Proponents say it could drive the economy, but what hurdles would cannabis businesses face?

(AP Photo/Haven Daley, File)

NASHVILLE, Tenn. (WKRN) – Proponents say medical marijuana in Tennessee could be a driving force for the economy – creating jobs and providing the state millions of dollars in tax revenue.

In states where medical marijuana is legal, cannabis businesses face a slew of hurdles.

In 1982, Congress passed an amendment to the federal tax code in response to a case involving a Minnesota drug dealer.

“[He] filed for a bunch of business deductions for his cocaine, methamphetamine [and] marijuana business,” said Neal Levine, Chairman of New Federalism Fund.

The IRS denied the deductions, but the drug dealer went to court and won. Congress responded by adding Section 280E to the tax code.

“It essentially says if you traffic in a Schedule I or II substance that’s illegal under state or federal law, you may not take any standard business deductions outside the true cost of goods sold,” Levine said.

Fast forward 35 years, and 29 states, plus the District of Columbia, have legalized marijuana for some users.

Jeffery Kahn is a 65-year-old rabbi who owns the Takoma Wellness Center in Washington D.C.

He got into the medical marijuana business after watching his father-in-law suffer for decades with multiple sclerosis.

“It made a huge difference for him,” the dispensary owner said.

But after five years in the business, Kahn said it hasn’t been the cash cow many assume.

“It’s been quite complicated and I must say we haven’t quite mastered the turn a profit part yet,” he said.

According to Kahn one of the major obstacles is tax code 280E.

“Rent and employee salaries and everything else that the average business is able to take off their taxes, we can’t,” he said.

Industry experts say 280E hits marijuana businesses with tax rates that can be double what other businesses pay. Efforts to create an exemption have stalled in Congress.

“Right now the science doesn’t show what people are saying,” said Rep. Diana Black.

Black opposes loosening marijuana laws at the federal or state level until she sees more evidence of its effectiveness as a drug.

“This is not something that we should do in the state of Tennessee,” Black.

Until there’s change, the decades old tax law will continue to make business tough for those trying to turn one kind of green into another.