[kayodelycaon]

It's illegal: https://www.law.cornell.edu/uscode/text/26/280E

No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is conducted.

Under federal law, marijuana is Schedule 1. While it is used in medical treatment in some states, this use is not legal federally. https://www.dea.gov/drug-information/drug-scheduling

Schedule I drugs, substances, or chemicals are defined as drugs with no currently accepted medical use and a high potential for abuse. Some examples of Schedule I drugs are: heroin, lysergic acid diethylamide (LSD), marijuana (cannabis), 3,4-methylenedioxymethamphetamine (ecstasy), methaqualone, and peyote.

Those in the business of selling marijuana are doing so illegally in the hopes the federal government continues to not enforce the law. :(

[benj111]

So they're breaking the law by selling drugs? I assume they aren't paying taxes anyway then?!?

[xyzzyz]

Yes, they are breaking laws by selling drugs. No, they still pay taxes. The reason is that the federal drug enforcement agency that could go after them for breaking the low most likely will not do that, whereas IRS highly likely will go after them for not paying the taxes.

[anticensor]

Most countries prevent that dilemma by making the taxation rate of criminally acquired income 100%.

[xyzzyz]

The point is not to actually enforce these laws. If that sounds schizophrenic to you, that's because it is.