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At Tax Time, Pot Merchants Don't Get a Break

Kayvan Khalatbari
Kayvan KhalatbariPhotograph by Kathryn Scott Osler/The Denver Post via Getty Images

Turning marijuana into a legitimate industry has been a long, long road for Kayvan Khalatbari. He’s worked for more than a decade on the cause, even donning a chicken suit to heckle John Hickenlooper, former Denver mayor and current governor. Now that his quest is succeeding, with Colorado leading the push into legal recreational sales, Khalatbari and other pot entrepreneurs are grappling with in the minutiae of taxation.

The problem Khalatbari faces stems from the awkward reality that marijuana is a controlled substance under federal law but legal in various forms in 20 states. The most visible problem created by that conflict is the lack of banking for pot businesses, but Section 280E of the federal tax code presents an additional challenge.