2 page research memo needed

You meet with your new client, Sam and Dave Dooby. Their business is Dooby Brothers LLC, which is a marijuana dispensary.  They have all permits and approvals.  The sale of medical marijuana is legal in the state.  Their estimated 2016 financial information is as follows:

Gross Receipts                                  $1,000,000

Cost of Goods Sold                               450,000

State Excise Tax                                     100,000

Rent                                                           70,000

Utilities                                                     45,000

Security                                                   100,000

Salaries                                                     60,000

Payroll Taxes                                                       25,000

Supplies                                                   12,000

Equipment                                               20,000

Marketing Expenses                                           35,000

            Before you begin preparing the return, you recall there are some special rules for marijuana dispensaries under the Internal Revenue Code.  They have been told by other accountants that all of the $1,000,000 is taxable.  They have agreed to pay your fee for a research memo discussing applicable section(s) of the Internal Revenue Code and applicable law explaining what is deductible and what is not deductible.