The CARES Act, an acronym for the Coronavirus Aid, Relief, and Economic Security Act, implemented the Paycheck Protection Program (PPP). But is there an alternative to PPP that applies to the cannabis industry?
The Small Business Administration (SBA) funded and administered the PPP. This was meant to offer potentially forgivable loans to businesses impacted by the COVID-19 pandemic. It was created to cover payroll and other costs associated with operations.
Unfortunately, cannabis companies have not been given the same opportunity to obtain PPP loans. Since cannabis cultivation and sales are still illegal federally, these operations cannot get PPP loans. Furthermore, the SBA published a Policy Notice in April of 2018 to outline how prohibition impacts direct and indirect cannabis businesses, thereby banning them from obtaining SBA loans.
In this article, we discuss an effective alternative to the PPP loan for cannabis.
Interested in getting relief during the COVID-19 pandemic for your cannabis business? Contact us today to learn more about what we can do for your operation!
Beware of PPP Loans for Cannabis
PPP loans first became available in early 2020. They were extended by the American Rescue Act and have quickly become one of the most commonly discussed provisions for businesses across the country’s COVID-19 relief packages.
These loans are forgivable for some small businesses and enable them to continue paying employees without issue. However, even though many cannabusinesses would qualify for these loans, plant-touching cannabis businesses should avoid PPP loans. While some might encourage these operations to apply, the federal government’s classification of cannabis is problematic for this type of loan.
Since the SBA has its own application process, we need to look at that to determine whether or not cannabis applicants can successfully get a PPP loan. During the application, the SBA requires affirmation that they are not violating federal law under penalty of perjury. Due to the state-legal cannabis businesses’ unavoidable violation of federal law, it’s impossible to truthfully affirm that the operation does not violate federal law.
Cannabis businesses have always had trouble interacting with the government, so it should come as no surprise that applying for relief funds can be challenging. However, the Employee Retention Credit and State Small Business Credit Initiative allow struggling cannabusinesses to receive assistance from government agencies.
The ERC: An Alternative to PPP for Cannabis
The Employee Retention Credit (ERC) is a provision of the CARES Act. Though the ERC has not been given the same attention as PPP because companies cannot get both the ERC and PPP funds simultaneously, it’s still an option. Many businesses could not qualify for the PPP or obtained PPP funds and had to return them to the government not long after.
Now, the ERC offers a fully refundable payroll tax credit that employers can use. However, it doesn’t come without the following limitations:
Half (50%) of qualified wages and health plan expenses had to have been paid to the company’s employees in a calendar quarter.
This credit only applies to qualified expenses paid between March 12, 2020, and January 1, 2021.
The highest amount of qualified wages that can be taken into account for the ERC with respect to each employee for all calendar quarters throughout 2020 is $10,000. The maximum credit for an eligible employer for qualified wages paid to each employee $5,000 (half of $10,000).
For your business to qualify for the ERC, it must experience some suspended operations due to the restrictions the government has imposed or a significant decline in gross receipts. Thus should be either a partial or complete suspension of operations.
A decline in gross receipts can be considered “significant” if the employer’s gross receipts for a given quarter at some point in 2020 drop below 50% of their gross receipts for the same calendar quarter in 2019.
Companies qualifying for the ERC need to determine how many average monthly full-time employees (FTEs) worked for them in 2019. If your company employed beyond 100 average monthly FTEs, it’s only allowed to claim the credit on wages and health plan expenses paid for your employees that weren’t working over the course of the eligible months. However, if your company had 100 or fewer employees, then you’re allowed to claim the credit for all employees, regardless of whether they were working or not.
To claim the ERC, you’ll do so on IRS form 941, “Employer’s Quarterly Payroll Tax Return.” If your company is eligible, you can reduce its federal employment tax deposits by the permissible ERC amount. However, if your ERC is in excess of the remaining federal employment tax deposits for that quarter, your company can file Form 7200 to claim an advance refund.
IRC Sec. 280E: Does this affect cannabis business eligibility for the ERC?
Yes and no.
At this point, IRC Sec. 280 does not allow federal tax deductions and credits from gross income if the taxpayer engages in business relating to the manufacturing, distribution, or sale of controlled substances classified as either Schedule I or Schedule II drugs. This is the result of the 1970 Controlled Substances Act.
Since cannabis is still classified as a Schedule I drug, the sales activity is viewed as trafficking under federal law. With this in mind, IRC Sec. 280E keeps cannabis businesses from benefiting from typical business deductions.
However, equally important to note is that IRC Sec. 280E is an income tax provision of the Internal Revenue Code. The ERC operates as a payroll tax credit. Furthermore, the CARES Act does not explicitly exclude cannabis businesses from claiming the ERC.
While ERC eligibility is questionable and the IRS has not offered guidance just yet, there’s a chance that cannabis businesses that meet all eligibility requirements of the ERC could be eligible.
More About The ERC
At Northstar, we’re helping cannabis businesses save on payroll taxes with the COVID-19 ERC. If your company has been adversely impacted by the pandemic, we’re ready to help you at no upfront cost. Simply put, we only get paid if you do! This includes 3-year FREE ERC audit support!
Here’s a quick summary of the ERC and how it offers relief to cannabis businesses:
ERC Eligibility Explained
Through the COVID-19 Employee Retention Credit, cannabis businesses can get a payroll tax credit to help ease the adverse impact of the coronavirus. The ERC is an option for employers, as well as tax-exempt and some government organizations, as long as they satisfy ANY of the following conditions:
Operations were either fully or partially suspended as a result of the orders from an appropriate governmental authority.
Its gross receipts for a minimum of one calendar quarter were less than 50% in 2020 or less than 20% in 2021 of the gross receipts they had in 2019.
The company qualifies as a recovery start-up business.
ERC Opportunity Explained
The ERC offers up to $33,000 per employee. This is meant to offset employers’ 6.2% FICA liability from March 12, 2020, through June 20, 2021, as well as 1.45% Medical Tax from July 1, 2021, through December 31, 2021. Any remaining credit gets refunded.
Your ERC is calculated quarterly as long as your business satisfies quarterly eligibility requirements. You could also capture retroactively if you didn’t capture in prior periods, as well.
With subsequent ERC changes, the availability expands, and the benefits increase in the 2020 and 2021 tax years.
ERC Process Summarized
To get started, we’ll need to determine if you’re an eligible employer for the ERC for any quarter. This will involve applying each test separately.
We’ll check your company’s employment level in 2019, as well. This will determine your ERC-eligible wages.
From there, we compute your ERC-qualified wages. This involves excluding wages used for PPP forgiveness and other tax credits.
Once we have this information on hand, we can calculate the ERC and work with your payroll provider to determine options to claim benefits. Then, we’ll complete an audit file to substantiate ERC.
Notable ERC Changes for Jan. 1, 2021, to June 30, 2021
The ERC for January 2021 to June 30, 2021, experienced the following changes:
The ERC rate per employee increased by 20%, resulting in its expansion to 70% of qualified wages. In the past, this was 50%. Furthermore, the per-employee wage limit rose from $10,000 annually to $10,000 quarterly for 2021.
Employers are now eligible based on their gross receipts of less than 80%. Previously, it was less than 50% compared to the same quarter in 2019. With this in mind, if your gross receipts drop by beyond 20% in 2021, your business is eligible for the payroll credit.
Right after the calendar quarter, you can choose to use ERC immediately rather than Q1 and Q2 of 2021 compared to the same quarter in 2019 to determine your eligibility.
For companies that didn’t exist in 2019, we’re now allowed to compare 2021 quarterly gross receipts to the same 2020 quarters to determine business eligibility for ERC.
2021 ERC credit is now accessible by public colleges, universities, organizations giving medical or hospital care, and some organizations that Congress has chartered.
The definition of a large employer changes from more than 100 employees to beyond 500 employees in 2021. Thus, companies can use this broader definition of qualified wages if they are within this threshold. As a company, this allows employers to count wages paid to their active (working) employees and those who aren’t currently working.
The Consolidated Appropriations Act (CAA) removed the limit on employees’ qualifying wages. Previously, the limit on qualified wages was the sum the employee would have been given during the 30 days prior to the qualifying period. Now, the ERC will allow companies to pay a bonus to their essential workers.
If the company has less than 500 full-time equivalent employees, they can advance ERC payments during the quarter that the wages were paid to these employees. This also includes seasonal employers, employers who didn’t exist in 2019, and part-time employees.
Save on Payroll Taxes with the COVID-19 ERC
Ready to soar your business to new heights with tax incentives? Contact us today to partner with Northstar’s experienced tax professionals.
California cannabis business tax queries continue to roll in as the state continues to regulate this budding industry. This is why we decided to create our California cannabis business tax FAQ.
Below, you’ll find the answers to some of the most common questions about California cannabis business taxation. If you have any questions we might have missed in this article, feel free to contact us at any time.
We’re always happy to assist in any way possible to ensure ‘elevated’ business operators succeed!
Interested in scaling your cannabis business in Cali? Our team specializes in cannabis financials. Contact us now to learn how we’ll grow your business with expert assistance and the right systems in place.
Who pays cultivation tax?
Buyers of cannabis and cannabis products have to pay an excise tax of 15%. However, retailers also must pay the excise tax to their distributors, which is based on the average market price of retail sales. Retailers can pass the excise tax cost on to the final purchaser by including this cost in the sale.
How do dispensaries pay federal taxes?
Since traditional banking isn’t accessible for dispensaries, these businesses usually pay taxes in case. However, this results in a penalty. Even though the government requires these operations to pay taxes, its tax and drug policies punish them for paying in cash.
Federal law requires tax payment on all income, even if it’s been earned illegally. Thus, regardless of whether these operations are legal federally, they must file a tax return per their type of entity status.
Marijuana dispensaries that pay taxes cannot deduct business expenses easily. This is because of the 280E tax code, which doesn’t allow expense deductions for businesses that illegally trafficked a Schedule I or II controlled substance per the federal Controlled Substances Act.
According to the IRS, Section 280E doesn’t ban cannabis industry participants from reducing their gross receipts by cost of goods sold to determine gross income. It’s possible to reduce gross receipts by the cost of obtaining or producing the cannabis sold, and these costs are aligned with the nature of the business.
Despite 280E’s limitations, we help our clients navigate 280E limitations by structuring their operations to allow for expense deductions. Contact us now to learn more about how we can structure your cannabusiness to bypass 280E.
What kind of tax is excise tax?
Excise taxes are the taxes placed on certain goods or services. This includes tobacco, alcohol, and fuel. These taxes are mostly paid by businesses, which results in price increases for consumers. It’s possible to pay excise taxes by a percentage or per unit.
Is there excise tax in California?
California has general excise taxes it collects on gasoline and diesel sales, cigarettes (by the pack), and cell phone service plans. However, other products and services require excise tax collection, too. These include cannabis, transportation tickets, gas-guzzling vehicles, firearms, tanning salons, vehicle sales, and more.
If a California cannabis business gives cannabis away, what tax is owed?
The first method involves offering free samples. For instance, a dispensary offers a free gram of weed to customers on opening day. In this situation, the cannabis provided as a free sample would be calculated into your cost of goods sold (COGS).
To calculate COGS, you’ll need to use the formula Beginning Inventory + Purchases – Ending Inventory = COGS.
Let’s say you begin with $1,000 in product. This is your beginning inventory. From there, you’ll need to add the purchases of products you created, including the free gram bags you gave away on opening day. This results in $20,000 in purchases that day.
Your ending inventory value is $10,000.
To determine your COGS, you’ll add $1,000 + $20,000 – $10,000 to get $11,000. Rolling the samples you gave away into your COGS, you wouldn’t have additional tax obligations.
The other method involves offering a BOGO (buy-one-get-one) deal on grams. Instead of selling an edible for $15, you might sell 2 for $15. This is a 50% discount on edibles.
However, this could impact the way your business is taxes. For this situation, the promotion is a discount as opposed to free cannabis. Thus, the entire transaction is allocated in sales, which means you’ll need to pay taxes on the full value of the product, despite the customer paying significantly less.
The problem here is that if word about the deal gets around, you’ll expose yourself to more significant tax liability as you will not have enough income to offset the tax.
In California, regardless of your sales, you’ll have to pay a minimum of $800. Cali also could hold you liable for additional franchise taxes if your gross sales exceed $250k. If you’re operating a dispensary, chances are, you’ll hit this threshold.
For instance, if your Cali dispensary’s gross sales were $600k with $120k in BOGO discounts and you lost $100k, you could have some trouble. Despite the $100,000 loss resulting in no federal tax or state tax due, you’ll still have to file a form 568 – the franchise return.
Your franchise return will consider the $600k in gross sales, and this is where your BOGO deals can come back to haunt you. You would have additional taxes to pay.
What California cannabis tax implications should I be aware of as I operate?
Cali levies an excise tax on most cannabis products. This tax is a business-based tax on specific goods. At this point, the cannabis excise tax is 15 percent of the average market value of cannabis at retail. Once cannabis comes into the commercial market, a cultivation tax is applied, which is based mainly on the weight and type of cannabis.
For cultivation tax purposes, the state has three categories in place: cannabis flower, fresh cannabis plant, and cannabis leaves. After Assembly Bill 1872 passed, the cultivation tax rates for 2021 will stay the same as in 2020. Cultivation tax rates in California will not change until the start of 2022.
Also, cannabis retailers are no longer allowed to give cannabis or cannabis products away unless they receive permission from the Bureau of Cannabis Control (BCC). This agency is responsible for administering cannabis licensing activities for distributors and retailers. With the appropriate authorization, you are not subject to the cannabis excise tax. However, you might owe use tax on the purchase price of cannabis or cannabis products.
California Cannabis Business Tax Help
Interested in having our team of experts manage your Cali cannabis operation’s financials? Contact us today to learn what we’ll do for you!
California cannabis business taxation is in a constant state of motion. With each update, it becomes more crucial to remain up to date on the regulations in place, which is why we’re covering Cali cannabusiness taxes and the latest updates to keep in mind.
Need someone to handle your cannacompany’s financials? Contact us today to learn more about how our fully integrated financial partner model will scale your cannabis business.
California Cannabis Business Tax Information
California Marijuana Tax Update
The California Department of Tax and Fee Administration (CDTFA) has implemented a new online services system that includes cannabis tax accounts. With this in mind, cannabis business operations can now access all of their accounts online 24/7.
California Sales & Use Taxes for Cannabis
California ensures all retail sales of tangible personal property are taxable. However, in some cases, the law might provide specific exemptions. Cannabis and cannabis products fall into the tangible personal property classification and do not have a specific exemption, which means sales of this property are subject to sales and use tax.
California Cannabis Excise Tax & Cultivation Tax Insight
Retail purchasers of cannabis or cannabis products must pay a 15 percent excise tax. This tax is determined in accordance with the average market price of the cannabis or cannabis products as they’re sold in a retail setting.
Furthermore, harvested cannabis has a cultivation tax upon entering the commercial market. This is the responsibility of cultivators, and the tax is based on cannabis weight and category. These are the three categories in place:
Fresh Cannabis Plant
Qualifying for the fresh cannabis plant category means weighing the unprocessed cannabis plant within two hours of harvesting.
The CDTFA must adjust cultivation tax rates annually for inflation. However, Assembly Bill 1872 ensured that cultivation tax rates would remain the same for the entire 2021 calendar year. However, beginning in 2022, the CDTFA plans to adjust cultivation tax rates in California.
Registering for a Sales and Use Tax Account & a Cannabis Tax Account in California
You can register for your sales and use tax account and a cannabis tax account or add your business location to your existing account online. If you already have a username and password, log into your account to register.
To register for your cannabis tax account under your existing username, you’ll click on the More link in the I Want To section. From there, you’ll select the Register a New Business Activity on the Online Services homepage, choosing Cannabis business activities to begin. Then, you’ll enter your information.
Besides registering with the CDTFA to acquire the essential tax permit(s), you’ll also have to get the right cannabis business license(s). Cannabis cultivators get their licenses from the California Department of Feed and Agriculture. Cannabis manufacturers obtain licensing from the California Department of Public Health. Cannabis distributors, microbusinesses, retailers, and testing laboratories receive licensing from the Bureau of Cannabis Control at the California Department of Consumer Affairs.
Business operators also must contact their city and/or county government office to obtain information on which local licenses, if any, they’ll need. Here’s some insight from the CDTFA that should give you a good idea of which permits and licenses you might need:
Seller’s Permit Requirements for Cannabis Businesses in California
If your business doesn’t sell tangible property in California, you don’t need to hold a seller’s permit. But if you need to meet the state’s commercial cannabis licensing application requirements, you’ll still need a certification letter from the licensing agency. This letter explains that a seller’s permit is not necessary.
To get your certification letter, you’ll email the CDTFA this information:
Contact phone number
Description of your cannabusiness activities
Once the CDTFA receives your email, they will review your information. If you’ve provided enough information, you can expect a certification letter mailed to the address you provided. However, if they need more information, they’ll reach out to you directly.
California Marijuana Business Filing and Payments
Sales and Use Tax Return
If you sell cannabis, you’ll need to file regular sales and use tax returns to report your sales. However, even if you don’t have taxable transactions to report, you’ll still have to file your sales and use tax returns. Also, you still must report your activities to the CDTFA.
Cannabis Tax Return in California
If you distribute cannabis or cannabis products, you must electronically file your cannabis tax return with the CDTFA. This is how you’ll report how much cultivation tax and cannabis excise tax you owe. If you don’t have taxable transactions to report, you’ll still have to file your cannabis tax return and report your activities to the CDTFA.
You’ll have to file your cannabis tax return by the last day of the month after the reporting period. Keep in mind, your cannabis tax account is separate from the other accounts you might have with the CDTFA.
Paying California Cannabis Taxes in Cash
Many Cali cannabis business operators pay their sales and use tax or cannabis tax in cash. If this is something you’re considering, you’ll need to contact the CDTFA to arrange the transaction and request an exemption from its No Cash policy.
The CDTFA grants exemptions if a cannabusiness operator must pay in cash to avoid undue difficulties. You can fill out a No Cash Exemption Request form to explain your business’s operations and why you cannot establish a bank account or pay using a cashier’s check or money order. Once your request is approved or denied, the CDTFA will notify you in writing, offering more information on how you should proceed.
Once you’re approved to pay in cash, you’ll need to contact your local office to schedule an appointment to pay at least 21 days before the payment is due. If your estimated monthly tax liability exceeds $20,000 for cannabis tax accounts or $10,000 for sales and use tax accounts, you’ll have to pay by electronic funds transfer (EFT). If you don’t pay by EFT, you’ll be charged a 10 percent penalty. However, if you receive approval to pay in cash, you’re excluded from this EFT requirement.
California Cannabis Business Tax Assistance
We monitor California’s cannabis regulations for our clients, and we’ll stay up to date on them for you too. Contact us today for expert assistance managing your business’s financials.
With more regulation now than ever before, the cannabis sector demands good decisions to succeed. But how to make the best decisions for your cannabis company?
Use this actionable list to ensure your cannabis business decisions guide you through many of the most common challenges in the cannabis sector.
Interested in implementing these actions? Contact us today to learn more about how we can help.
Have a Cannabis Business Strategy in Place
The right cannabusiness strategy should outline your plan going forward, outline present- and long-term business objectives. Since the cannabis sector has so many moving components, you should be able to highlight an area that’s aligned with your company’s strengths.
For example, if you’re operating a cannabis nursery out of Oregon, you might have access to some of the most fertile soil in the US. The Willamette Valley is known for its living soil, and if you can take advantage of that for your grow, you can likely produce high-quality organic products that can compete with top brands.
Checking every box in a niche is challenging. But if you outline where your company fits and why, along with which niches you’ll target today and in the future, you have a better chance of succeeding in the cannabis space.
Even though many cannabusiness operators believe in scaling impressively, some are interested in sustainable approaches. Starting and maintaining a “mom-and-pop” style operation that supports your lifestyle is still a fulfilling option for some.
However, for those interested in a higher potential for revenues operating a larger, commercialized cannabusiness, it’s within the realm of possibilities. This is something that we can help you with.
Looking to scale your cannabis operation? Contact us today to learn more about how our services facilitate and support your growth.
Track & Analyze Key Cannabusiness Metrics
Your key cannabusiness metrics will vary from niche to niche. But one thing remains the same; you’ll use these metrics to show critical success factors. Your metrics should help you identify areas for improvement, along with how aligned you are with your projected operating costs.
For instance, cultivators use various metrics to measure their successes and shortcomings. These usually include average yield, yield per square foot, yield per watt of light, production per acre, fixed costs, variable costs, and stain cultivation. This offers insight into how much product they’re generating, as well as how each variable could be affecting their yields.
Metrics are also necessary for interested third parties, like investors. If you’re seeking investment, potential investors will want to analyze the metrics to evaluate your operation, comparing it to the competition. Your metrics will also add credibility to your operation.
Software for cannabis recordkeeping can work, although the options for accounting software for cannabis aren’t robust enough to handle all aspects. This is why we recommend keeping a log of everything and using Excel or Google Sheets for recordkeeping to all of our clients.
Your metrics allow you to focus on what works by putting the data on display. Rather than growing 30 strains with 25 unsuccessful, cultivators can concentrate on the five successful strains that dispensaries purchase. The same train of thought works for other cannabis operations.
Organize Your Books
As a cannabis business operator, having your financial framework and processes organized facilitates your success. Most of the time, this means hiring a CPA specializing in cannabis.
Cannabusinesses are under more scrutiny from regulators. These governing bodies are usually quite strict with their regulations, dishing out costly infractions without hesitation.
Section 280E makes it challenging for cannabis operations to deduct expenses. This is something that will continue until cannabis is reclassified. Cannabusiness operators cannot write off their rent, payroll, and other common business expenses – unless they have the right cannabis CPA organizing their books and structuring their entities.
Staying up to date on your accounting and finances is an excellent way to outdo the competition. Entities lacking organizational skills are at a financial disadvantage, which is why it’s always important to have your bookkeeping practices on point.
Need help managing your books? Contact us today to learn how your cannabusiness will benefit from our bookkeeping services.
Surround Yourself with the Right People
The right people will support your cannabusiness’s operations. Cannabis experts in various fields will understand what your business is capable of and advise you on sustaining and growing your operations while remaining compliant.
For example, the best cannabis CPA you can afford has the potential to enhance your business’s operations tremendously. This individual will offer value by saving time, energy, and capital that can be used to support the operation in other ways. Since each state’s regulations and taxes for cannabis differ, the right CPA will guide you, allowing you to avoid common errors you may overlook.
Experienced cannabis accountants and lawyers should be your operation’s first investments. Several other roles will guide your cannabis company’s decisions, including finance, marketing, valuation, and other areas. These team members and advisors will offer valuable insight when it’s most important, so it’s crucial to make hires you can trust.
As you look for a solid financial advisor, consider that individual’s long-term vision, as well as their background working with cannabis and planned strategy. What options have they considered? Is he or she only focusing on short-term results?
Advisors who think in the short term aren’t working for your long-term success. They want to work quickly without considering sustainable options that will support your long-term vision. Find people who plan to contribute to your vision and guide you in your decisions with expertise.
Have Cannabis SOPs in Place
We spoke about the importance of cannabis SOPs in the past. But communication and operational procedures are essential for success. Without a firm understanding of your processes, your business cannot operate effectively and efficiently.
Something as basic as purchasing procedures can be the glue holding your endeavor together. Accountability for important transitional tasks should be distributed among more than one person. This is possible through internal controls like signatures, dual-approval, and time logs for purchasing and cash handling.
Inefficiencies in your processes are a time suck, which is also a money drain. Don’t waste your time and money blowing through multiple bookkeepers without an effective system in place. Create SOPs for every aspect of your business where applicable.
Making Decisions for Your Cannabis Company
As you make decisions, know that they will impact your cannabis company’s success in one way or another. Acting, not acting, saying ‘yes,’ saying ‘no,’ it all directs the direction of your business. Simply put, it’s all in your hands.
By making the right choices and taking action, you’ll support your endeavor’s vision – and scale it to reach or even exceed your expectations. But keep in mind that the right team working with you should always be a priority.
Looking for the right team to support your cannabis company’s vision? Contact us today for expert guidance.
Blockchain and crypto-asset payment systems are becoming increasingly common across various industries; people purchase cars, homes, services, and more with these payment systems’ availability. But the impact these systems can have on New Jersey cannabis businesses makes them viable solutions for the current challenges in place.
Currently, we’ve had numerous states and territories legalize adult-use cannabis. One of the newest states to do so is New Jersey. NJ voters passed legalization with the November 2020 election ballot initiative. However, since cannabis is still listed as a Schedule 1 controlled substance under the Controlled Substances Act (CSA), federal and state laws are at odds with one another. In turn, New Jersey cannabis businesses will face a plethora of challenges, including banking and payment processing.
Every business across all industries needs a fully functioning payment infrastructure. Without this, it’s nearly impossible to scale a business efficiently and effectively. Even with the political acceptance and so much potential for the New Jersey cannabis marketplace to thrive, the business landscape is slow to evolve. But the developments we see in blockchain and crypto-asset banking developments could be the answer to several key challenges.
Wondering how to implement blockchain and crypto-asset systems in New Jersey cannabis businesses? Contact us today to learn more about how we can help.
NJ Cannabis Business Challenges
While Governor Murphy’s signature on the adult-use cannabis reform bill is set to open the New Jersey cannabis marketplace, cannabis is still illegal federally. With this being the case, cannabis business operators still face an assortment of issues while sourcing banking and financing solutions.
For cannabis businesses looking for loans, traditional business loans are usually unavailable. This is because of the banks’ concerns regarding Federal Deposit Insurance Corporation (FDIC) insurability. As if this wasn’t discouraging enough for the budding sector, banks taking an interest in collateral for loans issued to cannabis companies may be subject to forfeiture on account of federal illegality. While some providers are willing to provide services that can include small business loans for cannabis operations, there are usually only short-term financing options with elevated interest rates to account for the risk.
Since the cannabis sector isn’t legal federally, the primary payment option for most canna-companies is cash. Besides posing various dangers and security issues, accepting cash in this industry limits sales potential and makes logistics more complex. The banking limitations imposed on cannabis are inconvenient, to say the least.
Even though cash can be convenient for retail shops, business-to-business (B2B) transactions are another story. A cash-basis environment for a multi-billion dollar industry is ludicrous. While some might think paper checks could be a viable option, traditional banking services aren’t always offered, especially by banks with federal oversight.
Credit cards aren’t always an option for cannabis businesses or employees looking to cover their day-to-day costs. These digital solutions would help the industry tremendously. However, without them, many of the current issues surrounding B2B payments become even more problematic.
Tracking & Reporting Challenges in Cannabis
Compliance is essential for cannabis businesses, regardless of where they operate. For B2B transactions, these companies have to handle the following tracking and reporting challenges to avoid infractions:
Supply Chain Concerns – Supply chains vary from state to state depending on the state’s regulations. Throughout the chain, the points include cultivation, extraction, manufacturing, testing, B2B and business-to-customer (B2C) transportation, and wholesale and retail sales. Each of these points demands specific licenses, and it’s crucial to have the right license for whichever role you plan to play in New Jersey’s cannabis marketplace. In some cases, licensees will own every level of the supply chain. These are “vertically integrated” cannabis businesses, and this can minimize supply chain concerns when done right.
Tracking & Reporting – Tracking and reporting are crucial for all cannabis operations. But for vertically integrated cannabusinesses, the right software offers the “seed-to-sale” tracking you’ll need to remain compliant. The requirements vary from state to state. However, the market offers various services to handle your reporting, tracking, and processing needs across all points of the supply chain. If your business is not vertically integrated, it could be challenging to find compatible software. With this being the case, your business could demand more data input and processing time while risking errors as it performs B2B transactions.
Payment Terms & Trade Credit – Traditionally speaking, businesses use payment terms and trade credits to effectively help with administrative functions and manage their cash flow. However, these practices aren’t always available for cannabis operations. Some commercial solutions exist, but we’re offering highly effective options for outsourced B2B management.
Looking for someone to manage your cannabis business’s licensing, seed-to-sale tracking, and cash flow? Contact us today to learn what we can do to scale your operation.
Available Payment Processing Options Pros & Cons
Cannabis businesses in New Jersey have a few options for non-cash solutions. The cannabis marketplace in the U.S. has evolved to allow payment processing, despite the various shortcomings. Here’s a list of the available options and risks associated with each:
Debit Card Payments – Debit card payments for cannabis businesses are integratable with point of sale (POS) systems. The main benefit of using this payment method in conjunction with your POS system is that you’re ruling out the risk of error during the sale process. However, to make this work, you’ll have to find a bank willing to provide these services, which we can facilitate.
ACH Payments – ACH Payments incorporate third-party solutions to make it easier to process customer payments. While this incurs fees on the organizational side, these solutions are integratable with the POS and bypass the risk of error during the sales process. Thus, like with the debit card payment solution, you’ll facilitate compliance and avoid infractions.
Cashless ATM Payments – Cashless ATM payments involve having a third-party ATM-like machine for customers to deposit their payments directly to businesses’ bank accounts. While this offers the convenience of cashless transactions and offers POS integration, it’s also capable of operating outside of your POS. However, there’s risk associated with errors in the sales process that directly relates to your chosen service provider. These third-party solutions also charge fees for companies that use these services.
Credit Card Payments – Credit cards are another third-party option. Some businesses are willing to take on the risk of accepting credit card payments by using a third-party payment processor. However, if the company is noticed acting out of compliance, there’s a chance that merchants can refuse the revenues the cannabis business has earned. If the money hasn’t been deposited yet, this can be especially problematic. State regulators also tend to look into non-compliance actions, potentially resulting in a company’s license forfeiture.
Looking at the available payment processing options for the cannabis industry, common operational and accounting challenges become even more complex for these businesses. However, we have hope that blockchain and cryptocurrency solutions are the answer. As major companies are backing these solutions for payment processing and B2B payments, it’s increasingly apparent that these options are viable, realistic solutions worth considering.
Blockchain & Cryptocurrency as a Solution
Over the last few years, Bitcoin has been gaining momentum as a cryptocurrency. While it’s gained a lot of attention, blockchain and cryptocurrency, generally speaking, have become viable options for many businesses – including cannabis.
To fully understand cryptocurrency’s potential to solve the financial woes of cannabis companies, it’s ideal to know about the categories and what they represent for the industry.
Decentralized Cryptocurrencies – Decentralized cryptocurrencies aren’t issued or governed by a single entity or small group of organizations. These are rather volatile, with a lot of speculation surrounding them. But the main issue here is the related uncertainty surrounding taxes, reporting, and accounting.
Stablecoins – Stablecoins were created to combat the price volatility we see with decentralized cryptocurrencies. While stablecoins are cryptocurrencies, they’re different from others. Stablecoins differ because they’re issued, governed, and managed by single entities or small groups of organizations. These coins are stable because they’re linked to another asset. Most of the time, they’re connected to the U.S. dollar. The result is lower price volatility, which allows them to be used in transactions for various products and services. With this being the case, stablecoin can play a significant role in cannabis businesses’ operations. However, this can be a complex system to implement, and many remain uncertain about blockchain-based tech’s role in the future of business. Thus, some business operators are hesitant (and rightfully so) to implement crypto-based payment systems.
Accounting for Cryptocurrencies
For many organizations, accounting for cryptocurrency transactions is a challenge. However, stablecoins have the potential to be used as an alternative to currency. But, under the current U.S. regulation, these coins are still treated as property.
With this being the case, each time a stablecoin changes ownership, there’s a taxable event. This complicates things for accounting, recordkeeping, and tax compliance action. However, it also offers several opportunities for the people willing to implement crypto-based payment systems for cannabis.
We’ve seen some updates in the regulatory landscape that highlight how wider adoption of crypto-based payment systems could happen, including:
Gary Gensler – Gary Gensler is the Biden Administration’s choice to head the Securities and Exchange Commission (SEC). This is a leap forward for blockchain and crypto regulation. While amenable legislation isn’t a sure thing, Gensler is knowledgeable about these topics and will be responsible for proposing and enacting regulations.
Updates from the Office of the Comptroller of the Currency (OCC) – Recently, the OCC released two updates that New Jersey cannabis businesses will appreciate. In September 2020, the OCC explained that federally regulated banking institutions could hold reserve dollars for privately issued stablecoins on deposit. With this update, stablecoin issuers have full access to the services and support of the commercial banking system. The update also made it clear which specific products and services banking institutions can offer stablecoin issuers. In January 2021, the OCC offered an update that federally-regulated banking institutions will be allowed to join permissionless blockchains (independent node verification networks) and validate transactions under the OCC’s jurisdiction.
Through these OCC updates, we know stablecoin transactions are transparent, and banks are accountable for these transactions. Furthermore, these institutions can now purchase, sell, and process transactions with stablecoins backed by the U.S. dollar. Thus, federally-regulated U.S. banking institutions are now capable of joining blockchains and processing these U.S. dollar-backed transactions.
Marijuana Cryptocurrency Options for New Jersey Cannabis Businesses
Since New Jersey cannabis businesses are still having trouble using traditional banking services for their transactions due to federal legislation, many turn to marijuana-specific cryptocurrencies. Even though Bitcoin is one of the most popular, alternative coins have been developed to specifically serve the needs of the cannabis sector.
PotCoin is one of the first cryptocurrencies for the cannabis industry. This crypto was designed with cannabis banking problems in mind. The trades are direct, allowing people to bypass banks and clearinghouses to make their transactions. PotCoin’s creators focused on Colorado’s cannabis legalization, installing a PotCoin automated teller machine (ATM) at a dispensary in the state.
However, PotCoin didn’t have the impact the creators had hoped – at least not at first. But when a press release and video showing former NBA star Dennis Rodman wearing a potcoin.com shirt in North Korea went public, PotCoin re-entered the media spotlight. CoinMarketCap.com reported that this event drove PotCoin’s value up 75% in one day. By November 2020, PotCoin’s market cap nearly reached $1.5 million, which is significant compared to February 2014’s market cap of $81,547.
PotCoin’s supply is limited, with 420 million coins in circulation. At this point, it’s trading on three markets and has transitioned to proof-of-stake, allowing crypto-miners to mine or validate block transactions per the number of coins they’re holding. PotCoin claims its transaction speeds are 40 seconds, and the cryptocurrency has introduced new features that include HD Wallets, faster network synchronization, and reduced sync times.
HempCoin is also one of the first cannabis cryptocurrencies to hit the scene. This coin was developed for the farming industry and dispensaries. According to HempCoin’s website, it was explicitly designed to “facilitate transactions between marijuana farmers and the local dispensary shops.” But it’s possible to use it to buy gear and tools for cannabis farming.
At this point, HempCoin is being used across the agriculture industry; it’s not limited to cannabis. Thus, it’s safe to say that its use cases are quite vast and impressive, especially compared to other marijuana cryptocurrencies.
CannabisCoin hit the crypto scene a few months after PotCoin. As a proof-of-work, peer-to-peer open-source currency, the idea behind it was to facilitate transactions for dispensaries.
This cannabis cryptocurrency can be converted directly into cannabis. There’s a line of cannabis medicines and strains being grown specifically to exchange for CannabisCoin, allowing people to purchase 1 gram of medication with 1 CannabisCoin. The supply of CannabisCoin is 91.8 million coins, and over 77 million coins are currently in circulation.
CannaCoin is a cannabis cryptocurrency running on a decentralized blockchain that uses Peer2Peer tech. The currency has been around a while, but it transitioned to proof-of-stake at block 370,000.
Its founders describe this crypto as “a group of cannabis enthusiasts working towards future developments of cryptocurrency applications related to cannabis production, seed production, extract production, glass blowing facilities, vape and dab station manufacturing, crypto development, and more.”
Adam Howell founded DopeCoin with the mission “to provide marijuana enthusiasts with a modern and secure way of doing business for the 21st century.” Its website says DopeCoin users can make their transactions pseudo-anonymously in less than a minute without paying any fees or transaction costs.
The vision for this coin was to make the Silk Road for marijuana transactions. With 117 million DopeCoin in circulation, it’s limited. But it is also a proof-of-stake currency, offering investors the ability to earn 5% in interest annually.
New Jersey Cannabis Crypto-Based Payment System Implementation
For operations looking to accept marijuana-specific cryptocurrencies, virtual wallets hold and store these coins. This is the same across the crypto industry.
Interested in implementing a crypto-based payment system for your cannabis business in New Jersey? Contact us today for recommendations.
Cannabis grow facility lenders aren’t a dime a dozen; cannabusiness funding can be challenging to find. But even once you locate a lender, getting a loan to scale grow operations, expand with a dispensary, or open a manufacturing facility is next to impossible without proper documentation.
First and foremost, before comparing cannabis grow facility lender options, it’s crucial to have information about your operation’s finances. This is the first thing we do for our clients, regardless of whether they’re looking for funding now or might in the future.
Between navigating legal complications and strict regulations, we facilitate funding options for cannabis grow facility operators. Whether you need capital for real estate, equipment, or something else, it’s essential to have data available to ensure cannabis cultivation lenders feel confident funding your operation’s expansion.
This article covers some of the most frequently asked questions and solutions for cannabis grow facility capital requirements.
Are you looking for a solution for your grow facility’s financial needs? Contact us today to learn more about how we can help.
Cannabis Grow Facility Lenders FAQ
Here’s a list of answers to the most frequently asked questions we’re receiving from cannabis grow facility operators:
What are common types of cannabis loans?
Cannabis endeavors can call for capital infusions to continue operations. Some of the most common loans for cannabis grow facilities include business loans, equipment loans and leasing, manufacturing facility loans, grow operation loans, medical dispensary loans, and recreational dispensary loans.
Banks aren’t always willing to lend money to businesses operating in cannabis. Thus, cannabis grow facility lenders will sometimes issue real estate and equipment loans. But they also provide money for other aspects of the operations, including marketing, payroll, business expansion, and inventory.
This funding is generally offered either by lines of credit, cash advances, or short-term loans. However, sometimes, a cannabis funding group may be willing to help.
Equipment loans and leasing offer cultivators a way to obtain and upgrade equipment. From lighting to CO2 extraction, irrigation, HVAC, and other aspects of a grow, cannabis cultivation lenders make equipment more accessible.
In some cases, a manufacturing facility loan is the only thing standing in the way of a grow facility expanding its operations. While commercial real estate lenders could fund facilities to manufacture cannabis products, private funding is also an option.
On the other hand, some growers want to scale a cultivation facility. Grow operation loans are available from private investors, bridge loans, and short-term mortgages.
Medical and recreational dispensary loans can be challenging to find. But for growers interested in expanding their operations into retail, private debt or equity financing for recreational and medical marijuana dispensaries are becoming popular options.
However, it’s important to note that lenders will want to see a track record of your operation’s revenue for all of the mentioned options. This is where we can help.
Looking for funding? Get your documentation in order with Northstar first. Contact us today to learn more about how we can help you get the funding your grow operation needs to thrive.
Can you get a loan to open a dispensary?
Sometimes, operating a cannabis grow facility becomes a dispensary venture. When this happens, cultivators find themselves wondering, “Can you get a loan to open a dispensary?”
At this point, U.S. banks will not loan money for dispensary funding. However, other options to obtain capital exist. Learn more about cannabis business loan options available here.
Which lenders offer cannabis loans?
Cannabusiness funding isn’t always as accessible as other business loans. But, in some cases, borrowers may be able to obtain a Construction cannabis loan or a Prime Commercial cannabis loan. However, most of the time, a hard money cannabis loan is the best option available.
Looking for a cannabis grow facility lender? Our connections throughout the industry allow us to offer exclusive access to cannabis loan options. Contact us today to prepare and connect with a cannabis cultivation facility lender.
How much does it cost to open a dispensary in NY?
NY legalized cannabis recently, which was a huge win for advocates. Now that it’s legal, your grow operation has fewer bottlenecks and you have the opportunity to sell cannabis in a retail setting.
But how much does it cost to open a dispensary in NY?
Opening a dispensary in NY involves application fees. Upon applying for a cannabis dispensary license in New York, you can expect to pay $210,000. If your application is denied, they’ll reimburse you for $200,000.
License fees for a producer or dispensary license in New York costs $200,000. Cannabusiness operators must comply with NY’s regulations by renewing their license every two years to keep it active.
How much do I need to open a dispensary in California?
Opening a dispensary in California can be a profitable venture for growers. Direct access to this massive consumer base can increase your yield’s profits tremendously.
So, how much does it cost to open a cannabis dispensary in Cali?
On average, opening a dispensary in California has an up-front investment that ranges from $80,000 to $250,000. However, it’s crucial to note that the ongoing operating expenses range from $30,000 to $70,000 monthly.
How much does it cost to open a recreational dispensary in Colorado?
Opening a recreational dispensary has the potential to give your cannabis grow facility an outlet to reach consumers directly. But how much does it cost to open a recreational dispensary in Colorado?
For the initial license fees, you can expect to pay between $5,200 and $13,200. Renewals are slightly more expensive. If you’re opening a retail operation, you can expect to pay somewhat less with application fees costing $5,000 and an initial license fee of $3,000.
How do I open a dispensary in CT?
Considering opening a dispensary in CT? Now is the time to do it. Opening a dispensary has the potential to give you access to consumers ready to purchase your high-quality flower.
Here’s what you can expect to pay when you open a dispensary in Connecticut:
$1,000 for your Dispensary Facility License Initial Application Fee
$100 for your Dispensary License (Individual) Initial Application Fee
$100 for your Dispensary Facility Backer Initial Application Fee
$50 for your Dispensary Facility Employee Initial Application Fee
Interested in cannabusiness funding for a cultivation facility, dispensary, or manufacturing facility? We’ll facilitate the entire process! Contact us today for expert financial assistance.