Request A Case Evaluation Or Tax Resolution Development Plan

Mexico Closer To Legalizing Cannabis

While the United States federal government refuses to make any use of marijuana legal and maintains banking and taxing roadblocks to the cannabis industry and despite a growing number of States legalizing cannabis, Canada has made huge strides into the United States market effectively pulling profits out of the United States into Canada. Well soon it looks like this same movement of profits will be pulled over the southern border into Mexico.

Mexican Federal Legislation

The Health and Justice committees in Mexico’s Lower House of Congress last month passed a draft proposal to decriminalize cannabis on Monday and submitted it to the full chamber. The bill, which has the support of President Andres Manuel Lopez Obrador, puts the country one step closer to having one of the world’s largest cannabis markets.

Under the current language of the bill, adults aged 18 and up would still be able to purchase and possess up to 28 grams of cannabis for personal use, as well as cultivate up to six plants. The proposal seeks to establish the Mexican Institute for Cannabis Regulation and Control, which will grant five types of licenses for cannabis production, distribution, testing, and export and import.  Cannabis would be regarded the same as cigarettes for public consumption purposes under the revised law, but it could not be distributed online or via the mail.

The bill is now on its way to the full Chamber of Deputies.

How Cannabis Legalization In The United States Is Stacking Up:

Following election results last Fall, this month New Jersey, Alabama and Virginia legislatures are moving forward to enact legislation legalizing and regulating cannabis.

Alabama – The Alabama Senate on February 3, 2021 approved a bill to legalize medical marijuana in the state.  This latest proposal would establish an 11-member Alabama Medical Cannabis Commission to implement regulations and oversee licensing. To qualify for cannabis consumption, patients would have to be diagnosed with one of about 20 conditions, including anxiety, sleep disorders, post-traumatic stress disorder and intractable pain.  The bill prohibits raw cannabis, smoking, vaping and candy or baked good products. Patients would instead be allowed to purchase capsules, lozenges, oils, suppositories and topical patches.

New Jersey – On February 22, 2021, Governor Phil Murphy signed legislation (A21/S21, A1897 and A5342) that legalizes the retail sale of cannabis and removes criminal offenses for possession of up to six ounces of cannabis for individuals 21 and older.

Virginia – On February 27, 2021 members of the Virginia Senate and the House of Delegates advanced legislation, Senate Bill 1406 and House Bill 2312, to legalize cannabis possession, personal cultivation, and retail sales for adults 21 and older. The bills now head to the governor for his approval, amendment, or veto.  Legislators agreed to establish an independent agency, the Virginia Cannabis Control Authority, to oversee the establishment of regulations that will govern the adult-use market. That agency will convene this summer. The Committee also established a January 1, 2024 enactment date for the law. Upon that date, but not before then, adults will be able to possess up to one ounce of marijuana and cultivate up to four cannabis plants per household without penalty.

These states add to an existing group of 11 states and Washington, D.C. that have legalized recreational cannabis, and adds to an existing group of 33 states that have legalized it for medical purposes.

Additionally, last year two new states joined the movement with South Dakota voters adopting legalization of both medical and recreational cannabis and Mississippi voters adopting legalization of medical cannabis use.

With about 37 states now legalizing some form of cannabis use, you would think that it is now time for the Federal government to change course.

U.S. Cannabis Industry Still Facing Uncertainty

Despite certain states in the U.S. legalizing cannabis, it is still illegal under U.S. Federal law so U.S. cannabis business must still face the ongoing challenges of running a cannabis business given this disparity with U.S. Federal law. Those challenges being: your local Federal District Attorney shutting down your business and seizing assets; losing all bank privileges; and getting a big tax bill from IRS that you cannot pay.

Risk of Being Shut Down And Assets Seized By Your Local Federal District Attorney

On January 4, 2018 then acting Attorney General Jeff Sessions rescinded what was known as the “Cole Memo”.

The Cole Memo which came out of the Department Of Justice (“DOJ”) under the Obama administration in 2013, directed U.S. Attorneys to use discretion to prioritize certain types of violations in prosecuting cannabis operators, but, strictly speaking, it did not make operations in cannabis legal.

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?

But now that the Cole Memo has be rescinded, federal prosecutors in cannabis legal states will now be free to decide how aggressively they wish to enforce federal marijuana laws. While State law and public acceptance of marijuana usage may temper federal prosecutors’ aggressiveness, this risk of seizure and shutdown is still real. Criminal prosecution is also possible so it is important to have qualified legal counsel lined-up and available to intervene.

Risk Of Losing All Bank Privileges

While states are opening their markets to marijuana, the illegality under Federal law still restricts cannabis businesses access to banking channels. On February 14, 2014, the Financial Crimes Enforcement Network (“FinCEN”) which is a division of the Department Of Treasury issued guidance (FIN-2014-G001) clarifying how financial institutions can provide services to marijuana-related businesses consistent with their Bank Secrecy Act (“BSA”) obligations, and aligned the information provided by financial institutions in BSA reports with federal and state law enforcement priorities. This FinCEN guidance issued by the Department Of Treasury was following the Cole Memo issued by the DOJ. But now that the Cole Memo has been rescinded, the FinCEN guidance is not has persuasive leading many banks to turn away cannabis businesses. For those cannabis businesses that have eluded banks with their true business activity (which such misrepresentation is also a Federal crime), those businesses run the risk of having their bank accounts shut down by the bank when the bank learns of their true business activity so it is important to secure qualified legal counsel to come up with solutions that will allow you to still conduct business and meet financial obligations.

Risk Of Getting A Big Tax Bill From IRS That You Cannot Pay

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. A cannabis business that has not properly reported its income and expenses and not engaged in the planning to minimize income taxes can face a large liability proposed by IRS reflected on a Notice Of Deficiency or tax bill.

Of the three big risks, by far this is the one posing the greatest challenge as the Federal taxation of cannabis businesses is consistent in all states and not dependent on whether local Federal prosecutors are aggressive in enforcing the illegality of cannabis or the banks unwilling to do business with the cannabis industry. This unexpected liability can put you out of business so it is important to secure qualified tax counsel to be proactive with tax planning to minimize taxes and to defend you in any tax examinations, appeals or litigation with the IRS.

What Should You Do?

Considering this risks of cannabis you need to protect yourself and your investment. Level the playing field and gain the upper hand by engaging the cannabis tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), Metropolitan Los Angeles and other California locations. We can come up with solutions and strategies to these risks and protect you and your business to maximize your net profits.

 

    Request A Case Evaluation Or Tax Resolution Development Plan

    Get a Tax Resolution Development Plan from us first before you attempt to deal with the IRS. There are several options for you to meet or connect with Board Certified Tax Attorney Jeffrey B. Kahn. Jeff will review your situation and go over your options and best strategy to resolve your tax problems. This is more than a mere consultation. You will get the strategy or plan to move forward to resolve your tax problems! Jeff’s office can set up a date and time that is convenient for you. By the end of your Tax Resolution Development Plan Session, if you desire to hire us to implement the strategy or plan, Jeff would quote you our fees and apply in full the session fee paid for the Tax Resolution Development Plan Session.

    Types Of Initial Sessions:

    Most Popular GoToMeeting Virtual Tax Development Resolution Plan Session
    Maximum Duration: 60 minutes - Session
    Fee: $375.00 (Credited if hired*)
    Requires a computer, laptop, tablet or mobile device compatible with GoToMeeting. Please allow up to a 10-minute window following the appointment time for us to start the meeting. How secure is GoToMeeting? Your sessions are completely private and secure. All of GoToMeetings solutions feature end-to-end Secure Sockets Layer (SSL) and 128-bit Advanced Encryption Standard (AES) encryption. No unencrypted information is ever stored on our system.


    Face Time or Standard Telephone Tax Development Resolution Plan Session
    Maximum Duration: 60 minutes - Session
    Fee: $350.00 (Credited if hired*)
    Face Time requires an Apple device. Please allow up to a 10-minute window following the appointment time for us to get in contact with you. If you are located outside the U.S. please call us at the appointed time.


    Standard Fee Face-To-Face Tax Development Resolution Plan Session
    Maximum Duration: 60 minutes - Session
    Fee: $600.00 (Credited if hired*)
    Session is held at any of our offices or any other location you designate such as your financial adviser’s office or your accountant’s office, your place of business or your residence.


    Jeff’s office can take your credit card information to charge the session fee which secures your session.

    * The session fee is non-refundable and any allotted duration of time unused is not refunded; however, the full session fee will be applied as a credit toward future service if you choose to engage our firm.