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Marijuana Dispensary Case Makes It to the Supreme Court

While many states are legalizing marijuana, cannabis lawyers are quick to advise that federal laws trump state laws when it comes to controlled substances.

Federal prosecutors have come and gone, but one thing is certain. The Internal Revenue Service is not going to leave the marijuana industry alone.

In the course of auditing tax filings, the IRS found that a Colorado marijuana business was criminally culpable under federal drug laws. The company, in The Green Solution Retail, Inc. v. United States of America, is asking the U.S. Supreme Court to decide whether the agency exceeded its power.

Death and Taxes

The U.S. Tenth Circuit Court of Appeals had ruled against the dispensary business earlier this year, saying federal laws barred lawsuits challenging tax assessment activities.

Green Solution, which runs one of the largest retail chains for marijuana in Colorado, sued to keep the IRS from inspecting its books. The agency had audited the company and determined that -- even though the company was operating legally under state law -- it was violating the federal Controlled Substances Act.

Paul Caron, writing the TaxProf Blog, noted that the petition to the U.S. Supreme Court "quoted heavily" from then-Tenth Circuit Judge Neil Gorsuch's 2015 opinion in Fienberg v. Commissioner of the Internal Revenue.

"Now a Supreme Court justice, Gorsuch noted in that ruling, which upheld an IRS decision to strike business tax deductions taken by a Colorado dispensary, the federal government's 'mixed messages' on marijuana enforcement," Caron wrote.

"Mixed Messages"

The marijuana industry is booming, especially as more states make it legal for recreational use. Colorado was one of the first, and one of its homegrown law firms recently announced it is opening six offices around the world.

Meanwhile, Attorney General Jeff Sessions has plans to crack down on the industry. He wants to roll back rules that block the Justice Department from bypassing state laws to enforce federal laws against medical marijuana.

According to reports, consumers spent $5.9 billion on legal cannabis in the United States last year. Industry experts expect that figure to reach $19 billion by 2021.

After the Supreme Court rules, the question could be how much of that will go to the IRS.

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