Cannabis Business Law

 

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backed by nearly two decades of experience.

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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

 

Rod and Lukas Gilkey of Hometown Hero Discuss the Big Marijuana v Hemp Civil War, FDA, and the Future of Cannabis [Video]

By Rod Kight | April 21, 2023
Watch my in-depth conversation with Lukas Gilkey of Hometown Hero about hemp and cannabis issues, including the Civil War between Big Marijuana and the Hemp Industry.

Rod Discusses International Cannabis Trade, Hemp v Big Marijuana, and other Topics on the Karma Koala Podcast [Podcast]

By Rod Kight | April 10, 2023
I recently got an opportunity to discuss a wide range of current cannabis issues, including the international cannabis trade and the US battle between hemp and Big Marijuana, with Sean Hocking of the Karma Koala Podcast. Despite the heady issues, our conversation was casual and I even got to choose three songs to accompany the podcast.

THCO is a Schedule 1 Controlled Substance Says DEA

By Rod Kight | February 13, 2023
Although I do not always agree with the DEA’s view on cannabis matters, I agree with its opinion on THCO and, frankly, am not surprised. This is what I have been saying for a while.

Rod Discusses THCa Flower with Shayda Torabi on the To Be Blunt Podcast

By Rod Kight | January 30, 2023
“You gotta go into this with eyes open, and if you’re gonna go into it, you need to make sure that you’re well educated.” – Rod Kight

Rod Discusses THCa and Other Hemp Issues with JD McCormick of American Healthy Alternatives (Video Podcast)

By Rod Kight | December 19, 2022
In this video podcast, Rod Kight discusses THCa, the 2023 Farm Bill, international cannabis law, and other important and emerging issues in the cannabis and hemp industry with JD McCormick, founder of the American Healthy Alternatives Association.

Rod Discusses Hemp in NC with Charlotte NPR (Podcast)

By Rod Kight | August 2, 2022
In this podcast, Rod discusses the current state of hemp and marijuana in North Carolina with industry experts Bert James and Dr. Guochen Yang for the Charlotte Talks podcast on NPR station WFAE (90.7 FM).

Rod’s Keynote speech: Perils Facing the Hemp and Cannabinoid Industry [Video]

By Rod Kight | June 23, 2022
In this keynote speech Rod addresses perils facing the hemp industry, including the threat posed by Big Marijuana, cannabis associations that purport to advocate for hemp while promoting corporate marijuana interests, and the current crisis for hemp in NC. Rod also discusses important federal law issues and practical recommendations for the hemp industry.

The Source Rule is Alive and Well

By Rod Kight | May 2, 2022
The Source Rule, which says that the source of a cannabinoid determines its legal status, is embedded into the legal fabric of the cannabis industry. In this article I respond to arguments claiming that the Source Rule is dead and show that, far from dead, it is now more relevant than ever.

DEA Seed Letter – Triumph or Trap?

By Rod Kight | April 13, 2022
Since the DEA’s Seed Letter became public I have fielded a number of calls from clients about selling cannabis seeds. Everyone wants to know if it is possible to sell cannabis seeds and other low-THC cannabis materials, such as cannabis clones, and stay out of legal trouble. The answer is, “It depends”.

Kight Law Attorney Philip Snow On the Future of Delta-8 THC and Other Cannabinoids (Video)

By Rod Kight | February 7, 2022
Watch an in-depth discussion about delta-8 THC and other cannabinoids, state regulation of hemp, and medical marijuana with Kight Law attorney Philip Snow and Joe Agostinelli of the CPG & CBD University Podcast.

Will 2022 Be a Stormy Year for Cannabis? (VIDEO AND ARTICLE)

By Rod Kight | January 3, 2022
I am fortunate enough to speak with clients, attorneys, and other experts in the cannabis industry on a daily basis and have some thoughts about what we can expect for cannabis (by which I mean both “hemp” and “marijuana”) in 2002.

Rod Discusses D8, Federal Legalization, and the Future of CBD on the C3 Podcast (Video)

By Rod Kight | September 27, 2021
Rod discusses delta-8 THC, federal legalization, and the future of CBD on the C3 Higher Learning LV podcast with Curt Robbins and Dena Putnam.

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Honors & Recognitions

 

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