Cannabis Business Law

 

Legal thought leadership for the cannabis industry
backed by nearly two decades of experience.

Thought Leadership for the Hemp and Cannabis Industries

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Cannabis Business Law

From cultivation to banking to testing to commerce, we focus on the issues facing the cannabis industry. Cannabis law encompasses a wide array of issues and areas. It is constantly evolving. Not only do we stay abreast of changes affecting the cannabis industry, we work hard to provide thought leadership to drive, direct, and influence positive change. We take our work and our clients’ needs seriously. We want to form lasting relationships with our clients so that we know and can help guide them through changes, both internal and external.

Here is an excerpt about Internal Revenue Code section 280E, easily one of the most difficult issues affecting the cannabis industry. It is from my book, Cannabis Business Law-What You Need to Know:

Tax issues can be boring and tedious. But understanding them is crucial to the survival of your cannabis business. So pay attention.

Section 280E of the Internal Revenue Code (IRC)9 does not allow an otherwise legal cannabis business to deduct its ordinary business costs for purposes of determining its taxable income. It does allow deductions for costs of goods sold; however, routine and necessary expenses such as rent, payroll, and marketing cannot be deducted. It is reasonable to assume that this is the case with all illegal businesses, such as gambling, prostitution, human trafficking, military arms sales, and so on. This is a reasonable assumption to make simply because it is easy to picture Congress not wanting to give any illegal business a break on, of all things, its tax liability. But your assumption would be wrong. All of those illegal businesses, and most any other illegal enterprise that you can think of, can deduct ordinary business costs. (This assumes, of course, that they voluntarily file tax returns or are busted and then taxed on their revenues.) But cannabis business owners may not. Illegal drug traffickers are singled out. Importantly, even drug traffickers who are operating in compliance with state law and so are, at least “pseudo-legal” may not deduct their business expenses. Why?

Congress, at the height of the anti-drug zeal of the 1980s, unequivocally decided that drug dealers were a special breed of intolerable citizens and should not get the benefit of basic tax laws that even murderers and gangsters enjoy. It enacted section 280E10 in 1982 after an important Supreme Court decision that I will discuss in a moment.

Given the present-day status of affairs, when “drug dealers” include scrupulous businessmen and women who report their income, pay taxes, and otherwise take the time and energy to ensure that they comply with detailed state regulations, the fact that marijuana businesses cannot deduct business expenses but human traffickers can is absurd in the extreme. But that is the state of the law, at least as of this writing.

Here is what section 280E 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 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.

The Senate Finance Committee Report commented on the section as follows:

To allow drug dealers the benefit of business expense deductions at the same time that the U.S. and its citizens are losing billions of dollars per year to such persons is not compelled by the fact that such deductions are allowed to other, legal, enterprises. Such deductions must be disallowed on public policy grounds....To preclude possible challenges on constitutional grounds, the adjustment to gross receipts with respect to effective costs of goods sold is not affected by this provision of the bill.

Neither section 280E11 itself or the Senate Finance Committee Report explain why drug traffickers are treated differently from other criminal enterprises. To explain why, I will need to give a short history lesson. 

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Rod's Book "Cannabis Business Law"

Author of the first legal business primer for the cannabis industry.

Cannabis Business Law Articles

 

Talking Cannabis (Podcast)

By Rod Kight | May 25, 2020
I recently had an in depth discussion with Maynard Breslow of Dank Discussions Podcast. We discussed a number of important topics currently facing the cannabis industry.

Medical Cannabis Clinical Evidence Is Becoming Immune To State Borders

By Rod Kight | May 15, 2020
A physician’s education about cannabis medicine, and her patient’s treatment options, should not depend on their state of residence. Patient access should be based on sound science and physicians should receive comprehensive and uniform education regardless of the state in which they practice.

Cannabis Impairment and Driving: Legal and Medical Considerations

By Rod Kight | April 1, 2020
The notion that impairment can be assumed or not based solely on specific concentrations of THC or its metabolites in a driver’s blood or urine is plainly wrong.

Want to Read the Latest Edition of the American Journal of Endocannabinoid Medicine?

By Rod Kight | March 31, 2020
The American Journal of Endocannabinoid Medicine (AJEM) is the only printed, peer-reviewed, medical cannabis journal in North America. AJEM’s mission is to create, collect, and disseminate credible cannabis research data.

Are Oregon Cannabis Dispensaries Offering an Essential Service?

By Rod Kight | March 27, 2020
If cannabis stores close, the state of Oregon would be depriving many patients who rely on retail cannabis stores access to their medicine. If retail cannabis stores remain open, does it make sense to limit access to medicinal patents?

Hemp Trademarking- Why You Cannot Own a Varietal Name

By Rod Kight | March 25, 2020
Trademark registration is not simply a matter of racing to the USPTO to register a word or phrase that you wish to have exclusive rights to, even if you were the first to use the word or phrase.

Concerned About Coronavirus and Your Cannabis Business? We’d Like to Help.

By Rod Kight | March 19, 2020
As a service to our current clients and readers during these difficult times, we are offering a free 20-minute phone call to address your pressing issues – no strings attached.

Rod Discusses US and EU CBD Regulations at Europe Canna Expo-Dublin

By Rod Kight | March 11, 2020
For my talk, I compared and contrasted the hemp and CBD regulatory regimes in Europe and US. Although they parallel each other in some respects, particularly policy, they are fundamentally different in their approaches.

Top 5 Cannabis Predictions for 2020

By Rod Kight | January 2, 2020
2020 will be a historic and transformative year for cannabis, particularly for hemp and CBD. Here are my top 5 predictions.

The MORE Act- What You Need to Know

By Rod Kight | November 18, 2019
This historic Act could change the face of the cannabis industry as we know it. If passed, it would affect countless people whose lives have been ruined by the archaic and prohibitionist approach to non-violent cannabis offenses.

Rod Speaks at Cannabis Business Insurance Conference in NYC

By Rod Kight | November 2, 2019
As the cannabis industry matures, insurance is becoming a major factor in its growth and normalization. In many respects, the development and availability of insurance products signals a new phase in the industry.

Why Can’t Medical Marijuana Patients Buy Guns? (Guest Post)

By Rod Kight | September 14, 2019
Federal law does not prohibit the sale of firearms to those arrested for domestic violence even though over half of female homicides occur at the hands of a current or former intimate partner. But if granny uses cannabis to treat her glaucoma, she can’t legally defend the homestead with her rifle?

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Honors & Recognitions

 

Board Certified Specialist in Consumer & Business Bankruptcy Law

Rod is a Board Certified Specialist in Business and Consumer Bankruptcy Law by the North Carolina Board of Legal Specialization.  Rod is licensed to practice in North Carolina and Oregon.

Listed in North Carolina Super Lawyers and Super Lawyers Rising Stars

Rod was selected to North Carolina Super Lawyers Rising Stars in 2012 and to the North Carolina Super Lawyers main list since 2015

Recognized by Business North Carolina Legal Elite

Selected to Business North Carolina Legal Elite Bankruptcy Section 2016-2017

AVVO Superb Rated Lawyer

10.0 Rating on Avvo; 28 5-Star Client Reviews and counting.

Avvo Client Choice Award

Avvo Client Choice Award Recipient 2015

AV Preeminent Peer Rated Lawyer at Martindale Hubbell

AV Preeminent Peer Rated Lawyer by Martindale Hubbell since 2014

Included in Best Lawyers in America 2018

Selected to Best Lawyers in America 2018 and Best Lawyers in America 2017 Winter Business Edition