As the Cannabis Industry Evolves, So Do the Challenges

Almost three months after New York legalized recreational marijuana companies are cautiously exploring the new territory and the resultant challenges. With marijuana still classified as a controlled substance on a federal level, many of the traditional funding routes are filled with roadblocks and state regulations can end up smothering business ambitions.

Partner Corey Massella notes that the path for marijuana is very similar to that of tobacco and alcohol laws, but with greater opportunities for minorities and new businesses to get into the industry. "This is going to be more forgiving, and giving priority and opportunities is going to be critical," Massella said.

In regards to the federal roadblocks, Massella is hopeful for what comes next, especially with the recent House passage of the SAFE Banking Act. "If the Senate votes to pass the bill, the SAFE Banking Act would establish a safe harbor for depository institutions doing business with cannabis clients and allow financial institutions to provide services to those clients without fear of federal penalties," he said.

But with regards to taxation, Massella says it's a little more complicated. "It’s a very big issue because [IRC Tax Code] 280E relates to federal legal products. I’m simplifying everything, but it means that you are not allowed to take any operating expenses on your tax return because cannabis is considered at the federal level to be a controlled substance," Massella said. "This means that if you’ve got overhead of $2 million, you’re not getting that deduction and burning through money because you’re going to be paying taxes on that money you spent. It’s going to affect your cash flow significantly."

The critical point is to ensure you understand your excise taxes and all the related sales taxes and the jurisdictions you’re working with because it affects the price points to consumers, according to Massella.

Read the full article published by Albany Business Review.

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