Tax Foundation’s Post

For many states, taxing #cannabis is brand-new territory. Taxing recreational cannabis is sometimes seen as a potential gold mine for tax revenue, but the reality is more complicated. Watch: Green Rush: Principles for Taxing Cannabis https://hubs.ly/Q02ttNsf0

🌱✨ The CBD & Cannabis industry is experiencing exponential growth, yet it continues to face significant hurdles, particularly from federal regulations and tax laws. As these businesses expand, they're confronted with unique financial challenges, primarily due to IRS tax policies that prohibit them from deducting common business expenses. This predicament means cannabis businesses, unlike others, must pay taxes on their gross income, unable to deduct operational costs like rent, salaries, or utility bills. This leads to substantially higher effective tax rates, imposing a severe financial burden that can stymie growth and even force entities out of operation. #Cannabis #CBD #TaxLaw The disparity between state legalization and federal prohibition further complicates matters. While several states have recognized the burgeoning potential of the cannabis market and adapted their tax laws accordingly, the absence of federal reform continues to cast a shadow over the industry's future. #FederalRegulation #StateLaw #BusinessChallenges Efforts to resolve these conflicts are underway, with ongoing advocacy for federal legal reforms that would allow cannabis businesses the same tax deductions as other industries. Success in these efforts could signal a more stable and thriving future for the market, bolstering innovation and economic contribution. #CannabisReform #EconomicGrowth 💬 How do you see the future of the cannabis industry unfolding in light of these regulatory challenges? Join the discussion and share your insights or experiences with navigating these complexities. Let's drive the conversation forward! #IndustryGrowth #FutureOfCBD #ProfessionalDiscussion

🔔 Excited to share! My article on the transfer pricing implications in the U.S. cannabis industry is now published in the IBFD International Transfer Pricing Journal (ITPJ). Huge thanks to the IBFD ITPJ for this opportunity! https://lnkd.in/grsBGsKH 🔰 This article explores how transfer pricing is a critical consideration for U.S. cannabis businesses, particularly those with vertical integration or multi-state operations. While federal classification as a Schedule I substance creates a complex tax landscape, potential reclassification as a Schedule III drug could unlock significant tax opportunities. ✅ One of the key challenges for cannabis businesses is that they are generally not allowed to deduct ordinary and necessary business expenses from their federal income taxes. This is due to a federal tax code provision known as Section 280E. As a result, cannabis businesses must carefully consider their transfer pricing practices to maximize their profitability while minimizing their tax burden. ✅ Cannabis businesses can leverage transfer pricing to maximize Cost of Goods Sold (COGS) mitigating Section 280E's impact by strategically pricing the intercompany transactions between entities of the vertically integrated group, which could include transactions between a cultivator and a processor, or between a processor and a dispensary or between a centralized service provider and the other group’s entities. ✅ Having strong transfer pricing documentation is crucial. A solid transfer pricing study goes beyond just justifying the cannabis business strategies, it can show the IRS that the intercompany transactions are priced at arm’s length avoiding costly adjustments and penalties. ⭐ Connect with us to discuss how transfer pricing strategies can benefit your cannabis business in the evolving tax environment. #TPConsulting #IBFD #Cannabis #TransferPricing

California's cannabis industry is not just growing—it's contributing significantly to the state's revenue. 🌿 💰 In this financial overview, we take a closer look at how cannabis tax revenue is impacting California's economy and what it means for the future of the industry. Whether you're in the cannabis sector or interested in state finance, understanding these numbers is key. Explore the financial insights #CannabisIndustry #CEO #cannabis #cannabisriskmanager #riskmanagement #USA #Tax #california #TaxRevenue #CaliforniaEconomy #CannabisFinance #CannabisBusiness https://lnkd.in/g4s8gawn

MAJOR ANNOUNCEMENT for companies in the #cannabis industry! This week the DEA stated that cannabis will change from Schedule I (e.g. heroine) to Schedule III! This will have a monumental impact to the industry including #taxes and the notorious Section 280E. Cannabis companies need to focus on opportunities to optimize tax positions for this change. See below for just a few (👇). Send me a message to discuss how you can take advantage of all possible tax minimization strategies! 👉 Ordinary and necessary business expenses would be deductible to cannabis companies as IRC Section 280E would no longer apply 👉 Property and equipment would be eligible for bonus depreciation 👉 Inventory costing methodologies – Opportunities may allow for exclusion of certain expenses from cost of goods sold and immediate deduction through operating expenses 👉 Availability of the Research and Development Credit 👉 Availability of Clean Electricity Investment and/or Production Credits 👉 Opportunities to delay operating expenses in the 2023 tax year to deduct them in 2024 and later years

U.S. cannabis companies encounter higher taxation due to the substance's federal illegality, resulting in limited deductions under IRC Section 280E. This section prohibits deductions for expenses related to Schedule I or II substances, including cannabis. Consequently, these businesses bear a disproportionately high tax burden. Despite this, some companies are exploring strategic alternatives, such as employee stock ownership plans (ESOPs), to alleviate tax liabilities. Learn more about the adoption of ESOPs in the cannabis industry with my latest article on Forbes, featuring comments from Darren Gleeman, Adam Hoffer, Peter Su, CTP, CCBP, CCCE, GRCP, GRCA, IDPP, ACBP, CBE, and Scott Solomon. https://lnkd.in/d3VvwyNH #cannabisbusiness #cannabis #280E #cannabisindustry #ESOP #cannabistaxation #taxation

The validity of 280E has consistently been challenged by many taxpaying companies. Despite recent advancements in circumventing certain restrictions, rescheduling cannabis and completely eliminating 280E tax burdens are crucial for cannabis operators to unlock their maximum growth potential.   Check out this piece from Benzinga Cannabis where I go into more detail on 280E. https://lnkd.in/eqXgRZ3v

In December 2023, Catalyst Cannabis Co. filed a significant lawsuit which is shedding light on California's stringent cannabis regulations and taxes. Here our partners at 420 CPA (ABFinWright, LLP) call out the specific regulations like Regulation 3802 and amendments to Regulation 3700, sparking a broader conversation about the necessity for fairness and transparency in the state's cannabis industry. Read on below to find what the say in the article, and how this underscores the urgent need for a more balanced regulatory landscape. They outline how Elliot Lewis's work for Catalyst is good for the well-being of the entire cannabis community. For help on your cannabis company's financial needs, contact info@420CPA.com or contact @Stephanie Jeffries in our business development team. #420CPA #cannabis

Cannabis Law Now Podcast: Catalyst Cannabis Co. Takes on the California Department of Tax and Fee Administration Over Cannabis Excise Taxes. Since legalizing in 2016, California has experienced rampant rate failure across its licensed cannabis companies. The State of California also has some of the highest and most aggressive cannabis taxes in the nation. In an effort to stave off the California Department of Tax and Fee Administration’s (CDTFA) latest round of rulemaking that would, among other things, extend cannabis excise taxes to cannabis accessories, Catalyst Cannabis Co. (one of the state’s largest cannabis operators) is in a complex challenge with CDTFA over its rulemaking authority, alleged procedural violations, and the overwhelmingly negative impact of such tax rules. In this episode, Husch Blackwell's Hilary Bricken and Anthony Almaz, General Counsel for Catalyst Cannabis, break down and analyze this potential crucial fight between the industry and California’s top tax regulator. https://lnkd.in/gf3r74iE

Using the Farm Bill loophole to Remove 280E Status... Can two things be the right at the same time? Is this the path of least resistance? I am prefacing this post asking for true legal advice from professionals but regarding this article... is this the loophole angle we are all looking for? 1. Could testing plant material from state regulated cannabis companies the same way THCa hemp is tested for COA passthrough for finished goods be used as a defense in this case? Could they claim that although they are state regulated, their test logs indicate that they are selling a federally protected commodity that is no longer under the purview of the Controlled Substances Act as hemp. 2. Could this argument and loophole together be the sidestep around politicians who promise rescheduling, expungement, etc? 3. Cannabis sativa is hemp, hemp is cannabis sativa. This could be argued in court for clarification in this case... is that correct? We used state law to create a cannabis market and federal law created the hemp intoxicant market. If the hemp intoxicant loophole could be used as a focus for why 280E no longer applies, can cannabis companies get tax refunds dating back to 2018 if a precedent is set? The medical cannabis movement was exploited to create a recreational cannabis market and then the farm bill loophole created a new hemp intoxicant market. Now, each market is combating each other while growing the same plant. Closing the farm bill loophole could be closing the door for state regulated cannabis to challenge federal tax rates or am I way off base here? Lawyers please weigh in.