Cannabis SPACs' Cross-Border Push Threatens Tax Hit on Investors

The cannabis craze is going international as Canadian Special Purpose Acquisition Companies (SPACs) target U.S. cannabis startups. The arrangement gives the startups access to cash and the U.S. public market, but investors should be wary of the tax ramifications.

“We see U.S. clients that have rushed into foreign or Canadian SPAC transactions without seeking the proper professional advice,” said Todd Tigges, a Partner in UHY's Great Lakes region. “Once they are forced to report these transactions and we start peeling back the onion, we find that they may have unknowingly created an inversion situation and be force to pay additional taxes.”

Despite the potential tax consequences, the reason behind the rush is clear. “This is the sexy stock right now; everyone wants to own cannabis,” said Tigges. “And the only way startup owners can actually monetize their investment is by listing on a public exchange and selling to the public.”

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