Cannabis Cos’ $4.7B In Cash-Based Taxes Overwhelm IRS

The Internal Revenue Service (IRS) is paying $1.7 million to a Virginia company to handle “large cash payments for processing cannabis federal taxes.”

According to Quartz, the U.S. government collected approximately $4.7 billion in taxes last year on nearly $13 billion in revenue from legal cannabis companies. Most of these companies were forced to pay their federal taxes in cash because about 70 percent of all legal cannabis businesses are unbanked.

It’s important to note that the cannabis market’s struggles to access banking services are not limited to small dispensary storefronts, though they are undoubtedly affected by such legal hurdles. The legal marijuana industry in North America includes a complex ecosystem of cultivators, logistics providers, lawyers, accountants, contractors and more — meaning an entire supply chain of B2B service providers is impacted when a legal marijuana company is unable to get banked.

While the government has regulations for banks to provide services to cannabis companies, “99 percent of banks don’t want to mess with them [because] there’s a lot of internal compliance if you’re going to serve the cannabis industry,” said Jim Marty of Bridge West CPAs, an accounting firm in Colorado that represents roughly 250 cannabis businesses and license holders in the U.S.

That means the companies are dealing exclusively in cash, even when paying their taxes. As a result, the IRS has hired The MITRE Corporation to help process the large sum of cash tax payments. MITRE and the IRS declined to provide additional details regarding their contract.

“I would be really interested in knowing what the company’s scope of work would be for that $1.7 million,” said Jordan Cornelius, a Denver-based accountant who represents legal cannabis firms. Cornelius doesn’t believe MITRE will actually count sacks of cash for the IRS, but that the company will design a system to streamline the way the agency currently handles cash payments from the industry.