The IRS has made it clear that the agency no friend of the medicinal marijuana industry. President Obama may not put the dispensaries out of business, but the IRS just might. recently published an analysis of two cases that illustrate the IRS’s stance on the industry. The first was a March 2012 case in Marin County, California, where the IRS audited tax returns of a dispensary and denied all of the company’s deductions (including payroll, rent, and utilities) for a two-year period. The ruling resulted in an assessed tax, described by the dispensary’s director, as in the “millions and millions.”

The second case, Olive v. Commissioner, took place on August 2. In this case, the taxpayer owned a California facility named The Vapor Room, where patrons went to relax and smoke or inhale vaporized marijuana. The IRS followed the same procedure in Olive v. Commissioner as they did with the Marin County dispensary, arguing that the taxpayer was not entitled to any operating expenses. The Tax Court sided with the IRS.

The conclusion that can be drawn is that, “unless a medical marijuana facility can clearly establish that they offer a line of business other than buying and selling weed, it faces the very real possibility that it will be required to pay tax on 100% of their revenues.”