An ever-increasing number of states have legalized marijuana for medical use and some states have legalized it for recreational use. State laws determine who may cultivate or sell marijuana and under what conditions they may do so. As a result, there are compliance burdens on the federal, state, and local level. It is important to have proper guidance while weaving through these areas of law. Although Federal legislation is currently working its way through Congress, the cultivation and sale of marijuana are still considered federal crimes. As a result, any efforts made to comply with state and local laws will not protect you from you from federal law. However, those in the cannabis industry can avoid most serious problems by closely following the state and local rules.
License to Cultivate and/or Dispense Cannabis
The type of licensing required for a cannabis business depends on the state (and sometimes county) and type of business conducted. For example, a business that cultivates cannabis may require different licensing and permits than a business operating a dispensary. However, in some states such as Florida the entire process is vertically integrated, meaning the same business cultivates, dispenses, and delivers cannabis.
In every state that cannabis is legal there has been an eruption of lawsuits on the issue, primarily being businesses that are seeking licenses to enter the cannabis industry. As the licenses are typically limited, the competition for licenses is cut-throat. Businesses that are denied licenses have an opportunity to challenge agency action, and ultimately receive a license through the administrative law processes. If you are interested in entering the cannabis industry and need help applying for the proper licenses or if you have been denied a license contact us as we can help you challenge the denial through the administrative court process.
Cannabis Federal Tax Compliance/Audits
Cannabis businesses face a challenging tax regime on both the federal and state level. Unlike a typical businesses, cannabis businesses are unable to deduct ordinary business expenses as a result of Section 280E, I.R.C.
While cannabis businesses are legal in many states they remain illegal under Federal Law. Section 280E disallows deductions for businesses trafficking in Schedule 1 or 2 controlled substances. Enforcement of Section 280E can result in unbearable tax liabilities. However, there are several ways to still take advantage of other deductions to ultimately reduce the businesses tax liability with proper planning.
As a result, the tax compliance burden is overwhelming to say the least, as one mistake can result in serious consequences. We can help you understand and defend your tax position, form entities, and obtain licenses to cultivate and sell cannabis. If you are in the cannabis industry and would like more information on the tax implications of cannabis or are facing a state or IRS audit, we are here to help. Working with one of our cannabis tax attorneys will allow you to protect yourself, as well as ensure that you receive the proper tax treatment.
Cannabis State and Local Tax Compliance/Audits
In addition to IRS audits, state cannabis audits are also complex. These audits generally include all taxes related to and unrelated to the cannabis business. Further, because many cannabis businesses have several entities intertwined, the state often audits all related entities. More over, as the licenses are granted by the state, the license that enable the business to operate is potentially at risk. State audits focus on records regarding sales and use tax, excise taxes, and seed-to-sale tracking records. Our cannabis tax attorneys will work with you to ensure that the audit is fairly conducted and a fair result is achieved.
State and local governments are grappling with how to audit this new industry, oftentimes creating a trial and error process on the states part. Further, as this is a new industry, the laws are volatile and change frequently. As a result, staying in compliance with state laws without overpaying takes proper planning as well competent representation in the event of an audit. There are plenty of details that can go overlooked unless you have the right people looking out for you. You can feel powerless when you’re subject to ambiguous or vague tax laws. Our team has the know-how to not only do a detailed review of your records, but also to argue aggressively on your behalf.
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