280E tax deductions is a topic of interest to marijuana business owners. But how much depreciation is allowed for cannabis operations? What else is deductible under 280E? How does a 280E adjustment work?
In this post, we’re encompassing all you need to know about 280E tax deductions and more. Keep reading for the insight your cannacompany needs to minimize its liability this tax season.
280E Depreciation Insight
Every cannabis entrepreneur wants to know how much depreciation is allowed for cannabis endeavors. But the answer to this question is contingent on several variables.
If you’re operating a retail cannabis company, most of the time, you will not be able to use depreciation for 280E tax deductions. However, there is an exception. If your operation uses equipment for safe storage and packaging, you can include this depreciation as a 280E tax deduction.
Cultivation and extraction facilities are also capable of writing off depreciation. However, the depreciation is limited.
For CBD operations, the allotted depreciation is comparable to other taxable entities. Thus, it’s possible to utilize depreciation without issue.
Cannabis-Related Expenses for 280E Tax Deductions
There are many deductible expenses under the 280E tax code. However, most of these costs aren’t relevant for cannabusinesses. Since cannabusinesses are required to report gross income less the cost of goods sold (COGS), only the cost of goods sold (COGS) and expenses related to such sales can be included as a 280E tax deduction.
Note: Cannabis businesses won’t qualify for most tax deductions, including those associated with COGS.
The following expenses may be included as part of 280E tax deductions:
Salaries and wages
Cost of goods sold (COGS)
This is only an overview of cannabis-related deductions. Other 280E tax deductions exist. However, the above are most relevant to cannabusinesses.
What is 280E?
Internal Revenue Service (IRS) code section 280 keeps cannabis operations from taking deductions, which includes depreciation. But, through 280E, it’s possible for taxpayers to lessen gross receipts by cost of goods sold (COGS) as they calculate taxable income.
However, any costs, including depreciation associated with the production and maintenance of an operation’s inventory, can be added to inventory. After doing this, these costs can be added to COGS since the inventory costs are connected to being sold.
Depreciation associated with necessary assets and activities for inventory production is allowable as inventorial costs. This is because the depreciation is part of the inventoried cost in the taxpayers’ financial reports, records, and internal books, and is aligned with Generally Accepted Accounting Principles (GAAP).
280E Tax Deductions FAQ
What is deductible under 280E?
For those operating retail cannabis stores, the depreciation of leasehold improvements, display cases, cash registers, and various other assets are considered selling expenses under 280E. But some selling expenses aren’t deductible. Even with this being the case, it could be reasonable to include the depreciation of assets utilized for inventory security, like vaults and safes, as inventorial costs.
As a cultivator or extractor, depreciation is a component of COGS. Thus, it’s permitted. A lot of the depreciable assets utilized in production company operations, including but not limited to cultivators and processors, are essential to produce inventory. With this being the case, these assets’ depreciation can be inventoried and included as COGS.
Does 280E apply to growers?
280E allows growers the ability to expense the cost of goods sold (COGS). However, this isn’t always relevant since cultivators are required to report gross income less COGS. If a grower’s only expense is the cost of goods sold, they cannot write off anything under 280E.
What is a 280E adjustment?
A 280E adjustment is the deduction of COGS and any other deductible expenses, such as depreciation. If a business’ COGS is $1 million and the depreciation of assets necessary to produce inventory was $10,000, the 280E adjustment would be $1 million minus $10,000, or $990,000.
Can 280E tax deductions be taken for CBD operations?
Yes. Since CBD doesn’t violate federal law, a company that produces these products can take deductions via the same process as other companies.
What are 280E tax deductions used for?
Cannabis-related deductions under 280E are used to lessen taxable income as a business calculates its net income for the year. This is done before applying other tax benefits and liabilities, such as those associated with general corporate taxes.
How does 280E affect cannabis businesses?
Even though Section 280E allows cannabis companies to take certain deductions, it also limits them from taking others. This is done because cannabis-related deductions are viewed as expenses for trafficking controlled substances, which is illegal under federal law.
Is 280E going away?
280E isn’t going away. However, new laws are being implemented to assist cannabis businesses throughout the United States. For example, a new law in November 2019, Assembly Bill 37, was signed into law by Governor Newsom in California. Through this law, the Governor eliminated California’s conformity with 280E for licensed Personal Income Tax (PIT) for cannabusinesses.
Concluding on 280E Tax Deductions
Laws are being implemented throughout the United States that are loosening restrictions on cannabis-related deductions. However, none of these reforms have eliminated Section 280E’s limitations.
But with AB 37 passing in California, licensed cultivators and dispensaries may be able to take an additional PIT deduction via their Personal Income Tax form. This is good news for the cannabis industry in California.
So, what can you do to get on the right side of 280E tax deductions? Speak with one of our experts now and make sure you are taking full advantage of all deductions that are allowed.
At Northstar, we’re always ready to help cannabusiness operators deduct as much as possible. Contact us now to talk with one of our cannabis-specialized CPAs about how we can bypass 280E to the fullest extent.
Is pot legal in Michigan? This post will explain the legality of cannabis in Michigan and other key considerations for consumers and entrepreneurs operating in this budding space.
The legalization of cannabis is an ongoing controversy throughout the United States. There is increasing pressure on government officials to legalize marijuana, due to its therapeutic effects and benefits.
However, there’s also opposition towards the legalization of cannabis; their argument is that marijuana is a gateway drug for harder more harmful drugs like cocaine, methamphetamine, etc. (which is unproven, of course).
So is pot legal in Michigan? Yes, cannabis is legal for medical and recreational use.
But what are the details of cannabis legalization in Michigan? Keep reading to learn all about this legal sector.
A Brief History of Pot Legalization in Michigan
Michigan voters legalizes medical marijuana in 2008. With this law passing, Michigan began regulating medical cannabis for qualified patients and caregivers.
However, it wasn’t until late 2018 that Michigan legalized recreational pot. This made the Great Lake State the first Midwestern state to make recreational marijuana legal. But there are still many regulations surrounding the plant’s sales, consumption, cultivation, manufacturing, and more.
The state is still imposing strict regulations on the legal cannabis industry, which is expected to expand in time. But Michiganders have access to both medical and recreational pot at this point.
Michigan law has rules in place for possession. For example, consumers can only have up to 10 ounces of cannabis at their residence. And if they want to bring their pot out in public, they can only carry up to 2.5 ounces at a time.
Equally important to remember is that some Michigan locations are under federal jurisdiction. This means pot is not legal to have on hand at these places. For instance, if you’re in an airport in Michigan, you cannot have pot on your person. Nor can you consume or have pot in government buildings or prisons.
Laws in Michigan limit pot around children, too. This means no cannabis at schools or on school buses.
Is Pot Legal in Michigan FAQ
When can you buy pot in Michigan legally?
You’ve been allowed to purchase pot in Michigan legally since December 1, 2019. This is when Michiganders 21 years of age were given the ability to legally buy recreational cannabis from licensed retail operations.
Is pot legal in Michigan 2021?
Yes, marijuana is legal in Michigan in 2021. Adults 21 years of age or older are allowed to use cannabis in the Great Lake State. However, keep in mind, cannabis consumption is not allowed in public. So, if you plan to consume, do so in a private residence or space.
Is pot growing legal in Michigan?
Patients and caregivers can obtain medical marijuana cards in Michigan. However, these individuals must be Michigan residents. MMJ cardholders have been allowed to grow cannabis at home since 2008, and now that marijuana is legal for adult-use, residents 21 years of age or older can also grow up to 12 plants at their residence.
Can anyone buy from a dispensary in Michigan?
Dispensaries in Michigan, also called provisioning centers, will sell to Michigan residents who hold a state-approved medical marijuana patient card. However, adult-use marijuana is also for sale to anyone 21 years of age or older.
Concluding on Is Pot Legal in Michigan
So, is pot legal in Michigan? Yes, it is, and if you’re considering working with cannabis in the Great Lake State, there are many opportunities available to you.
Also, as a consumer, keep your cannabis legal by staying within the possession and personal amounts set out by law. And remember that some locations across the state, including airports and government buildings, are under federal jurisdiction.
Dispensaries, unlike many businesses, can’t take normal deductions on their federal taxes. But there are still ways they can reduce their federal tax liability.
One of the biggest questions facing legalizing states is how to deal with the existing cannabis industry that continues to operate outside state regulations.
Colorado’s approach has been one of generally looking the other way as long as businesses pay state taxes and follow certain record-keeping procedures. Other states have taken steps to bring previously operating dispensaries into the light, often by requiring them to meet onerous security and product testing standards not faced by new entrants to the market.
The question of whether these existing operators will be required to pay federal taxes has received considerable attention since Congress passed 280E, which prohibits taxpayers “trafficking in controlled substances” from taking “normal tax deductions and credits.
But how do dispensaries pay federal taxes when the products they distribute are federally illegal? We explain this and more in the following post.
Do Dispensaries Pay Federal Tax?
Yes, dispensaries do have to pay federal tax. But it doesn’t stop there; dispensaries are responsible for paying special state marijuana sales taxes, state income taxes, and federal income taxes.
However, since marijuana is still prohibited at the federal level, it’s quite challenging for cannabis operations to take deductions. This is because of 280E.
280E is a tax code section that prohibits drug trafficking organizations from taking business deductions. This means dispensaries are forced to report all revenue as taxable income.
But there are some ways around 280E. We cover this in other posts. However, if you have any questions, feel free to contact us to learn more about how we can get you the most deductions possible.
How Do Budtenders Pay Taxes?
All cannabis employees must receive a paycheck. This is comparable to how any other job will pay an employee. The budtender’s gross pay will have state and federal payroll taxes deducted and matched by the employer (the dispensary). From there, the dispensary should pay these funds to the government or other creditors for the budtender.
Can Dispensaries Deposit Money in the Bank?
Unfortunately, dispensaries aren’t always given the same opportunities as every other business. This, of course, includes the services banks and credit unions provide to other operations. Since financial institutions must risk losing their license if they accept cannabis-related operational funds, most of the time, they’re not willing to take the risk.
New Guidance for Dispensaries from IRS
The Internal Revenue Service (IRS) has updated its guidance on cannabis industry tax policy. This includes some instructions regarding how cannabis operations – including dispensaries – that don’t have access to banking and credit union services can pay their taxes in cash.
Since marijuana is still federally illegal, the cannabis space doesn’t get the same tax benefits other markets are given. However, this sector still has an obligation to pay taxes and report transactions properly.
The IRS explained that court rulings have made it clear that businesses must pay taxes even if they sell products illegal under state or federal law. It also elaborates on the idea that marijuana companies may be eligible for payment plans if they cannot fully pay their taxes. Furthermore, it highlights that cannabis businesses may experience the same penalties businesses operating in other spaces can expect during an income audit.
One of the main topics on everyone’s mind is tax benefits. The 280E tax code “disallows all deductions or credits for any amount paid or incurred in carrying on any trade businesses that consist of illegally trafficking in a Schedule I or II controlled substance within the meaning of the federal Controlled Substances Act.”
“Section 280E does not, however, prohibit a participant in the marijuana industry from reducing its gross receipts by its properly calculated cost of goods sold to determine its gross income,” said the IRS, further explaining that “taxpayers who sell marijuana may reduce their gross receipts by the cost of acquiring or producing marijuana that they sell, and those costs will depend on the nature of the business.”
“Accordingly, a marijuana dispensary may not deduct, for example, advertising or selling expenses. It may, however, reduce its gross receipts by its cost of goods sold, as calculated pursuant to Internal Revenue Code section 471,” the IRS said.
Thus, even though cannabis businesses don’t get the traditional deductions other operations receive, they can calculate the cost of goods and acquire some tax relief. However, as we await a change in the federal legal status of marijuana, the cannabis space continues to operate at a disadvantage.
Concluding on Dispensary Taxes
Despite the fact that dispensaries operate legally in numerous states, the federal government still deems this type of business illegal. However, these operations still have tax obligations.
With this in mind, it’s crucial for cannabis dispensaries to understand these tax obligations and fulfill them to maintain their legal operations. If you have any questions about federal taxes for dispensaries, feel free to contact us at any time. Our team of experts is here to help in any way possible!
If you’ve ever wondered about the California cultivation license cost, you’re in luck! We’re summarizing these costs in a total roundup for wannabe cultivators.
For those who are already in the biz, you might be considering getting involved in cannabis cultivation in Cali. But if you’re new to California’s cannabis industry, first and foremost, welcome!
In this post, we cover the ins and outs of California cultivation license cost. By the end of this article, you’ll know what it costs to a California cultivation license, and know the answers to some of the most frequently asked questions.
California has two types of fees for cannabis licenses:
Application fees – These fees are due at the time you submit your application. Then, your application will be reviewed by the Department of Cannabis Control (DCC) once this regulatory organization gets your application fee.
License fees – These fees are due once your application is approved. The DCC will then issue your license once you pay the license fees involved. These fees are also due annually at the time you renew your license.
Each type of license has its own set of fees involved. The majority of these fees are calculated in accordance with your operation’s gross annual revenue. Gross annual revenue is all capital received for the activities you’ve conducted under the license before you subtract your expenses.
California’s Cultivation License Fees by License Type
Cultivation license fees depend on the size and type of production or lighting used in your operation.
How California Sets Fee Amounts
California’s state law demands that cannabis fees must:
Cover the DCC’s cost to oversee the cannabis industry
Scale to ensure larger cannabis operations pay more for licensure
California Cultivation License Cost FAQ
California cultivation license cost isn’t the only concern for cultivators. Other questions persist, which is why we’ve set out to offer the right answers here and now.
Here’s a list of some of the most common questions and their answers:
How do I get a grower’s license in California?
First, you’ll need to get a land-use permit and a business license from the local government. You’ll then need to get building permits and build out your cultivation space.
From there, you’ll need to get environmental permits or waivers. Then, it’s time to get your license to operate from the state of California!
How many plants can you grow with a growers license in California?
A grower’s license in California will allow you to grow up to 99 plants of medical marijuana. This 99 plant grow license California issues permits a person to start a grow with beyond the first six or 12 immature plants.
How many cultivation licenses are there in California?
At this point, the state of California has 690 adult-use cultivation licenses and 1,682 medical licenses. This is what the Cannabiz Media License Database says, anyway.
Of course, this will continue to change as time goes on. But this should give you a good idea of how many grows are legally operating in Cali.
Concluding on California Cultivation License Cost
For those considering starting a cultivation operation in California, it’s an opportunity that can prove quite lucrative. As the space continues to expand and more consumers come to the market looking for recreational and medicinal cannabis, California will need more suppliers.
The key here is to conduct your business legally, maintaining compliance every step of the way.
If you’re looking for expert assistance scaling your operation, Northstar is here to help!
Contact us now for scalable advice and financial services that will help you dominate this budding space!
New York marijuana legalization is finally here! The state legalized adult-use marijuana on March 31, 2021. But how to get a dispensary license in New York when the space is just now coming into existence?
The Marijuana Regulation & Taxation Act (MRTA) created a new Office of Cannabis Management (OCM), which will be governed by a Cannabis Control Board that will be responsible for overseeing and implementing the law.
The OCM will begin issuing licenses once it develops its regulations. These regulations will outline the various adult-use cannabis license types and ownership limitations in accordance with guidance from the MRTA.
Keep in mind, prior to the OCM issuing adult-use cannabis licenses, it must complete several foundational tasks. This, of course, includes appointing its Cannabis Control Board, issuing and adopting regulations, hiring and training OCM staff, and formulating the process for issuing, accepting, and awarding licenses to applicants.
We’ll continue keeping you updated on any progress made for this space. But for now, keep reading to learn more about what we expect the process to be like to get a dispensary license in New York.
The Process for How to Get a Dispensary License in New York
Medical Marijuana Program Applications
We expect the process to be quite similar to how New York medical marijuana program applications are handled. But only time will tell!
Here’s some insight into how the Department accepts applications for registration as a registered organization:
Each applicant had to submit two fees with their application; a non-refundable application fee of $10,000, and a registration fee of $200,000.
The $200,000 registration is refunded if the applicant isn’t issued a registration. During the time the Department was evaluating and accepting completed applications, there was a deadline for submission.
The New York Code of Rules and Regulations and the Department’s Medical Marijuana Program website showed the deadline for submission of questions pertaining to the application process. This deadline was May 21, 2015, and the deadline for Department receipt of applications was June 5, 2015.
We can expect something similar to be put in place for adult-use dispensary licenses. But time will tell what the state expects from applicants.
License Types a Dispensary Might Need
Here’s a list of license types, descriptions, and ownership limits for dispensaries in New York. Keep in mind, we’re still waiting on more information for how to get a dispensary license in NY now that the state has decided to allow recreational cannabis.
Adult-use Cultivator License
This license involves growing, cloning, harvesting, drying, curing, grading, and trimming cannabis plants. The cultivator’s license will allow awardees to acquire, possess, distribute, cultivate, and sell cannabis from its licensed premises to licensed processors.
The Adult-use Cultivator License comes with some ownership limitations. No one person is allowed to own more than one of these licenses. Cultivators can own a processor license and one distributor license to allow them to distribute their own products. However, cultivators are not allowed to own or have an interest in a licensee in the cannabis retail tier.
Adult-use Nursery License
With a nursery license, you can produce, sell, and distribute clones, immature plants, seeds, and other agricultural products that are used for planting, propagating, and cultivating cannabis by licensed adult-use cultivators, microbusinesses, registered organizations, or cooperatives.
Adult-use cultivators are allowed to hold one nursery license.
Adult-use Processor License
This license allows licensees to extract concentrated cannabis and/or compounds, extracts, blends, infuses, and other manufactured concentrated cannabis or cannabis products. Having this license lets people acquire, possess, process, and sell cannabis from the licensed properties of adult-use cultivators to licensed distributors.
No one is allowed to own more than one processor license. However, a processor can also get a distributor license to distribute their own products. Processors are also not allowed to own or have an interest in a licensee in the cannabis retail space.
Adult-use Distributor License
Distributor licenses allow for the acquisition, possession, distribution, and sale of cannabis from the licensed property of a licensed adult-use processor, microbusiness, adult-use cooperative, or registered organization that’s authorized to sell adult-use cannabis. This is only allowed to duly licensed retail dispensaries, adult-use delivery licensees, and on-site consumption sites.
No one person is allowed to own more than one distributor license. Distributors cannot own or have an interest in a licensee in the cannabis retail space.
Adult-use Cooperative License
Cooperative licenses allow licensees to acquire, possess, cultivate, process, and sell from the licensed properties of the adult-use cooperative. The licensees can engage with duly licensed distributors, on-site consumption sites, registered organizations, and retail dispensaries. However, they cannot sell directly to consumers.
These licenses must be organized under cooperative principles. This includes and isn’t limited to democratic control by cooperative members, with each member possessing one vote.
No one person is allowed to own more than one cooperative license. Cooperatives cannot own or have an interest in a licensee involved in the cannabis retail space.
Adult-use Microbusiness License
Microbusiness licensees can act as cannabis producers for cannabis cultivation, cannabis distributor, cannabis processor, and cannabis retailer licensees. With this license, licensees can conduct limited cultivation, distribution, delivery, processing, and sales of their own adult-use cannabis and cannabis products.
No one licensee can own more than one microbusiness license. Microbusinesses cannot have an interest in or own any other adult-use license type.
Adult-use Retail Dispensary License
Retail dispensary licensees are allowed to acquire, possess, sell, and deliver cannabis from licensed properties of the retail dispensary. These actions are to cannabis consumers.
No one is allowed to own more than three retail dispensary licenses. Retail licensees cannot own or have an interest in a licensee in the processing, distribution, or cultivation space.
Adult-use On-site Consumption License
These licensees become licensed by the Cannabis Control Board. This license allows for the acquisition, sale, and possession of cannabis from the licensed properties of the on-site consumption licensee to cannabis consumers for use at the location.
No licensee can have more than three on-site consumption licenses. On-site consumption licensees cannot own or have an interest in the processing, cultivation, or distribution space.
Registered organization cultivator process distributor retail dispensary licenses allow a registered organization the same privileges and conditions as adult-use cultivator, distributor, retail dispensary, and processor licensees. The property of registered organization adult-use retail dispensaries is limited to three of the organization’s medical dispensaries and only allows for the distribution of the registered organization’s own products. The Cannabis Control Board will determine the timing and manner of a registered organization’s participation in the adult-use space.
Registered organizations cannot have an interest in or own any other adult-use license type.
Registered organization cultivator process distributor licenses allow registered organizations the same privileges as adult-use cultivator, distributor, and processor licensees. The Cannabis Control Board will determine the timing and manner of a registered organization’s participation in the adult-use space.
Registered organizations are not allowed to have an interest in or own any other type of adult-use license.
Concluding on How to Get a New York Dispensary License
There are five different licenses that one can obtain in order to participate in New York’s adult-use cannabis industry. The rules of participation for medical and adult-use cannabis businesses vary.
To ensure success within the new industry, it’s important to understand these differences before beginning any business endeavors. On top of this, you’ll need to be clear on how to obtain your license.
New York’s adult-use space is just now starting. As the state determines how it will be handling licensing, it’s important to stay on top of all rules and regulations to ensure compliance.