Tax & Finance

Life as a Cannabis Attorney

Earlier this week, Burns & Levinson’s attorneys Lauren Medeiros Forster and Gustav Stickley V (Gus) spoke on a panel hosted by the Law Firm Alliance about their experiences practicing law in the red-hot cannabis industry.  Today on the blog, they’re sharing their perspectives, experiences as cannabis attorneys, and industry predictions. For background: Lauren’s practice focuses on commercial contracts, mergers & acquisitions, finance, securities, lending, and private equity matters in a range of industries, including cannabis. Gus represents cannabis clients focusing particularly on general corporate matters and governance, mergers and acquisitions, finance, securities, and lending.

What is alluring about practicing business law in the cannabis space?

Gus: Working in the cannabis industry makes me feel like a pioneer. New markets are opening up every election cycle, new regulations are being crafted by state regulators, then amended and further amended to keep up with developments and trends in the market. Companies of all sorts pop up with different goals, and different products (some entirely new to the market!). There is always a new problem that arises that taxes the brain and helps us earn the trust of our clients.

Lauren: I like that I have the opportunity to work … Keep reading

Scott Moskol, Burns & Levinson Cannabis Advisory Group

Scott Moskol, Burns & Levinson Cannabis Advisory Group

Readers, welcome back to the CannaBusiness Advisory blog! It has been a busy last few months as we took a short hiatus from publishing weekly posts. We first launched CannaBusiness Advisory in July 2017, and late last year we hit pause to re-focus our content and manage some large initiatives in our firm’s cannabis business and law advisory practice. Burns & Levinson’s 2021 Annual State of the Cannabis Industry Conference was our biggest and most successful event since we kicked off the conference series five years ago. This was our first in-person cannabis event in Boston since the beginning of the pandemic, and our team was proud to have nearly 200 in-person attendees (vaccinations were required), 60 virtual attendees, 23 expert speakers, and countless connections made. We are hard at work planning our 2022 conference, and in the meantime you can revisit last years’ panels on our YouTube channel.

The spring season is a time of renewal and revitalization. Just as NECANN held its first live Boston event this past weekend, reinvigorating the local cannabis community with the possibilities of the future, we are excited to see where future blog posts take us and our readers with respect to … Keep reading

There’s Always Certainty in Taxes: IRS Issues Tax Guidance for the Marijuana Industry

During these unpredictable times, there is certainty in taxes. This month the Internal Revenue Service (“IRS”) posted a dedicated marijuana-industry specific webpage providing general tax guidance and FAQs for the predominantly cash-based industry.  The guidance does not signify a change to the existing law but rather reminds marijuana business owners of their responsibility to pay federal taxes.

This IRS guidance is on the heels of a report from earlier this year by the Treasurer Inspector General for Tax Administration (“TIGTA”), aptly titled “The Growth of the Marijuana Industry Warrants Tax Compliance Efforts and Additional Guidance.” In the report, TIGTA recommended that the IRS develop educational guidance to assist marijuana businesses in understanding their tax obligations.

In the recent tax guidance, the IRS confirms that marijuana businesses are subject to the limitations of Section 280E of the Internal Revenue Code. Section 280E explicitly disallows tax deductions or credits for businesses that traffic a Schedule 1 or controlled substance. Although marijuana may be state-legal, on the federal level it is still considered a controlled substance classified as a Schedule 1.  Section 280E greatly impacts the profitability of marijuana businesses, because they are not able to make the same tax deductions or … Keep reading

Cannabis, COVID-19, and Cashless Transactions

In certain states (not currently including Massachusetts), cannabis-related businesses have been deemed “essential” businesses by local governments. In those states, medical and/or adult-use programs have continued to operate during the COVID-19 pandemic. Nevertheless, cannabis business operators have had to quickly adapt to the changing environment and implement new safety protocols, including limiting the number of patients and customers in retail shops at one time, and providing new online and telephone ordering channels for products that can now be delivered and/or picked up curbside. Changes to standard operating procedures bring new challenges to the industry, including how to accept payment for purchased products.

Historically, state-licensed cannabis-related businesses have been cash intensive because marijuana remains illegal under federal law. Not only has the conflict between state and federal law caused banks and credit unions to stay away from marijuana-related business relationships, but it has also caused the largest payment card networks to prohibit cannabis credit card transactions.

Cash intensive businesses are often considered higher risk entities, in part, because of safety concerns that include being easy targets for theft. These concerns are heightened with the COVID-19 pandemic and worries about viral transmission via cash. Regardless of whether the new COVID-19 cash … Keep reading

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SBA Economic Injury Disaster Loan Assistance is Available for Industrial Hemp Businesses

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was recently passed in response to the COVID-19 pandemic to provide much-needed economic relief to individuals and businesses. The Small Business Administration (SBA) is now offering the Paycheck Protection Program (PPP) and federal disaster loans for working capital via the Economic Injury Disaster Loan (EIDL) program to small businesses and non-profits to help small businesses in the U.S. stay afloat during this historic emergency. Although these programs are not available to state licensed cannabis related businesses, it is available for hemp producers and manufacturers. Here are 5 take-aways about the SBA’s EIDL and PPP programs:

What do the SBA programs mean for marijuana-related businesses? In a 2018 Policy Notice, the SBA reaffirmed that marijuana-related businesses – including plant-touching and some non-plant-touching businesses – were ineligible to receive SBA loans. More recently, in March, the SBA reiterated that cannabis companies are not eligible for disaster relief loans because cannabis remains illegal under federal law. However, the SBA further clarified that hemp businesses are eligible for SBA-funded services, tweeting:

“With the exception of businesses that produce or sell hemp and hemp-derived products (Agriculture Improvement Act of 2018, Public Law 115-334), … Keep reading

Making Sense of Internal Revenue Code Section 280E – Part II

Today, we’re picking up right where we left off last week, shedding more light on Section 280E by examining some of the noteworthy cases (and one memo) that have come to define it.

IRS Chief Counsel Advice Memorandum

In 2015, the IRS Office of Chief Counsel issued guidance on the application of Section 280E in the form of a memorandum. It’s a very technical document, but also very useful in understanding the statute, walking through the distinction between gross receipts and gross income (primarily, COGS) and discussing what constitutes COGS for purposes of Section 280E. The key takeaway from the Chief Counsel Advice Memorandum is that COGS should be determined under the Section 471 inventory rules, and that the Section 263A UNICAP rules have limited bearing, as they require capitalization of otherwise deductible expenses. Effectively, a cannabis business can’t use Section 263A to convert business expenses disallowed under Section 280E into COGS.

Alterman

Finally, on to some new case law. Alterman doesn’t offer any new issues to contend with. It is, in many ways, similar to Olive, but with somewhat more compelling facts. Alterman sold cannabis products, and in order to meet Colorado licensing requirements, also had … Keep reading

Making Sense of Internal Revenue Code Section 280E – Part I

It’s been a busy summer for cannabis business Section 280E controversy, with three published cases (Alterman v. Commissioner; Loughman v. Commissioner; and Alpenglow Botanicals, LLC v. U.S.) construing the statute, and generally not in favor of the taxpayer-cannabis business. The limitations of Section 280E and their effects on after tax profits should be fairly familiar to cannabis entrepreneurs, but to keep things fresh in your minds, the statute provides:

[n]o 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.

What does that single, parens-laden sentence really mean? When it comes to the Internal Revenue Code, one sentence can leave much to unpack. Take Section 482, for example—not a very relevant Code section, unless you’re taking your cannabis business cross-border (maybe into Canada?), but, nevertheless, illustrative. One … Keep reading

This year is primed to be the cannabis industry’s biggest yet. Almost $3 billion of capital was raised in the first quarter of 2018, more than four times the amount raised in the first quarter of 2017. With the increase in capital investment comes an increase in the sophistication of investors, including institutional ones like venture capital and private equity sponsors.

As more institutional money pours into the cannabis industry, entrepreneurs are being held to higher standards of professionalism, and are now expected to understand basic venture finance and equity structures. Part of this understanding includes preferred equity, which is a general term used to describe any class of securities (e.g., stock, limited liability company [LLC] units, limited partnership [LP] interests, etc.) that has higher priority for distributions of a company’s cash flows or profits than common equity.

In its simplest form, the “preferred” component of the equity represents additional rights and privileges investors receive in return for their investment beyond owning a percentage of the company. In most instances, when a company takes on outside investors, it will have at least two classes of securities: common equity and preferred equity. The common equity will be that owned by … Keep reading

Momentum Grows for Capital Raises in MJ Markets

The capital raised in the first five weeks of 2018, alone, matched deals for all of 2016. And the feeding frenzy has not decelerated, with the overall first quarter of 2018 seeing almost $3 billion in capital raises—more than four times the amount raised in the first quarter of 2017. This is attributable to increases in both the number and size of capital raises: The cannabis industry saw over 160 capital raises (vs. about 100 in 2017) at an average raise size of roughly $15 million (vs. roughly $5 million for 2017), with more than a dozen of these raises bringing in $50 million or more.

The landscape of the cannabis capital markets is also changing. During the early years, investments were often made in the form of high-interest-rate loans, due to investors’ skepticism of industry growth and aversion to risk related to all things cannabis. Now, over 80% of capital raises are equity raises, as a result of investors seeing real potential in an industry where regulatory and other risks are becoming fewer, and public acceptance and support are growing wider. Smaller “cannabis-focused” venture capital funds are popping up around the country at a rapid pace. Mainstream … Keep reading

Cannabis in the Commonwealth: What Are People Saying?

I recently attended the New England Real Estate Journal’s “Cannabis: The Next Phase in Commercial Real Estate” summit, which brought together a number of local players for networking and a high-level discussion of where the industry stands in Massachusetts. In addition to being fantastic networking opportunities, events such as this allow attendees to get a sense of where the conversation on cannabis is heading, and for us, can be invaluable in terms of helping to anticipate concerns that clients will have and issues they’ll face.

Some of my takeaways:

  • Despite the Attorney General’s stance on marijuana, nothing has really changed. For now, the federal government seems content leaving it to state and local authorities to ensure that cannabis industry players adhere to state laws when establishing and operating their businesses.
  • When it comes to launching a cannabis business of any kind, it’s critically important to educate people about what your operation will entail, and what it won’t. You need to meet with municipal boards, with community groups, with public safety officials, to really drive home the message that: “Yes, we’re in the cannabis business, but we’re not the big, bad wolf. We’re just a dispensary, or a
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