Recreational cannabis, aka marijuana, is legal in 15 states, as well as Guam and Washington, D.C., and legalization is imminent in New York State. Not all cannabis, however, is created equal – many states impose stamp taxes on illegal marijuana – even states where recreational use is legal. This Client Alert contrasts the approach of two different states – Massachusetts, where both medical and recreational cannabis are legal, and North Carolina, where neither is legal.
Legal sales of marijuana by “marijuana establishments” licensed by the Massachusetts Cannabis Control Commission are subject to marijuana retail taxes. The Commonwealth of Massachusetts imposes a 6.25% state sales tax and a 10.75% state excise tax on marijuana; cities and towns have a local option to impose up to 3% sales tax as well.
Massachusetts imposes a controlled substance tax on illegal sales of marijuana, however, at the rate of $3.50 on each gram of marijuana. Presumably, illegal sales would be those not from a licensed dispensary. In addition, possession of more than one ounce of marijuana on one’s person or ten ounces in one’s home is also a crime, punishable by a $500 fine, up to six months in jail, or both. The “good” news? The Massachusetts Supreme Judicial Court ruled that imposing the controlled substance tax on someone convicted of illegal possession of marijuana violates the Double Jeopardy clause of the Constitution. That said, one does not appear to have a choice about whether to purchase stamps or face a fine and imprisonment: according to the Massachusetts Department of Revenue, it is stamp collectors, and not marijuana dealers, who are buying the stamps.
North Carolina also imposes an unauthorized substances tax of $3.50 per gram (after the first 42.5 grams) on marijuana. Possession of more than 1.5 ounces (42 grams) for personal use is a felony, subject to a fine of $1,000 and 3-8 months in prison. (Possession of less than 1.5 ounces is subject to potentially lower fines, and potentially no or less jail time.) Interestingly enough, however, although the North Carolina Department of Revenue’s website cautions that purchasing stamps with the unauthorized substances tax does not cause the purchaser to be in legal possession of the drugs, it also says that information obtained pursuant to the unauthorized substances tax law is confidential and may not be disclosed or, unless independently obtained, used in a criminal prosecution other than a prosecution for a violation of the unauthorized substances tax law. So although North Carolina’s position is that double jeopardy does not attach if an individual pays the stamp tax, the Department of Revenue is not only willing, but required, to look the other way: it is a Class 1 misdemeanor for Department of Revenue employees to divulge information about stamp purchases to law enforcement.
In short, one is no worse off illegally possessing marijuana for personal use in the state where it is completely illegal than in the state where it is legal under some circumstances, and may in fact be better off in some cases.
This alert should not be construed as legal advice or a legal opinion on any specific facts or circumstances. This alert is not intended to create, and receipt of it does not constitute, a lawyer-client relationship. The contents are intended for general informational purposes only, and you are urged to consult your attorney concerning any particular situation and any specific legal question you may have. We are working diligently to remain well informed and up to date on information and advisements as they become available. As such, please reach out to us if you need help addressing any of the issues discussed in this alert, or any other issues or concerns you may have relating to your business. We are ready to help guide you through these challenging times.
Unless expressly provided, this alert does not constitute written tax advice as described in 31 C.F.R. §10, et seq. and is not intended or written by us to be used and/or relied on as written tax advice for any purpose including, without limitation, the marketing of any transaction addressed herein. Any U.S. federal tax advice rendered by DarrowEverett LLP shall be conspicuously labeled as such, shall include a discussion of all relevant facts and circumstances, as well as of any representations, statements, findings, or agreements (including projections, financial forecasts, or appraisals) upon which we rely, applicable to transactions discussed therein in compliance with 31 C.F.R. §10.37, shall relate the applicable law and authorities to the facts, and shall set forth any applicable limits on the use of such advice.
 Cannabis is still illegal under federal law, which classifies marijuana as a Schedule I drug under the Controlled Substances Act of 1970. Schedule I drugs are substances that have “a high potential for abuse” with “no currently accepted medical use in treatment in the United States” and that cannot safely be dispensed under a prescription. They may be used only for bona fide, federal government-approved research studies. Under the Obama administration, Attorney General James M. Cole issued a memo advising the Justice Department not to enforce federal marijuana laws in states that had “legalized marijuana in some form . . . except where a lack of federal enforcement would undermine federal priorities.” Former Attorney General Jeff Sessions rescinded the Cole Memorandum in 2018. During his confirmation hearings, current Attorney General Merrick Garland signaled that there would be a reduction in resources devoted to enforcing federal marijuana law. In addition, legislation that would make it easier for cannabis-related businesses operating in compliance with state and local law was recently introduced in the Senate. This will be the subject of a future Client Alert.