AFTER he was busted in 1974, Jeffrey Edmondson, a small-time dealer of marijuana, cocaine and amphetamines in Minneapolis, faced a daunting bill from the taxman for all his illicit income. He argued that he should be allowed to deduct $100,000 worth of business expenses, and a court agreed. Enraged, Congress revised the tax code in the early Reagan years, forbidding tax exemptions for drug traffickers. One unintended consequence of Mr Edmondson’s audacity persists four decades later: cannabis operations, now legitimate in many states, are forbidden from the usual business deductions and face crippling tax bills of as much as 70% of revenue.
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That is just one of the weird results thrown up by the unique regulatory bind in which cannabis companies find themselves. For decades theirs was an underground enterprise, run by pacifist hippies and murderous drug cartels. And although 29 states have legalised marijuana—seven of them and the District of Columbia permit recreational use—the federal government still considers pot illegal. Marijuana retains the most restricted classification for drugs with “no currently accepted medical use”, so-called schedule one, along with substances like heroin, LSD and ecstasy. For that reason, companies cannot ship materials across state lines. Compliance fears limit access to bank accounts, forcing companies to hoard cash and conduct business via armoured van. Lopsided tax incentives force