#Section 280E of the Internal Revenue Code

[cannabisbusinessexecutive]

Cannabis Took a Hit on Red Wednesday, but Hope Is On the Way

Reflecting multiple states rejection of marijuana legalization efforts and ushering in an administration seemingly hostile to cannabis, Red Wednesday revealed how uncertain regulatory policy, coupled with Herculean operational challenges, stripped the bloom off of the rose and unveiled the volatility of cannabis’ valuation. Despite generating $33.6 billion of revenue and 440,445 jobs…

[expertcannabiscfo]

Importance of Cash Flow Management in a Cannabis Dispensary

Congratulations, you’ve finally been approved and received your license to open your cannabis dispensary. Your doors are open and sales are beyond your expectations. Your income and expense projections you prepared indicate the first few years of your dispensary will be, at best, a break even proposition. The cash generated from your dispensary covers the day to day operating expenses, leaving little, if any, to build a reserve. BAM, then income tax time gives you an unpleasant surprise. Due to the restrictions of Internal Revenue Code (IRC) Section 280e many of your expenditures are not allowed as a deduction from income for tax purposes. The result is a rather large income tax liability that must be paid! Unfortunately, you have few funds or no funds available to pay the tax. NOW WHAT? Your options are limited due to the lack of traditional bank financing, as you know banks do not lend to cannabis dispensaries. If you own the real estate for the dispensary, your bank may allow you to borrow against the real estate. You could borrow funds from a non-traditional lender, with high interest rates, onerous payment schedules, or restrictions on uses of future funds generated from sales, generally not a viable alternative. You could try to eliminate unnecessary expenditures but that generally is not feasible as you are already operating on bare minimums. You may wish to start a growing operation to better utilize the benefits of IRC Section 471-11. If you are not already, you may wish to change your business strategy to building your brand and entertain offers to sell the dispensary. Lastly, you may be faced with discontinuing the dispensary operation, if additional capital is not available. If your current accounting team and CFO are not preparing a rolling cash forecast based on IRC Section 280e you are setting yourself up for failure. If your accounting team does not have a complete understanding of the nuances of IRC Sections 280e and 471, you are not using the tax code to your fullest advantage. In summary, your dispensary must be properly capitalized at the start of operations or have access to additional capital to continue to fund your dispensary, mostly due to IRC Section 280e. Opening and operating your dispensary is not a get rich quick proposition, it is a capital intensive business, plan for it accordingly. Unfortunately, many startups will not have sufficient capital to fund continued cash flows issues and will be forced to close their doors. Jeffrey F Reinert calvinpete.com A Dope CFO VIP Pro member

[perfectirishgifts]

House Passes Bill To Legalize Marijuana For Federal Purposes

New Post has been published on https://perfectirishgifts.com/house-passes-bill-to-legalize-marijuana-for-federal-purposes/

House Passes Bill To Legalize Marijuana For Federal Purposes

As more and more states legalize marijuana, pressure has been growing for Congress to take some action. This week, the House passed legislation that would end the federal ban on marijuana.

The Marijuana Opportunity Reinvestment and Expungement Act (MORE Act) garnered support from both sides of the aisle, passing with a 228-164 vote in the House. Under the terms of the bill, marijuana would be removed from the Controlled Substances Act.

History Of the Criminalization Of Marijuana

In the early part of the 20th century, booze was illegal during Prohibition, but marijuana was not. Under the 1937 Marihuana Tax Act, there was a two-part tax on the sale of marijuana, one which functioned like a sales tax and another which was more akin to an occupational tax for licensed dealers. Violations of the Act resulted in severe consequences.

In 1969, Timothy Leary challenged his arrest for possession of marijuana under the Act; the case of Leary v. United States made it to the Supreme Court. The Court invalidated part of the Act as a violation of the Fifth Amendment (against self-incrimination). The result was a new law, the Controlled Substances Act, passed in 1970, which criminalized the possession or sale of marijuana. It has remained so to this day.

Marijuana Is Legal In Most States

While still prohibited by federal law (possession can lead to fines and jail time), today, forty-four states and the District of Columbia currently have laws legalizing marijuana for either medical or recreational use. States which allow marijuana for medical use include Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Hawaii, Illinois, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Dakota, Texas, Utah, Vermont, Washington, and West Virginia – as well as the District of Columbia (some states allow CBD oil use only, including Georgia, Indiana, Iowa, Kentucky, Texas, Virginia, and Wisconsin). And, one in three Americans lives in a state that allows for recreational use.

Most Americans Think Marijuana Should Be Legal

According to a 2019 Pew poll, a whopping 91% support making medical marijuana legal, and 67% of Americans think marijuana should be legal, full stop. Despite the trend, possession of marijuana remains a federal crime. Under federal law, marijuana is still classed as a Schedule I drug – on par with heroin, LSD, and ecstasy – which means that it is not legal in any form. It is against federal law to grow, sell, or use marijuana for any purpose, including medical purposes. 

The MORE Act

The MORE Act would change that.

The Act would also, among other things, impose a 5% tax on marijuana to fund community and small business grant programs, make Small Business Administration (SBA) loans and services available to cannabis-related legitimate businesses, and prohibit the denial of federal public benefits based on certain cannabis-related conduct or convictions.

Economic Considerations

Currently, taxpayers and the government bear the burden of costs (but do not enjoy the revenue) to investigate and prosecute marijuana crimes. The federal government spends approximately $33 billion a year on drug control, while state and local governments spend nearly the same on criminal justice expenditures related to drug crimes. According to the National Drug Intelligence Service, the war on drugs costs the United States almost $200 billion a year in indirect costs (downloads as a PDF).

Current drug laws target users, peddlers, and hardcore dealers. In 2018, there were 1.65 million arrests for drug violations in the U.S. Of those related to marijuana, more than nine-in-ten arrests were for possessing marijuana (92%), rather than selling or manufacturing (8%). 

What does that mean to you? Tax dollars. In 2015, the total state expenditure – not including federal costs – on prisons among 45 reporting states was around $43 billion.

In 2012, it was estimated that the legalization of marijuana (not just for medical purposes) could take $10 billion away from the cartels and dealers. A 2018 presentation before the Joint Economic Committee in Congress reported that the marijuana economy totaled more than $8 billion in sales in 2017, with sales estimated to reach $11 billion in 2018 and $23 billion by 2022.

While marijuana sales are reportable – even if not legal – the Internal Revenue Service (IRS) has not always been successful in collecting the related revenue. As marijuana is increasingly legal in various states – while still illegal at the federal level – the IRS is taking steps to educate taxpayers about the tax consequences. The agency has even released a new marijuana business webpage to help business owners understand and meet their tax responsibilities.

However, since marijuana remains illegal for federal purposes, the IRS still takes the position that some related expenses are disallowed under Section 280E of the Tax Code:

§280E. Expenditures in connection with the illegal sale of drugs. 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.

Today, only the cost of goods sold is deductible for marijuana businesses. Traditional business costs, like employee payroll and marketing, remain non-deductible. The result is that marijuana businesses can be left with an effective tax rate between 40 and 70 percent.

Of course, this would change if marijuana is made legal for federal tax purposes. And even though the MORE Act passed the House, there’s no a guarantee that it will pass the Senate where it’s expected to face some opposition.

You can read the text of the bill here.

More from Taxes in Perfectirishgifts

[janepwilliams87]

IRS Releases Tax Guidance For Marijuana Industry

The Internal Revenue Service (IRS) on Thursday released updated guidance on tax policy for the marijuana industry, including instructions on how cannabis businesses that don’t have access to bank accounts can pay their tax bills using large amounts of cash.

Because marijuana remains federally illegal, the industry is largely deprived of tax benefits extended to operators in other markets—but it still has an obligation to pay taxes and properly report transactions, IRS said.

“A key component in promoting the highest degree of voluntary compliance on the part of taxpayers is helping them understand and meet their tax responsibilities while also enforcing the law with integrity and fairness to all,” the new memo states. “Businesses that traffic marijuana in contravention of federal or state law are subject to the limitations” in IRS code.

Income from any source is taxable, and taxpayers are generally required to file a tax return to report that income. #IRS provides general guidance for taxpayers in the marijuana industry: https://t.co/POESTOvT7H pic.twitter.com/f4y1Q3KlIn

— IRS #COVIDreliefIRS (@IRSnews) September 11, 2020

This update appears to be responsive to a Treasury Department internal watchdog report that was released in April. The department’s inspector general for tax administration had criticized IRS for failing to adequately advise taxpayers in the marijuana industry about compliance with federal tax laws. And it directed the agency to “develop and publicize guidance specific to the marijuana industry.”

The new guidance briefly covers the rules for income reporting, cash payment options, estimating tax payments and keeping financial records.

In an attached Frequently Asked Questions document, IRS explains how court rulings have clarified that businesses are required to pay taxes even if they��re selling products considered illegal under state or federal law. It also explains that marijuana companies are eligible for payment plans if they’re unable to pay their taxes in full. Further, it states that cannabis operations are subject to the same penalties as any other business that come about during an income audit.

A topic of particular interest for the marijuana market concerns tax benefits. An IRS code known as 280E “disallows all deductions or credits for any amount paid or incurred in carrying on any trade businesses that consist of illegally trafficking in a Schedule I or II controlled substance within the meaning of the federal Controlled Substances Act.”

“Section 280E does not, however, prohibit a participant in the marijuana industry from reducing its gross receipts by its properly calculated cost of goods sold to determine its gross income,” IRS said, adding that “taxpayers who sell marijuana may reduce their gross receipts by the cost of acquiring or producing marijuana that they sell, and those costs will depend on the nature of the business.”

“Accordingly, a marijuana dispensary may not deduct, for example, advertising or selling expenses. It may, however, reduce its gross receipts by its cost of goods sold, as calculated pursuant to Internal Revenue Code section 471,” it said.

In other words, while cannabis businesses aren’t eligible for most traditional deductions, they are able to calculate the cost of goods and get some tax relief.

But pending a change in the federal legal status of marijuana, or statutory changes at the agency level, the cannabis industry will continue to be at a disadvantage. That would change if Congress passed a marijuana legalization bill like the one the House is set to vote on later this month.

FDA Teaches Marijuana Growers And Researchers How To Protect Trade Secrets From Competitors

The post IRS Releases Tax Guidance For Marijuana Industry appeared first on Marijuana Moment.

from Updates By Jane https://www.marijuanamoment.net/irs-releases-tax-guidance-for-marijuana-industry/

[cpa-from-engineer-eyes]

[garudabluffs]

Section 280E of the Internal Revenue Code has long been a thorn in the side of legal pot companies. The law, introduced in the 1980s when a drug dealer tried to deduct business expenses, prevents any company that sells Schedule 1 or 2 controlled substances from claiming ordinary tax deductions available to other businesses. As a result, state-legal cannabis companies can end up paying tax rates upwards of 70 percent.

Mann’s appeal rests on two arguments: the first is that 280E violates the 16th Amendment by taxing more than just income, and the second is that Harborside should be allowed to deduct the cost of goods sold like wages regardless of 280E, because 280E only applies to bottom-line expenses.

READ MORE https://www.bostonglobe.com/2020/06/15/marijuana/giant-drug-trafficker-wants-change-tax-law/

[rothrocktaxlawyerftmyers-blog]

Business Deductions for Medical Marijuana

Business Deductions for Medical Marijuana

deductions for medical marijuana Business Deductions for Medical Marijuana.  Medical marijuana is a big business in the U.S.  It is also a legal business in the majority of states in the U.S.   Despite this fact, medical marijuana retailers cannot claim many business expenses on their tax returns. Internal Revenue Code Section 280E forbids tax deductions based on the sale of illegal substances.  Although the sale of marijuana is now legal in most states, it is still illegal under federal law.  (Oddly enough,Section 280E  does not apply to "cost of goods sold," which reduces the total amount of income reported for a company). The United States Tax Court interpreted Section 280E one step further.  In the case of Alterman v Commissioner, TC MMemo 2018-83, the Tax Court disallowed the taxpayers' deduction for non-marijuana merchandise, such as pipes and paraphernalia.  The Court ruled that "selling non-marijuana merchandise was not separated from the business of selling marijuana merchandise.  The taxpayer derived almost all of its revenue from the business of selling marijuana merchandise.  Also, the merchandise complemented its efforts to sell marijuana."  The taxpayers argued that selling paraphernalia was a separate business that did not involve selling drugs. Courts have also ruled that most employee salaries of medical marijuana businesses were nondeductible business expenses.  In the case of x, the taxpayer attempted to include salaries as a cost of goods sold to reduce total income reported.  The court held that the salaries were not cost of goods sold but were business expenses.  The company could not deduct the business expenses under Section 280.

How to Maximize Profits in Medical Marijuana

Legalized marijuana dispensary owners will eventually lobby Congress to change the laws regarding taxation.  Until Congress passes new laws, business owners should keep good records.  In the Alterman case, the taxpayers did not maintain good records.  Had they maintained good records, the Court might have allowed their deductions for the selling of non-marijuana merchandise as a separate business.  In order to maximize deductions, medical marijuana dispensaries and retailers should clearly separate the business of selling marijuana from other businesses, such as providing drug counseling, selling t-shirts, and selling pipes.

Hire an Experienced Tax Lawyer today

Call the Rothrock Law Firm today at (239) 206-1976.  Radha Rothrock is a tax lawyer in Fort Myers, Florida.  She is licensed to practice law in Florida and is admitted to practice before all Tax Courts in the U.S.  She holds a Masters of Law Degree in Taxation.  Call today for a free consultation. Read the full article

[taxlawyernaples-blog]

Business Deductions for Medical Marijuana

Business Deductions for Medical Marijuana

deductions for medical marijuana Business Deductions for Medical Marijuana.  Medical marijuana is a big business in the U.S.  It is also a legal business in the majority of states in the U.S.   Despite this fact, medical marijuana retailers cannot claim many business expenses on their tax returns. Internal Revenue Code Section 280E forbids tax deductions based on the sale of illegal substances.  Although the sale of marijuana is now legal in most states, it is still illegal under federal law.  (Oddly enough,Section 280E  does not apply to "cost of goods sold," which reduces the total amount of income reported for a company). The United States Tax Court interpreted Section 280E one step further.  In the case of Alterman v Commissioner, TC MMemo 2018-83, the Tax Court disallowed the taxpayers' deduction for non-marijuana merchandise, such as pipes and paraphernalia.  The Court ruled that "selling non-marijuana merchandise was not separated from the business of selling marijuana merchandise.  The taxpayer derived almost all of its revenue from the business of selling marijuana merchandise.  Also, the merchandise complemented its efforts to sell marijuana."  The taxpayers argued that selling paraphernalia was a separate business that did not involve selling drugs. Courts have also ruled that most employee salaries of medical marijuana businesses were nondeductible business expenses.  In the case of x, the taxpayer attempted to include salaries as a cost of goods sold to reduce total income reported.  The court held that the salaries were not cost of goods sold but were business expenses.  The company could not deduct the business expenses under Section 280.

How to Maximize Profits in Medical Marijuana

Legalized marijuana dispensary owners will eventually lobby Congress to change the laws regarding taxation.  Until Congress passes new laws, business owners should keep good records.  In the Alterman case, the taxpayers did not maintain good records.  Had they maintained good records, the Court might have allowed their deductions for the selling of non-marijuana merchandise as a separate business.  In order to maximize deductions, medical marijuana dispensaries and retailers should clearly separate the business of selling marijuana from other businesses, such as providing drug counseling, selling t-shirts, and selling pipes.

Hire an Experienced Tax Lawyer today

Call the Rothrock Law Firm today at (239) 206-1976.  Radha Rothrock is a tax lawyer in Fort Myers, Florida.  She is licensed to practice law in Florida and is admitted to practice before all Tax Courts in the U.S.  She holds a Masters of Law Degree in Taxation.  Call today for a free consultation. Read the full article

[duaneodavila]

Are Tax Laws Threatening To Kill The Buzz On Legal Marijuana Sales?

One of the biggest legal controversies involving taxes involve marijuana sales. In the past it was criminalized in all states, because it was seen as a gateway drug to harder substances.

But over the years, the attitude towards marijuana has changed and the law has been somewhat receptive. Many states allow its use for medicinal purposes and have decriminalized marijuana possession. In recent years, a few states allowed it for recreational use under certain conditions.

Entrepreneurs are starting marijuana dispensaries in states with friendly marijuana laws. Generally, businesses pay tax on its net income – meaning gross receipts reduced by ordinary and necessary business expenses.

But the federal tax law is not friendly to marijuana businesses. Section 280E of the Internal Revenue Code disallows the deduction of ordinary and necessary business expenses connected with trafficking of controlled substances, which includes marijuana.

There are two exceptions to the Section 280E limitation. First, the limitation did not apply for expenses associated with cost of goods sold (COGS). COGS is the cost of acquiring inventory, through either purchase or production. Second, if the taxpayer can show that their business expenses are connected with a separate trade or business that is not connected to marijuana sales, then those expenses are deductible.

On November 29, 2018, the U.S. Tax Court decided Patients Mutual Assistance Collective Corporation v. Commissioner. Did this decision set new precedent on Section 280E? Or did it uphold the status quo?

In this case, the taxpayer formed a marijuana dispensary known as Harborside Health Center (Harborside). In addition to marijuana sales, Harborside sold products that contained marijuana and non-marijuana products. Also, Harborside provided other services to its patients at no additional cost, claiming that it was part of the purchase price. These services included hypnotherapy, yoga, acupuncture and Tai Chi.

What’s interesting about this case is that Harborside purchased its marijuana flowers from its patients. What Harborside did was give marijuana clones from nurseries and gave or sold the clones or seeds to its patients with the understanding that the cultivated marijuana could be sold back to Harborside. Harborside had the discretion to not purchase the marijuana if it did not meet their needs at that time. The growers can then sell them to another collective if they choose to.

If this arrangement sounds odd to you, I’m sure there are all kinds of similar arrangements like this in the cannabis industry. When you are facing large tax bills totaling several million dollars due to Section 280E, you will do odd things to minimize the tax burden.

In 2012, the federal government filed a civil forfeiture action alleging that Harborside was illegally cultivating, distributing and possessing marijuana. The lawsuit was eventually dismissed.

The IRS audited Harborside and disallowed most of its claimed business deductions. It then asserted tens of millions of dollars in taxes, penalties and interest, citing Section 280E. Harborside petitioned the U.S. Tax Court to review the decision.

First, the Tax Court considered whether the dismissal of the forfeiture lawsuit allowed a res judicata claim on Section 280E, thus preventing the court from even considering whether that section applies in determining the business expenses are deductible. Harborside argued that the dismissal means that as a matter of law Harborside was not a drug trafficker and thus not subject to Section 280E. However, the Tax Court found that res judicata does not apply because there is no identity of claims in both actions. This is because the IRS cannot finalize a proposed tax liability in a civil forfeiture case.

Since res judicata does not apply, the Court next decided whether Section 280E applies in the case. First, the Court noted that Section 280E applies even if a trade or business has multiple different activities that do not involve marijuana sales.

Second, the court looked at whether the multiple activities of Harborside constitutes one business or several. This is crucial because if Harborside is found to be operating multiple businesses, including some that are not related to marijuana sales, then a portion of the business expenses can be deductible by allocating them to the nonmarijuana related businesses. On the other hand, if the other businesses are merely incident to marijuana sales, then the multiple business activities considered as one. For example, just because McDonalds includes a toy in a Happy Meal does not turn McDonalds into a toy store.

In sum, the court found that the Harborside’s other activities were merely incident to marijuana sales. The sale of nonmarijuana products generated less than 1% of its revenue. Also, the taxpayer did not have separate books and records for the nonmarijuana sales. Regarding the free therapeutic services provided, such as yoga and acupuncture, this too was also considered incident to marijuana sales. The court noted that security only checked in 5% of the time to monitor the services provided while spending 60% of their time checking in people who were purchasing marijuana.

Finally, Harborside tried to argue that their expenses connected to the sale of marijuana should be attributed to COGS which is an allowable deduction despite the limitations of Section 280E. This required a determination as to whether Harborside was a reseller or producer of the marijuana. If Harborside is a producer, then it can deduct indirect inventory costs such as labor, raw materials, supplies, and production costs. If Harborside is considered a reseller, then it can only include its inventory price and transportation costs.

The Court held that Harborside was a reseller. The Court noted that Ninth Circuit case law holds that for the taxpayer to be considered a producer, he must be considered an owner of the property produced. However, the determination of ownership will depend on the facts and circumstances, not merely holding title. The Court found that Harborside did not have all of requisite bundle of sticks of ownership. It noted that Harborside did not create the clones, maintain tight control over them, order specific quantities, prevent sales to third parties, or take possession of everything produced. Harborside merely sold or gave its patients clones that it purchased from nurseries and bought back marijuana from them if and when they wanted.

In a footnote, the Court recognized that some states allow recreational and medical use of marijuana. So it appears that even in states with marijuana friendly laws, the Court will not release or mitigate the effects of Section 280E. The Court stated that the only way to get relief from Section 280E is to change the federal law.

Future audit victims may want to consider bringing their case before a U.S. District Court where their case may be heard and decided by a local jury who may be more sympathetic. The problem is that the District Court only has jurisdiction in tax cases when the taxpayer pays the tax first and then sues for a refund. Unfortunately, this means that only wealthy businesses will be able to access this alternative forum.

The Tax Cuts And Jobs Act lowered the corporate tax rate to a flat 21% starting in 2018. This can lower the tax burden for larger dispensaries and may eliminate the need for complex and risky tax strategies. However, the finances of C Corporations must be handled very carefully. If a shareholder withdraws excessively from the corporation, the withdrawals can be classified and taxed as wage income or as constructive dividends. However, if the shareholders leave the money in the corporation, the corporation may be subject to the accumulated earnings tax.

The Tax Court’s opinion is a buzz-kill to marijuana entrepreneurs everywhere. While I think there are some appealable issues, for now, this decision will serve as a lesson to other dispensaries and their advisors. Until the tax law changes, marijuana dispensaries must allocate as much of their expenses as possible to COGS and allocate other expenses to businesses that are not subject to the Section 280E limitation.

Shannon Achimalbe was a former solo practitioner for five years before deciding to sell out and get back on the corporate ladder. Shannon can be reached by email at sachimalbe@excite.com and via Twitter: @ShanonAchimalbe.

[growlegalweed-blog]

Legal Weed Resources

Check out... https://legalweed.gq/420/accounting-today-publish-article-special-tax-issues-for-cannabis-businesses/

Accounting Today Publish Article, “Special tax issues for cannabis businesses”

They write………..It’s tax time for everyone, but for entrepreneurs in the rapidly growing cannabis business, it’s a particular challenge. That’s because they are confronted with the issue of filing taxes for a federally illegal market, even though it’s perfectly legal in the state in which they do business.

Section 280E of the Internal Revenue Code prohibits the deduction of otherwise ordinary business expenses from gross income associated with the trafficking of Schedule I or Schedule II substances as defined by the Controlled Substances Act.

Specifically, the statute states: “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 Schedules 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.”

Full article at ….  https://www.accountingtoday.com/news/cannabis-businesses-have-special-tax-issues

[supremekalmllc]

New Post has been published on https://supremekalm.com/international-cannabis-guidance-for-companies-entering-theu-s-market-part-2-taxation/

International Cannabis: Guidance for Companies Entering the U.S. Market, Part 2 – Taxation

In prior blog posts (see here and here), I described how we have been fielding regular inquiries regarding international cannabis, both from companies inside the U.S. looking internationally and from international companies looking to the U.S. market. This post deals with taxation issues for international companies seeking to enter the U.S. market.

Tax Treaties. The first level of taxation inquiry when looking to do business in the U.S. is to determine whether your home country is one of the 68 that has a bilateral tax treaty in place with the U.S. (see here for the IRS’ definitive list). The “tax” purpose of these tax treaties is to ensure taxable income is accounted for so that it can be taxed. The “treaty” part of the tax treaties refers to the agreement between the countries that their respective taxing authorities will apply certain reduced tax rates or entirely do away with other tax rates so as to avoid double taxation, fostering a more favorable business environment between the two countries.

IRC Section 280E. In the U.S. where cannabis as marijuana (> 0.3% THC content) continues to be illegal at the federal level, the IRS (Internal Revenue Service) keeps an eye on cannabis company taxation issues, particularly Section 208E of the Internal Revenue Code that deals with acceptable business deductions (cost of goods sold or COGS) for illegal enterprises (See 26 USC Section 280E. Expenditures in Connection with the Illegal Sale of Drugs). Section 280E is extremely important to cannabis (marijuana) companies, and their CPAs have the code section memorized.

Section 280E is less crucial for companies that are purely working with cannabis as hemp (< 0.3% THC). This is due to the 2018 Farm Bill that effectively legalized hemp by removing it from the definition of marijuana as a scheduled controlled substance. So companies that are purely dealing with hemp will find that their U.S. federal taxation issues are not significantly different from any other legal business industry in the U.S. That does not make U.S. taxation simple – only less complicated and more profitable due to the tax savings from being able to deduct normal business expenses.

State Tax Issues. For international cannabis companies looking to sell at retail in the U.S., whether through brick-and-mortar or through e-commerce sales, most of your (non-employee) U.S. tax concerns will center on U.S. state sales tax. Each state within the U.S. has its own sales tax rate, and each city and town generally has its own additional sales tax, so your U.S.-based accounting firm’s assistance will be crucial in ensuring you are withholding and paying the correct amount of sales tax for each transaction.

This helpful graphic and chart from the Tax Foundation will give you a good overview of US sales tax. Fortunately, U.S. sales tax is rarely as high as many international jurisdictions (for instance, 20% sales tax in Switzerland compared to 10-12% in some parts of Washington state).

You may owe business income tax in many U.S. states, depending on your level of activity in those states. Basically, wherever your customer is located, you will be responsible to collect and remit sales tax in those states.

Cannabis-Friendly CPA Firms. Lawyers are risk-adverse by nature. Accountants are the even more risk-averse cousins of lawyers. So you can imagine that finding a good CPA firm that understands international tax issues, federal tax issues (including IRC Section 280E), the difference between a marijuana business and a hemp business, state income tax, state sales tax, state and federal employment tax, etc., AND has a good head for business is as difficult as it is important. I know a few, but they are rare.

Are Lawyers More Important than CPAs? I love to ask my CPA friends this question. Obviously, the answer is yes if I am answering the question, but we are really two straps to the same pair of suspenders. When you as an international cannabis business owner are looking at the U.S. market, you need to find a good law firm and a good CPA firm, and you need your CPA firm involved at least as early as your lawyers. You need to do this so that both your lawyers and your CPAs can strategize with you regarding your business plan to take advantage of the optimal intersection of state cannabis laws, regulations, and enforcement regarding your cannabis activities, as well setting up operations in the states with a favorable business environment where corporate and franchise taxation are low or nonexistent.

In the next blog post in this series, I will address more U.S. legal considerations for international cannabis companies looking to capitalize on the U.S. market.

The post International Cannabis: Guidance for Companies Entering the U.S. Market, Part 2 – Taxation appeared first on Harris Bricken.

[cannabisbusinessexecutive]

Top Five Things to Know if You’re Building Your Cannabis Empire Through M&A

Top Five Things to Know if You’re Building Your Cannabis Empire Through M&A

By Hilary Bricken, Founder Harris Bricken

It’s no secret that multiple state-by-state operators are building their cannabis empires through aggressive mergers and acquisitions (“M&A”). Last year, our cannabis business attorneys closed more than $100 million in cannabis company acquisitions, and that shows no signs of stopping in 2019. Cannabis M&A is not your run-of-the-mill business dealing…

[centuryassociates]

Free Lunch-Time Webinar TOMORROW: West Coast Hemp-CBD After the Farm Bill

Congress passed the Agricultural Improvement Act of 2018 (better known as the “Farm Bill”) in December 2018 which removed hemp from the federal Controlled Substances Act. This further resulted in hemp-based cannabidiol or “hemp-CBD” legalization. Despite their federally legal status, hemp-CBD products are now more in question than ever, different state and federal agencies have proposed drastically different regulations throughout every facet of the hemp-CBD industry.

If you are a hemp-CBD business, have interest in the industry or are interested in the state and future of hemp-CBD legality, please join us tomorrow, February 21, 2019 at noon (PST) for the latest installment in our lunchtime webinar series. This session is entitled “West Coast Hemp-CBD After the Farm Bill.”

In this hour-long session, Harris Bricken lawyers Daniel Shortt (Seattle, Washington), Nathalie Bougenies (Portland, Oregon), and Griffen Thorne (Los Angeles, California) will provide an in-depth look at changes in federal law and policy post Farm bill, as well as its impact on each of the three west coast states (Washington, Oregon, and California). Throughout the presentation our team will also discuss the status of laws and regulations in each state. Some of the topics we will cover include:

the future of hemp permitting;

Farm Bill implications for Internal Revenue Code section 280E;

banking for hemp-CBD businesses;

intellectual property for hemp-CBD businesses;

CBD in food, beverages, vape cartridges, oils, topicals, and other products; and

the Food and Drug Administration’s role in hemp-CBD.

With an industry that is projected to be worth $20 billion by 2022, interest in hemp is at in an all-time high. Make sure you don’t miss out on this valuable information! The webinar will be moderated by Hilary Bricken, with our panel of attorneys addressing audience questions throughtout the presentations. Please register for the event here! Should you have any further questions, please feel free to reach us at firm@harrisbricken.com.

Free Lunch-Time Webinar TOMORROW: West Coast Hemp-CBD After the Farm Bill posted first on https://centuryassociates.blogspot.com/

[jodieshazel]

Free Lunch-Time Webinar TOMORROW: West Coast Hemp-CBD After the Farm Bill

Congress passed the Agricultural Improvement Act of 2018 (better known as the “Farm Bill”) in December 2018 which removed hemp from the federal Controlled Substances Act. This further resulted in hemp-based cannabidiol or “hemp-CBD” legalization. Despite their federally legal status, hemp-CBD products are now more in question than ever, different state and federal agencies have proposed drastically different regulations throughout every facet of the hemp-CBD industry.

If you are a hemp-CBD business, have interest in the industry or are interested in the state and future of hemp-CBD legality, please join us tomorrow, February 21, 2019 at noon (PST) for the latest installment in our lunchtime webinar series. This session is entitled “West Coast Hemp-CBD After the Farm Bill.”

In this hour-long session, Harris Bricken lawyers Daniel Shortt (Seattle, Washington), Nathalie Bougenies (Portland, Oregon), and Griffen Thorne (Los Angeles, California) will provide an in-depth look at changes in federal law and policy post Farm bill, as well as its impact on each of the three west coast states (Washington, Oregon, and California). Throughout the presentation our team will also discuss the status of laws and regulations in each state. Some of the topics we will cover include:

the future of hemp permitting;

Farm Bill implications for Internal Revenue Code section 280E;

banking for hemp-CBD businesses;

intellectual property for hemp-CBD businesses;

CBD in food, beverages, vape cartridges, oils, topicals, and other products; and

the Food and Drug Administration’s role in hemp-CBD.

With an industry that is projected to be worth $20 billion by 2022, interest in hemp is at in an all-time high. Make sure you don’t miss out on this valuable information! The webinar will be moderated by Hilary Bricken, with our panel of attorneys addressing audience questions throughtout the presentations. Please register for the event here! Should you have any further questions, please feel free to reach us at firm@harrisbricken.com.

from Canna Law Blog™ https://www.cannalawblog.com/free-lunch-time-webinar-tomorrow-west-coast-hemp-cbd-after-the-farm-bill/

[adambstingus]

Pot Industry Deals With Ultimate Buzzkill: Self Regulation

The rules have to come from somewhere. For some cannabis industry leaders, they’d rather be the ones to set the rules and regulations for their businesses.  

It’s a double-edged sword when they say they just want to be treated like any other legitimate industry.

Equal treatment could of course be good for legal weed, especially if businesses were taxed at typical rates instead of double or even triple those rates, as mandated by IRS tax section 280E. But if federal regulators were to reschedule marijuana and treat medical cannabis products similar to pharmaceutical or agricultural products it would, as I wrote last year, add “costly and timely steps to the pot-selling process that some say could bankrupt most of these businesses.”

As Rolling Stone explained further: “If the federal government determines that medical marijuana must be subjected to FDA approval, companies would have to enter a process that can take years to complete and cost more than $1 billion per product. Few, if any, cannabis companies in the U.S. have the resources for that, which might open the door for Big Pharma to muscle in and take over the business.”

The current rules for any modern cannabis business can be found in the all-important regulations, from the federal government’s IRS Tax Code and Controlled Substances Act to the many state and territory regulations that direct more than 30 U.S. markets, from Hawaii to Guam.

Not all industries are subject to federal regulators. Films, for example, are mostly self-regulated by the Motion Picture Association of America, which rates films based on their content (G, PG, PG-13, R, NC-17) to help consumers make educated decisions. The organization was created in the 1920s “to resist mounting calls for government censorship of American films,” and the MPAA’s well-known voluntary movie-rating system shields the filmmaking industry from what they see as unnecessary government interference.

The pot industry is also starting to see a number of independent agencies putting forth their own suggested standards and regulations, including the 119-year-old standards organization ASTM International, the 121-year-old National Fire Protection Association, and the brand new Cannabis Certification Council, announced earlier this month as a merger between the Organic Cannabis Association and the Ethical Cannabis Alliance.

Of course the industry itself has plenty of ideas on best practices and regulations, and that’s where the just-announced National Association of Cannabis Businesses enters the conversation. Calling itself the legal marijuana industry’s first self-regulated organization (SRO), the NACB has assembled an impressive team to create uniform national standards that its founding members—including marijuana brands Buds & Roses, Cresco Labs, Etain, Green Dot Labs, Local Product of Colorado, Matrix NV, Mesa Organics and others—and future paid members will eventually abide by.

“It’s an entirely new industry—an entirely new legal industry, rather—and it’s so rare that that happens,” said Doug Fischer, the NACB’s D.C.-based chief legal officer and a former associate at Wall Street law firm Cadwalader Wickersham and Taft. “There are all these historical precedents of industries that have done a good or bad job or regulating themselves. But given the uncertain state of play at the federal level and the fragmented situation at the state level, the time is now for an organization like this in the legal cannabis industry.”

Heading up the NACB is president Andrew Kline, a former Assistant U.S. Attorney and senior advisor to then-Senator Joseph Biden, and CEO Joshua Laterman, who served as the longtime U.S. general counsel of global investment bank Natixis. NACB advisors are industry heavyweights with deep experience in regulated markets including Colorado, California and D.C.

Writing comprehensive regulations for a still-new industry is a daunting task, but the NACB has “identified five or six areas as primary ones we’d like to focus on now,” said Fischer, “and some are addressed by state law to varying degrees of effectiveness and some are not.”

The organization will soon begin conversations with members on setting regulations for advertising cannabis products, where they will borrow from tobacco and alcohol in deciding how, where and to whom marijuana can be marketed.

NACB will also look at regulations for packaging and labeling restrictions, which will inevitably address child-proof containers, edible weed’s single serving size, and comprehensive on-package language containing all pertinent information and warnings. The organization will also address reputable financial integrity and accounting practices, a.k.a. audited and verified financial statements that fairly reflect the state of a cannabis business’ finances, including cost of goods sold, revenues, tax liabilities and assets including inventory.

“The industry needs to demonstrate that it takes these things seriously,” said Fischer.

Self-regulated organizations traditionally develop and enforce regulations for a specific industry, and some of the better-known SROs include the Financial Industry Regulatory Authority (FINRA), the National Association of Realtors and the American Medical Association.

“People wouldn’t want to do business with a broker who is not in good standing with FINRA,” said Fischer, “and we hope that will also be the case with the NACB.”

Of course the SRO concept has its detractors, especially given some of their cozy relationships with the industries they’re regulating. But in actuality “many self-regulatory schemes have been effective precisely because the self-regulated have recognized that complying has been in their interest,” former Federal Trade Commission chairman Deborah Platt Majoras told a gathering of the Council of Better Business Bureaus in 2005.

Platt Majoras continued in her speech: “In response to public concerns about the violent content of their products and its suitability for children, the motion picture (MPAA), music recording (RIAA), and electronic game (ESA) industries each have in place a self-regulatory system that rates or labels products in an effort to help parents seeking to limit their children’s exposure to violent materials. Their systems govern the placement of advertising for Restricted ®-rated movies, Mature (M)-rated games, and Explicit-Content Labeled recordings in media popular with teens and require the disclosure of rating and labeling information in advertising and on product packaging.”

The NACB’s Fischer understands the differences between his organization and the MPAA: “There’s no federal law on rating movies because the industry took it upon themselves to do that. With something like cannabis, this is a drug that has such obvious public health and safety concerns, and it wouldn’t be realistic that the government would stay out of it as they have with motion picture ratings.”

But another section of Platt Majoras’ 2005 speech to the Better Business Bureaus acknowledges that the NACB’s early focus on universal cannabis advertising regulations is a solid place to start this particular SRO conversation: “The Distilled Spirits Council of the United States (DISCUS), as well as two other alcohol industry trade associations, the Beer Institute and Wine Institute, have adopted voluntary advertising codes governing the placement and content of alcohol advertising. The three codes have provisions designed to ensure that alcohol ads are not targeted to minors under 21, who cannot legally purchase alcohol, as well as to address other advertising and marketing issues.”

The NACB only launched on Thursday, and it has a long way to go before it can hold court with more established SRO counterparts in the alcohol and tobacco industries. But Fischer and his colleagues want consumers and potential members to know that they plan on growing into the kind of organization that can create meaningful, positive change for the cannabis industry and its millions of customers.

“At the outset, we’re a small organization and don’t have dedicated staff to inspect all our members,” said Fischer. “But over time we hope to move toward more robust enforcement mechanism, because to give governments and stakeholders assurances that our members are complying with relevant laws and our national standards, we will need to be able to back it up.”

from All Of Beer http://allofbeer.com/pot-industry-deals-with-ultimate-buzzkill-self-regulation/ from All of Beer https://allofbeercom.tumblr.com/post/179339940257

[allofbeercom]

Pot Industry Deals With Ultimate Buzzkill: Self Regulation

The rules have to come from somewhere. For some cannabis industry leaders, they’d rather be the ones to set the rules and regulations for their businesses.  

It’s a double-edged sword when they say they just want to be treated like any other legitimate industry.

Equal treatment could of course be good for legal weed, especially if businesses were taxed at typical rates instead of double or even triple those rates, as mandated by IRS tax section 280E. But if federal regulators were to reschedule marijuana and treat medical cannabis products similar to pharmaceutical or agricultural products it would, as I wrote last year, add “costly and timely steps to the pot-selling process that some say could bankrupt most of these businesses.”

As Rolling Stone explained further: “If the federal government determines that medical marijuana must be subjected to FDA approval, companies would have to enter a process that can take years to complete and cost more than $1 billion per product. Few, if any, cannabis companies in the U.S. have the resources for that, which might open the door for Big Pharma to muscle in and take over the business.”

The current rules for any modern cannabis business can be found in the all-important regulations, from the federal government’s IRS Tax Code and Controlled Substances Act to the many state and territory regulations that direct more than 30 U.S. markets, from Hawaii to Guam.

Not all industries are subject to federal regulators. Films, for example, are mostly self-regulated by the Motion Picture Association of America, which rates films based on their content (G, PG, PG-13, R, NC-17) to help consumers make educated decisions. The organization was created in the 1920s “to resist mounting calls for government censorship of American films,” and the MPAA’s well-known voluntary movie-rating system shields the filmmaking industry from what they see as unnecessary government interference.

The pot industry is also starting to see a number of independent agencies putting forth their own suggested standards and regulations, including the 119-year-old standards organization ASTM International, the 121-year-old National Fire Protection Association, and the brand new Cannabis Certification Council, announced earlier this month as a merger between the Organic Cannabis Association and the Ethical Cannabis Alliance.

Of course the industry itself has plenty of ideas on best practices and regulations, and that’s where the just-announced National Association of Cannabis Businesses enters the conversation. Calling itself the legal marijuana industry’s first self-regulated organization (SRO), the NACB has assembled an impressive team to create uniform national standards that its founding members—including marijuana brands Buds & Roses, Cresco Labs, Etain, Green Dot Labs, Local Product of Colorado, Matrix NV, Mesa Organics and others—and future paid members will eventually abide by.

“It’s an entirely new industry—an entirely new legal industry, rather—and it’s so rare that that happens,” said Doug Fischer, the NACB’s D.C.-based chief legal officer and a former associate at Wall Street law firm Cadwalader Wickersham and Taft. “There are all these historical precedents of industries that have done a good or bad job or regulating themselves. But given the uncertain state of play at the federal level and the fragmented situation at the state level, the time is now for an organization like this in the legal cannabis industry.”

Heading up the NACB is president Andrew Kline, a former Assistant U.S. Attorney and senior advisor to then-Senator Joseph Biden, and CEO Joshua Laterman, who served as the longtime U.S. general counsel of global investment bank Natixis. NACB advisors are industry heavyweights with deep experience in regulated markets including Colorado, California and D.C.

Writing comprehensive regulations for a still-new industry is a daunting task, but the NACB has “identified five or six areas as primary ones we’d like to focus on now,” said Fischer, “and some are addressed by state law to varying degrees of effectiveness and some are not.”

The organization will soon begin conversations with members on setting regulations for advertising cannabis products, where they will borrow from tobacco and alcohol in deciding how, where and to whom marijuana can be marketed.

NACB will also look at regulations for packaging and labeling restrictions, which will inevitably address child-proof containers, edible weed’s single serving size, and comprehensive on-package language containing all pertinent information and warnings. The organization will also address reputable financial integrity and accounting practices, a.k.a. audited and verified financial statements that fairly reflect the state of a cannabis business’ finances, including cost of goods sold, revenues, tax liabilities and assets including inventory.

“The industry needs to demonstrate that it takes these things seriously,” said Fischer.

Self-regulated organizations traditionally develop and enforce regulations for a specific industry, and some of the better-known SROs include the Financial Industry Regulatory Authority (FINRA), the National Association of Realtors and the American Medical Association.

“People wouldn’t want to do business with a broker who is not in good standing with FINRA,” said Fischer, “and we hope that will also be the case with the NACB.”

Of course the SRO concept has its detractors, especially given some of their cozy relationships with the industries they’re regulating. But in actuality “many self-regulatory schemes have been effective precisely because the self-regulated have recognized that complying has been in their interest,” former Federal Trade Commission chairman Deborah Platt Majoras told a gathering of the Council of Better Business Bureaus in 2005.

Platt Majoras continued in her speech: “In response to public concerns about the violent content of their products and its suitability for children, the motion picture (MPAA), music recording (RIAA), and electronic game (ESA) industries each have in place a self-regulatory system that rates or labels products in an effort to help parents seeking to limit their children’s exposure to violent materials. Their systems govern the placement of advertising for Restricted (R)-rated movies, Mature (M)-rated games, and Explicit-Content Labeled recordings in media popular with teens and require the disclosure of rating and labeling information in advertising and on product packaging.”

The NACB’s Fischer understands the differences between his organization and the MPAA: “There’s no federal law on rating movies because the industry took it upon themselves to do that. With something like cannabis, this is a drug that has such obvious public health and safety concerns, and it wouldn’t be realistic that the government would stay out of it as they have with motion picture ratings.”

But another section of Platt Majoras’ 2005 speech to the Better Business Bureaus acknowledges that the NACB’s early focus on universal cannabis advertising regulations is a solid place to start this particular SRO conversation: “The Distilled Spirits Council of the United States (DISCUS), as well as two other alcohol industry trade associations, the Beer Institute and Wine Institute, have adopted voluntary advertising codes governing the placement and content of alcohol advertising. The three codes have provisions designed to ensure that alcohol ads are not targeted to minors under 21, who cannot legally purchase alcohol, as well as to address other advertising and marketing issues.”

The NACB only launched on Thursday, and it has a long way to go before it can hold court with more established SRO counterparts in the alcohol and tobacco industries. But Fischer and his colleagues want consumers and potential members to know that they plan on growing into the kind of organization that can create meaningful, positive change for the cannabis industry and its millions of customers.

“At the outset, we’re a small organization and don’t have dedicated staff to inspect all our members,” said Fischer. “But over time we hope to move toward more robust enforcement mechanism, because to give governments and stakeholders assurances that our members are complying with relevant laws and our national standards, we will need to be able to back it up.”

from All Of Beer http://allofbeer.com/pot-industry-deals-with-ultimate-buzzkill-self-regulation/