Cannabis Business Blog

With reports of significant non-approved pesticide use by some in the industry, the LCB has increased its focus upon pesticides.

In addition to emergency regulations addressing product recalls and pesticide action levels, the LCB (via the Washington State Department of Agriculture) recently amended the list of approved pesticides.  Specifically, the WSDA added 29 pesticides to the list of allowable products and removed 27 products.

Bottom line:  Make sure that your house is in order.  Confirm that your current stock of pesticides only includes those on the WSDA’s approved list.  Note that you may “use up” any existing inventory of the 27 pesticides removed from the list, but cannot purchase additional amounts of these products.  Also, we are seeing increasing volumes of pesticide-related disputes and lawsuits, and will address how to best protect your business from pesticide litigation in a future post.

Garvey Schubert Barer will be sponsoring and attending the Cannabis Collaborative Conference at the Portland Expo Center on February 3 and 4. The conference will kick off with a keynote address from former NBA All-Star and Portland Trail Blazer Cliff Robinson, a cannabis advocate, and will feature 80 cannabis industry speakers and more than 90 exhibitors.

The numerous sessions are devoted to informing both existing businesses and new ventures about recent industry developments, including interactive workshops and hands-on demonstrations hosted by the Oregon Liquor Control Commission. This year’s conference is shaping up to be a can’t-miss event for members of the cannabis community.

You can find us at the following events on Wednesday, February 3:

• 2:15-3:00 PM - “Ask the Experts” Roundtable

Emily Harris Gant, Scott G. Warner and William K. Kabeiseman will participate in this informal round table session and will be available to answer attendees’ questions about corporate, intellectual property and real estate & land use issues, respectively, as they relate to the cannabis industry.

• 3:15-4:00 PM - The Status of Investing in the Cannabis Industry

Harold E. Snow, Jr. will review the law and regulations concerning who can invest in the cannabis industry and how, both directly and indirectly, and he will offer suggestions on maximizing investor participation in the emerging cannabis industry.

• 7:00-10:00 PM - Evening Reception

GSB is hosting the conference’s Wednesday evening party.

We hope to see you there!

In the July 9, 2015 Olive¹ decision, the Federal 9^th Circuit Court of Appeals upheld a Tax Court decision that a medical marijuana dispensary was precluded from deducting any amount of ordinary and necessary business expenses associated with the operation of the business because the Vapor Room (the “business”) is a “trade or business…consist[ing] of trafficking in controlled substances…prohibited by Federal law.” I.R.C. § 280E. Deductions were limited to the “costs of goods sold.”

The Vapor Room sold only medical marijuana. It provided many other services but didn’t charge for them. The appellate court distinguished Olive¹ from the 2007 CHAMP² decision where the Tax Court determined that the taxpayer was engaged in two income generating businesses including the sale of medical marijuana and extensive counseling and caregiving services. In CHAMP², the ordinary and necessary business expenses related to the counseling and caregiving services were deductible. See I.R.C. § 162(a).

Participants in the marijuana industry should review the facts of the Olive¹ and CHAMP² decisions carefully, and consult with their tax attorneys and accountants on the most tax efficient way to structure their marijuana businesses.

If the marijuana business owner also obtains revenue from the sale of non-marijuana goods and services then the ordinary and necessary business expenses related to the non-marijuana activity should be deductible.

Finally, on Aug. 10, 2015, the U.S. Tax Court published the Beck³ decision which, in line with the Olive¹ decision, held that a marijuana business that only sold marijuana products, could not deduct any of the ordinary and necessary business expenses related to the marijuana business. Deductions were limited to “cost of goods sold” I.R.C. § 280E. The Beck³ decision discussed the CHAMP² decision and upheld its holding that a business may have two or more businesses and that the ordinary and necessary business expenses relating to the non-marijuana businesses were deductible.

¹ Martin Olive v. C.I.R. 139 T.C. 19

²Californians Helping to Alleviate Medical Problems, Inc. – CIR (CHAMP), 128 T.C. 173 (2007)

³Beck-v-C.I.R., T.C. Memo 2015-149 (08/10/2015)