Jump to content

Recommended Posts

Guest Josh_Colton

The creation of the MMFLA is anything but a simple application process like we see with the MMMA. The requirements include, but are not limited to, Background investigation, municipal property approval, and application preparation. 

If this sounds easy I apologize for being misleading but the reality is that this will be anything but that. This is heavy government regulation and heavy compliance and maybe even above and beyond that this will be HEAVILY TAXED by the state and also the IRS. 

Today I would like to focus in a bit on the IRS side of things and specifically 280E. 

IRS Taxcode 280E states that:

Section 280E of the Internal Revenue Code forbids businesses from deducting otherwise ordinary business expenses from gross income associated with the “trafficking” of Schedule I or II substances, as defined by the Controlled Substances Act.

This code has led to marijuana businesses being hit with significant IRS audits that have resulted in heavy fines being levied against these businesses, some so severe that they have actually not only been shut down but the individuals who own these businesses are actually personally harmed by the IRS. 

Let me back up and explain this a little bit though... 

Cannabis producers, retailers, and processors are not allowed to take deductions for many of their expenses from their taxable income, as a result they are taxed at a much higher effective rate than other similar business types.

The only deductions marijuana businesses can claim are costs of coods sold, such as labor costs for things like seeding, planting, and cultivating.

They can’t make any deductions attributable to general business activities or marketing activities because of 280E.

There have been some additional cases allowing for limited deductions if a corporation is set up appropriately. 

I plan on going into more depth on these issues going forward, but I wanted to start bringing up this largely alarming issue to both the caregiver and MMFLA Licensee communities. 

If your CPA or Attorney who advises you in these matters is not heavily versed and focused in on this issue, then you are entering a very dangerous area. The only way to avoid the IRS penalties that destroy businesses and lives is to put in the necessary structuring, preparation, and procedures. The best advice that can possibly be given is SPEAK TO AN EXPERT!!

-Josh Colton

Share this post


Link to post
Share on other sites

Josh,

Thanks for the info.   So if I understand what you are saying, "costs of goods sold, such as labor costs for things like seeding, planting, and cultivating"    I could as a "grower" licensee or caregiver deduct virtually all my costs except marketing??

Share this post


Link to post
Share on other sites
Guest Josh_Colton

Semicaregiver, thank you for reaching out.

It is important to remember that from a legal perspective all involvement in medical marijuana activity is federally illegal, and therefore declaring taxes to your caregiver business would be highly incriminating if an investigation were ever being formed against you. This information could also be manipulated in any potential state criminal investigation against you as well. 

On the other hand not paying taxes on income is illegal in its own right. 

This has resulted in many individuals such as yourself being stuck between a rock and a hard place. 

The best way to handle this is to consult with both a legal expert and a tax expert before making any rush decisions. Understand though that a legal expert is going to have an obligation to inform you of serious criminal liability attached to this, while a CPA is going to tell you that nothing is more important than paying taxes. 

I know i've gone on a bit of a tangent from your initial question, but I thought it was important to fully answer your question. In regards to which of these items specifically is deductible, each item should be reviewed by an accountant who is familiar with 280e law. 

License holders under the MMFLA will be open and obvious as to their actions through the Seed to Sale tracking, so they will be much more strictly tied to IRS 280e. 

If you have any further questions or need further clarification please feel free to reach out 

Josh_Colton

 

Share this post


Link to post
Share on other sites

Josh,  Thanks for your follow up.   I am not applying for any of the licenses under the MMFLA, but I have been fascinated with the number of people that appear to be interested and the lack of awareness many seem to have regarding the start up costs and the competitive market they will need to operate in.   Your post piqued my interest, I was disappointed that you were not able to answer my question, but I was able to find an informative white paper on the subject....

 

https://www.newcannabisventures.com/how-cannabis-companies-can-reduce-their-280e-tax-burdens/

Share this post


Link to post
Share on other sites
Guest Josh_Colton

Yes, I 100% agree with your comment concerning the lack of awareness of potential start up costs and also how strict the government and IRS compliance standards will be. To say the least there is going to be a much much smaller profit margin than people anticipate. Based on many conversations I have had with individuals operating in commercial systems across the country, there is a lot of misconception about how profitable these businesses really are, as many of them are still spending more than they are making. 

I apologize for not providing a more thorough answer in regards to the 280e implications, as you have found in the article you read the basic idea is that costs associated with the growing side of marijuana deductible, where as the retail side is generally 280E liable. However, I was not confident enough to comment on how that would play out when you are dealing with a caregiver, who acts in both the role as manufacturer and "trafficker", versus on the commercial side where there is more division between the two. I would proceed with extreme caution when it comes to labeling which of the actions should be and shouldn't be 280E exempt.

Thank you for sharing that article. It is very informative. 

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...

  • Similar Content

    • By fellowcabbage44
      Just looking for advice- I have been a cannabis user for years due to a back injury and the desire not to be on opiods- it works well for me.
      I have a green thumb and love to grow.
      Looking into properties in Iron Mountain, would love to become a caregiver and get involved in the cannabis community. Any advice appreciated moreso on the legality and the real ability for me to get licensed and started growing this summer. Any help appreciated!!!
    • By grevinstilley
      Let's help the patients who depend on weed to survive 
    • By Michael Komorn
      No love for dispensaries or other cannabis businesses in Michigan cities / townships.
      http://www.macombdaily.com/special-news-reports/20180625/many-macomb-communities-take-wait-and-see-approach-to-medical-marijuana
       
       
       
    • Guest Josh_Colton
      By Guest Josh_Colton
      The BMMR has provided a list of 3rd party software providers that integrate with the METRC
       
      https://www.michigan.gov/documents/lara/_MI_TPV_Authorized_Functionality_FINAL_APPROVED_621220_7.pdf
    • By Michael Komorn
      Pregnancy and Medical Marijuana
      Expectant mothers are searching for answers about the safety profile of Medical Marijuana. Unfortunately the scientific community has dropped the ball and kicked it off the cliff on this issue. The lack of scientific research is due to marijuana’s illegality. Further, there exist huge biases within the published research. Mostly the research confounds marijuana use with tobacco and/or alcohol, two known causes of fetus and child harm. Separating out marijuana effects from the self-reported research on mothers who also smoke tobacco and drink alcohol is impossible. Likewise no pregnant women are signing up for research studies due to the illegality of marijuana and CPS removing children from mothers for testing positive for marijuana use.
      Many organizations quote from other organizations, who quote from other studies and reviews. The Minnesota Department of Health OFFICE OF MEDICAL CANNABIS quotes from the American College of Obstetricians and Gynecologists Committee report:
      In the American College of Obstetricians and Gynecologists official committee opinion, interim update Oct 2017, the committee found:
       
       
      Uninformed opinion, with zero evidence and lots of fear, uncertainty and doubt (FUD) are used to scare mothers away from a nontoxic plant. These uninformed unscientific opinions are being used by lawmakers to craft laws continuing the cycle of FUD and the illegality of marijuana. “Oh we don’t know what marijuana does, so let’s treat it like heroin” and “if anyone questions our opinion of marijuana, we’ll call them dirty lazy pothead stoner hippies” or “puppets of the marijuana industry”.
       
      But we do know what marijuana does. One cannot live in a bubble and ignore reality and the world around us. Women smoke and eat marijuana while pregnant.
      Cannabis use during pregnancy in France in 2010
      Trends in Self-reported and Biochemically Tested Marijuana Use Among Pregnant Females in California From 2009-2016

      http://news.gallup.com/poll/194195/adults-say-smoke-marijuana.aspx 
       
      Much of the opinions on marijuana are tainted by a small number of poorly designed studies on marijuana. For example, the National Institute of Health gives grants to researchers through NIDA, the National Institute of Drug Abuse, to study marijuana. NIDA’s focus is on drug abuse, so 90% of its grants are for studies on marijuana abuse, not marijuana benefits. When you ignore half of your research, you ignore science. Many of these studies are completed in order to get future grants from NIDA; research is often conducted from the conclusion backwards in order to show some kind of harm from marijuana use. This, in of itself, does not bias research.
       
      https://www.nytimes.com/2010/01/19/health/policy/19marijuana.html 
       
      The bias is introduced when researchers are rushed and forced to publish results, even if the studies were deficient. For example, every website and newspaper ran with the story about marijuana using children lose IQ points. Not many reported on the follow-up study that could not replicate the first study. When eliminating co-founders, the new study found no drop in IQ points. Further, research on twin siblings showed that the drop in IQ was due to parenting, binge drinking or other societal influences, not marijuana.
      https://www.drugabuse.gov/news-events/nida-notes/2016/08/study-questions-role-marijuana-in-teen-users-iq-decline 

       
      Try reading that last sentence again. In a world of science, evidence, reasoning and logic, a doctor makes a statement that decades of use of marijuana might make you lose intellectual function, based on conjecture.
      NIDA also continues to perpetuate the myth that Marijuana is a “gateway drug”.
      https://www.drugabuse.gov/publications/research-reports/marijuana/marijuana-gateway-drug 
      These findings are consistent with the idea of marijuana as a "gateway drug." However, the majority of people who use marijuana do not go on to use other, "harder" substances.
      NIDA, NIH, FDA, DEA, including other federal, state, and local government organizations and private companies continue to perpetuate these and other lies in order to keep marijuana illegal. ASA has filed complaints against the DEA multiple times to get it to remove incorrect statements about marijuana off of the DEA’s website.
      http://www.safeaccessnow.org/iqa_victory 
      A cyclical pattern emerges from the current and past situation surrounding marijuana.
      1.      Stymied scientific research, due to illegality of marijuana and government funding biases
      2.      Using stymied scientific research as a reason to ignore reality.
      3.      Repeating the biased scientific research, long after it was shown to be deficient.
      4.      Using the deficient biased research in “meta-reviews”. Thus taking bad science as a base to create more bad science just by doing an analysis of the bad science conclusions.
      5.      Even after a research study has been fully proven to be deficient and conflicting with better research, continue to hold it up as if it is still valid in some way.
      6.      Publish opinions as if they were facts, without any data to back up any claims.
      Continue reading for more conflicting studies and more calls for research.
      Marijuana: Prenatal and Postnatal Exposure in the Human
      Marijuana use in pregnancy and lactation: a review of the evidence
       
      Marijuana and Pregnancy
      The Association of Marijuana Use with Outcome of Pregnancy
       
      Prenatal Tobacco, Marijuana, Stimulant, and Opiate Exposure: Outcomes and Practice Implications 
      Many of these studies contradict themselves. Some report differences in birth weight, some show no differences. Read the studies yourself!
       
      http://legislature.mi.gov/doc.aspx?2017-HB-5222 
      House bill 5422 will force MMFLA provisioning centers to give patients and caregivers an unscientific pamphlet, as described by the legislature.
       
       
      HB 5222 looks like it will pass. All this fear and doubt of a non-toxic 5,000+ year old medication used by millions of humans in every country in the world.
×
×
  • Create New...