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Taxation of the regulated cannabis industry
Taxand USA briefly revisits the history of the law from the 1970 Controlled Substances Act on and discusses the tax planning opportunities that taxpayers should consider.
As part of this November’s elections, California, Maine, Massachusetts and Nevada all voted to legalise recreational marijuana, while Arkansas, Florida and North Dakota approved medical cannabis initiatives. Montana, which legalised medical marijuana in 2004, also passed a measure to set up commercial cultivation operations and dispensaries. As a result, recreational marijuana use is legal in seven states, and medical marijuana use is legal in 28 states.
Demonstrating the upward trend of this evolving industry, consider CannaKorp, based in Stoneham, Massachusetts. It is developing the world’s first single-use pod and vaporiser system for marijuana smoking — in essence, a Keurig for marijuana. This is just one example of how the industry is expanding its offerings. Interest by investors, including some of the wealthiest family offices, is sky-high, so to speak, which is why we are so focused on the complex issue of taxation of regulated cannabis.
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A planning note concerning the distinction between cultivation and dispensaries: the bulk of the activities of a cultivator does not involve the trafficking of a controlled substance. With the possible exception of transportation and delivery of the product to dispensaries, as well as certain other overhead expenses directly allocated to the sale of the product that might be considered trafficking, the majority of a cultivator’s expenditures should be COGS and therefore tax deductible.