The marijuana industry got a small morale boost in June when Supreme Court Justice Clarence Thomas labeled the federal government’s enforcement of the plant inconsistent and said that national prohibition “may no longer be necessary or proper.” But for Denver medical marijuana dispensary Standing Akimbo, the moral victory wasn’t enough.
Thomas’s opinion came in a statement released in conjunction with the court’s rejection of a case brought by Standing Akimbo against the IRS in 2017. The dispensary had argued against the agency’s tax-collection practices regarding state-legal marijuana businesses, taking issue with the IRS’s application of tax code 280E. That section defines marijuana businesses as illegal drug traffickers and prohibits them from applying for the vast majority of federal tax deductions.
Thomas called Standing Akimbo’s case a “prime example” of the inconsistencies between federal and state marijuana enforcement, but declined to officially oppose the court’s rejection of the case. Despite not getting a full hearing before SCOTUS, Standing Akimbo attorney James Thorburn believes Thomas gave his clients a road map for getting their case back in front of the Supremes — if they bring up the right questions.
We caught up with Thorburn right after he filed a petition for a re-hearing with the court to learn more.
Westword: After the case was denied and you read Justice Thomas’s statement, what went through your mind?
James Thorburn: At first it was disappointing, but the more we read Justice Thomas’s statement, the more excited we became. It became clear to us there was a real shift happening. There’s a difference between a statement and a concurring opinion or a dissent. When the justices discuss that little tiny group of cases they [consider for certiorari], they go into a locked room, and it’s just the nine justices and nobody else. Then they come out with cert granted, denied and so on. Nobody in the outside world knows what’s going on in there, but several years ago, Justice [Sonia] Sotomayor started writing statements to slightly open the door into the black box of that chamber. The statements sort of explained what was going on and what they were thinking. Other justices have followed suit, but you still don’t get these very often.
So after we get a statement from Justice Thomas that’s neither a dissent or concurrence, we see that he’s just bringing up what’s going on with federal marijuana policy. He mentions in the statement that Standing Akimbo is a prime example. To us, that’s not a statement saying “This case isn’t ready.”
What did you take from his statement that motivated an appeal to the Supreme Court to take another look?
There are two levels we’re seeing here. One is that this was a warning shot to Congress, saying that Congress either fixes this, or the [Supreme Court] will fix it for you. Another interpretation we’re seeing, which we’d be remiss in not following through on, is that our case is ready — we just didn’t ask the right questions. The questions asked if state-legal cannabis was a violation of federal law, as well as questions surrounding the 16th and 4th amendments.
The Supreme Court is sort of like going to a swami, and the swami says he’ll answer your question, but only if he decides to, and if he does, it’ll be an answer to that singular question, and no more. So in this case, Justice Thomas gave us an answer to a question we didn’t ask, but they can only grant cert on questions we asked. So that was him telling us we’re ready, but we need to ask the right questions.
And what are the right questions?
We want to ask the court if the current federal prohibition of intrastate use, cultivation, production and sales of marijuana under the Controlled Substances Act is a necessary and proper exercise of Congress’s Commerce Clause power. What we think may be going on is that this was sort of like a game of Jeopardy where someone takes Supreme Court for $1,000. And the answer is, what is the right question? If we ask the right question, we get that entry into the Supreme Court.
How hard is it to get as far as you already have with the Supreme Court?
It’s extremely rare. The lawsuit was filed in October of 2017. Standing akimbo means something like “standing with arms akimbo,” which is a defiant posture. We’re standing in favor of the State of Colorado and against the federal government.
How much do these taxes cost marijuana businesses like Standing Akimbo?
There’s been no assessment of Standing Akimbo yet because of some preliminary things, but we have examples. In one instance, $10,000 in taxable income was reported [by a marijuana business], and there was about $800,000 of receipts. Based on 280E, the IRS adjusted the taxable income to $981,000 and assessed the [marijuana business owner] $241,000 in taxes versus $53,000 in benefits. These are real numbers. In another example, $740,000 in taxable income was reported. After 280E adjustments, the taxable income was $2.9 million. The married couple reported $450,000 in taxable income, which was later adjusted to $1.5 million.
The IRS wants to tax you on gross receipts as much as they can. They have to deduct, at minimum, the cost of goods sold, but they come up with all kinds of ways to minimize that. They tax on gross receipts, because they want marijuana producers and sellers to admit to being drug traffickers so 280E can be levied against them. And if marijuana businesses don’t admit to being drug traffickers, then the IRS doesn’t allow any expenses for cost on production.
Does Standing Akimbo’s lawsuit aim to invalidate 280E, or would it do more than that?
The way Justice Thomas has positioned this, our case would declare the Controlled Substances Act unconstitutional. So this is now a lot bigger than 280E. We were thinking going in that we had brought forth some major unconstitutional issues, and Justice Thomas turned the gas up to full blast. If they take the case, the whole regime of the Controlled Substances Act is at issue, and whether Congress has the power to do what it did with the Controlled Substances Act.
If the Controlled Substances Act is deemed unconstitutional, even if just in regard to cannabis, then 280E goes away — because cannabis is no longer unlawful drug trafficking — and so do the banking impediments. All of those issues go “poof,” because the Supreme Court is telling Congress it has exceeded its powers.
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