Cannabis Business Law

 

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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

 

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?

Legal Cannabis is a Huge Job Creation Machine (Guest Post)

By Rod Kight | August 23, 2019
Jobs in the legal cannabis industry are coming by the hundreds of thousands and there’s no sign of that halting.

FDA and AHPA Convey Similar Message to Cannabis and CBD Industry

By Rod Kight | August 16, 2019
The “wild west” days of manufacturing and selling cannabis products outside the sphere of regulatory influence are rapidly coming to an end.

Why is the VA Denying Home Loans to Veterans Who Work in the Marijuana Industry? (Guest Post)

By Rod Kight | August 12, 2019
The Department of Veterans Affairs has “an unpublished policy” stating that the office does not consider employment in industries related to marijuana as either reliable or stable. These are among the two most important criteria for determining creditworthiness and who qualifies to purchase a home.

Nevada Law Will Protect Employees Who Use Marijuana (Guest Post)

By Rod Kight | June 27, 2019
Employers in most states still have the right to discriminate against cannabis users in pre-employment drug screenings. The exception is the state of Nevada, which passed legislation banning the disqualification of a candidate for employment based on cannabis use.

FDA Wants Your Comments on CBD

By Rod Kight | June 24, 2019
As anyone involved in the cannabis industry is aware, the US Food and Drug Administration (FDA) held hearings on May 31, 2019. Ostensibly, the hearing was about “Products Containing Cannabis or Cannabis-Derived Compounds”. In reality, it was about cannabidiol (CBD) in foods, cosmetics, and dietary supplements.

FDA Public Hearing and Comments on Cannabis

By Rod Kight | April 20, 2019
Hemp industry professionals want, (and more importantly consumers deserve) accountability, and a standard set of protocols that they can follow to ensure that hemp and CBD products are safe, and contain CBD in concentrations that match their labels.

Using the Terms “Cannabis”, “Marijuana”, and “Hemp”: A 60 Second Primer

By Rod Kight | March 25, 2019
On the west coast, the term “cannabis” is quickly replacing “marijuana” as the preferred term. While this may be proper and laudable from a botanical and historical perspective, it muddies the water when analyzing legal issues.

Rod Talks Cannabis With Tom Howard (Video)

By Rod Kight | March 24, 2019
I recently talked cannabis law with attorney Tom Howard. We discussed cannabis law, CBD, THC testing, marijuana legal trivia, emerging trends, and lots of other things. Here’s the video.

The Mouth Swab Drug Test and Employment (Guest Post)

By Rod Kight | March 16, 2019
The mouth swab drug test is commonly used by employers. Here’s what you need to know.

West Virginia Federal Court Ruling Vindicates Hemp Industry

By Rod Kight | March 14, 2019
A WV federal court dismissed a case brought against hemp farmers, ruling that hemp is not a controlled substance and may be transported across state lines.

Are Cryptocurrencies the Future of Cannabis Commerce? (GUEST POST)

By Rod Kight | February 24, 2019
If Congress legislates a solution to the cannabis commerce problem it is difficult to envision cryptocurrencies gaining a foothold. But if Congress fails to act, cryptocurrencies may become intwined with future cannabis commerce.

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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