Supreme Court Justice Clarence Thomas said in a statement Monday that the federal governments hodge-podge of policies on marijuana has created a “contradictory and unstable state of affairs” and that federal prohibition “may no longer be necessary.”
The statement came as the Court was due to hear to hear an appeal by a Colorado marijuana dispensary, Standing Akimbo LLC. Colorado has legalized medical and recreational use of marijuana.
The petitioners goal in the appeal was to block the Internal Revenue Service from obtaining financial information about its business. According to court filings, the IRS is investigating whether Standing Akimbo had properly or improperly accounted for normal business expenses, an area of special interest for marijuana based business. In a public-policy provision in the Tax Code, §280E, companies that deal in controlled substances prohibited by federal law, such as marijuana, are not granted the same deductions of ordinary business expenses. Specifically, these business may only subtract the cost of goods sold, not the other necessary business expenses, such as rent and employee salaries.
The Supreme Court refused to hear the appeal.
Justice Thomas’ argument on marijuana law
The crux of Justice Thomas’ statement reflected on the position the court took 16 years ago in Gonzales v. Raich. At the time, the Court held that Congress had “enacted comprehensive legislation to regulate the interstate market in a fungible commodity” and that “exemption[s]” for local use could undermine the federal governments “comprehensive” regime.
Today, however, the federal and state outlook on marijuana has very much changed.
36 states now allow medical marijuana. 18 of those states also allow recreational marijuana. The once “comprehensive” regime described by Thomas has very much changed, with a majority of state’s ratifying laws that, in some form, support removing an outright ban or prohibition on marijuana.
In the petitioners case, they now find themselves on the wrong side of an investigation by the IRS. Their case argued that they were protected under the 4th Amendment, which provides them with reasonable expectations of privacy. The information sought by the IRS had been filed with Colorado’s Marijuana Enforcement Divisions, pursuant to a state law that criminalizes its disclosure.
Justice Thomas described their situation as one that shows how the “Government’s willingness to often look the other way on marijuana is more episodic than coherent.” Moreover, Thomas argued that in today’s world, the federal governments approach to marijuana “bears little resemblance to the watertight nationwide prohibition” that once divided the Court.”
Laissez-faire policies from the feds
Instead, the last 16 years has seen a flurry of “laissez-faire policies” and a “piecemeal approach” by the federal government. This puts businesses in contradictory positions, both in terms of the tax code, but also in terms of how they operate their businesses.
One example used by Thomas underlined that many marijuana businesses operate on a cash basis, as federal law prohibits certain financial institutions from knowingly accepting deposits from or providing any myriad of bank services to commercial operations that violate federal law. Those businesses then have little options to protect themselves from burglars or robbers, who are understandably enticed by large cash operations. Hiring an armed guard service, for example, might violate another federal law for using a firearm in furtherance of a “drug trafficking crime.”
This could lead marijuana business into the wrong side of a civil suit under the Racketeer Influenced and Corrupt Organizations Act.
These facts considered, Justice Thomas plainly ended his statement by arguing that “A prohibition on intrastate use or cultivation of marijuana may no longer be necessary or proper to support the Federal Government’s piecemeal approach.”
The case is Standing Akimbo LLC v. United States, U.S. Supreme Court, No. 20-645.
For Standing Akimbo: James Thorburn of Thorburn Law Group
For the government: Acting Solicitor General Elizabeth Prelogar and Nathaniel Pollock of the U.S. Department of Justice Tax Division