finance

280E Update: Pursuing Normal Business Deductions for Missouri Medical Marijuana Licensees

Guest Post by David Smith, CPA, MBA, CM&AA | MoCannTrade Treasurer and Platinum Member |  Smith Patrick CPAs

Cannabis businesses, also known as marijuana related businesses (MRBs), face significant tax challenges.

Though cannabis businesses are now legal in some state laws, they are still illegal under federal law. This results in a challenging situation for the federal income tax treatment as it relates to Federal statute 280E.

Missouri Medical Marijuana Legislative Action

Missouri legislators have introduced bills that would decouple Missouri law from the federal law for cannabis businesses.

• SB 436 was filed by Senator Hoskins.  Status: Whipping the votes for Ways and Means committee and visiting with Pro Tem on referral of bills.
• HB 877 was filed by Rep. Christofanelli.  Status: Looking into committee assignments, possible General Laws or Economic Development.

Other Marijuana Legislative Progress on 280E

Some members of Congress are interested in changing the law to permit taxpayers in a marijuana business to deduct their business expenses and claim applicable credits.

Bills have been introduced to effectively remove marijuana from the Controlled Substances Act and section 280E, thereby allowing deductions and credits.

In the meantime, while the federal legislation plays out, some states decoupled from federal law and permit state-level ordinary and necessary business expenses and credits related to a marijuana business.

States that have decoupled from federal law on marijuana-related business include California, Colorado, Hawaii, and Oregon.

Why 280E Impacts Marijuana-Related Businesses

In 1982, Congress passed Internal Revenue Code (IRC) section 280E in response to a Tax Court case concerning a drug dealer who claimed ordinary and necessary business expenses related to his drug sales.

Section 280E disallows deductions and credits for amounts paid or incurred in the trade or business of trafficking in controlled substances prohibited by federal law or the law of any state where the trade or business is conducted.

Marijuana is listed as a controlled substance on schedule I and II of the Controlled Substance Act. This is why cannabis companies can’t take federal business-related tax deductions, which is a significant competitive disadvantage.

Read our previous article on the tax implications of 280E.

More Information

If you have questions about how Section 280E will affect your marijuana-related business’s income tax, reach out to us at 314-961-1600 or schedule directly here to discuss your situation.

David Smith helps businesses and individuals develop smart business practices for tax and accounting advantages as the president of Smith Patrick CPAs. He serves on MOCPA’s Legislative Policy Task Force and MOCPA’s Firm Leadership Committee. Reach him at 314-961-1600 or schedule directly here.   About Smith Patrick CPA Smith Patrick CPA is a St. Louis-based, family-owned CPA firm dedicated to providing personal guidance on taxes, investment advising and financial services to small businesses and financially active individuals. For over 30 years, our firm has focused on providing excellent service to businesses, non-profits, individuals and government agencies in St. Louis and the surrounding areas. Investment Advisory Services are offered through Wealth Management, LLC, a Registered Investment Advisor.

Non-Conventional Financing for Cannabis Industry Businesses

Guest Post by Christopher Dussold Ph.D, MoCannTrade Platinum Member |  AVAIL Professional Services

 Is your medical cannabis project in need of additional financial resources that also promote energy efficiency and cost savings?  While many traditional forms of financing may not be accessible for medical cannabis related businesses, the following types of programs might be the types of funding opportunities may be available in Missouri for MMJ businesses like yours: 

 
Operational and Asset Financing – Capital sourcing can be one of the most challenging aspects of any new or expanding venture. Oftentimes, alternative capital sources can fit the needs of a business while providing attractive rates and terms.  These include energy-based financing as well as municipal incentives.  Some examples include:

Commercial PACE (“Property Assessed Clean Energy”) is a state legislated program which allows building improvements that result in utility savings to be funded by private capital and repaid via a long-term property tax assessment. C-PACE tax assessments are long-term, fixed rate and non-recourse. C-PACE tax assessments can extend for periods of up to 30 years, so long as the weighted average useful life of the installed measures exceed the term of the C-PACE assessment. C-PACE tax assessments are also fully transferable between owners since it is tied to the land and, as it is tax assessed, can be passed along to a building’s tenant.
 
Municipal programs and incentives are often options for firms in areas where the governing entity sees the benefits of encouraging business growth and entrepreneurship.  Some examples include: Industrial Revenue Bonds (IRBs), Community Improvement Districts (CIDs), and Tax Increment Financing (TIF), to name a few.  For your medical cannabis firms to be able to utilize all available financial assets, it is important to assess the availability, types, and amounts of assistance each municipality can provide.

If any of these program opportunities seem like a potential fit or would provide value to your organization from a access to capital standpoint, I would encourage outreach to your attorney, industry / energy consultant or a lending program consultant to better understand what is available to Missouri businesses and how to access.  

Dr. Christopher Dussold

Avail Professional Services