The CPA Journal:  “The biggest hurdle for dispensaries is the current tax framework, which treats marijuana growers more adversely than both legal and illegal businesses alike. Under Internal Revenue Code (IRC) section 61, unless specifically excluded, all sources of income are taxable, regardless of their origin. Under the recovery of capital doctrine, taxpayers are allowed to recover their cost of goods sold. In addition, IRC section 162 provides a current deduction for all ordinary and necessary business expenses. . . . . There is, however, an additional limitation for taxpayers engaged in the trafficking of controlled substances. IRC section 280E denies all ordinary and necessary business expenses paid or incurred in connection with the sale or trafficking of controlled substances listed on Schedule I or II of the Controlled Substances Act. Currently, 21 USC 812(c)(10) lists marijuana as a Schedule I drug. Furthermore, the courts have held that the sale of marijuana constitutes trafficking, regardless of legality at the state level. Thus, the ordinary and necessary deductions available to most businesses (both legal and illegal) are denied to the marijuana industry.”