You have just today and tomorrow to tell your state senator to vote yes on one of the most critical parts of the IRS code that affects the cannabis industry.
Today, and again tomorrow, Congress – specifically the U.S. Senate – is discussing and then voting on tax reform.
Included in that vote is an amendment to the IRS 280E tax code, coming from Senator Cory Gardner (R-CO), that will, under a new section of part IV, allow deductions and credits relating to expenditures in connection with marijuana sales conducted in compliance with state laws. The New Federalism Fund, chaired by Neal Levine of Livwell Enlightened Health, has worked tirelessly and at great expense to its members on behalf of the entire cannabis industry, to remove the impediment that IRS 280E unfairly places on state regulated and licensed businesses.
Section 280E currently reads: “No 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.”
The Gardner-sponsored amendment proposes adding: “..unless such trade or business consists of marijuana sales conducted in compliance with State law.” The full text of the Gardner amendment is included at the end of this article.
As many business owners in the industry know, the 280E part of the tax code has created a financial burden on their operations – especially in retail but extending to distributors, producers and processors – that is unique to the cannabis industry because it does not allow them to deduct various business expenses allowed for other businesses. 280E was intended to penalize criminal market operations, which includes the cannabis industry operating in trafficking a Schedule 1 drug.
This amendment is designed to correct the unintended consequences of applying the original wording and enforcement actions of 280E to the cannabis industry – an industry that has been approved by voters in the majority of the country and is now following individual state legalization laws.
As expected, word of the pending amendment to 280E now in Congress set off alarms with opponents of cannabis legalization, particularly Smart Approaches to Marijuana (SAM) who submitted a press release advising voters to vote against Senator Gardner’s amendment.
Instead of addressing the entirety of the Gardner amendment, which intends to level the playing field for state regulated cannabis businesses, SAM irrationally claims that, if cannabis business owners are allowed to deduct the cost of advertising as a result of the 280E amendment, they will entice children with cannabis gummies and candies. “The last thing we need is more deceptive pot advertising,” the SAM press release stated.
SAM in the past has used the argument that cannabis use is a gateway drug to harder drug usage, that children have been purposely targeted by the industry, and that there have been cannabis overdoses in the past, without mentioning that the cannabis industry was structured from the beginning to address the issue of underage consumption by creating regulations for adult-use only, with details about child-safe packaging, and no evidence or scientific proof of overdosing.
Now is the time to help your individual business, and the industry in general, by contacting your senator and telling him or her that you want a yes vote on the Gardner amendment. Your future, and the future of the industry, is relying on you.
2017 Tax Cuts and Jobs Act (H.R. 1) Amendments
PART VI–PROVISIONS RELATED TO SPECIFIC ENTITIES AND INDUSTRIES
Subpart B–Miscellaneous Provisions
SA 1639. Mr. GARDNER submitted an amendment intended to be proposed to amendment SA 1618 proposed by Mr. MCCONNELL (for Mr. HATCH (for himself and Ms. MURKOWSKI)) to the bill H.R. 1, to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018; which was ordered to lie on the table; as follows:
At the appropriate place, insert the following:
SEC. ll. EXCEPTION FOR EXPENDITURES IN CONNECTION WITH CERTAIN CAN- NABIS RELATED TRADES OR BUSINESSES.
(a) IN GENERAL.—Section 280E of the Internal Revenue Code of 1986 is amended—
(1) by striking ‘‘DRUGS’’ and all that follows through ‘‘No deduction’’ and inserting ‘‘DRUGS
‘‘(a) GENERAL RULE.—Except as provided in subsection (b), no deduction’’; and
(2) by adding at the end of the following:
‘‘(b) EXCEPTION FOR CERTAIN CANNABIS RELATED TRADES OR BUSINESSES.—
‘‘(1) EXCLUSION FROM TRAFFICKING.—Those activities undertaken in connection with a qualified cannabis trade or business shall not be considered trafficking in controlled sub- stances for purposes of subsection (a).
‘‘(2) DEFINITIONS.—For purposes of this sub- section:
‘‘(A) CANNABIS RELATED TRADE OR BUSINESS.—The term ‘cannabis related trade or business’ means a trade or business that earns cannabis related income.
‘‘(B) CANNABIS RELATED INCOME.—The term ‘cannabis related income’ means any income earned from the manufacture, production, cultivation, processing, refinement, transportation and delivery, distribution, testing, use, sale, or exchange of cannabis or cannabis-derived materials.
‘‘(C) QUALIFIED CANNABIS RELATED TRADE OR BUSINESS.—The term ‘qualified cannabis related trade or business’ means a cannabis related trade or business that meets the following requirements:
‘‘(i) The activities giving rise to the cannabis related income of the trade or business are properly regulated under the laws of the State in which they are conducted.
‘‘(ii) No cannabis or cannabis-derived materials owned by the trade or business are sold, exchanged, provided free of charge, gifted, donated, sampled, embedded in the sale of another item, embedded within the provi- sion of a service, or otherwise transferred in a manner that does not give rise to cannabis related income.
‘‘(iii) None of the activities of the trade or business are trafficking in controlled sub- stances other than cannabis or cannabis-de- rived materials regulated under State law.
‘‘(iv) To the extent that the cannabis related trade or business was in existence prior to the date of enactment of this subsection,
the person who held or controlled a license described in paragraph (3)(A) in taxable years ending before such date of enactment has not had a cannabis license revoked by State licensing authorities.
‘‘(3) PROPERLY REGULATED.—The term ‘properly regulated’ means, with respect to a qualified cannabis related trade or business, the following:
‘‘(A) Persons engaged in the activities giving rise to the cannabis related gross receipts are licensed by the State in which they conduct such activities and such license is subject to periodic renewal.
‘‘(B) State licensing rules impose limitations on the production and distribution of cannabis and items derived from cannabis.
‘‘(C) State licensing rules restrict the distribution of cannabis and items derived from cannabis to minors, including—
‘‘(i) a minimum age on legal purchases of 18; and
‘‘(ii) restrictions on advertising, marketing, and promotional activities that are at least as stringent as those imposed on alcohol products in the State.
‘‘(D) Sufficient books and records are employed by the cannabis related trade or business—
‘‘(i) to enable the seed to sale identification of all the cannabis or cannabis derived materials owned or used in connection with the manufacturing, production, growth, processing, refinement, distribution, testing, use, sale, or exchange activities of the cannabis related trade or business; and
‘‘(ii) to enable the association of the in- come of the cannabis trade or business with the cannabis or cannabis derived materials identified in accordance with clause (i).
‘‘(E) Personal use exemptions to the State licensing requirements, if any, contain limitations similar to those contained in section 5053(e), applied—
‘‘(i) by limiting the definition of any permissible transfer to another person, whether by sale, exchange, gift, sharing, concurrent use, or otherwise, to transfers between the persons who constitute family members within the meaning of section 267(c)(4) and who are not minors; and
‘‘(ii) by substituting 8 plants for 200 gallons in each place it appears for applying a house- hold limitation involving more than 1 adult and 4 plants for 100 gallons in each place it appears for applying a household limitation involving only 1 adult.
‘‘(F) State licensing rules limit caregiver, agency, designation arrangements, cooperative agreements, or any other arrangement involving cannabis or cannabis derived materials purporting not to involve a trade or business to 8 plants per patient or person per calendar year.
‘‘(4) APPLICATION TO PERSONS ENGAGED IN MORE THAN ONE TRADE OR BUSINESS.—The activities of all persons who are related parties within the meaning of section 52 shall be taken into account in applying this sub- section.’’.
(b) EFFECTIVE DATE.—The amendments made by this section shall apply with respect to taxable years ending after the date of the enactment of this Act.