Pitching Marijuana Startups Brings New Meaning To High Tech

CALIFORNIA: Investing in a social network closely tied to a booming industry sounds great, until Apple kicks the thing you invested in out of the App Store because the platform is all about marijuana.

It’s one of the many things that can happen when two of the fastest growing industries in America come together, as is taking place this week in San Francisco, where several dozen entrepreneurs are pitching 200 or so investors, Shark Tank style.

Organizers of the investor-pitch forum cite as legitimacy the recent multimillion dollar investment by Silicon Valley titan Peter Thiel‘s Founders Fund in a holding company of several marijuana-related firms. The entrepreneurs at the Fairmont Hotel are pitching startups selling marijuana-growing equipment, apps that help with medicinal marijuana delivery, and even a spray that an entrepreneur says was developed at the Lawrence Livermore National Laboratory that coats marijuana with grower information, acting as a kind of DNA bar code.

“It’s more suited to what cannabis would be in the future,” says DNA Trek founder Anthony Zografos.

Since Colorado and Washington first voted to legalize recreational marijuana use in late 2012, the legal cannabis market has grown from $1.5 billion in 2013 to $2.7 billion last year, according to industry estimates. That kind of velocity gets the attention of investors, many of whom focus on tech.

IRS Advice On Marijuana: Deduct It…But Prepare For 50% Tax

DISTRICT OF COLUMBIA: Four states have legalized recreational marijuana, and 23 states plus the District of Columbia have legalized medical use. But federal law still classifies it as a controlled substance, regardless of how legal it is in the states. There’s a lot more than taxes at stake, since federal drug crimes and seizures are nothing to sneeze out. Yet taxes are huge issues too.

Paying state tax on marijuana admits you are violating federal criminal law, right? It sure seems that way, which is why there’s a lawsuit challenging the taxes as violating your right not to incriminate yourself. Yet state efforts to tax this new cash crop and its blooming legitimacy are growing. But what about the IRS? It is federal, and Marijuana remains illegal nationally. Even so, the tax law is clear that even criminal income has to be reported to the IRS. Remember Al Capone?

As a result, even legal medical marijuana businesses have big federal income tax problems: tax evasion if they don’t report, and a considerably smaller risk of criminal prosecution if they do. More imminent, though, is the risk of being bankrupted by their IRS tax bill. That’s because Section 280E of the tax code denies even legal dispensaries tax deductions because marijuana remains a federal controlled substance. The IRS says it has no choice but to enforce the tax code.

Pot Finance Co-Ops Likely To Fail, But They’re Better Than Nothing

COLORADO:  A hurry-up bill that whizzed through the final days of the Colorado legislature to create the world’s first financial cooperatives for the marijuana industry still faces about two years of added preparation, backers now say.

But despite the initial optimism surrounding House Bill 1398, those familiar with the Federal Reserve System — the agency whose approval is required for the whole plan to work — say it’s unlikely to meet with anything but rejection.

Still others say the amount of effort needed to create the co-op system, which is little more than a credit union for the marijuana industry, is a wasted exercise in learning what was already known: that only Congress can make the changes needed to allow the pot industry access to normal banking.

“Arguably it’s all a charade, thinking that some members of the (Federal Reserve) board … will allow access to the payment system,” said Bert Ely, a banking structure consultant in Alexandria, Va. “If the Fed can’t let them in, the legislature’s action has no meaning.”