Unless Congress Acts To Legalize Cannabis, Here’s Why You Cannot Count On The Recent Proposed Rule To Reschedule Cannabis To A Class 3 Substance.

The prime benefits of classifying cannabis as a Class 3 substance is that the Federal government would recognize medical benefits of cannabis, make Section 280E inapplicable to licensed cannabis operators, and open up financial and banking markets.

The Associated Press reported on April 30, 2024 that the Drug Enforcement Administration (“DEA”) will propose a rule to reschedule cannabis to Schedule III under the Controlled Substance Act. The proposed rule has since been reviewed by the Department Of Justice and on May 16, 2024 has been published in the Federal Register. Next the DEA will take public comment on the plan to move marijuana from its current classification as a Schedule I drug, alongside heroin and LSD. It moves cannabis to Schedule III, alongside ketamine and some anabolic steroids, following a recommendation from the federal Health and Human Services Department. After the public comment period and a review by an administrative judge, the agency would eventually publish the final rule in the Federal Register.

The Growing Trend In Legalizing Cannabis – Current Standings:

Medical marijuana is legal in 38 states.

The medical use of cannabis is legal (with a doctor’s recommendation) in 38 states and Washington DC. Those 38 states being Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Hawaii, Illinois, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Dakota, Utah, Vermont, Virginia, Washington and West Virginia. The medical use of cannabis is also legal in the territories of the Northern Mariana Islands, Guam and Puerto Rico.

Recreational marijuana is legal in 24 states.

Twenty-three states and Washington DC, have legalized marijuana for recreational use — no doctor’s letter required — for adults over the age of 21. Those 23 states being Alaska, Arizona, California, Colorado, Connecticut, Delaware, Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Montana, Nevada, New Jersey, New Mexico, New York, Ohio, Oregon, Rhode Island, Vermont, Virginia and Washington and the territories of the Northern Mariana Islands and Guam.

Recreational marijuana is legal in 6 tribal nations.

Six Tribal nations have legalized marijuana for recreational use.  Those 6 tribes being the Flandreau Santee Sioux Tribe (South Dakota), Oglala Lakota Sioux Tribe (South Dakota), Suquamish Tribe (Washington state), Squaxin Island Tribe (Washington State), Eastern Band of Cherokee Indians (North Carolina) and St. Regis Mohawk Tribe (New York).

The New Rule If Approved Will Put Federal Law More In Line With State Laws.

Currently, under Federal law (Controlled Substances Act 21 U.S.C. 801) marijuana is designated as a Schedule I controlled substance due to the historical belief that it has a high potential for abuse, no currently accepted medical use in treatment, and lack of accepted safety for use under medical supervision.

The New Rule If Approved Will Result In A Tax Regime Similar To What Non-Cannabis Businesses Face.

Generally, businesses can deduct ordinary and necessary business expenses under I.R.C. §162. This includes wages, rent, supplies, etc. However, in 1982 Congress added I.R.C. §280E. Under §280E, taxpayers cannot deduct any amount for a trade or business where the trade or business consists of trafficking in controlled substances…which is currently prohibited by Federal law. Marijuana, including medical marijuana, is a controlled substance. What this means is that dispensaries and other businesses trafficking in marijuana have to report all of their income and cannot deduct rent, wages, and other expenses, making their marginal tax rate substantially higher than most other businesses.  Therefore, under current law, the Internal Revenue Code which treats businesses in the marijuana industry differently resulting in such business paying at least 3-times as much in taxes as ordinary businesses.

The New Rule If Approved DOES NOT Change Reporting Of Cash Payments.

The Bank Secrecy Act of 1970 (“BSA”) requires financial institutions in the United States to assist U.S. government agencies to detect and prevent money laundering. Specifically, the act requires financial institutions to keep records of cash purchases of negotiable instruments, and file reports of cash purchases of these negotiable instruments of more than $10,000 (daily aggregate amount), and to report suspicious activity that might signify money laundering, tax evasion, or other criminal activities. The BSA requires any business receiving one or more related cash payments totaling more than $10,000 to file IRS Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business.

The minimum penalty for failing to file EACH Form 8300 is $25,000 if the failure is due to an intentional or willful disregard of the cash reporting requirements. Penalties may also be imposed for causing, or attempting to cause, a trade or business to fail to file a required report; for causing, or attempting to cause, a trade or business to file a required report containing a material omission or misstatement of fact; or for structuring, or attempting to structure, transactions to avoid the reporting requirements. These violations may also be subject to criminal prosecution which, upon conviction, may result in imprisonment of up to 5 years or fines of up to $250,000 for individuals and $500,000 for corporations or both.

Marijuana-related businesses operate in an environment of cash transactions as many banks remain reluctant to do business with many in the marijuana industry. Like any cash-based business the IRS scrutinizes the amount of gross receipts to report and it is harder to prove to the IRS expenses paid in cash. So it is of most importance that the proper facilities and procedures be set up to maintain an adequate system of books and records.

So with all these potential benefits, what forces are present to block this proposed rule?

  1. Chevron Doctrine repealed by U.S. Supreme Court. The regulatory state has been in full force since, ironically, 1984, with the institution of the Chevron Doctrine. The Chevron Doctrine has required courts to defer to the expertise of administrative agencies when the legislative intent of an underlying law is ambiguous, which made it a cornerstone of how regulators and businesses interact. But on June 28, 2024, the Supreme Court’s Republican-appointed majority demolished the doctrine in its rulings in the Relentless v. Department of Commerce and Loper Bright Enterprises v. Raimondo appeals, overturning the broad authority of the administrative state and raising fresh questions about how cannabis will be regulated moving forward. Keep in mind that rescheduling has been moving forward as a regulatory, rather than a legislative, change, and now, regulations do not hold the same force of law as they did since 1984. But even if the Chevron Doctrine was not repealed, the normal rule making process still faces certain congressional and judicial challenges explained further below.
  2. Congressional Challenges. Under the Small Business Regulatory Enforcement Fairness Act (also known as the Congressional Review Act), new final rules must be sent to Congress and the Government Accountability Office for review before they can take effect. “Major rules” (ones that are economically significant and require OIRA review) must be made effective at least 60 days after the date of publication in the Federal Register, allowing time for Congressional review. In emergency situations, a major rule can be made effective before 60 days. If the House and Senate pass a resolution of disapproval and the President signs it (or if both houses override a presidential veto), the rule becomes void and cannot be republished by an agency in the same form without Congressional approval. Since 1996, when this process started, Congress has disapproved only one rule. Congress may also exercise its oversight in other ways, by holding hearings and posing questions to agency heads, by enacting new legislation, or by imposing funding restrictions.
  3. Judicial Challenges. Individuals and corporate entities may go into the courts to make a claim that they have been, or will be, damaged or adversely affected in some manner by a regulation. The reviewing court can consider whether a rule: is unconstitutional; goes beyond the agency’s legal authority; was made without following the notice-and-comment process required by the Administrative Procedure Act or other law; or was arbitrary, capricious, or an abuse of discretion. An agency head can also be sued for failing to act in a timely manner in certain cases. If a court sets aside (vacates) all or part of a rule, it usually sends the rule back to the agency to correct the deficiencies. The agency may have to reopen the comment period, publish a new statement of basis and purpose in the Federal Register to explain and justify its decisions, or re­start the rulemaking process from the beginning by issuing a new proposed rule.

It should be clear that the most certain way that cannabis can be legalized and thus be treated like any other lawful business is by Congress enacting legislation. 

How Do You Know Which Cannabis Tax Attorney Is Best For You?

Given that cannabis is still illegal under existing Federal law you need to protect yourself and your marijuana business from all challenges created by the U.S. government so it is best to be proactive and engage an experienced cannabis tax attorney in your area who is highly skilled in the different legal and tax issues that cannabis businesses face.  Let the cannabis tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), the Inland Empire (Ontario and Palm Springs) and other California locations protect you and maximize your net profits.  And if you are involved in crypto currency, check out what a bitcoin tax attorney can do for you.

 

IRS Says To Cannabis Businesses – Not So Fast! Cannabis remains a Schedule I controlled substance; Internal Revenue Code Section 280E still applies

The Associated Press reported on April 30, 2024 that the Drug Enforcement Administration (“DEA”) will propose a rule to reschedule cannabis to Schedule III under the Controlled Substance Act. The proposed rule has since been reviewed by the Department Of Justice and on May 16, 2024 has been published in the Federal Register. Next the DEA will take public comment on the plan to move cannabis from its current classification as a Schedule I drug, alongside heroin and LSD. It moves pot to Schedule III, alongside ketamine and some anabolic steroids, following a recommendation from the federal Health and Human Services Department. After the public comment period and a review by an administrative judge, the agency would eventually publish the final rule in the Federal Register.

The IRS announced on June 28, 2024 that until a final federal rule is published, cannabis remains a Schedule I controlled substance and is subject to the limitations of Internal Revenue Code.  The law with respect to the schedule or classification of cannabis has not changed; therefore, taxpayers seeking a refund of taxes paid related to Internal Revenue Code Section 280E by filing amended returns are not entitled to a refund or payment.

Although the law has not changed, the IRS says that some taxpayers are filing amended returns. The IRS also says that while the grounds for filing such claims vary, these claims are not valid. The IRS says it will be taking steps to address these claims.

Internal Revenue Code Section 280E

Section 280E disallows all deductions or credits for any amount paid or incurred in carrying on any trade or business that consists of illegally trafficking in a Schedule I or II controlled substance within the meaning of the federal Controlled Substances Act.

This applies to businesses that sell cannabis, even if they operate in states that have legalized the sale of cannabis. Section 280E does not, however, prohibit a participant in the cannabis industry from reducing its gross receipts by its properly calculated cost of goods sold to determine its gross income.

The Growing Trend In Legalizing Cannabis – Current Standings:

Medical cannabis is legal in 38 states.

The medical use of cannabis is legal (with a doctor’s recommendation) in 38 states and Washington DC. Those 38 states being Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Hawaii, Illinois, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Dakota, Utah, Vermont, Virginia, Washington and West Virginia. The medical use of cannabis is also legal in the territories of the Northern Mariana Islands, Guam and Puerto Rico.

Recreational cannabis is legal in 24 states.

Twenty-three states and Washington DC, have legalized cannabis for recreational use — no doctor’s letter required — for adults over the age of 21. Those 23 states being Alaska, Arizona, California, Colorado, Connecticut, Delaware, Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Montana, Nevada, New Jersey, New Mexico, New York, Ohio, Oregon, Rhode Island, Vermont, Virginia and Washington and the territories of the Northern Mariana Islands and Guam.

Recreational cannabis is legal in 6 tribal nations.

Six Tribal nations have legalized cannabis for recreational use.  Those 6 tribes being the Flandreau Santee Sioux Tribe (South Dakota), Oglala Lakota Sioux Tribe (South Dakota), Suquamish Tribe (Washington state), Squaxin Island Tribe (Washington State), Eastern Band of Cherokee Indians (North Carolina) and St. Regis Mohawk Tribe (New York).

The New Rule If Approved Will Result In A Tax Regime Similar To What Non-Cannabis Businesses Face.

Currently, under Federal law (Controlled Substances Act 21 U.S.C. 801) cannabis is designated as a Schedule I controlled substance due to the historical belief that it has a high potential for abuse, no currently accepted medical use in treatment, and lack of accepted safety for use under medical supervision.

Generally, businesses can deduct ordinary and necessary business expenses under I.R.C. §162. This includes wages, rent, supplies, etc. However, in 1982 Congress added I.R.C. §280E. Under §280E, taxpayers cannot deduct any amount for a trade or business where the trade or business consists of trafficking in controlled substances…which is currently prohibited by Federal law. Cannabis, including medical cannabis, is a controlled substance. What this means is that dispensaries and other businesses trafficking in cannabis have to report all of their income and cannot deduct rent, wages, and other expenses, making their marginal tax rate substantially higher than most other businesses.  Therefore, under current law, the Internal Revenue Code which treats businesses in the cannabis industry differently resulting in such business paying at least 3-times as much in taxes as ordinary businesses.

The New Rule If Approved DOES NOT Change Reporting Of Cash Payments.

The Bank Secrecy Act of 1970 (“BSA”) requires financial institutions in the United States to assist U.S. government agencies to detect and prevent money laundering. Specifically, the act requires financial institutions to keep records of cash purchases of negotiable instruments, and file reports of cash purchases of these negotiable instruments of more than $10,000 (daily aggregate amount), and to report suspicious activity that might signify money laundering, tax evasion, or other criminal activities. The BSA requires any business receiving one or more related cash payments totaling more than $10,000 to file IRS Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business.

The minimum penalty for failing to file EACH Form 8300 is $25,000 if the failure is due to an intentional or willful disregard of the cash reporting requirements. Penalties may also be imposed for causing, or attempting to cause, a trade or business to fail to file a required report; for causing, or attempting to cause, a trade or business to file a required report containing a material omission or misstatement of fact; or for structuring, or attempting to structure, transactions to avoid the reporting requirements. These violations may also be subject to criminal prosecution which, upon conviction, may result in imprisonment of up to 5 years or fines of up to $250,000 for individuals and $500,000 for corporations or both.

Cannabis-related businesses operate in an environment of cash transactions as many banks remain reluctant to do business with many in the cannabis industry. Like any cash-based business the IRS scrutinizes the amount of gross receipts to report and it is harder to prove to the IRS expenses paid in cash. So it is of most importance that the proper facilities and procedures be set up to maintain an adequate system of books and records.

How Do You Know Which Cannabis Tax Attorney Is Best For You?

While the Federal government is still considering whether to reschedule cannabis, it is premature to file any amended income tax returns before the rule to reschedule has been finalized.  Given that cannabis is still illegal under existing Federal law you need to protect yourself and your cannabis business from all challenges created by the U.S. government.  Additionally, assuming that this new rule is approved – ONLY LICENSED cannabis operators can benefit. So it is best to be proactive and engage an experienced cannabis tax attorney in your area who is highly skilled in the different legal and tax issues that cannabis businesses face.  Let the cannabis tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), the Inland Empire (Ontario and Palm Springs) and other California locations protect you and maximize your net profits.  And if you are involved in crypto currency, check out what a bitcoin tax attorney can do for you.

If You Can’t Beat Them, Join Them – Biden Administration Publishes Proposed Rule Moving Cannabis to Schedule III

Biden Administration Publishes Proposed Rule Moving Cannabis to Schedule III.  If this proposed rule is approved, the Federal government would recognize medical benefits of cannabis, make Section 280E inapplicable to licensed cannabis operators, and open up financial and banking markets.

The Associated Press reported on April 30, 2024 that the Drug Enforcement Administration (“DEA”) will propose a rule to reschedule cannabis to Schedule III under the Controlled Substance Act. The proposed rule has since been reviewed by the Department Of Justice and on May 16, 2024 has been published in the Federal Register. Next the DEA will take public comment on the plan to move marijuana from its current classification as a Schedule I drug, alongside heroin and LSD. It moves pot to Schedule III, alongside ketamine and some anabolic steroids, following a recommendation from the federal Health and Human Services Department. After the public comment period and a review by an administrative judge, the agency would eventually publish the final rule in the Federal Register.

The Growing Trend In Legalizing Cannabis – Current Standings:

Medical marijuana is legal in 38 states.

The medical use of cannabis is legal (with a doctor’s recommendation) in 38 states and Washington DC. Those 38 states being Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Hawaii, Illinois, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Dakota, Utah, Vermont, Virginia, Washington and West Virginia. The medical use of cannabis is also legal in the territories of the Northern Mariana Islands, Guam and Puerto Rico.

Recreational marijuana is legal in 24 states.

Twenty-three states and Washington DC, have legalized marijuana for recreational use — no doctor’s letter required — for adults over the age of 21. Those 23 states being Alaska, Arizona, California, Colorado, Connecticut, Delaware, Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Montana, Nevada, New Jersey, New Mexico, New York, Ohio, Oregon, Rhode Island, Vermont, Virginia and Washington and the territories of the Northern Mariana Islands and Guam.

Recreational marijuana is legal in 6 tribal nations.

Six Tribal nations have legalized marijuana for recreational use.  Those 6 tribes being the Flandreau Santee Sioux Tribe (South Dakota), Oglala Lakota Sioux Tribe (South Dakota), Suquamish Tribe (Washington state), Squaxin Island Tribe (Washington State), Eastern Band of Cherokee Indians (North Carolina) and St. Regis Mohawk Tribe (New York).

The New Rule If Approved Will Put Federal Law More In Line With State Laws.

Currently, under Federal law (Controlled Substances Act 21 U.S.C. 801) marijuana is designated as a Schedule I controlled substance due to the historical belief that it has a high potential for abuse, no currently accepted medical use in treatment, and lack of accepted safety for use under medical supervision.

The New Rule If Approved Will Result In A Tax Regime Similar To What Non-Cannabis Businesses Face.

Generally, businesses can deduct ordinary and necessary business expenses under I.R.C. §162. This includes wages, rent, supplies, etc. However, in 1982 Congress added I.R.C. §280E. Under §280E, taxpayers cannot deduct any amount for a trade or business where the trade or business consists of trafficking in controlled substances…which is currently prohibited by Federal law. Marijuana, including medical marijuana, is a controlled substance. What this means is that dispensaries and other businesses trafficking in marijuana have to report all of their income and cannot deduct rent, wages, and other expenses, making their marginal tax rate substantially higher than most other businesses.  Therefore, under current law, the Internal Revenue Code which treats businesses in the marijuana industry differently resulting in such business paying at least 3-times as much in taxes as ordinary businesses.

The New Rule If Approved DOES NOT Change Reporting Of Cash Payments.

The Bank Secrecy Act of 1970 (“BSA”) requires financial institutions in the United States to assist U.S. government agencies to detect and prevent money laundering. Specifically, the act requires financial institutions to keep records of cash purchases of negotiable instruments, and file reports of cash purchases of these negotiable instruments of more than $10,000 (daily aggregate amount), and to report suspicious activity that might signify money laundering, tax evasion, or other criminal activities. The BSA requires any business receiving one or more related cash payments totaling more than $10,000 to file IRS Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business.

The minimum penalty for failing to file EACH Form 8300 is $25,000 if the failure is due to an intentional or willful disregard of the cash reporting requirements. Penalties may also be imposed for causing, or attempting to cause, a trade or business to fail to file a required report; for causing, or attempting to cause, a trade or business to file a required report containing a material omission or misstatement of fact; or for structuring, or attempting to structure, transactions to avoid the reporting requirements. These violations may also be subject to criminal prosecution which, upon conviction, may result in imprisonment of up to 5 years or fines of up to $250,000 for individuals and $500,000 for corporations or both.

Marijuana-related businesses operate in an environment of cash transactions as many banks remain reluctant to do business with many in the marijuana industry. Like any cash-based business the IRS scrutinizes the amount of gross receipts to report and it is harder to prove to the IRS expenses paid in cash. So it is of most importance that the proper facilities and procedures be set up to maintain an adequate system of books and records.

How Do You Know Which Cannabis Tax Attorney Is Best For You?

Given that cannabis is still illegal under existing Federal law you need to protect yourself and your marijuana business from all challenges created by the U.S. government.  Additionally, assuming that this new rule is approved – ONLY LICENSED cannabis operators can benefit. So it is best to be proactive and engage an experienced cannabis tax attorney in your area who is highly skilled in the different legal and tax issues that cannabis businesses face.  Let the cannabis tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), the Inland Empire (Ontario and Palm Springs) and other California locations protect you and maximize your net profits.  And if you are involved in crypto currency, check out what a bitcoin tax attorney can do for you.

If You Can’t Beat Them, Join Them – DEA to Propose Rule Moving Cannabis to Schedule III

If this change is approved, the Federal government would recognize medical benefits of cannabis, make Section 280E inapplicable to licensed cannabis operators, and open up financial and banking markets.

The Associated Press reported on April 30, 2024 that the Drug Enforcement Administration (“DEA”) will propose a rule to reschedule cannabis to Schedule III under the Controlled Substance Act. The proposed rule is subject to review by the White House Office of Management and Budget (“OMB”).  After the OMB gives its approval, the DEA will take public comment on the plan to move marijuana from its current classification as a Schedule I drug, alongside heroin and LSD. It moves pot to Schedule III, alongside ketamine and some anabolic steroids, following a recommendation from the federal Health and Human Services Department. After the public comment period and a review by an administrative judge, the agency would eventually publish the final rule in the Federal Register.

The Growing Trend In Legalizing Cannabis – Current Standings:

Medical marijuana is legal in 38 states.

The medical use of cannabis is legal (with a doctor’s recommendation) in 38 states and Washington DC. Those 38 states being Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Hawaii, Illinois, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Dakota, Utah, Vermont, Virginia, Washington and West Virginia. The medical use of cannabis is also legal in the territories of the Northern Mariana Islands, Guam and Puerto Rico.

Recreational marijuana is legal in 24 states.

Twenty-three states and Washington DC, have legalized marijuana for recreational use — no doctor’s letter required — for adults over the age of 21. Those 23 states being Alaska, Arizona, California, Colorado, Connecticut, Delaware, Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Montana, Nevada, New Jersey, New Mexico, New York, Ohio, Oregon, Rhode Island, Vermont, Virginia and Washington and the territories of the Northern Mariana Islands and Guam.

Recreational marijuana is legal in 6 tribal nations.

Six Tribal nations have legalized marijuana for recreational use.  Those 6 tribes being the Flandreau Santee Sioux Tribe (South Dakota), Oglala Lakota Sioux Tribe (South Dakota), Suquamish Tribe (Washington state), Squaxin Island Tribe (Washington State), Eastern Band of Cherokee Indians (North Carolina) and St. Regis Mohawk Tribe (New York).

The New Rule If Approved Will Put Federal Law More In Line With State Laws.

Currently, under Federal law (Controlled Substances Act 21 U.S.C. 801) marijuana is designated as a Schedule I controlled substance due to the historical belief that it has a high potential for abuse, no currently accepted medical use in treatment, and lack of accepted safety for use under medical supervision.

The New Rule If Approved Will Result In A Tax Regime Similar To What Non-Cannabis Businesses Face.

Generally, businesses can deduct ordinary and necessary business expenses under I.R.C. §162. This includes wages, rent, supplies, etc. However, in 1982 Congress added I.R.C. §280E. Under §280E, taxpayers cannot deduct any amount for a trade or business where the trade or business consists of trafficking in controlled substances…which is currently prohibited by Federal law. Marijuana, including medical marijuana, is a controlled substance. What this means is that dispensaries and other businesses trafficking in marijuana have to report all of their income and cannot deduct rent, wages, and other expenses, making their marginal tax rate substantially higher than most other businesses.  Therefore, under current law, the Internal Revenue Code which treats businesses in the marijuana industry differently resulting in such business paying at least 3-times as much in taxes as ordinary businesses.

The New Rule If Approved DOES NOT Change Reporting Of Cash Payments.

The Bank Secrecy Act of 1970 (“BSA”) requires financial institutions in the United States to assist U.S. government agencies to detect and prevent money laundering. Specifically, the act requires financial institutions to keep records of cash purchases of negotiable instruments, and file reports of cash purchases of these negotiable instruments of more than $10,000 (daily aggregate amount), and to report suspicious activity that might signify money laundering, tax evasion, or other criminal activities. The BSA requires any business receiving one or more related cash payments totaling more than $10,000 to file IRS Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business.

The minimum penalty for failing to file EACH Form 8300 is $25,000 if the failure is due to an intentional or willful disregard of the cash reporting requirements. Penalties may also be imposed for causing, or attempting to cause, a trade or business to fail to file a required report; for causing, or attempting to cause, a trade or business to file a required report containing a material omission or misstatement of fact; or for structuring, or attempting to structure, transactions to avoid the reporting requirements. These violations may also be subject to criminal prosecution which, upon conviction, may result in imprisonment of up to 5 years or fines of up to $250,000 for individuals and $500,000 for corporations or both.

Marijuana-related businesses operate in an environment of cash transactions as many banks remain reluctant to do business with many in the marijuana industry. Like any cash-based business the IRS scrutinizes the amount of gross receipts to report and it is harder to prove to the IRS expenses paid in cash. So it is of most importance that the proper facilities and procedures be set up to maintain an adequate system of books and records.

How Do You Know Which Cannabis Tax Attorney Is Best For You?

Given that cannabis is still illegal under existing Federal law you need to protect yourself and your marijuana business from all challenges created by the U.S. government.  Additionally, assuming that this new rule is approved – ONLY LICENSED cannabis operators can benefit. So it is best to be proactive and engage an experienced cannabis tax attorney in your area who is highly skilled in the different legal and tax issues that cannabis businesses face.  Let the cannabis tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), the Inland Empire (Ontario and Palm Springs) and other California locations protect you and maximize your net profits.  And if you are involved in crypto currency, check out what a bitcoin tax attorney can do for you.

Can The Use Magic Mushrooms Lead To Better Sex?

Psychedelics which include “magic mushrooms” have been the subject of recent medical studies documenting such health and therapeutic benefits treating anxiety and depression, PTSD, OC, suicidal thoughts and other mental illnesses.  And now there is a new study out that suggests that magic mushrooms or scientifically called “psilocybin” can help improve sexual activity.

According to data published in the journal, Scientific Reports, the naturalistic and controlled therapeutic use of psychedelic drugs might foster an improvement in several facets of sexual functioning and satisfaction, including experienced pleasure, sexual satisfaction, communication of sexual desires and body image.

Researchers reviewed data collected from 261 subjects consuming psychedelic substance in naturalistic settings like attending psychedelic ceremonies to assess the impact of psychedelic-use on several facets of sexual functioning and satisfaction. Additionally, they further tested the same research question in a 6-week trial of psilocybin use by their study participants with several months of follow-up after the trial conclusion.  By combining responses from these two groups, researchers were able to investigate how the experience influenced a range of aspects relating to sexual functioning.

The study concluded that on average, people reported improvements across a range of areas of sexual function up to six months after their psychedelic experience, including their enjoyment of sex, sexual arousal, satisfaction with sex, attraction to partner, their own physical appearance, communication, and their sense of connection.

Tommaso Barba who is one of the researchers in this study, stated “We believe this is the first scientific study to explore the effects of psychedelics on sexual functioning. Our findings suggest potential implications for conditions that negatively affect sexual health, including clinical depression and anxiety.”

Federal law puts psychedelics in the same class as cannabis, both of which are illegal.  At the State level, only two States (currently Colorado and Oregon) legalized the use of psychedelics but just like State legalization of cannabis which has increased over time, it is expected that more States over time will also legalize psychedelics (California and Arizona have pending legislation that if passed into law will create huge legal markets for psychedelics).

The Anti-Federal U.S. Climate

The Federal Controlled Substances Act (“CSA”) 21 U.S.C. § 812 classifies marijuana as a Schedule 1 substance with a high potential for abuse, no currently accepted medical use in treatment, and lack of accepted safety for use under medical supervision. Although you can still face federal criminal charges for using, growing, or selling weed in a manner that is completely lawful under California law, the federal authorities in the past have pulled back from targeting individuals and businesses engaged in medical marijuana activities. This pull back came from Department of Justice (“DOJ”) Safe Harbor Guidelines issued in 2013 under what is known as the “Cole Memo”.

The Cole Memo included eight factors for prosecutors to look at in deciding whether to charge a medical marijuana business with violating the Federal law:

  • Does the business allow minors to gain access to marijuana?
  • Is revenue from the business funding criminal activities or gangs?
  • Is the marijuana being diverted to other states?
  • Is the legitimate medical marijuana business being used as a cover or pretext for the traffic of other drugs or other criminal enterprises?
  • Are violence or firearms being used in the cultivation and distribution of marijuana?
  • Does the business contribute to drugged driving or other adverse public health issues?
  • Is marijuana being grown on public lands or in a way that jeopardizes the environment or public safety?
  • Is marijuana being used on federal property?

Since 2013, these guidelines provided a level of certainty to the marijuana industry as to what point could you be crossing the line with the Federal government.  But on January 4, 2018, then Attorney General Jeff Sessions revoked the Cole Memo.  Now U.S. Attorneys in the local offices throughout the country retain broad prosecutorial discretion as to whether to prosecute cannabis businesses under federal law even though the state that these businesses operate in have legalized some form of marijuana.

Joyce-Blumenauer Amendment (previously referred to as the Rohrabacher-Farr Amendment)

The medical use of cannabis is legal (with a doctor’s recommendation) in 38 states and Washington DC. Those 38 states being Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Hawaii, Illinois, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Dakota, Utah, Vermont, Virginia, Washington and West Virginia. The medical use of cannabis is also legal in the territories of the Northern Mariana Islands, Guam and Puerto Rico.

Six tribal nations also legalized cannabis use – those 6 tribes being the Flandreau Santee Sioux Tribe (South Dakota), Oglala Lakota Sioux Tribe (South Dakota), Suquamish Tribe (Washington state), Squaxin Island Tribe (Washington state), Eastern Band of Cherokee Indians (North Carolina) and St. Regis Mohawk Tribe (New York).

Building on the DOJ’s issuance of the Cole Memo, in 2014 the House passed an amendment to the yearly federal appropriations bill that effectively shields medical marijuana businesses from federal prosecution. Proposed by Representatives Rohrabacher and Farr, the amendment forbids federal agencies to spend money on investigating and prosecuting medical marijuana-related activities in states where such activities are legal.

The amendment states that:

NONE OF THE FUNDS MADE AVAILABLE UNDER THIS ACT TO THE DEPARTMENT OF JUSTICE MAY BE USED, WITH RESPECT TO ANY OF THE STATES OF ALABAMA, ALASKA, ARIZONA, ARKANSAS, CALIFORNIA, COLORADO, CONNECTICUT, DELAWARE, FLORIDA, GEORGIA, HAWAII, ILLINOIS, INDIANA, IOWA, KENTUCKY, LOUISIANA, MAINE, MARYLAND, MASSACHUSETTS, MICHIGAN, MINNESOTA, MISSISSIPPI, MISSOURI, MONTANA, NEVADA, NEW HAMPSHIRE, NEW JERSEY, NEW MEXICO, NEW YORK, NORTH CAROLINA, NORTH DAKOTA, OHIO, OKLAHOMA, OREGON, PENNSYLVANIA, RHODE ISLAND, SOUTH CAROLINA, TENNESSEE, TEXAS, UTAH, VERMONT, VIRGINIA, WASHINGTON, WEST VIRGINIA, WISCONSIN, AND WYOMING, OR WITH RESPECT TO THE DISTRICT OF COLUMBIA, GUAM, OR PUERTO RICO, TO PREVENT ANY OF THEM FROM IMPLEMENTING THEIR OWN LAWS THAT AUTHORIZE THE USE, DISTRIBUTION, POSSESSION, OR CULTIVATION OF MEDICAL MARIJUANA.

This action by the House is not impacted by the change of position by the DOJ. However, unless this amendment gets included in each succeeding federal appropriations bill, the protection from Federal prosecution of medical marijuana businesses will no longer be in place.  Fortunately, Congress has included this amendment but yet has changed any of the tax or banking laws that pose challenges to the cannabis industry.

Clearly, to avail yourself of the protections of the amendment, you must be on the medical cannabis side and you must be in complete compliance with your State’s medical cannabis laws and regulations. You may not be covered under the amendment if you are involved in the recreational cannabis side even if legal in the State you are operating.

What Should You Do?

Given the illegal status of cannabis under Federal law you need to protect yourself and your marijuana business from all challenges created by the U.S. government.  Although cannabis is legal in California, that is not enough to protect you. Be proactive and engage an experienced Cannabis Tax Attorney in your area. Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County, Inland Empire (Ontario and Palm Springs) and other California locations protect you and maximize your net profits.  And if you are involved in crypto currency, check out what a bitcoin tax attorney can do for you.

California Cities Decriminalize Psychedelics While The California Legislature Considers Legalizing Psychedelics

In February 2024, California Sen. Scott Wiener, and Assemblymember Marie Waldron, proposed Senate Bill 2012 named The Regulated Psychedelic-assisted Therapy Act and the Regulated Psychedelic Substances Control Act.

This new proposal follows Governor Newsom’s veto of a bill in October 2023 that would have decriminalized the possession of psychedelic drugs. Newsom stated that he would support a bill focused more on therapies and treatment: “California should immediately begin work to set up regulated treatment guidelines — replete with dosing information, therapeutic guidelines, rules to prevent against exploitation during guided treatments, and medical clearance of no underlying psychose.”

This new Senate Bill 1012 focuses more on therapies and treatment following Newsom’s comments and previous veto. Senate Bill 1012 would allow adults 21 and older to use the hallucinogenic drugs psilocybin mushrooms, MDMA, DMT and mescaline in a controlled setting and under the supervision of a licensed and trained facilitator. Furthermore, Senate Bill 1012 would require California to establish a licensing board that would develop training and oversight rules for therapy facilitators. Therapy Facilitators would have to screen individuals before they can participate. Also, the bill calls for the creation of a public-private fund to support grants for public health education related to psychedelics.

If this bill becomes law, California would be the third state in the nation to legalize psychedelics (following Colorado and Oregon).

There are four cities in California which have already decriminalized a range of psychedelic substances – Oakland, Berkeley, Santa Cruz and Eureka.

Oakland Decriminalizes Psychedelic Mushrooms – Oakland passed a resolution in July 2019 to effectively decriminalize psychedelic mushrooms and other psychoactive plants and fungi. The resolution says city money will not be used to assist in the enforcement of laws imposing criminal penalties for the use and possession of entheogenic plants by adults. It says that investigating people for growing, buying, distributing or possessing the substances shall be amongst the lowest law enforcement priority for the City of Oakland. The resolution however does not allow for commercial sale or manufacturing of the mushrooms.

Berkeley Decriminalizes Psychedelics – Berkeley decriminalized a range of psychedelic substances within city limits in July 2023. The resolution de-prioritizes enforcement of state and federal laws against entheogenic and psychedelic plants and fungi.  The resolution also forbids “giving away, sharing, distributing, transferring, dispensing, or administering” psychedelics. The council’s resolution, does not include psychedelics “produced through artificial synthesis,” it only includes “plant- or fungus-biosynthesized psychedelic drugs.”

Santa Cruz Decriminalizes Psychedelics – In January 2020, the Santa Cruz City Council voted to decriminalize adult use, possession and cultivation of entheogenic psychoactive plants and fungi. In the Resolution, a provision was inserted to clarify that “the sale, use and cultivation of Entheogenic Plants and Fungi to and by minors should be considered an exception that should require appropriate investigation by the Santa Cruz City Police Department.” Furthermore, the Resolution instructs the city’s state and federal lobbyists to “work in support of decriminalizing all entheogenic psychoactive plants, and plant and fungi-based compounds listed in the Federal Controlled Substances Act.”

Eureka City Council Decriminalizes Entheogenic Plants and Fungi – The Eureka City Council decriminalized Entheogenic Plants and Fungi in October 2023. The ordinance directs the police to deprioritize busting people 21 years and older for the personal use, cultivation or possession of entheogenic plants and fungi like psilocybin mushrooms, peyote and other hallucinogens. The ordinance does not decriminalize commercial sales or use by those under 21.

New research into psychedelic therapies

There is a lot of research being conducted in regard to how psychedelic drugs may positively impact and treat mental health illnesses, such as depression or PTSD. One such study was published by the Association of America Medical Colleges.  The U.S. Food and Drug Administration has not approved psychedelic-assisted therapies. However, in December 2023, the nonprofit research group Multidisciplinary Association for Psychedelic Studies applied for FDA review of its MDMA-assisted therapy for PTSD, which could come later this year. Furthermore, the Department of Veterans Affairs announced its intent to study psychedelics for the treatment of PTSD and depression.

A Complex Tax Landscape for Psychedelics and Cannabis

Similarly to Cannabis, where the Federal government has outlawed it but various states or cities have legalized Cannabis, a complex tax landscape may be created for legal businesses involved in psychedelic activities. Many psychedelics fall under the category of Schedule I substances under the Controlled Substances Act. This classification usually results in the disallowance of federal tax deductions related to the production and sale of these substances. IRS Code Section 280E, originally conceived for illegal drug trafficking organizations, has been used to restrict deductions for businesses engaged in the sale of controlled substances. But companies involved in legal psychedelic activities, specifically such as research or therapy, may not be subject to the same restrictions, potentially allowing them to claim deductions, such a Cannabis businesses do. For example, Cannabis business owners can deduct their cost of goods sold, which is basically the cost of their inventory. What isn’t deductible are the normal overhead expenses, such as advertising expenses, wages and salaries, and travel expenses. In addition, businesses operating in the psychedelics industry and Cannabis industry must navigate different state tax laws.

What Should You Do?

The nuance of this subject matter and different federal, state, and city tax laws can be a challenge for some business owners. You know that at the Law Offices Of Jeffrey B. Kahn, P.C. we are always thinking of ways that our clients can save on taxes. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), San Diego County (Carlsbad) and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income. Also if you are involved in cannabis, check out what a cannabis tax attorney can do for you.  And if you are involved in crypto currency, check out what a bitcoin tax attorney can do for you.

California Looking to Legalize Psychedelics

Currently there are two States that have legalized psychedelics, namely: Colorado and Oregon.  California is now considering to join these states as well.  In February 2024, California Sen. Scott Wiener, and Assemblymember Marie Waldron, proposed Senate Bill 2012 named The Regulated Psychedelic-assisted Therapy Act and the Regulated Psychedelic Substances Control Act.

This new proposal follows Governor Newsom’s veto of a bill in October 2023 that would have decriminalized the possession of psychedelic drugs. Newsom stated that he would support a bill focused more on therapies and treatment: “California should immediately begin work to set up regulated treatment guidelines — replete with dosing information, therapeutic guidelines, rules to prevent against exploitation during guided treatments, and medical clearance of no underlying psychose.”

This new Senate Bill 1012 focuses more on therapies and treatment following Newsom’s comments and previous veto. Senate Bill 1012 would allow adults 21 and older to use the hallucinogenic drugs psilocybin mushrooms, MDMA, DMT and mescaline in a controlled setting and under the supervision of a licensed and trained facilitator. Furthermore, Senate Bill 1012 would require California to establish a licensing board that would develop training and oversight rules for therapy facilitators. Therapy Facilitators would have to screen individuals before they can participate. Also, the bill calls for the creation of a public-private fund to support grants for public health education related to psychedelics.

New research into psychedelic therapies

There is a lot of research being conducted in regard to how psychedelic drugs may positively impact and treat mental health illnesses, such as depression or PTSD. One such study was published by the Association of America Medical Colleges.  The U.S. Food and Drug Administration has not approved psychedelic-assisted therapies. However, in December 2023, the nonprofit research group Multidisciplinary Association for Psychedelic Studies applied for FDA review of its MDMA-assisted therapy for PTSD, which could come later this year. Furthermore, the Department of Veterans Affairs announced its intent to study psychedelics for the treatment of PTSD and depression.

A Complex Tax Landscape for Psychedelics and Cannabis

Similarly to Cannabis, where the Federal government has outlawed it but various states have legalized Cannabis, a complex tax landscape may be created for legal businesses involved in psychedelic activities. Many psychedelics fall under the category of Schedule I substances under the Controlled Substances Act. This classification usually results in the disallowance of federal tax deductions related to the production and sale of these substances. IRS Code Section 280E, originally conceived for illegal drug trafficking organizations, has been used to restrict deductions for businesses engaged in the sale of controlled substances. But companies involved in legal psychedelic activities, specifically such as research or therapy, may not be subject to the same restrictions, potentially allowing them to claim deductions, such a Cannabis businesses do. For example, Cannabis business owners can deduct their cost of goods sold, which is basically the cost of their inventory. What isn’t deductible are the normal overhead expenses, such as advertising expenses, wages and salaries, and travel expenses. In addition, businesses operating in the psychedelics industry and Cannabis industry must navigate different state tax laws.

What Should You Do?

The nuance of this subject matter and different federal and state tax laws can be a challenge for some business owners. You know that at the Law Offices Of Jeffrey B. Kahn, P.C. we are always thinking of ways that our clients can save on taxes. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), San Diego County (Carlsbad) and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income. Also if you are involved in cannabis, check out what a cannabis tax attorney can do for you.  And if you are involved in crypto currency, check out what a bitcoin tax attorney can do for you.

 

Can Daily Cannabis Use Help Subjects With Generalized Anxiety Sleep Better?

According to data published in the journal Behavioral Sleep Medicine, patients with moderate anxiety report experiencing increased sleep quality following their use of cannabis.

Furthermore, researchers with the University of Colorado at Boulder studied the relationship between cannabis use and sleep quality in 348 adults with symptoms of generalized anxiety. Study participants were to ingest either cannabis flower or edibles that were either THC dominant, CBD dominant, or contained equal quantities of both. The participants in this study completed daily online surveys for 30 days and the participants reported that they slept better on those days when they consumed cannabis.

The study’s authors concluded: “We report on 30 days of daily cannabis use and sleep quality data among a community sample with mild-to-moderate anxiety. Our results suggest that cannabis use on a particular day is associated with better perceived sleep quality during the night and that these associations are stronger among those with higher negative affective symptoms and those using CBD dominant edible forms of cannabis.”

In addition, a study in the United Kingdom recently published data from an observational trial in the journal Neuropsychopharmacology Reports, which found that patients with generalized anxiety disorder show sustained symptom relief after their use of various cannabis products.

Developments like this contradict the basis of classification of cannabis under Federal law which makes cannabis illegal.

The Anti-Federal U.S. Climate

The Federal Controlled Substances Act (“CSA”) 21 U.S.C. § 812 classifies marijuana as a Schedule 1 substance with a high potential for abuse, no currently accepted medical use in treatment, and lack of accepted safety for use under medical supervision. Although you can still face federal criminal charges for using, growing, or selling weed in a manner that is completely lawful under California law, the federal authorities in the past have pulled back from targeting individuals and businesses engaged in medical marijuana activities. This pull back came from Department of Justice (“DOJ”) Safe Harbor Guidelines issued in 2013 under what is known as the “Cole Memo”.

The Cole Memo included eight factors for prosecutors to look at in deciding whether to charge a medical marijuana business with violating the Federal law:

  • Does the business allow minors to gain access to marijuana?
  • Is revenue from the business funding criminal activities or gangs?
  • Is the marijuana being diverted to other states?
  • Is the legitimate medical marijuana business being used as a cover or pretext for the traffic of other drugs or other criminal enterprises?
  • Are violence or firearms being used in the cultivation and distribution of marijuana?
  • Does the business contribute to drugged driving or other adverse public health issues?
  • Is marijuana being grown on public lands or in a way that jeopardizes the environment or public safety?
  • Is marijuana being used on federal property?

Since 2013, these guidelines provided a level of certainty to the marijuana industry as to what point could you be crossing the line with the Federal government.  But on January 4, 2018, then Attorney General Jeff Sessions revoked the Cole Memo.  Now U.S. Attorneys in the local offices throughout the country retain broad prosecutorial discretion as to whether to prosecute cannabis businesses under federal law even though the state that these businesses operate in have legalized some form of marijuana.

Joyce-Blumenauer Amendment (previously referred to as the Rohrabacher-Farr Amendment)

The medical use of cannabis is legal (with a doctor’s recommendation) in 38 states and Washington DC. Those 38 states being Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Hawaii, Illinois, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Dakota, Utah, Vermont, Virginia, Washington and West Virginia. The medical use of cannabis is also legal in the territories of the Northern Mariana Islands, Guam and Puerto Rico.

Six tribal nations also legalized cannabis use – those 6 tribes being the Flandreau Santee Sioux Tribe (South Dakota), Oglala Lakota Sioux Tribe (South Dakota), Suquamish Tribe (Washington state), Squaxin Island Tribe (Washington state), Eastern Band of Cherokee Indians (North Carolina) and St. Regis Mohawk Tribe (New York).

Building on the DOJ’s issuance of the Cole Memo, in 2014 the House passed an amendment to the yearly federal appropriations bill that effectively shields medical marijuana businesses from federal prosecution. Proposed by Representatives Rohrabacher and Farr, the amendment forbids federal agencies to spend money on investigating and prosecuting medical marijuana-related activities in states where such activities are legal.

The amendment states that:

NONE OF THE FUNDS MADE AVAILABLE UNDER THIS ACT TO THE DEPARTMENT OF JUSTICE MAY BE USED, WITH RESPECT TO ANY OF THE STATES OF ALABAMA, ALASKA, ARIZONA, ARKANSAS, CALIFORNIA, COLORADO, CONNECTICUT, DELAWARE, FLORIDA, GEORGIA, HAWAII, ILLINOIS, INDIANA, IOWA, KENTUCKY, LOUISIANA, MAINE, MARYLAND, MASSACHUSETTS, MICHIGAN, MINNESOTA, MISSISSIPPI, MISSOURI, MONTANA, NEVADA, NEW HAMPSHIRE, NEW JERSEY, NEW MEXICO, NEW YORK, NORTH CAROLINA, NORTH DAKOTA, OHIO, OKLAHOMA, OREGON, PENNSYLVANIA, RHODE ISLAND, SOUTH CAROLINA, TENNESSEE, TEXAS, UTAH, VERMONT, VIRGINIA, WASHINGTON, WEST VIRGINIA, WISCONSIN, AND WYOMING, OR WITH RESPECT TO THE DISTRICT OF COLUMBIA, GUAM, OR PUERTO RICO, TO PREVENT ANY OF THEM FROM IMPLEMENTING THEIR OWN LAWS THAT AUTHORIZE THE USE, DISTRIBUTION, POSSESSION, OR CULTIVATION OF MEDICAL MARIJUANA.

This action by the House is not impacted by the change of position by the DOJ. However, unless this amendment gets included in each succeeding federal appropriations bill, the protection from Federal prosecution of medical marijuana businesses will no longer be in place.  Fortunately, Congress has included this amendment but yet has changed any of the tax or banking laws that pose challenges to the cannabis industry.

Clearly, to avail yourself of the protections of the amendment, you must be on the medical cannabis side and you must be in complete compliance with your State’s medical cannabis laws and regulations. You may not be covered under the amendment if you are involved in the recreational cannabis side even if legal in the State you are operating.

What Should You Do?

Given the illegal status of cannabis under Federal law you need to protect yourself and your marijuana business from all challenges created by the U.S. government.  Although cannabis is legal in California, that is not enough to protect you. Be proactive and engage an experienced Cannabis Tax Attorney in your area. Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County, Inland Empire (Ontario and Palm Springs) and other California locations protect you and maximize your net profits.  And if you are involved in crypto currency, check out what a bitcoin tax attorney can do for you.

If You Can’t Beat Them, Join Them – Ohio Voters Approve Adult-Use Cannabis!

On November 7, 2023 Ohio voters approved legalizing recreational marijuana use in the state making Ohio the 24th state to legalize cannabis for adult-use (previously Ohio legalized only medical cannabis).  This measure known as “Issue 2”, allows the adult-use sale, purchase and possession of cannabis for Ohioans who are 21 and older. The measure, effective 30 days after the election, permits adults to possess up to 2.5 ounces of marijuana, up to 15 grams of marijuana concentrate and grow up to six plants at home.

Additionally, the measure establishes the Division of Cannabis Control within the Ohio Department of Commerce to oversee the compliance of the marijuana industry by regulating, investigating and penalizing cannabis operators and facilities.

The Growing Trend In Legalizing Cannabis – Current Standings:

Medical marijuana is legal in 38 states.

The medical use of cannabis is legal (with a doctor’s recommendation) in 38 states and Washington DC. Those 38 states being Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Hawaii, Illinois, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Dakota, Utah, Vermont, Virginia, Washington and West Virginia. The medical use of cannabis is also legal in the territories of the Northern Mariana Islands, Guam and Puerto Rico.

Recreational marijuana is legal in 24 states.

Twenty-three states and Washington DC, have legalized marijuana for recreational use — no doctor’s letter required — for adults over the age of 21. Those 24 states being Alaska, Arizona, California, Colorado, Connecticut, Delaware, Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Montana, Nevada, New Jersey, New Mexico, New York, Ohio, Oregon, Rhode Island, Vermont, Virginia and Washington and the territories of the Northern Mariana Islands and Guam.

Recreational marijuana is legal in 6 tribal nations.

Six Tribal nations have legalized marijuana for recreational use.  Those 6 tribes being the Flandreau Santee Sioux Tribe (South Dakota), Oglala Lakota Sioux Tribe (South Dakota), Suquamish Tribe (Washington state), Squaxin Island Tribe (Washington State), Eastern Band of Cherokee Indians (North Carolina) and St. Regis Mohawk Tribe (New York).

Conflict With Federal Law.

Under Federal law (Controlled Substances Act 21 U.S.C. 801) marijuana is designated as a Schedule I controlled substance due to the historical belief that it has a high potential for abuse, no currently accepted medical use in treatment, and lack of accepted safety for use under medical supervision.

Higher Taxes Still Remain

While the developments listed above are favorable for cannabis business, it still remains to be seen whether the Federal government will respond favorably and when favorable changes will be made to the Internal Revenue Code which treats businesses in the marijuana industry differently resulting in such business paying at least 3-times as much in taxes as ordinary businesses.

Generally, businesses can deduct ordinary and necessary business expenses under I.R.C. §162. This includes wages, rent, supplies, etc. However, in 1982 Congress added I.R.C. §280E. Under §280E, taxpayers cannot deduct any amount for a trade or business where the trade or business consists of trafficking in controlled substances…which is prohibited by Federal law. Marijuana, including medical marijuana, is a controlled substance. What this means is that dispensaries and other businesses trafficking in marijuana have to report all of their income and cannot deduct rent, wages, and other expenses, making their marginal tax rate substantially higher than most other businesses.

Reporting Of Cash Payments Still Remain

The Bank Secrecy Act of 1970 (“BSA”) requires financial institutions in the United States to assist U.S. government agencies to detect and prevent money laundering. Specifically, the act requires financial institutions to keep records of cash purchases of negotiable instruments, and file reports of cash purchases of these negotiable instruments of more than $10,000 (daily aggregate amount), and to report suspicious activity that might signify money laundering, tax evasion, or other criminal activities. The BSA requires any business receiving one or more related cash payments totaling more than $10,000 to file IRS Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business.

The minimum penalty for failing to file EACH Form 8300 is $25,000 if the failure is due to an intentional or willful disregard of the cash reporting requirements. Penalties may also be imposed for causing, or attempting to cause, a trade or business to fail to file a required report; for causing, or attempting to cause, a trade or business to file a required report containing a material omission or misstatement of fact; or for structuring, or attempting to structure, transactions to avoid the reporting requirements. These violations may also be subject to criminal prosecution which, upon conviction, may result in imprisonment of up to 5 years or fines of up to $250,000 for individuals and $500,000 for corporations or both.

Marijuana-related businesses operate in an environment of cash transactions as many banks remain reluctant to do business with many in the marijuana industry. Like any cash-based business the IRS scrutinizes the amount of gross receipts to report and it is harder to prove to the IRS expenses paid in cash. So it is of most importance that the proper facilities and procedures be set up to maintain an adequate system of books and records.

How Do You Know Which Cannabis Tax Attorney Is Best For You?

Given that cannabis is still illegal under existing Federal law you need to protect yourself and your marijuana business from all challenges created by the U.S. government.  While cannabis is legal in California, that is not enough to protect you.  It’s coming down that the biggest risk is TAXES.  So it is best to be proactive and engage an experienced cannabis tax attorney in your area who is highly skilled in the different legal and tax issues that cannabis businesses face.  Let the cannabis tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), the Inland Empire (Ontario and Palm Springs) and other California locations protect you and maximize your net profits.  And if you are involved in crypto currency, check out what a bitcoin tax attorney can do for you.

California’s Fight Against The Illegal Cannabis Market

California’s Fight Against The Illegal Cannabis Market

New law allows licensed cannabis businesses to pursue legal action against unlicensed cannabis operators in state superior court if they can prove damages resulting from the operation.

Legal California cannabis businesses have been complaining about taxes, which in parts of the state are among the highest in the nation. Many believe that these taxes on compliant cannabis operators while still mandating compliance with State and local regulations will widen the price disparity gap between cannabis products sold in the black market vs. cannabis products sold in the legal market.

In an effort to bolster the legal cannabis market and further dissuade illegal cannabis activity, Governor Newsom signed in law AB 1171 which authorizes a California cannabis licensee to bring an action in superior court against a person engaging in commercial cannabis activity without a license, and authorizes the court to enjoin the activity and award a prevailing licensee actual damages caused by the unlicensed commercial cannabis activity or statutory damages not to exceed $75,000, as well as reasonable attorney’s fees and costs.

This new tool of deterrence adds to the State’s existing laws to go after unlicensed cannabis activity.

Penalties For Selling Cannabis Without A License.

All commercial cannabis activity in California must be conducted on a premises with a valid license issued by the appropriate state cannabis licensing authority. Manufacturing, distributing or selling cannabis goods without a state license or at a location that is not licensed is a violation of state law.

For most defendants, unlicensed sale or transport for sale of cannabis is a misdemeanor punishable by up to six months in county jail and/or a fine of up to $1,000. For defendants under 18, it is an infraction.

Also, giving away or transporting for sale up to 28.5 grams of cannabis without a license is an infraction.

But the sale/transport for sale of cannabis without a license to do so is a felony for the following defendants:

  1. Defendants who have a prior conviction for one of a list of particularly serious violent felonies, including murder, sexually violent offenses, sex crimes against a child under 14, or gross vehicular manslaughter while intoxicated, or a sex crime that requires them to register as a sex offender;
  2. Defendants who have two or more prior convictions for H&S Code §11360 sale/transportation of cannabis;
  3. Defendants who knowingly sold, attempted to sell, or offered to sell or furnish cannabis to someone under 18; or
  4. Defendants who imported or attempted or offered to import into California, or transported or attempted/offered to transport out of California for sale, more than 28.5 grams of cannabis or more than four grams of concentrated cannabis.

In any of these scenarios, black market sale or transportation for sale of cannabis under H&S Code §11360 is punishable anywhere from two to four years in jail.

Transporting cannabis without intent to sell it, or giving cannabis away, is not a crime in California so long as BOTH of the following are true:

  1. You transport or give away not more than 28.5 grams of cannabis or eight grams of concentrated cannabis, and
  2. Any people you give cannabis to are 21 years of age or older.

How This Impacts The Black Market

The CDTFA Investigations Bureau administers the tax enforcement and criminal investigations program. The Bureau plans, organizes, directs, and controls all criminal investigative activities for the various tax programs administered by the CDTFA. Its goals are to deter tax evasion, identify new tax fraud schemes, and actively investigate and assist in the prosecution of crimes committed by individuals violating the laws administered by the CDTFA.

Any person who willfully evades or attempts to evade the reporting, assessment or payment of the cultivation tax (if applicable), the cannabis excise tax, or the sales tax that would otherwise be due is guilty of cannabis and sales tax evasion and violators are subject to fines and/or jail time.

CDTFA Director Nick Maduro states that “The CDTFA’s collaboration with the CHP is an important deterrent to tax evasion”.  He further states that “Tax evasion unfairly shifts the burden onto all other taxpayers and makes it tough for those businesses that are playing by the rules to survive.” It should be clear that with the State taking such enforcement action against illegal cannabis operators, the State is hoping to eradicate non-compliant operators.

What Should You Do?

If you have a licensed cannabis business and impacted by black market activity, consider taking action against those unlicensed operators.  And if you are an unlicensed operator, you should seek licensure for your operations immediately, if you have not already done so. Protect yourself and your investment by engaging a cannabis tax attorney at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), the Los Angeles Metro Area and other California locations. We can come up with tax solutions and strategies and protect you and your business and to maximize your net profits. Also, if you are involved in crypto currency, check out what a bitcoin tax attorney can do for you.