Marijuana is erupting out of prohibition and the bureaucratic mega-machine of the US government cannot keep up.
Laws that need changing can’t change until politicians craft legislation, debate over it and vote it in; financial regulations that need updating can’t be updated until those laws are changed; and until the financial regulations are updated every business involved in cannabis is suspended in a weird legal grey area, floating in uncertainty like oil in water.
It’s an industry in limbo.
Which is burning up dispensary owners like Ally Feiler, and professional growers like Ryan Buffkin. Both of whom have been involved with the cannabis industry since the very start, well-before recreational legalization.
“It’s a running joke that we're in the ‘compliance industry’ not the cannabis industry,” says Feiler, who owns and founded Green Tree Medicinals. Feiler has four locations, in Boulder, Longmont, Northglenn and Berthoud and between them she is operating well over 20 different cannabis licenses.
It’s a lot to juggle. Particularly when the government is constantly tossing in new rules and regulations, pulling old ones and changing the very landscape she is standing on. “The regulations are never ending. They’re still being born,” she says. “But you have to expect it, you have to anticipate it. You can't look at it like it's going to kill you every time because it will.”
Similarly, Buffkin is the part-owner and master grower of Denver Recreation (DenRec), and the tribulations he’s dealt with haven’t been any less of a hassle. “It's a difficult world we live in,” Buffkin says. “It's not necessarily that the government has intentionally created issues or complications for us. They simply haven't figured out what category to put us in.”
Both Feiler and Buffkin come from very different places, and have very different stories about their rise into the world of cannabis. But they have dealt with a lot of the same challenges: they’ve both had to make changes to their businesses on the fly as regulations evolved, they’ve both had to deal with strange federal taxation issues, personal loan issues, challenges banking their money and local regulation changes.
And they’re both still striving — still carrying onwards and upwards despite the odds stacked against them.
The Dreaded Section 280E
While any other business (including liquor, tobacco and gun stores) can write off things like office supplies, office rental costs, legal expenses, travel expenses, business related equipment and generally anything even remotely related to their enterprise, cannabis businesses cannot. According to the Feds, Colorado's dispensaries and grow operations are criminal organizations, operating contrary to the law of the land, distributing a dangerous and highly illegal Schedule I narcotic: weed.
Which means that they fall under the dreaded Internal Revenue Code Section 280E.
Section 280E, widely loathed by those in the cannabis industry, was originally created back in the early 80’s, during America’s cocaine blitz, to prevent cocaine traffickers from writing off their own business expenses like boats, cars, guns, printing paper and houses. Now, it’s used to squeeze cannabis business owners like Feiler and Buffkin with severe over-taxation.
“The only write off that cannabis businesses are allowed are the 'Cost of Goods Sold,’” Feiler explains. “I can write off my basic production expenses and that's it.”
Flat out, the only things the Feds consider to be legitimate expenses for cannabusinesses are those directly associated with the creation of their product: things like packaging and the nutrients used in the soil. As for general and administrative costs (like bookkeeping, legal expenses, technology costs, and the purchase, storage and depreciation of cannabis) that's all off the table when it comes to claiming “business expenses.”
In fact, according to the National Cannabis Association, while a typical business in the US pays somewhere around 30 percent in taxes, cannabis businesses often pay closer to 70 percent. Sometimes even more.
Which is insane when you consider that in Colorado alone there are over 2,500 active cannabis licenses and cannabis sales in this state have already exceeded $6 billion since 2014. No matter how you slice it, the Feds are making wicked amounts of money off of the situation. Why would they be in any rush to change the rules and choke that flow of cash?
“This tax situation is getting actually very, very scary for some cannabis business owners,” Feiler says. “Cities are increasing taxes all over the place.”
That makes their margin of profit thin. Anyone who is operating without a financial safety net is playing with fire and walking on ice.
“Most people don't have empathy for us because they think we're making a fortune,” Feiler says. “They don't realize how devastatingly expensive taxes are to us and that it actually puts us in a position where if the business is struggling we're bootstrapped because we pay so much money at the end of the year in taxes.”
Section 280E continued…
When I spoke with Ryan Buffkin he was going through hell trying to buy a house for his family. And for no good reason whatsoever.
Buffkin is the master grower and part-owner of Denver Recreation (DenRec), an award-winning cannabis dispensary famous for the dank nuggets that come flowering out of Buffkin’s grow. Naturally, like Feiler, Buffkin too falls under Section 280E.
And for him, it almost meant he couldn’t buy a home.
“I have outstanding credit, impeccable, the best credit you can have,” Buffkin says. “I could not go in and get any form of federal loan for a home.”
Even though Buffkin operates his businesses meticulously to meet safety and legal regulations, even though he is on the forefront of the industry, making six figures a year, and even though he has impeccable credit, no financial institution would give him a chance. No bank or credit union would give him a housing loan.
The only people who showed any interest in him, were hard money lenders, he says; scam artists who were just trying to rip him off even further.
“We're not cocaine guys. We're not running drugs from Colombia to the United States. We're not running you know boats from the Bahamas to the United States,” he says. “We're growing cannabis in the state of Colorado.”
Yes, technically, that’s still illegal in this country. But realistically, it’s a total load of bullshit. The Feds don’t seem to have a problem with his business when they’re squeezing him for taxes. And they don’t seem to have a problem spending that tax money.
But when he asks for a loan to buy a home? No way, you fucking criminal. Find the money yourself.
“I'm not going to say that the government is unfair, I'm not going to say that they've done anything atrocious towards us intentionally,” Buffkin says. “They just need to define things a little better and come up with some new laws… all the higher authorities are basically still trying to figure out who are we? What are we? What are the rules and laws that dictate what's right and wrong for us?”
Local regulations
While the most glaring challenges that cannabis businesses face come from a Federal level, they can come from a local level too. Some cities and towns just aren’t down.
Case and point: the strange and frustrating saga of Green Tree Medicinals in Longmont, Colorado.
Feiler opened her Longmont location in 2009, as a medicinal cannabis dispensary and everything was going swimmingly. At least, it was at first.
Then, in 2011, the City of Longmont approved an executive ban on cannabis dispensaries within the city limits. The fact that there were already a handful of them operating in Longmont was of no consequence to these City narcs. They pushed the motion through, and pulled the rug out from under all of those local businesses just to watch them flop.
“There were eleven dispensaries in Longmont,” Feiler recalls. “All of whom got shut down.”
Luckily, Feiler had been deeply involved with the fight against this City ban. And she had just found an unincorporated building across town that technically wasn't part of the city limits. She had decided to lease it — just in case. Thinking, even if Longmont didn't pass the ban on dispensaries, it would still make a great second location.
“Turned out to be the best thing I ever did.” She says. When the dispensary ban kicked in, she, her store manager and an employee literally picked up the entire Green Tree Medicinals store and moved it overnight.
By 12:00 p.m. the next day, Green Tree Medicinals’ new, new Longmont location was open for business, and they were the only ones in town who were.
“It was amazing,” she says, chuckling. “They literally reacted almost eight months later when we'd already been open.”
Feiler’s business savvy saved her. She had, yet again, foiled the City and defended her dispensary.
“They basically said that they didn't have rules in place and that wasn't our fault. Which was a huge blessing.”
But, their trials were not over yet. Again, only two years later in October of 2014, she found herself fighting Longmont for the second time to keep her business open. The City had convinced her landlord to allow them to annex her new unincorporated property. Forcing Feiler to move to a third location, her current Longmont location.
But this time, she wasn’t taking any chances. She outright bought her third unincorporated building, so the city couldn’t go behind her back to her landlord. If they wanted to annex it, they’d have to go through her.
“We finally opened up in our new location in October of 2015 and we went through hell to get that location open,” she says. “The city basically did everything they could to not allow our permits to get approved to try to find something about the property that wasn't approvable.”
But they couldn’t. And Green Tree Medicinals’ third Longmont store (at 12626 N. 107th St.) has been open and in business ever since.
Above, the Green Tree Medicinals Boulder dispensary. Below, The Green Tree Medicinals Longmont dispensary. (Photos courtesy of Green Tree Medicinals.)
Swimming in Cash
“If I had to put my finger on one thing, what is just fucked, what just does not make any sense whatsoever, it’s the banking,” says Buffkin of DenRec.
Money, usually, is not a bad “problem” to have. But for Colorado cannabusinesses, fat piles of cash have been one of the single greatest challenges they’ve had to deal with.
Until recently, almost no federally insured banks would allow dispensaries or grows to open checking/savings accounts for their businesses, forcing the industry to pay its bills, suppliers, employees and taxes all in cash.
Which, has created a dangerous problem for many: Heisenberg-style stashes of cash were building up in people’s basements and they had nowhere to put it all. Not only was it raising the risk of being robbed in-house, but it was making the challenge of transportation dangerous too. There’s a reason liquor and gun stores aren’t cash only businesses: it makes them a target.
“What the hell do you want us to do with all this money? What do you want us to do with all this cash that you're forcing us to basically keep on hand?” Buffkin asks, not-so rhetorically. “It's dangerous, bro. People have been killed for just a thousand bucks.”
Luckily, as time has passed, the banks have started to change their ways, Buffkin says. These financial institutions have started to realize just how much money is in the cannabis industry, and seeing that much cash flow has gotten them all hot and bothered. They want in. Even if the federal rules and regulations surrounding these businesses are still legally uncertain.
In 2014, there wasn’t a single bank or credit union in the nation that would provide banking services to a cannabis business. That has changed dramatically in the years since. By 2018, there were over 300 banking institutions that were willing to work with cannabis businesses, and nearly 100 credit unions. A number that will almost undoubtedly continue to climb.
So things seem to be changing for the better… at least, in this regard.
“Trends happen,” says Buffkin. “They're all deciding on their own, ‘Hey someone's going to take this cannabis money and someone's gonna make a lot off doing it.’”
As time goes on and more states legalize marijuana, and the capitol behind the industry continues to swell, so too will the number of financial institutions that are willing to take cannabis money. And eventually, hopefully, they’ll all open up their hearts and vaults to accept it.
That’s only the tip of the iceberg
It probably goes without saying, that these are just a few of the challenges these entrepreneurs and others like them, have to face on a daily basis. It’s a gauntlet out there. A strange gauntlet. One that both of these cannabis entrepreneurs are excited to be involved with — despite the industry’s inherent post-prohibition difficulties. It keeps them on their toes.
And it’s certainly never dull.
“We are building the manual as we build the industry, as we understand it more and as new products emerge. It's very unique. There's really nothing like this,” says Feiler. “It's just a very unique beast… this isn't a business you get into lightly.”
“The rules and regulations in Denver County are the most stringent, the most thorough and the hardest rules to be successful in the cannabis game in the world,” says Buffkin. “You do have a chance to succeed in this game if you do things correctly. But is it more difficult than what it should be? Absolutely.”
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