In Colorado alone, the newly legal marijuana market is poised to be worth $600 million, bringing $130 million in estimated state tax revenue.

However, the Federal government's taxation policies are giving the industry a squeeze at a time when the marijuana economy is one of the fastest growing-industries — and job creation engines — in the state of Colorado.

When it comes to taxation, the businesses are hit hard.

Section 280E of the U.S. tax code pertains to the taxation of illegal income. Here's how it reads, via the Cornell Law Library:

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.

Betty Aldworth, NCIA KIM SIDWELL / CANNABIS CAMERA

Well, that section was written at a time when nobody conceptualized that states might diverge from the Controlled Substances Act.

Betty Aldworth is the Deputy Director of the National Cannabis Industry Association, the closest thing that the marijuana industry has to a lobby. We spoke to her in Denver.

"Your typical small business will pay between fifteen to thirty five percentage on average for their effective tax rate," Aldworth said. These are places like coffee shops.

But when you substitute beans for flowers, the picture gets a lot different.

"If you open a marijuana store you can expect to have between 60 and 80 percent average effective business taxes. Sometimes it's as high as 90 or 93 percent."

So how does this happen?

You can't write this off. Walter Hickey / BI "It has been determined that the state legal sale of medical marijuana, as far as the IRS is concerned, is trafficking a scheduled controlled substance," Aldworth said. "So you can't take any deductions. You can't deduct payroll expenses, you can't deduct retail, rent-free retail space like any normal business would be able to do."

As a result, dispensaries cannot take any deductions. But there is a small, terrifically ironic silver lining here.

"You end up with only being able to deduct cost of goods sold, i.e. the marijuana itself."

That's right. In the eyes of the Federal government, you can't take any deductions on the sell side — the dispensary side — of your business, but you can write off the costs of growing marijuana in your growery.

You can write this off! Walter Hickey / BI Colorado has mandated that businesses have vertical integration.

That means that 70% of what your dispensary sells has to be grown by your own growery.

As a result, a marijuana business operating in Colorado can write off any deductions on the side of their business that grows the marijuana, but can't write off anything on the part where they sell that marijuana to customers.

Here's the thing. The marijuana businesses want to pay taxes. If the objective of their industry is legitimacy, that's just a cost of doing business. They're also, according to Aldworth, more than willing to pay a little extra in taxes. Again, they want legitimacy. But getting shellacked with something between a sixty and ninety percent effective tax rate is just too much.

When that much of your profits are going to D.C., the businesses can't re-invest it in Colorado. People are designing their businesses to minimize the number of employees on the retail side in order to minimize their liabilities. That's hurting the potential employment the industry could support.

"Its a job killing policy in one of the very few growth industries that Colorado has seen over the past several years," said Aldworth. Marijuana dispensaries alone — disregarding the ancillary market — have created over five thousand jobs in Colorado ove the past several years, according to NCIA estimates. "How many more could we create?"