Hundreds of companies in Washington, Oregon, California and Canada are attracting billions in investments from just about every class of investor.
But the realities of investing in cannabis are far different from those in any other industry. You’ll need to be fingerprinted, undergo a background check, surrender your banking records and be ready to deal with state and federal laws that often seem in open conflict.
Any business can find itself in a cash crunch when big expenses or payroll disbursements come due. When you form an entity to do business in cannabis, how do you finance a big expense that needs to be made right now?
To read the full article, visit Puget Sound Business Journal's website. Subscription is required.
This is just a reminder that we will be hosting a free half-day seminar for Oregon cannabis businesses this Thursday, May 18 at the World Trade Center in Portland. The program, titled Growing Up Green: Learning How to Blossom in Oregon’s Budding Marketplace (co-hosted by Garvey Schubert Barer, ACT Resources, PLLC, and Mosaic Insurance Alliance), will provide information on what every cannabis license holder needs to know, including attracting investors, employment, real estate, insurance, taxes and lessons learned from the Washington market. Additionally, the OLCC’s Portland Metro Public Safety Manager will be on hand to discuss regulatory issues and answer your questions.
The complete agenda is available on the seminar's event page on our website.
Date & Time
Thurs. May 18, 2017
Registration: 12:30 - 1:00 pm
Program: 1:00 - 4:20 pm (followed by a hosted networking social)
Location
Two World Trade Center (Mezzanine Room 3/4)
25 SW Salmon Street
Portland, OR 97204
Join us in Portland on Thursday, May 18 for a free half-day seminar as we discuss best practices on regulatory, business and operational issues to promote your company’s long-term growth and success.
Growing Up Green: Learning How to Blossom in Oregon’s Budding Marketplace (co-hosted by Garvey Schubert Barer, ACT Resources, PLLC, and Mosaic Insurance Alliance) will provide information on what every cannabis license holder needs to know, including attracting investors, real estate, insurance, taxes and lessons learned from the Washington market. Additionally, the OLCC’s Portland Metro Public Safety Manager will be on hand to discuss regulatory issues and answer your questions. This event is designed specifically to address issues affecting cannabis producers, processors, retailers, and ancillary businesses.
View the complete agenda on the event page on our website.
Date & Time
Thurs. May 18, 2017
Registration: 12:30 - 1:00 pm
Program: 1:00 - 4:20 pm (followed by a hosted networking social)
Location
Two World Trade Center (Mezzanine Room 3/4)
25 SW Salmon Street
Portland, OR 97204
On Thursday, November 3, Garvey Schubert Barer’s Cannabis Industry Group will be presenting Cannabis 2016: Transitioning from Infancy to Maturity, a half-day educational program geared toward helping companies thrive amid the industry’s fluid business environment. As the cannabis industry has been undergoing a rapid maturation, nascent enterprises are quickly evolving into sophisticated businesses. This session will provide best practices and guidance to help manage business and operational issues to ensure the long-term growth and success of industry members.
Radio talk show host Ross Reynolds, from KUOW's The Record interviews Hal Snow, member of Garvey Schubert Barer's Cannabis practice group, on the tricky landscape of the marijuana industry. Hal gives his thoughts on topical issues related to current states compliance with federal laws under the Obama administration, banking issues, rise of medicinal and recreational marijuana, and the outlook on marijuana legalization and regulation under a new president and Congress in January 2017.
Listen here: http://kuow.org/post/current-legal-landscape-marijuana-still-tricky
Under Section 162(a) of the Internal Revenue Code, a business can deduct from its gross income “all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business.” According to the United States Court of Appeals for the Ninth Circuit, however, this deduction is not extended to marijuana related businesses. Olive v. Commissioner of Internal Revenue, No. 13-70510 (9th Cir. July 9, 2015).
In 2012, the United States Tax Court assessed penalties and interest against Vapor Room Herbal Center, a California medical marijuana dispensary owned by Martin Olive, for its deduction of $654,071 as business expenses on its 2004 and 2005 income tax returns. Although IRC Section 162(a) allows businesses to deduct “ordinary and necessary expenses,” IRC Section 280E prohibits a business from deducting for any “trade or business [that] consists of trafficking in controlled substances … prohibited by Federal law.” Citing Section 280E, the Tax Court held that operating a medical marijuana dispensary constituted trafficking in controlled substances in violation of federal law, even though it was legal under California law.
Olive appealed the Tax Court’s decision to the Ninth Circuit Court of Appeals. His first claim was that for a “trade or business” to “consist of trafficking in controlled substances,” the business must consist solely of trafficking in controlled substances. Olive argued that in addition to dispensing medical marijuana, the Vapor Room also offered free caregiving services such as yoga, massage therapy, discussion of illnesses, counselling on various personal, legal or political matters related to medical marijuana and education on how to consume medical marijuana responsibly. The Ninth Circuit agreed with the Tax Court that the Vapor Room’s only “trade or business” was the sale of marijuana. It noted that the test for determining if an activity is “trade or business” is whether the activity was entered into with the intent of making a profit. As the Vapor Room’s other services were offered for free, the only activity that could raise a profit was the sale of marijuana.
Olive’s second claim was that IRC Section 280E should not apply to him because it was enacted before medical marijuana dispensaries existed, therefore Congress could not have intended for medical marijuana dispensaries to fall within the category of “items not deductible.” The Ninth Circuit stated that this argument had no bearing on its analysis.
Olive’s last claim was that Section 538 of the Consolidated and Further Continuing Appropriations Act 2015, PL 113-235 prohibits the IRS from defending his appeal as it provides that federal funds may not be used to prevent states that at the time of the Act had legalized medical marijuana, from implementing their state laws authorizing the use, distribution, possession or cultivation of medical marijuana. The Ninth Circuit held that Section 538 does not apply because the IRS is not preventing California from implementing its laws that authorize the use, distribution, possession or cultivation of marijuana. Instead, the IRS is simply enforcing a tax, which does not prevent people from using, distributing, possessing or cultivating marijuana in California.
This ruling is an obvious and a troubling set-back for the marijuana business community. It is just another example of how the inconsistencies between federal and state laws can be challenging for marijuana users, growers, processors and regulators. This problem could be resolved by revising the Internal Revenue Code to provide a further exception under 280E to allow state-sanctioned marijuana enterprises. Until then, marijuana business owners should caution taking business deductions or – alternately, consider whether other business activities are entered into with the intent of making a profit for the business.
During our April 10 event, “Moving Forward Under Measure 91,” in Portland, Ore., we addressed a number of complex issues regarding the developing marijuana industry. This blog series will answer questions that we may not have been able to get to during the Q&A portion of our event. Make sure to keep checking back here, or subscribe to our blog for updates!
“Is the Process of Bankruptcy Different for Marijuana Businesses?”
Some marijuana businesses and their owners have actually been denied the protection of bankruptcy in several U.S. courts. A bankruptcy trustee is an officer of the federal courts, and must uphold federal law. Because marijuana is a Schedule I drug under the federal Controlled Substances Act, some courts have deemed bankruptcy trustees unable to take possession of marijuana businesses and their assets. The trustees are therefore unable to perform their duties, and those bankruptcy cases have been dismissed. See, e.g., In re Arenas, 514 B.R. 887 (Bankr. D. Colo. 2014).
While federal bankruptcy protection may be unavailable to marijuana businesses until a change is made to federal law, it is possible that some state-level remedies will be available to insolvent marijuana businesses or their creditors. For more detailed information about marijuana businesses and bankruptcy, and recommendations for how to begin considering state-level approaches, see our article in Marijuana Venture magazine: “Marijuana business denied protection by bankruptcy court.”
We’d like to thank everyone who attended our seminar, “Moving Forward Under Measure 91,” last Friday, in Portland! It was a great event, and we were even featured as part of a KGW-TV news segment.
As promised, we’ve included links to presentations by GSB attorneys, the Oregon Liquor Control Commission, League of Oregon Cities and Association of Oregon Counties. Beginning next week we will begin our blog series addressing questions that we may not have been able to get to during the Q & A. Make sure to keep checking back here, or subscribe to our blog for updates!
OVERVIEW OF MARIJUANA BUSINESS PLANNING
- Andy Aley, Garvey Schubert Barer
- Claire Hawkins, Garvey Schubert Barer
- Jared Van Kirk, Garvey Schubert Barer
- Hal Snow, Garvey Schubert Barer
- Sean O’Day, General Counsel, League of Oregon Cities
- Rob Bovett, Legal Counsel, Association of Oregon Counties
- William Kabeiseman, Garvey Schubert Barer
OREGON LIQUOR CONTROL COMMISSION
- Tom Towslee, Acting Communication Director, Marijuana Programs, Oregon Liquor Control Commission
This article was original published in Marijuana Venture magazine in June, 2014
Last month, in the first half of this two-part series on strategic planning, we reviewed the important fact that the growth, processing, distribution, retail sale and use of marijuana, while legal under state law, remains illegal as a controlled substance under federal law. The Aug. 29, 2013 Cole memo is guidance from the federal government which provides that the federal government will not enforce the marijuana laws in Washington so long as the state does an adequate job of preventing the marijuana industry from being abused in the state of Washington.
The Cole memo is guidance which could be amended or withdrawn at any time either in whole or part. The impact would lead to criminal prosecution and severe economic hardship.
So what do we recommend for the I-502 business participant?
As mentioned at the end of the last month’s article, we recommend that the I-502 business person utilize a strategic asset ownership plan of limited liability companies (LLCs) and trusts to isolate the risk inherent with the I-502 business from the other assets of the business participant.
Structuring with LLCs: The I-502 business should be owned by an LLC (Washington state law appears to require that the business be owned by an LLC formed under Washington law. See WAC 314.55.020(7)). If the I-502 business person has several I-502 related businesses each business should be operated within its own LLC. The reason for this is to isolate the liabilities associated with each I-502 business within its own separate LLC. We further recommend that the I-502 business person have a second LLC hold the ownership in the I-502 business entity (the operating entity).
The ownership LLC provides a second layer of protection by having both the ownership and operation of the I-502 business in LLCs.
Under Washington law, assuming the investors of the LLC properly operate the LLC and treat it as a separate, independent legal entity, the liabilities associated with the operation of the I-502 business should remain within the LLC and not “bleed” over into the other assets of the I-502 business person. (In the event the federal government reversed the prosecuting of violators of the Controlled Substance Act as it relates to Washington residents, there is no assurance this structure would protect the I-502 business person from criminal liability if found personally liable for violating the federal Controlled Substance Act.)
To read more, visit Marijuana Venture magazine online
This article was original published in Marijuana Venture magazine in May, 2014
This is the first installment of a two-part article which talks with you about issues to consider when structuring the ownership once operation of your I-502 related business has begun.
A very important issue with regard to any business, but now particularly with an I-502 business, is the isolation of the potential liability associated with the operation of an I-502 business or I-502 related business from the other assets of the business owner. This strategic planning issue is of particular concern to participants in the I-502 industry so long as the application of federal law to the business remains uncertain.
Where we are: The passage of I-502 made the sale of recreational marijuana legal under Washington State law and resulted in the creation of major new business opportunities within the state.
The problem with this new business is that the direct or indirect growing, possession, sale and distribution of marijuana remains a violation of the federal Controlled Substance Act. So what is legal under Washington law remains illegal under federal law.
To read more, visit Marijuana Venture magazine online
RSS Feed
Follow us on Twitter
Follow us on LinkedInAbout Us
Foster Garvey’s Cannabis practice group comprises a premier legal counsel team who provides a full range of legal services such as regulatory compliance, marijuana licensing, business finance, contracts, labor and employment, health care, real estate, intellectual property, litigation and dispute resolution, technology and tax. Our team possesses deep and diverse industry experience and has counseled clients across virtually all industry sectors. We understand the inherent challenges that licensed marijuana and ancillary businesses in Washington state, Oregon and Alaska are burdened with in this highly regulated industry as they deal with onerous state and local regulations as well as uncertainty resulting from federal law.
We are committed to helping our clients achieve their business goals while navigating the intricacies in this rapidly changing area of law. We prize innovation and entrepreneurship, and closely monitoring industry trends.
