Cannabis Business Blog

Thinking about opening a recreational store or medical cooperative in Tacoma? Better sit tight, at least for the time being.

On Tuesday, January 13, 2016, the Tacoma City Council passed a “temporary moratorium on new marijuana retail uses and a prohibition on the establishment of marijuana cooperatives.” Substitute Ordinance No. 28343.

From a practical perspective, this means that Tacoma will not accept or process applications for city licenses, or for land use, building, or other development permits.

The moratorium does not impact existing State- and city-licensed recreational marijuana retailers, which can continue to operate.

The Tacoma Planning Commission is currently revising the Land Use Regulatory and Nuisance Codes. The Commission is expected to forward recommendations to the City Council in March 2016.

The moratorium is set to expire within six months. Although the City Council could technically renew the moratorium, it apparently expects to lift the moratorium after voting on the amended Land Use and Nuisance Codes in April or May 2016.

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

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)