial media network dedicated to the burgeoning CBD and legal cannabis industries. Call +1 (833) 420-CNFN for more information.

About Ryan Allway

Mr. Allway has over a decade of experience in the financial markets as both a private investor and financial journalist. He has been actively involved in the cannabis industry since its inception, covering public and private companies.