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

 

The Rapidly Evolving Legal Status of CBD

By Rod Kight | October 12, 2018

To say that all CBD is unlawful because it is a derivative of Cannabis is nonsensical; there are lawful and unlawful types of Cannabis.

Canada’s Impending Cannabis Boom

By Rod Kight | October 1, 2018

Canada is clearly leading the way on global cannabis reform; the question remains will the United States follow suit quickly enough to capitalize on this nascent market before Canada asserts its dominance as a global provider of quality hemp and marijuana products?

Let’s Talk Cannabis Labeling- Oregon

By Rod Kight | September 14, 2018

Marijuana retailers in Oregon have until April 1, 2019 to become compliant with the new labeling rules.

Cannabis Intellectual Property- Do Your Products Violate A Patent?

By Rod Kight | August 27, 2018

I am not exaggerating when I say that the future of your cannabis business, and the industry at large, may depend on the outcome of this case.

FDA Approves CBD Medication

By Rod Kight | June 25, 2018

The FDA approved Epidiolex, a marijuana derived CBD medication manufactured by GW Pharmaceuticals, today. Epidiolex is an oral solution for…

WHO Issues Glowing Report of CBD But Misstates the Law

By Rod Kight | June 12, 2018

The World Health Organization (WHO) issued a Critical Review Report (Report) on cannabidiol (CBD) on June 7, 2018. The Report…

Did the Federal Right to Try Act Just Legalize Medical Marijuana?

By Rod Kight | May 31, 2018

No. So why am I writing about it? I feel compelled to clear things up. I’ve heard and read a…

A Legal Analysis of the DEA Directive Regarding Cannabinoids

By Rod Kight | May 29, 2018

To say that the DEA is is slow in responding to matters regarding cannabis (other than raids and arrests) is…

Trump Administration Weighs In On Industrial Hemp

By Rod Kight | February 26, 2018

The Trump Administration (Administration) made public its views on industrial hemp last week. After speaking at the Governor’s Forum on…

Oregon OLCC Implements New Rules for Hemp Products

By Rod Kight | January 15, 2018

The Oregon Liquor Control Commission (OLCC) implemented new rules governing industrial hemp products sold in the OLCC market. The rules…

Analysis of the Sessions Marijuana Memo – Video

By Rod Kight | January 4, 2018

Earlier today, Attorney General Jeff Sessions issued a memo regarding marijuana. I discuss the memo in this video. Rod Kight is…

AG Jeff Sessions Withdraws Ogden and Cole Memos – What this Means, What it Doesn’t Mean, and What to Expect

By Rod Kight | January 4, 2018

The future of California’s proposition 64, which legalized marijuana for adult-use (also known as recreational use) is now uncertain in…

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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

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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