A recent report has found that cannabisdispensaries in the U.S.A. could make more money per store than Starbucks, if only dispensaries were allowed to make normal business deductions on their taxes, which they are currently prohibited from doing under federal law- that means some dispensaries face a tax rate as high as 70%.
The report, called “Cannabis Retail: The $23 Billion Opportunity”, found that dispensaries average almost $2 million per store and estimated the global cannabis market at $56.1 billion. In comparison, the average net revenue of a Starbucks store is just over $837k- but we must keep in mind that that figure is the average of over 25,000 locations in 75 countries worldwide.
The CEO of Arcview, the market research group that issued the report, said, “This report shows that retail cannabis could be as big as the iPhone. It’s clearer than ever that there is a pot of gold at the end of the rainbow for those investors and operators who are willing to deal with the uncertainties and difficulties of current regulations”.
Why are cannabis taxes so high?
That $2 million average for dispensaries exists only on paper because dispensaries are prohibited from deducting any of their business expenses since cannabis is still illegal at the federal level. That means in some cases, their taxes can wipe out their net profit!
What currently prevents them is Provision 280E in the Internal Revenue Code, which prohibits businesses that traffic Schedule I or Schedule II substances (cannabis is currently a Schedule I drug) from making any deductions.
The provision was originally meant to punish those engaging in criminal activity, but with a growing number of states legalizing cannabis in some form or another, it is increasingly punishing legal businesses.
Changes in the tax code coming up fast?
With the Republicans working on getting their new tax bill passed, the cannabis industry is pushing hard for changes that would allow cannabusinesses to make those normal tax deductions.
If cannabusinesses were able to deduct their business expenses like any other legal business, their after-tax profit margin would average 12%, which puts it in the same league as Starbucks and other specialty retailers.