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California Overrides Controversial 280E

On January 1, 2020 AB37 went into effect in California. It allows legal cannabis companies to essentially be treated like other businesses – for tax purposes and only with the Franchise Tax Board. Since businesses will still have to file federal tax returns and pay taxes to the US Treasury, the law essentially requires two completely different tax filings. And the new rules are only in effect until 2025.

A small boost to California legal cannabis

Section 280E has largely been seen as punitive to the cannabis industry, putting it in the same category with mobsters and the illegal drug trade.

There have been challenges to 280E in US tax court but thus far none have been successful. The industry continues to fight the law and hopes for an eventual constitutional challenge.

Learn more in this article on the status of Section 280E and how California has passed Law AB37 to override the provision.

So, you want to open up a Cannabis Retail Store, The Beginner’s Guide

The Beginners Guide to a Pot Store

Perhaps you’re a shopkeeper at cute boutique store or a convenience store, drawn to a unprecedented vivid spot in a retail landscape mired in doom-and-gloom. Maybe you ignored out on the primary segment of the green gold rush and also you’re seeking to make your mark in this (literal) boom industry, understanding it’s a area in which customers have indicated a desire for purchasing in-man or woman in place of on-line. Or maybe you’ve just heard that the industry has sold $hundreds of millions of dollars’ worth of cannabis in May of this year and want your own piece of that inexperienced market.

Whatever your motivation, entering into Marijuana retail is a chunk extra concerned than renting a storefront and finding out exactly which pot pun to apply in your enterprise name. From developing to selling to shopping for, it’s an surroundings that’s without delay surprisingly regulated and unpredictably fluid, a emblem-new industry in an infinite beta check as governments refine the guidelines, parameters and approaches of accommodating the demand for a product that turned into unlawful much less than a 12 months ago. There’s a reason “get a legal professional” is the first piece of advice most people in this enterprise dispense.

And that’s why we’re no longer claiming that this is a complete guide to beginning a Cannabis Retail Store. Rather, it’s a roadmap to pursuing your dream of proudly owning a legalized “Marijuana store”…and a signposting of the pitfalls to look out for, lest your dream “could” vanish in a gasp of smoke.

Seek professional help from someone seasoned in the industry

One of the earliest and best investments in your new vision will be consulting with a Cannabis lawyer and Accounting/Tax Firm or another Cannabis store and sticking close to them for the duration of the long haul of launching your cannabis retail dream. The complexity lies in compliance, and the myriad ways in which a Cannabis store has to adhere to a strict set of suggestions that govern the whole lot from advertising and marketing to record preserving, store place to how the cannabis is secured in your premises. There are even regulations for a way far off the floor your license desires to be displayed.

It’s no longer always interpreted from the formal writing issued by license issuers, but from revel in running with a regulators, you’re most in risk of losing your license over matters that are willful or intentional, like bringing in product from the black market, or promoting to minors. Something like one of your safety cameras going out and you not notifying someone right away, however, may be only a warning or a write up. The price of this compliance is something that might-be commercial enterprise owners want to issue into their marketing strategy. It isn’t loose to be preserving all of your security, to properly educate your staff and to keep up with stock control.

Get the inexperienced prematurely

And whilst we’re on the subject of money: Its warned that most banks aren’t entertaining enterprise loans for cannabis shops (deeming it too high hazard), and funding is getting more tough to come back by way of because the industry matures. This may be a chief snag for some investors, for potential permit holders. If you don’t have that form of exchange below the sofa cushions, a few applicable state banks and credit unions that are open to working with cannabis businesses. Consider asking family and friends to make investments (thank you Grandma!).

Expect to pay a top rate


The Cannabis Tax is often referred to as the “Green Tax,” This “special industry seedling” plants up in each issue of a cannabis enterprise, from insurance to banks and landlords who outright refused to do business with them. You just need to navigate through it and locate the right groups who will take to your enterprise.

Obtain a license


Precisely the way you get the permit to legally promote cannabis varies from city to city and state to state. In many cities/states, it’s a lottery device, the second one spherical of which is presently underway; in the meantime, different municipalities have a rolling application device without a cap, even though there’s a restriction on what number of shops a unmarried entity can personal.

It’s also important to word that not every person is eligible to hold a license. While many offenses (like getting stuck with a gram when you have been 20) aren’t deal breakers, any involvement in organized crime or drug trafficking is a no-no, as is bankruptcy in sure areas.

280E: UNDERSTANDING AND OVERCOMING TAX IMPLICATIONS

Cannabis Accounting; the Legal Way

In simple terms, cannabis businesses are only allowed to deduct expenses that are part of the “costs of goods sold.” Though one could argue that cannabis deliveries have a cost to selling their goods (i.e. purchasing delivery vehicles or building an eCommerce shop), neither of those expenses are tax-deductible. It’s weird, we know. The following is a list of items that are considered costs of goods sold under IRS Regulation 1.47-11(c) IMPLICATIONS •Ongoing maintenance of machinery and equipment •Labor costs and employee benefits •Insurance costs •Supplies •Utility costs •Property and sales tax

It seems that most of the costs of goods sold are taken on by cultivators. So where exactly does that leave retailers? The following is a list of expenses that are not tax-deductible. •Marketing and sales expenses •Advertising •State income taxes •General administrative costs not directly tied to the production of goods •Transportation from the company

1. Isolate any cannabis activities to one company. Have the owners of the company set up an affiliate that does not touch any cannabis product. Most importanly, have that business provide property and services needed by your cannabis business at a reasonable markup. List of possible services: 1. Renting and repair of machinery/equipment 2. Renting facilities 3. Insurance 4. Utilities 5. Furnishing materials 2. Have a separate entity handle any non-cannabis related activities/sales as to not consider their activities as  “trafficking” of any schedule 1 substance. 3. Establish an LLC. Owners can deduct 20% of their income under section 199A.

OVERCOMING 280E These three options are merely band-aid solutions that aim to fix a larger problem: the tax code itself. Pushing for legislative change is the correct way to go about lowering tax rates. These options may temporarily allow you to cut your losses but always confirm with a CPA and legal counsel before taking any action.

280E: UNDERSTANDING AND OVERCOMING TAX DEDUCTION’s

Understanding 280e

What is 280E and how Can affect Cannabis Businesses? Can cannabis retailers really not deduct expenses?

Disclaimer: The content in this “blog” is a compilation of information and strategies collected through various individuals in our industry. It is not meant to act as legal advice. Consult with your knowledgeable Accountant/Bookkeeper or CPA and legal counsel for more information.

§280E -IRS MEMORANDUM

“No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is Conducted.”

For more information, reach out to a NestEggg Cannabis Compliant & Accounting & Tax Representative today https://nesteggg.com/contact-us

Cannabis Distributors: Information on Collecting and Paying the Cultivation Tax

Cannabis Distributors: Information on Collecting and Paying the Cultivation Tax

As a licensed cannabis distributor (excluding transport-only distributors), you are required to collect the cultivation tax from cultivators, manufacturers, or other distributors based on the weight and category of the cannabis. The distributor who conducts the final quality assurance review after the cannabis or cannabis product passes the required testing is the distributor responsible for reporting and paying the cultivation tax to the California Department of Tax and Fee Administration (CDTFA). The cultivation tax must be reported during the reporting period in which the cannabis or cannabis product passes the required testing and quality assurance review, which is when the cannabis or cannabis product enters the commercial market.

In instances where there are multiple distributors and/or manufacturers involved, the associated cultivation tax collected will follow the cannabis or cannabis product and must be passed to the next licensee in the transaction until the cannabis or cannabis product reaches the distributor conducting the final quality assurance review. Each party to the transaction, from the original sale from the cultivator, to the final sale or transfer to the distributor, is relieved of its liability for the cultivation tax by receiving a proper receipt for payment of the cultivation tax from the next party in the transaction.

This email is intended to give you an overview of some of the requirements for cannabis distributors and does not address all requirements for the cannabis industry. We encourage you to read our online Tax Guide for Cannabis Businesses, or contact us at www.cdtfa.ca.gov/contact.htm.

Important Cannabis Excise Tax Reminders for Cannabis Retailers and Distributors

Important Cannabis Excise Tax Reminders for Cannabis Retailers and Distributors

Cannabis Excise Tax Requirements
Distributors are required to calculate and collect the cannabis excise tax from retailers on the sale or transfer of cannabis or cannabis products. Retailers are required to pay the cannabis excise tax to the distributor that supplied the cannabis or cannabis products to a retailer, and the retailers are required to collect the cannabis excise tax from their retail customers.

Distributors are required to provide retailers with an invoice or receipt that indicates, among other requirements, the amount of cannabis excise tax. The California Department of Tax and Fee Administration (CDTFA) may hold a retailer liable for the cannabis excise tax that is due to the CDFTA without a proper receipt, or proof that the retailer paid the cannabis excise tax to its distributor.

Retailers are required to collect the cannabis excise tax from their customers. The amount of the cannabis excise tax a retailer collects from a customer must be the same amount the distributor collected from the retailer. The retailer may include the cannabis excise tax paid to the distributor as part of the retail selling price of the cannabis or cannabis products.

Retailers are not required to separately list the cannabis excise tax on their receipts to the retail customer. However, the following statement is required to be included on the receipt whether the cannabis excise tax is listed separately or as part of the retail price.

“The cannabis excise taxes are included in the total amount of this invoice.”

Distributors’ Reporting Requirements
Distributors that supply cannabis or cannabis products to a retailer will be held liable for the cannabis excise tax due to the CDTFA. Distributors are required to report the cannabis excise tax on their electronic Cannabis Tax Return during the reporting period the distributors sold or transferred cannabis or cannabis products to a retailer. Distributors are required to electronically file their Cannabis Tax Return and pay the cannabis excise tax due to CDTFA by the last day of the month following the reporting period.

Arm’s Length Transactions
In an arm’s length transaction, generally where the distributor is unrelated to the retailer, the distributor calculates the 15 percent cannabis excise tax due based on the “average market price” of the cannabis or cannabis products sold to the retailer. The “average market price” is computed by applying the CDTFA’s predetermined mark‑up rate (currently set at 60 percent) to the retailer’s wholesale cost of the cannabis or cannabis products that were sold to the retailer. The predetermined mark‑up rate is only used to calculate the average market price in an arm’s length transaction, and is not intended to be used when determining the retail selling price of the cannabis or cannabis products.

Nonarm’s Length Transaction
In a nonarm’s length transaction, generally when the retailer is also the distributor, the 15 percent cannabis excise tax is applied to the gross receipts of the retail sale of the cannabis or cannabis products. The distributor in this type of transaction is responsible for reporting and paying the cannabis excise tax to the CDTFA based on the gross receipts of the retail sale. The retailer in this type of transaction is responsible for collecting the cannabis excise tax from the retail customer based on the gross receipts of the retail sale.

For More Information
This special notice is intended to give you an overview of some of the requirements for cannabis distributors and retailers and does not address all requirements for the cannabis industry. We encourage you to read our online Tax Guide for Cannabis Businesses at www.cdtfa.ca.gov/industry/cannabis.htm.

New Emergency Regulation for Cannabis Distributors and Retailers Requires California Cannabis Track-and-Trace

New Emergency Regulation for Cannabis Distributors and Retailers Requires California Cannabis Track-and-Trace

The California Department of Tax and Fee Administration (CDTFA) recently adopted emergency Regulation 3702, California Cannabis Track‑and‑Trace, which requires distributors and retailers to enter the wholesale cost and the retail selling price of cannabis or cannabis products into the California Cannabis Track-and-Trace (CCTT) system. The emergency Regulation 3702 is now in effect.

The Medicinal and Adult-Use Cannabis Regulations and Safety Act and regulations adopted by the Bureau of Cannabis Control (BCC) require all commercial cannabis activity be recorded in the CCTT system. Distributors and retailers that obtain an annual license with the BCC must begin recording commercial cannabis activity in the CCTT system. In addition to the existing requirements, each licensee must now enter the following information related to the cannabis excise tax.

Cannabis Distributors
A distributor is required to enter into the CCTT system the retailer’s wholesale cost of the cannabis or cannabis products that is sold or transferred to a retailer in an arm’s length transaction.

In an arm’s length transaction, the distributor is required to calculate the average market price of the cannabis or cannabis products, which is the retailer’s wholesale cost plus a mark-up established by the CDTFA. The wholesale cost used to calculate the average market price is the amount entered into the CCTT system.

Cannabis Retailers
A cannabis retailer is required to enter into the CCTT system:

  • The wholesale cost of the cannabis or cannabis products. The wholesale cost is the amount paid by the retailer for the cannabis or cannabis products in an arm’s length transaction and is the amount used to calculate the average market price.
  • The retail selling price of the cannabis or cannabis products when the product is sold at retail.

For More Information
This Special Notice is intended to give you an overview of some of the requirements for cannabis distributors and retailers and does not address all requirements for the Cannabis Industry. We encourage you to read our online Tax Guide for Cannabis Businesses at www.cdtfa.ca.gov/industry/cannabis.htm.

CalCannabis Cultivation Licensing (CalCannabis), a division of the California Department of Food and Agriculture administers the CCTT system. For more information visit CalCannabis at www.cdfa.ca.gov/is/mccp/ or call 1‑833‑CALGROW (1‑833‑225‑4769) with your specific questions regarding the CCTT system.

If you have additional questions regarding the excise or sales tax requirements, please call our Customer Service Center at 1‑800‑400‑7115 (TTY:711) Monday through Friday, 8:00 a.m. to 5:00 p.m. (Pacific time), except state holidays.

 

Allowed Pesticides for Use in Marijuana Production in Washington State

Updated List of Pesticides Allowed for Use in Marijuana Production

The Washington State Department of Agriculture (WSDA) has recently updated the list of pesticides that are allowed for use in marijuana production in Washington State, based on criteria previously established by WSDA.

The WSDA has added 12 pesticides to the list of allowable products. Pesticides containing two new active ingredients (Cinnamaldehyde, Gliocladium catenulatum Strain J1446) were added to the list. Most of the pesticides that were added to the list contain active ingredients that were already allowed for use in marijuana production.

Some pesticides are labeled for application to soil or to crop plants, while some pesticides are labeled for application to both soil and crop plants (e.g., insecticides, fungicides). Other pesticides include herbicides labeled for direct application to, and control of, unwanted plants (i.e., weeds). Remember to read, understand, and comply with all applicable label directions and precautions when using any pesticide.

Added

  1. AZERA PRO, EPA Reg. No. 1021-1872
  2. DEADZONE, EPA Reg. No. 73729-1
  3. DESECT AG DIATOMACEOUS EARTH INSECTICIDE, EPA Reg. No. 7655-1
  4. PRESTOP WG, EPA Reg. No. 64137-13
  5. PVENT, EPA Reg. No. 64137-13-70299
  6. SEICAN, EPA Reg. No. 91473-2
  7. SLUGGO MAXX, EPA Reg. No. 67702-55
  8. CINNERATE, WA Reg. No. 998200-14001
  9. ELEMONATEM, WA Reg. No. 999860-16001
  10. HEDGE NATURAL DEFENSE PLANT PROTECTANT, WA Reg. No. 997420-18001
  11. PROCIDIC2, WA Reg. No. 999550-16002
  12. PURELY GREEN BIO-PESTICIDE SUPER CONCENTRATE, WA Reg. No. 84289-18001

You can find the complete list of pesticides that are allowed for use in marijuana production, the criteria WSDA used to establish the list, and information regarding statewide stop-sale orders in Washington on the WSDA web site.

 

FOR NEW TEMPORARY LICENSES ISSUED PRIOR TO DECEMBER 31, 2018

Due to the large number of applications being submitted for temporary cannabis cultivation licenses, the California Department of Food and Agriculture (CDFA) hereby notifies prospective applicants that any application for a temporary license received after December 1, 2018, may NOT be processed in time for us to issue a temporary license before January 1, 2019. After December 31, 2018, the authority for CDFA to issue temporary licenses expires. To provide sufficient processing time, please submit your temporary application to CDFA’s CalCannabis Cultivation Licensing Division by December 1, 2018.

FOR EXTENSIONS OF TEMPORARY LICENSES PRIOR TO DECEMBER 31, 2018

To receive an extension of your existing temporary cannabis cultivation license, an application for an annual license must be submitted and the application fees paid prior to December 31, 2018. After that date, the authority for CDFA to extend a temporary license expires. If you do not have all the required documentation for an annual license application or are still in the permitting process with your county or city, please provide an explanation for the absence of any required item and submit the missing information as soon as it is obtained.

Submitting an annual application will allow CDFA to determine whether you qualify for an annual license or a provisional license in 2019.

Pursuant to Business and Professions Code section 26038, a person engaging in commercial cannabis cultivation without a license issued by CDFA shall be subject to civil penalties, and the cannabis may be ordered to be destroyed.

If you have questions about temporary, provisional, or annual commercial cannabis cultivation licenses, call us toll-free at 1-833-CALGROW (1-833-225-4769) or send us an email at: calcannabis@cdfa.ca.gov. Please visit our website at calcannabis.cdfa.ca.gov for step-by-step guides and videos on our cultivation licensing application process and information on the California Cannabis Track-and-Trace system.

If you are in in need of Cannabis Compliant Accounting & Tax, email The NestEggg Group.

California Cannabis Changes to Cannabis Regulations

State Cannabis Licensing Authorities Announce Changes to Proposed Cannabis Regulations

Author: Bureau of Cannabis Control
Published: Oct 19, 2018
Sacramento, California

 SACRAMENTO – California’s three state cannabis licensing authorities today announced changes to the proposed cannabis regulations published to the California Regulatory Notice Register on July 13, 2018. These proposed changes mark the next step in the formal rulemaking process toward adopting non-emergency regulations and the beginning of a 15-day public comment period related to the proposed changes.

The changes to each licensing authority’s proposed non-emergency regulations and rulemaking documents have been posted to California’s Cannabis Portal and may be viewed at the following link: https://cannabis.ca.gov/cannabis-regulations/

“We received valuable feedback from industry stakeholders and the public over the duration of the 45-day comment period,” said Bureau of Cannabis Control Chief Lori Ajax. “These changes we’ve proposed further clarify the requirements for cannabis businesses while protecting overall public health and safety.”

PUBLIC COMMENT: There will be a 15-day public comment period on the proposed changes, which starts today and concludes Monday, November 5, 2018, at 5 p.m. Please note that only public comments addressing the newly proposed changes will be considered.

The three licensing authorities will review each timely comment received and will respond to all comments in documents filed during the final stages of the rulemaking process. Comments may be submitted in writing to each licensing authority through email or physical mail. No public comments will be accepted by phone.


The current emergency regulations, adopted by the Bureau of Cannabis Control, California Department of Public Health and California Department of Food and Agriculture in December 2017 and readopted in June 2018, were originally issued through the emergency rulemaking process to meet the legislative mandate to open California’s regulated cannabis market on January 1, 2018. These emergency regulations will remain in effect until the non-emergency rulemaking process is complete.

On June 27, 2017, the legislature passed and Governor Brown signed into law the Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA) which provided one regulatory framework for both medicinal and adult-use commercial cannabis activity within the state. The state cannabis authorities adopted emergency regulations in December 2017 for initial implementation of the provisions of MAUCRSA and are now using the regular rulemaking process to adopt permanent regulations.

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