Sacramento Pot Shop Refuses to Negotiate with IRS

It has been a while since I have seen news about the tax problems of medical marijuana dispensaries.  The one I saw today involves a Sacramento-based pot shop by the name of Canna Care.  The IRS has imposed an $873,000 penalty under a 30-year-old tax code known as “280E.”  The IRS is refusing to allow standard business expenses such as those incurred for payroll and rent.  This has always been the sticking point.

What makes this story a little different is that Canna Care is not the least bit interested in negotiating with the IRS.  The IRS has expressed a willingness to settle for $100,000 but apparently this pot shop has morals and will not pay a dime until ordered by a judge to do so in tax court.  After all, Canna Care is known as an “evangelical medical marijuana provider.”  Well, this is according to the Sacramento Bee article.

When I visited the Canna Care website ( I could not verify this unique designation.  In fact, many of the links on the website don’t work at all.  And probably the most frustrating is a video thumbnail of “the first commercial in history to be played on … a major US television station” (which I have to believe is really meant to read “the first medical marijuana commercial in history…”).  This “private video” can only be viewed with a password.  I suppose if I knew we would be going to court, I would want my client to keep quiet and minimize their internet footprint for a while too.

DEA and IRS Team up in Medical Pot Asset Seizure

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It was not your average bank levy. The Drug Enforcement Administration and the Internal Revenue Service collaborated to seize the bank account of El Camino Wellness Center this week. The government was after more than $800,000 that had been deposited over a period of a few months by El Camino, Sacramento’s largest medical marijuana dispensary. However, according to the Sacramento Bee, the government will only retrieve a fraction of that amount because the money is just not there.

The government raided the pot shop as well as the homes of the owners. They are being investigated for money-laundering and conspiracy to distribute a controlled substance.

Just how does the IRS become involved in the highly controversial medical marijuana industry? Although California has “legalized” marijuana for medical purposes, it is still illegal and considered a controlled substance under federal law. This particular pot shop was set up as a nonprofit organization, but the feds believe that this designation is a sham and the shop is in the business of making boat-loads of money off marijuana sales and then hiding the profits. And failure to report profits usually means failure to pay taxes; that’s how the tax problems emerge.

El Camino is just another casualty in the ongoing tensions between the federal and local governments on the issue of medial marijuana. The feds almost always win.

Governors Seek Marijuana Reclassification

In October the federal government took California medical marijuana dispensaries by storm, intent on shutting them down permanently. You may recall that even the IRS was involved in this operation, hitting them with audits and seemingly creating tax problems out of thin air.

The problem in California is not unlike the problems encountered in other states that have legalized medical marijuana. The state laws clash with the federal governments classification of the drug. The US Drug Enforcement Administration (DEA) still classifies marijuana as a controlled substance with no accepted medical use (Schedule I). But two governors are trying to get that changed.

Gov. Christine Gregoire of Washington and Gov. Lincoln Chafee of Rhode Island have filed a petition asking the DEA to reclassify marijuana as a Schedule II drug (one with some legitimate medicinal properties). The DEA has not yet responded to this petition, but has rejected prior petitions to reclassify the drug.

CA Medical Pot Crackdown: AG Gives Her Two Cents

A few weeks ago, Washington bullies swept in on California’s medical marijuana playground, intent on shutting them down permanently.  Today in comes Big Sister to see if she can break up the fight a bit.  CA Attorney General, Kamala Harris, issued a statement warning the feds to show some restraint:

an overly broad federal enforcement campaign will make it more difficult for legitimate patients to access physician-recommended medicine in California

The question is whether a focused approach will be sufficient to curb the “proliferation of gangs and criminal enterprises that seek to exploit the medical marijuana law.”