Election 2020: States Voting On Cannabis Legalization This November

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This year, voters in five states (Arizona, Mississippi, Montana, New Jersey and South Dakota) will decide whether to adopt either new medical or recreational cannabis laws with South Dakota looking to legalize both medical and recreational cannabis.  Arizona, Montana and New Jersey are looking to expand legalization to recreational use.  Mississippi is looking to legalize medical use.

The Growing Trend In Legalizing Cannabis.

Medical marijuana is legal in 33 states.

The medical use of cannabis is legal (with a doctor’s recommendation) in 33 states and Washington DC. Those 33 states being Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Hawaii, Illinois, Maine, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, Utah, Vermont, Washington and West Virginia. The medical use of cannabis is also legal in the territories of the Northern Mariana Islands, Guam and Puerto Rico.

Recreational marijuana is legal in 11 states.

Eleven states and Washington DC, have legalized marijuana for recreational use — no doctor’s letter required — for adults over the age of 21. Those eleven states being Alaska, California, Colorado, Illinois, Maine, Massachusetts, Michigan, Nevada, Oregon, Vermont and Washington and the territory of Guam.

Conflict With Federal Law.

Under Federal law (Controlled Substances Act 21 U.S.C. 801) marijuana is designated as a Schedule I controlled substance due to the historical belief that it has a high potential for abuse, no currently accepted medical use in treatment, and lack of accepted safety for use under medical supervision.

Higher Taxes Still Remain

While the developments listed above are favorable for cannabis business, it still remains to be seen whether the Federal government will respond favorably and when favorable changes will be made to the Internal Revenue Code which treats businesses in the marijuana industry differently resulting in such business paying at least 3-times as much in taxes as ordinary businesses.

Generally, businesses can deduct ordinary and necessary business expenses under I.R.C. §162. This includes wages, rent, supplies, etc. However, in 1982 Congress added I.R.C. §280E. Under §280E, taxpayers cannot deduct any amount for a trade or business where the trade or business consists of trafficking in controlled substances…which is prohibited by Federal law. Marijuana, including medical marijuana, is a controlled substance. What this means is that dispensaries and other businesses trafficking in marijuana have to report all of their income and cannot deduct rent, wages, and other expenses, making their marginal tax rate substantially higher than most other businesses.

Reporting Of Cash Payments Still Remain

The Bank Secrecy Act of 1970 (“BSA”) requires financial institutions in the United States to assist U.S. government agencies to detect and prevent money laundering. Specifically, the act requires financial institutions to keep records of cash purchases of negotiable instruments, and file reports of cash purchases of these negotiable instruments of more than $10,000 (daily aggregate amount), and to report suspicious activity that might signify money laundering, tax evasion, or other criminal activities. The BSA requires any business receiving one or more related cash payments totaling more than $10,000 to file IRS Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business.

The minimum penalty for failing to file EACH Form 8300 is $25,000 if the failure is due to an intentional or willful disregard of the cash reporting requirements. Penalties may also be imposed for causing, or attempting to cause, a trade or business to fail to file a required report; for causing, or attempting to cause, a trade or business to file a required report containing a material omission or misstatement of fact; or for structuring, or attempting to structure, transactions to avoid the reporting requirements. These violations may also be subject to criminal prosecution which, upon conviction, may result in imprisonment of up to 5 years or fines of up to $250,000 for individuals and $500,000 for corporations or both.

Marijuana-related businesses operate in an environment of cash transactions as many banks remain reluctant to do business with many in the marijuana industry. Like any cash-based business the IRS scrutinizes the amount of gross receipts to report and it is harder to prove to the IRS expenses paid in cash. So it is of most importance that the proper facilities and procedures be set up to maintain an adequate system of books and records.

How Do You Know Which Cannabis Tax Attorney Is Best For You?

Given that cannabis is still illegal under existing Federal law you need to protect yourself and your marijuana business from all challenges created by the U.S. government.  While cannabis is legal in California, that is not enough to protect you.  It’s coming down that the biggest risk is TAXES.  So it is best to be proactive and engage an experienced cannabis tax attorney in your area who is highly skilled in the different legal and tax issues that cannabis businesses face.  Let the cannabis tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), the Inland Empire (Ontario and Palm Springs) and other California locations protect you and maximize your net profits.  And if you are involved in crypto currency, check out what a bitcoin tax attorney can do for you.

Inyo County Sheriff’s Department Shuts Down Massive Illegal Cannabis Farms Located In The California Wilderness

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Anyone conducting business in cannabis surely knows that under Federal law (Controlled Substances Act 21 U.S.C. 801) marijuana is designated as a Schedule I controlled substance due to the historical belief that it has a high potential for abuse, no currently accepted medical use in treatment, and lack of accepted safety for use under medical supervision. So the risk is apparent that at any time Federal authorities could come and shut you down but don’t think that just because cannabis is legal in California, you do not have to worry about the State.

California law mandates that you can only sell cannabis if you have obtained a license to do so. These licenses being issued by the BCC. If you don’t have a license, then selling cannabis or transporting it in order to sell it is still a crime under H&S Code §11360.

Illegal Cannabis Growing Sites in Inyo County

The Inyo County Sheriff’s Office in Bishop, California announced in a news release on August 20, 2020 that on three separate days (July 24, August 18, and August 19) the Inyo County Sheriff’s Department with assistance from the Drug Enforcement Agency (DEA), U.S. Air Force National Guard Unit, U.S. Forest Service, Bureau of Land Management (BLM), California Department of Fish and Wildlife and the California Department of Justice (DOJ) CAMP Team No. 3 and 4, eradicated 42,306 illegal marijuana plants from three locations off public lands within Inyo County. Authorities estimate the street value to be between $84,612,000 and $169,224,000.

Inyo County is southeast of Yosemite National Park and home to the Owens River Valley. Spanning 10,192 square miles, it is California’s second largest county, after San Bernardino County. About half of that average is within Death Valley National Park.

The Sheriff’s Office stated that cannabis cultivation can cause extreme damage to ecosystems. As part of the illegal cultivation process, growers are responsible for using miles of plastic tubing and diverting water from natural sources for crop irrigation. The use of banned herbicides and pesticides is also common practice. Additionally, cannabis cultivation sites often contain large amounts of trash and create fire hazards in wildland areas. Reclamation will be conducted through BLM and U.S. Forest Service.

Law enforcement officers continue to investigate the grow site. No arrests have been made at this time.

Statewide Commitment To Enforcement

In a previous blog we wrote about Governor Gavin Newsom’s promise made in February 2019 to deploy the California National Guard against marijuana grows in California. Multijurisdictional task forces have long been deployed against marijuana grows in California as we noted in the following blogs:

  • Click here on a raid that occurred in Riverside County.
  • Click here on a raid that occurred in Kern County
  • Click here on a raid that occurred in the City of Santa Rosa in Sonoma County.
  • Click here on a raid that occurred in the City of Carpinteria in Santa Barbara County.
  • Click here on a raid that occurred in Riverside County.
  • Click here on a raid that occurred in the City of Buellton.

Penalties For Selling Cannabis Without A License.

For most defendants, unlicensed sale or transport for sale of cannabis is a misdemeanor punishable by up to six months in county jail and/or a fine of up to $1,000. For defendants under 18, it is an infraction. Also, giving away or transporting for sale up to 28.5 grams of cannabis without a license is an infraction.

But the sale/transport for sale of cannabis without a license to do so is a felony for the following defendants:

  1. Defendants who have a prior conviction for one of a list of particularly serious violent felonies, including murder, sexually violent offenses, sex crimes against a child under 14, or gross vehicular manslaughter while intoxicated, or a sex crime that requires them to register as a sex offender;
  2. Defendants who have two or more prior convictions for H&S Code §11360 sale/transportation of cannabis;
  3. Defendants who knowingly sold, attempted to sell, or offered to sell or furnish cannabis to someone under 18; or
  4. Defendants who imported or attempted or offered to import into California, or transported or attempted/offered to transport out of California for sale, more than 28.5 grams of cannabis or more than four grams of concentrated cannabis.

In any of these scenarios, black market sale or transportation for sale of cannabis under H&S Code §11360 is punishable anywhere from two to four years in jail.

Transporting cannabis without intent to sell it, or giving cannabis away, is not a crime in California so long as BOTH of the following are true:

  1. You transport or give away not more than 28.5 grams of cannabis or eight grams of concentrated cannabis, and
  2. Any people you give cannabis to are 21 years of age or older.

What Should You Do?

You can count on other county governments coordinating resources and making comprehensive strikes on unlicensed and illegal cannabis operations for the safety of the public.

Both civil and criminal penalties will apply to unlicensed operators so it is imperative that anyone cultivating, manufacturing or distributing cannabis on a commercial basis in California seeks a local and state license for their operations immediately, if they have not already done so. Protect yourself and your investment by engaging a cannabis tax attorney at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), the Inland Empire (including Ontario and Palm Springs) and other California locations. We can come up with tax solutions and strategies and protect you and your business and to maximize your net profits. Also, if you are involved in crypto currency, check out what a bitcoin tax attorney can do for you.

U.S. Appeals Court Rejects California Cannabis Business’ Tax Dispute Due To Mailing Mix-Up

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Two California-based cannabis companies had their petition thrown out of appeals court after it was delivered to court a day late by an unapproved delivery service. Organic Cannabis Foundation and Northern California Small Business Assistants (“NCSB”) were challenging a nearly $2 million combined tax bill at the U.S. 9th Circuit Court of Appeals based in San Francisco.

Appealing I.R.C. §280E Audits

Both Organic Cannabis Foundation and NCSB had been audited by the IRS.  The IRS stated that these businesses are subject to Section 280E which doesn’t allow tax deductions related to cannabis because it is still federally prohibited. According to appellate-court documents, Organic Cannabis Foundation owed $1.1 million in taxes and $225,855 in penalties and NCSB owed $531,707 in taxes and $106,341 in penalties.

When the IRS reaches a final decision in an examination, it will issue a Notice Of Deficiency which starts a 90-day period to file a petition with the U.S. Tax Court to appeal such a decision.  For Organic Cannabis Foundation and NCSB, their petition to the Notice Of Deficiency was due to the U.S. Tax Court in Washington DC on April 22, 2015. According to court records, the petition was delivered via FedEx “First Overnight” at 7:35am April 23, 2015.  Having received the petition one day late, the U.S. Tax Court ruled that the petition for a review of the IRS decision lacked jurisdiction because it came after the petition filing deadline.  The taxpayers appealed this verdict to the U.S. 9th Circuit Court of Appeals; however, the Appeals court upheld the Tax Court’s initial verdict.

The “IRS mailbox rule” states that: “If any return, claim, statement, or other document required to be filed…on or before a prescribed date under authority of any provision of the internal revenue laws is, after…such date, delivered by United States mail to the agency, officer, or office with which such return, claim, statement, or other document is required to be filed,…the date of the United States postmark stamped on the cover in which such return, claim, statement, or other document…is mailed shall be deemed to be the date of delivery…” I.R.C. §7502.

In other words, this IRS mailbox rule confirms that a tax document is timely filed with the IRS even though it is not physically delivered to the IRS in time, as long as it is delivered by an approved delivery service.  Using the U.S. Postal Service at the time was an approved service (and still is).  Although FedEx Priority Overnight and FedEx Standard Overnight were approved by the IRS at that time, court documents state that it wouldn’t be until May 5, 2015, two weeks after the late delivery, that FedEx First Overnight was designated as an approved service.

Since a timely postmark is crucial, filing a petition in the U.S. Tax Court by certified or registered mail with the U.S. Postal Service can provide taxpayers with assurance of a timely filing regardless of when the petition is received by the U.S. Tax Court in Washington DC.

Yes – Cannabis Businesses Have to Report Income To IRS And Pay Taxes!

We previously reported in our blog that the Trump Administration organized a committee of federal agencies from across the government to combat public support for marijuana and cast state legalization measures in a negative light while attempting to portray the drug as a national threat. The IRS appears to be following the agenda of the Trump Administration when it comes to Cannabis and has formed special audit groups that are tasked with conducting cannabis tax audits on medical and recreational cannabis businesses.

While the sale of cannabis is legal in California as well as in a growing number of states, cannabis remains a Schedule 1 narcotic under Federal law, the Controlled Substances Act (“CSA”) 21 U.S.C. § 812. As such businesses in the cannabis industry are not treated like ordinary businesses. Despite state laws allowing cannabis, it remains illegal on a federal level but cannabis businesses are obligated to pay federal income tax on income because I.R.C. §61(a) does not differentiate between income derived from legal sources and income derived from illegal sources.

I.R.C. §280E

Generally, businesses can deduct ordinary and necessary business expenses under I.R.C. §162. This includes wages, rent, supplies, etc. However, in 1982 Congress added I.R.C. §280E. Under I.R.C. §280E, taxpayers cannot deduct any amount for a trade or business where the trade or business consists of trafficking in controlled substances…which is prohibited by Federal law. Cannabis, including medical marijuana, is a controlled substance. What this means is that dispensaries and other businesses trafficking in cannabis have to report all of their income and cannot deduct rent, wages, and other expenses, making their marginal tax rate substantially higher than most other businesses.

IRS Guidance On Cannabis.

The IRS issued a memo to provide guidance to its agents on conducting audits of cannabis businesses addressing whether an IRS agent can require a taxpayer trafficking in a Schedule 1 controlled substance to change its tax accounting to conform to I.R.C. §280E.

Not surprisingly that the IRS ruled that IRS agents have the authority to change a cannabis business’ method of accounting so that pursuant to I.R.C. §280E costs which should not be included in inventory are not included in Costs Of Goods Sold (“COGS”) and remain non-deductible for income tax purposes.

Cannabis Tax Audits & Litigation.

It is no surprise that cannabis businesses are proliferating as more States legalize cannabis and make available licenses to grow, manufacture, distribute and sell cannabis. The IRS recognizes this and it is making these cannabis businesses face Federal income tax audits. IRC §280E is at the forefront of all IRS cannabis tax audits and enforcement of §280E could result in unbearable tax liabilities.

Proving deductions to the IRS is a two-step process:

  • First, you must substantiate that you actually paid the expense you are claiming.
    • Second, you must prove that an expense is actually tax deductible.

Step One: Incurred And Paid The Expense.

For example, if you claim a $5,000 purchase expense from a cannabis distributor, offering a copy of a bill or an invoice from the distributor (if one is even provided) is not enough. It only proves that you owe the money, not that you actually made good on paying the bill. The IRS accepts canceled checks, bank statements and credit card statements as proof of payment. But when such bills are paid in cash as it typical in a cannabis business, you would not have any of these supporting documents but the IRS may accept the equivalent in electronic form.

Step Two: Deductibility Of The Expense.

Next you must prove that an expense is actually tax deductible. For cannabis businesses this is challenging because of the I.R.C. §280E limitation. Recall that under I.R.C. §280E, taxpayers cannot deduct any amount for a trade or business where the trade or business consists of trafficking in controlled substances…which is prohibited by Federal law. What this means is that dispensaries and other businesses trafficking in cannabis have to report all of their income and cannot deduct rent, wages, and other expenses, making their marginal tax rate substantially higher than most other businesses.

A cannabis business can still deduct its Cost Of Goods Sold (“COGS”). Cost of goods sold are the direct costs attributable to the production of goods. For a cannabis reseller this includes the cost of cannabis itself and transportation used in acquiring cannabis. To the extent greater costs of doing business can be legitimately included in COGS that will that result in lower taxable income. You can be sure the IRS agents in audits will be looking closely at what is included in COGS. Working with a cannabis tax attorney can ensure that you receive the proper treatment of COGS versus ordinary and necessary expenses resulting in the lowest possible income tax liability.

In addition to IRS audits, state cannabis audits are also complex and thorough and generally include all taxes specific and nonspecific to the cannabis business. Potentially at risk is the cannabis license that enables the business to operate. State audits will focus on records regarding sales and use tax, excise taxes, and seed-to-sale tracking records.

Now if your cannabis IRS tax audit is not resolved, the results may be challenged and litigated in the U.S. Tax Court or Federal District Court. The U.S. Tax Court has jurisdiction to hear disputes over federal income taxes before final assessment and collections while the Federal District Court generally requires taxpayers to first pay the liability then seek repayment through a refund request.

Tips For Cannabis Tax Return Preparation

Here are some tips for cannabis businesses to follow in the preparation of their 2019 tax returns.

  • Reconcile Your Books Before Closing Your Books. Incomplete books can cause delays and add unnecessary complexities.
  • Utilize A Cannabis Tax Professional. Engage a tax professional who has experience in the cannabis industry. Such a professional would be familiar with the intricacies of IRC Sec. 280E and relevant cases to make the proper presentation on the tax return in a manner that would support the smaller tax liability possible.
  • Justify Your Numbers As If An IRS Audit Is A Certainty. Don’t wait to receive a notice from IRS that the tax return is selected for examination.  That can be one or two years away.  Instead make it a point to put together the backup to you numbers now while everything is fresh. 

What Should You Do?

Ultimately it is the tax risk with IRS that could put any cannabis business “out of business” so you need to protect yourself and your investment. Level the playing field and gain the upper hand by engaging the cannabis tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), Northern California (Sacramento and San Francisco) and other California locations. We can come up with tax solutions and strategies and protect you and your business and to maximize your net profits.  Also, if you are involved in crypto-currency, check out what a Bitcoin tax attorney can do for you.

Can Cannabis Help People Improve HDL Cholesterol Levels?

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The Center For Disease Control states that high cholesterol usually has no signs or symptoms.  The only way to know whether you have high cholesterol is to get your cholesterol checked.  The cholesterol test, or screening, requires a simple blood draw.

The cholesterol test checks your levels of:

  • Low-density lipoprotein (LDL) or “bad” cholesterol. Having high levels of LDL cholesterol can lead to plaque buildup in your arteries and result in heart disease or stroke.
  • High-density lipoprotein (HDL) or “good” cholesterol. HDL is known as “good” cholesterol because high levels can lower your risk of heart disease and stroke.
  • Triglycerides, a type of fat in your blood that your body uses for energy. The combination of high levels of triglycerides with low HDL cholesterol or high LDL cholesterol levels can increase your risk for heart attack and stroke.
  • Total cholesterol, the total amount of cholesterol in your blood based on your HDL, LDL, and triglycerides numbers.

The Center Of Disease Control states that a good HDL level is greater than or equal to 60 mg/dL.

In a study published on May 27, 2020 in the Journal of Dietary Supplements, researchers found that the daily administration of a commercially available, hemp-derived CBD oil extract is associated with improved HDL cholesterol levels.

Researchers affiliated with The Center for Applied Health Sciences in Ohio and Lindenwood University in Missouri assessed the health effects of a commercially available hemp extract versus placebo in 65 overweight but otherwise healthy participants. Extracts contained 15mg of CBD. Participants consumed either the extract or a placebo daily for a period of six weeks.

The study reported that those taking CBD experienced improved HDL (high-density lipoprotein aka “good”) cholesterol levels as compared to controls. Subjects consuming the extract also acknowledged improvements in sleep and an overall improvement in their quality of life. No significant adverse events were reported.

Researchers concluded, “Overall, these findings suggest that supplementation with this hemp extract at the provided dosage in the men and women studied exhibited improvements in HDL cholesterol, tended to support psychometric measures of perceived sleep quantity and stress response, perceived life pleasure, and is well tolerated in healthy human subjects.”

Developments like this contradict the basis of classification of cannabis under Federal law which makes cannabis illegal.

The Anti-Federal U.S. Climate

The Federal Controlled Substances Act (“CSA”) 21 U.S.C. § 812 classifies marijuana as a Schedule 1 substance with a high potential for abuse, no currently accepted medical use in treatment, and lack of accepted safety for use under medical supervision. Although you can still face federal criminal charges for using, growing, or selling weed in a manner that is completely lawful under California law, the federal authorities in the past have pulled back from targeting individuals and businesses engaged in medical marijuana activities. This pull back came from Department of Justice (“DOJ”) Safe Harbor Guidelines issued in 2013 under what is known as the “Cole Memo”.

The Cole Memo included eight factors for prosecutors to look at in deciding whether to charge a medical marijuana business with violating the Federal law:

  • Does the business allow minors to gain access to marijuana?
  • Is revenue from the business funding criminal activities or gangs?
  • Is the marijuana being diverted to other states?
  • Is the legitimate medical marijuana business being used as a cover or pretext for the traffic of other drugs or other criminal enterprises?
  • Are violence or firearms being used in the cultivation and distribution of marijuana?
  • Does the business contribute to drugged driving or other adverse public health issues?
  • Is marijuana being grown on public lands or in a way that jeopardizes the environment or public safety?
  • Is marijuana being used on federal property?

Since 2013, these guidelines provided a level of certainty to the marijuana industry as to what point could you be crossing the line with the Federal government.  But on January 4, 2018, then Attorney General Jeff Sessions revoked the Cole Memo.  Now U.S. Attorneys in the local offices throughout the country retain broad prosecutorial discretion as to whether to prosecute cannabis businesses under federal law even though the state that these businesses operate in have legalized some form of marijuana.

Joyce-Blumenauer Amendment (previously referred to as the Rohrabacher-Farr Amendment)

Medical marijuana is legal in 33 states.

The medical use of cannabis is legal (with a doctor’s recommendation) in 33 states and Washington DC. Those 33 states being Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Hawaii, Illinois, Maine, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, Utah, Vermont, Washington and West Virginia. The medical use of cannabis is also legal in the territories of the Northern Mariana Islands, Guam and Puerto Rico.

Recreational marijuana is legal in 11 states.

Eleven states and Washington DC, have legalized marijuana for recreational use — no doctor’s letter required — for adults over the age of 21. Those eleven states being Alaska, California, Colorado, Illinois, Maine, Massachusetts, Michigan, Nevada, Oregon, Vermont and Washington and the territory of Guam.

Building on the DOJ’s issuance of the Cole Memo, in 2014 the House passed an amendment to the yearly federal appropriations bill that effectively shields medical marijuana businesses from federal prosecution. Proposed by Representatives Rohrabacher and Farr, the amendment forbids federal agencies to spend money on investigating and prosecuting medical marijuana-related activities in states where such activities are legal.

The amendment states that:

“None of the funds made available under this Act to the Department of Justice may be used, with respect to any of the States of Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin, and Wyoming, or with respect to the District of Columbia, Guam, or Puerto Rico, to prevent any of them from implementing their own laws that authorize the use, distribution, possession, or cultivation of medical marijuana.”

This action by the House is not impacted by former Attorney General Sessions’ change of position with the DOJ. However, unless this amendment gets included in each succeeding federal appropriations bill, the protection from Federal prosecution of medical marijuana businesses will no longer be in place.

Fortunately for medical marijuana businesses in the last budget extension approved by Congress, this amendment was included. This means that the DOJ is precluded from spending funds to circumvent any of the foregoing states from implementing their medical cannabis laws.

Clearly, to avail yourself of the protections of the amendment, you must be on the medical cannabis side and you must be in complete compliance with your State’s medical cannabis laws and regulations. You may not be covered under the amendment if you are involved in the recreational cannabis side even if legal in the State you are operating.

What Should You Do?

Given the illegal status of cannabis under Federal law you need to protect yourself and your marijuana business from all challenges created by the U.S. government.  Although cannabis is legal in California, that is not enough to protect you. Be proactive and engage an experienced Cannabis Tax Attorney in your area. Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County, Inland Empire (Ontario and Palm Springs) and other California locations protect you and maximize your net profits.  And if you are involved in crypto currency, check out what a bitcoin tax attorney can do for you.

Can Cannabis Help People With Fibromyalgia?

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According to the Center For Disease Control, Fibromyalgia affects about 4 million U.S. adults or about 2% of the U.S. adult population.  The U.S. National Center for Biotechnology Information on June 4, 2020 released data  that was originally published in the Israeli scientific journal Harefuah documenting a study conducted in Israel that Fibromyalgia patients reported mitigating or eliminating their use of prescription medications following their use of medical cannabis.

A team of Israeli researchers assessed characteristics in a total of 101 medical cannabis patients at Laniado Hospital in Netanya and Nazareth Hospital in Nazareth with Fibromyalgia. After initiating cannabis therapy, 51% of subjects either “reduced the dose or the number of medications” that they took to treat Fibromyalgia-related symptoms. Nearly half of the study’s participants reported ceasing their use of prescription medications altogether.

Tikun Olam was the manufacturing company with the largest number of clients and its most popular species for daytime was “Alaska” and “Erez” for night-time.

The study concluded that “cannabis therapy is an effective treatment for fibromyalgia, with nearly zero percent withdrawal from this treatment. Cannabis therapy enabled nearly half of the patients to discontinue any treatment for fibromyalgia. Mild adverse effects were reported in nearly a quarter of the patients but did not result in discontinuing its consumption.”

Developments like this contradict the basis of classification of cannabis under Federal law which makes cannabis illegal.

The Anti-Federal U.S. Climate

The Federal Controlled Substances Act (“CSA”) 21 U.S.C. § 812 classifies marijuana as a Schedule 1 substance with a high potential for abuse, no currently accepted medical use in treatment, and lack of accepted safety for use under medical supervision. Although you can still face federal criminal charges for using, growing, or selling weed in a manner that is completely lawful under California law, the federal authorities in the past have pulled back from targeting individuals and businesses engaged in medical marijuana activities. This pull back came from Department of Justice (“DOJ”) Safe Harbor Guidelines issued in 2013 under what is known as the “Cole Memo”.

The Cole Memo included eight factors for prosecutors to look at in deciding whether to charge a medical marijuana business with violating the Federal law:

  • Does the business allow minors to gain access to marijuana?
  • Is revenue from the business funding criminal activities or gangs?
  • Is the marijuana being diverted to other states?
  • Is the legitimate medical marijuana business being used as a cover or pretext for the traffic of other drugs or other criminal enterprises?
  • Are violence or firearms being used in the cultivation and distribution of marijuana?
  • Does the business contribute to drugged driving or other adverse public health issues?
  • Is marijuana being grown on public lands or in a way that jeopardizes the environment or public safety?
  • Is marijuana being used on federal property?

Since 2013, these guidelines provided a level of certainty to the marijuana industry as to what point could you be crossing the line with the Federal government.  But on January 4, 2018, then Attorney General Jeff Sessions revoked the Cole Memo.  Now U.S. Attorneys in the local offices throughout the country retain broad prosecutorial discretion as to whether to prosecute cannabis businesses under federal law even though the state that these businesses operate in have legalized some form of marijuana.

Joyce-Blumenauer Amendment (previously referred to as the Rohrabacher-Farr Amendment)

Medical marijuana is legal in 33 states.

The medical use of cannabis is legal (with a doctor’s recommendation) in 33 states and Washington DC. Those 33 states being Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Hawaii, Illinois, Maine, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, Utah, Vermont, Washington and West Virginia. The medical use of cannabis is also legal in the territories of the Northern Mariana Islands, Guam and Puerto Rico.

Recreational marijuana is legal in 11 states.

Eleven states and Washington DC, have legalized marijuana for recreational use — no doctor’s letter required — for adults over the age of 21. Those eleven states being Alaska, California, Colorado, Illinois, Maine, Massachusetts, Michigan, Nevada, Oregon, Vermont and Washington and the territory of Guam.

Building on the DOJ’s issuance of the Cole Memo, in 2014 the House passed an amendment to the yearly federal appropriations bill that effectively shields medical marijuana businesses from federal prosecution. Proposed by Representatives Rohrabacher and Farr, the amendment forbids federal agencies to spend money on investigating and prosecuting medical marijuana-related activities in states where such activities are legal.

The amendment states that:

“None of the funds made available under this Act to the Department of Justice may be used, with respect to any of the States of Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin, and Wyoming, or with respect to the District of Columbia, Guam, or Puerto Rico, to prevent any of them from implementing their own laws that authorize the use, distribution, possession, or cultivation of medical marijuana.”

This action by the House is not impacted by former Attorney General Sessions’ change of position with the DOJ. However, unless this amendment gets included in each succeeding federal appropriations bill, the protection from Federal prosecution of medical marijuana businesses will no longer be in place.

Fortunately for medical marijuana businesses in the last budget extension approved by Congress, this amendment was included. This means that the DOJ is precluded from spending funds to circumvent any of the foregoing states from implementing their medical cannabis laws.

Clearly, to avail yourself of the protections of the amendment, you must be on the medical cannabis side and you must be in complete compliance with your State’s medical cannabis laws and regulations. You may not be covered under the amendment if you are involved in the recreational cannabis side even if legal in the State you are operating.

What Should You Do?

Given the illegal status of cannabis under Federal law you need to protect yourself and your marijuana business from all challenges created by the U.S. government.  Although cannabis is legal in California, that is not enough to protect you. Be proactive and engage an experienced Cannabis Tax Attorney in your area. Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County, Inland Empire (Ontario and Palm Springs) and other California locations protect you and maximize your net profits.  And if you are involved in crypto currency, check out what a bitcoin tax attorney can do for you.

 

Federal Government Enforcing Prohibition Of Cannabis On Public Lands

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Off-Site Manager of Marijuana Grow in Shasta-Trinity National Forest Sentenced to 10 Years in Prison

The U.S. Attorney’s Office for the Eastern District Of California issued a press release on February 24, 2020 that Dimas Ortiz, 26, of Michoacán, Mexico, was sentenced by U.S. District Judge Kimberly J. Mueller to 10 years in prison and ordered to pay $10,000 in restitution to the U.S. Forest Service for growing marijuana on the National Forest and for depredation of Public Lands and Resources, U.S. Attorney McGregor W. Scott announced.

The Federal Case Against Dimas Ortiz

According to court documents, Ortiz oversaw the marijuana growing operations of several other men in the Shasta-Trinity National Forest to the west of Weaverville, near Limedyke Mountain, at an elevation of approximately 2,500 feet. On August 7, 2017, law enforcement officers executed a search of the grow and eradicated more than 2,500 marijuana plants. A camp site was found where the on-site workers had camped. Ortiz oversaw the operation from a distance. He helped finance the operation, provided the supplies for the grow site, and directed the activities of his co-defendants. Ortiz expected the operation to yield 800 pounds of processed marijuana, worth $500,000, of which he was to receive 25%. In 2016, Ortiz was the driver for the same grow site and he and others harvested approximately 800 pounds of processed marijuana.

The environmental damage to the forest was analyzed and documented by Integral Ecology Research Center, a non-profit organization dedicated to the research and conservation of wildlife and their ecosystems that has examined over 100 public land marijuana grow sites.

According to the report of the investigation filed with the court, at this grow site, a half-full 33.8 oz. bottle of carbofuran was found hidden among the fertilizer bags and a bag containing an estimated 20 pounds of suspected powder carbofuran. Carbofuran is a toxic pesticide that is banned in the United States. A food bottle found at the site had been reused and contained a mixture of refried beans and carbofuran (suspected bait for animals). The environmental assessment concluded that the carbofuran and other pesticides and fertilizer at the grow site likely posed a significant direct risk to a number of endangered species, including the bald eagle, the northern spotted owl, and the coho salmon. Four cisterns were discovered with water diverted from mountain streams for use in the marijuana grow’s irrigation system with an estimated 4,500 feet of plastic irrigation lines for water and over 2,200 pounds of soluble fertilizer.

The report estimates that the operation used over 15,000 gallons of water per day. Open campsite latrines were also found in proximity to waterways that would cause watershed contamination from the latrines’ fecal matter after the next substantial rain. About 1,000 pounds of trash and 500 pounds of plastic irrigation lines were hauled out of the site. Tests on samples of the marijuana plants determined that carbofuran was present in the plant material.

Cannabis Is Illegal Under Federal Law

Anyone conducting business in cannabis surely knows that under Federal law (Controlled Substances Act 21 U.S.C. 801) marijuana is designated as a Schedule I controlled substance due to the historical belief that it has a high potential for abuse, no currently accepted medical use in treatment, and lack of accepted safety for use under medical supervision. The Trump Administration is serious about cracking down on this as we reported in our blog.

But until Federal law changes, the cannabis industry will still have to bear the followings risks and challenges:

Higher Taxes Still Remain

It still remains to be seen when favorable changes will be made to the Internal Revenue Code which treats businesses in the marijuana industry differently resulting in such business paying at least 3-times as much in taxes as ordinary businesses.

Generally, businesses can deduct ordinary and necessary business expenses under I.R.C. §162. This includes wages, rent, supplies, etc. However, in 1982 Congress added I.R.C. §280E. Under §280E, taxpayers cannot deduct any amount for a trade or business where the trade or business consists of trafficking in controlled substances…which is prohibited by Federal law. Marijuana, including medical marijuana, is a controlled substance. What this means is that dispensaries and other businesses trafficking in marijuana have to report all of their income and cannot deduct rent, wages, and other expenses, making their marginal tax rate substantially higher than most other businesses.

Reporting Of Cash Payments Still Remain

The Bank Secrecy Act of 1970 (“BSA”) requires financial institutions in the United States to assist U.S. government agencies to detect and prevent money laundering. Specifically, the act requires financial institutions to keep records of cash purchases of negotiable instruments, and file reports of cash purchases of these negotiable instruments of more than $10,000 (daily aggregate amount), and to report suspicious activity that might signify money laundering, tax evasion, or other criminal activities. The BSA requires any business receiving one or more related cash payments totaling more than $10,000 to file

IRS Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business.

The minimum penalty for failing to file EACH Form 8300 is $25,000 if the failure is due to an intentional or willful disregard of the cash reporting requirements. Penalties may also be imposed for causing, or attempting to cause, a trade or business to fail to file a required report; for causing, or attempting to cause, a trade or business to file a required report containing a material omission or misstatement of fact; or for structuring, or attempting to structure, transactions to avoid the reporting requirements. These violations may also be subject to criminal prosecution which, upon conviction, may result in imprisonment of up to 5 years or fines of up to $250,000 for individuals and $500,000 for corporations or both.

Marijuana-related businesses operate in an environment of cash transactions as many banks remain reluctant to do business with many in the marijuana industry. Like any cash-based business the IRS scrutinizes the amount of gross receipts to report and it is harder to prove to the IRS expenses paid in cash. So it is of most importance that the proper facilities and procedures be set up to maintain an adequate system of books and records.

How Do You Know Which Cannabis Tax Attorney Is Best For You?

Given that cannabis is still illegal under existing Federal law you need to protect yourself and your marijuana business from all challenges created by the U.S. government.  While cannabis is legal in California, that is not enough to protect you.  It’s coming down that the biggest risk is TAXES.  Be proactive and engage an experienced Cannabis Tax Attorney in your area. Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County, Los Angeles and other California locations protect you and maximize your net profits. And if you are involved in crypto currency, check out what a Bitcoin Tax Attorney can do for you.

Weedmaps Under Pressure To Disclose Cannabis Businesses To The Feds

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Eastern District of California seeks documents on roughly 30 companies from cannabis-retail listing service Weedmaps, according to grand-jury subpoena.

According to a report from MarketWatch prosecutors in the U.S. attorney’s office for the Eastern District of California ordered the production of records from Ghost Management Group LLC, which owns a subsidiary called Weedmaps that provides an online directory of cannabis retailers. Weedmaps’ online services allow pot consumers to rate and compare stores, find deals and place orders for delivery.

The subpoena covers documents related to cannabis businesses listed on Weedmaps, and records related to its ordering service. Prosecutors also sought documents and other records kept by Weedmaps related to its own staff, investors and accounting, according to the subpoena issued late last year.

While Weedmaps does not sell cannabis but merely serves that industry by providing an advertising service, such action by the Department Of Justice (“DOJ”) to go after third parties providing ancillary services to the cannabis industry is very chilling.

Cannabis Is Illegal Under Federal Law.

It is enough that a cannabis businesses have to face the fact that under 21 U.S.C. § 812 (known as the Federal Controlled Substances Act), the Federal government classifies marijuana as a Schedule 1 substance with a high potential for abuse, no currently accepted medical use in treatment, and lack of accepted safety for use under medical supervision.

The federal penalties for possession of any amount of marijuana are as follows:

  • First Offense – Misdemeanor involving up to one year of incarceration and $1,000 in fines
  • Second Offense – Misdemeanor punishable by 15 days to 2 years behind bars and $2,500 in fines
  • Third and subsequent offenses – Misdemeanor or felony punishable by 90 days to 3 years of incarceration and fines of up to $5,000.

The penalties for the sale of marijuana depend on the amount of marijuana you have been accused of selling or attempting to sell:

  • Less than 50 kilograms – Felony punishable by up to 5 years in prison and/or up to $250,000 in fines
  • 50 to 99 kilograms – Felony punishable by up to 20 years in prison and/or fines of up to $1,000,000
  • 100 to 999 kilograms – Felony involving 5 to 40 years incarceration and/or fines of up to $2,000,000
  • 1000 kg and up – Felony carrying a sentence of 10 years to life in prison and/or up to $4,000,000 in fines

As for the cultivation of marijuana, the federal authorities punish it on the basis of the number of plants you were caught growing:

  • Less than 50 plants – Felony punishable by up to 5 years in prison and/or up to $250,000 in fines
  • 50 to 99 plants – Felony punishable by up to 20 years in prison and/or up to $1,000,000 in fines
  • 100 to 999 plants – Felony carrying a 5 to 40-year prison sentence and/or fines of up to $5,000,000
  • 1,000 plants or more – Felony involving 10 years to life in prison and/or fines of up to $10,000,000

With aggravating factors such as a trafficking activity that results in an injury or death, a sale within 1,000 feet of a school, or a case involving five grams sold to a minor, the above penalties may increase dramatically but the fact that a cannabis business is properly licensed by the State can be a mitigating factor decreasing these penalties.

Risk To Being Shut Down And Assets Seized By Your Local Federal District Attorney

On January 4, 2018 former Attorney General Jeff Sessions rescinded what was known as the “Cole Memo”.

The Cole Memo which came out of the DOJ under the Obama administration in 2013, directed U.S. Attorneys to use discretion to prioritize certain types of violations in prosecuting cannabis operators, but, strictly speaking, it did not make operations in cannabis legal.

The Cole Memo included eight factors for prosecutors to look at in deciding whether to charge a medical marijuana business with violating the Federal law:

  • Does the business allow minors to gain access to marijuana?
  • Is revenue from the business funding criminal activities or gangs?
  • Is the marijuana being diverted to other states?
  • Is the legitimate medical marijuana business being used as a cover or pretext for the traffic of other drugs or other criminal enterprises?
  • Are violence or firearms being used in the cultivation and distribution of marijuana?
  • Does the business contribute to drugged driving or other adverse public health issues?
  • Is marijuana being grown on public lands or in a way that jeopardizes the environment or public safety?
  • Is marijuana being used on federal property?

But now that the Cole Memo has be rescinded, federal prosecutors in cannabis legal states will now be free to decide how aggressively they wish to enforce federal marijuana laws. While State law and public acceptance of marijuana usage may temper federal prosecutors’ aggressiveness, this risk of seizure and shutdown is still real and for those cannabis businesses that are not licensed by the State, not only will they rise to the top of the Federal District Attorney’s list but also by State authorities. Criminal prosecution is also possible at both the Federal and State levels so it is important to have qualified legal counsel lined-up and available to intervene.

What Should You Do?

Considering the risks of cannabis you need to protect yourself and your investment, especially if you are not holding a valid license with the State. Level the playing field and gain the upper hand by engaging a Cannabis Tax Attorney at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), the Inland Empire (Ontario and Palm Springs) and other California locations. We can come up with solutions and strategies to these risks and protect you and your business to maximize your net profits. And if you are involved in crypto currency, check out what a Bitcoin Tax Attorney can do for you.

President Trump Seeking To Prosecute Legalized Adult-use Marijuana Businesses

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On June 20, 2019, the House of Representatives voted to restrict the Department Of Justice (“DOJ”) from interfering with States that have legalized adult-use marijuana, including those allowing recreational use, cultivation and sales. This amendment was attached to a large-scale appropriations bill to fund parts of the federal government for Fiscal Year 2020.

But under the 2021 Federal Budget released by the Trump Administration, President Trump proposes slashing all legal protection for state medical marijuana programs which would open the door for the Drug Enforcement Administration (“DEA”) and other federal law enforcement agencies to use federal funds to shut down medical marijuana programs.

Marijuana Remains Illegal Under Federal Law

The Federal Controlled Substances Act (“CSA”) 21 U.S.C. § 812 classifies marijuana as a Schedule 1 substance with a high potential for abuse, no currently accepted medical use in treatment, and lack of accepted safety for use under medical supervision.

House Appropriations Bill Amendment

The Blumenauer McClintock Amendment sponsored by Reps. Earl Blumenauer (D-OR), Eleanor Holmes Norton (D-DC) and Tom McClintock (R-CA) that was included in the appropriations bill to fund parts of the federal government for Fiscal Year 2020, states that:

None of the funds made available under this House Appropriations Bill to the Department of Justice may be used to prevent to any State, territory or D.C. from implementing their own laws that authorize the use, distribution, possession, or cultivation of marijuana.

In the past such amendment (starting in 2014) was limited to medical marijuana state-licensed business but this expansion is huge given that nearly one in four Americans reside in a jurisdiction where the adult use of cannabis is legal under state statute.

Medical marijuana is legal in 33 states.

The medical use of cannabis is legal (with a doctor’s recommendation) in 33 states and Washington DC. Those 33 states being Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Hawaii, Illinois, Maine, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, Utah, Vermont, Washington and West Virginia. The medical use of cannabis is also legal in the territories of the Northern Mariana Islands, Guam and Puerto Rico.

Recreational marijuana is legal in 11 states.

Eleven states and Washington DC, have legalized marijuana for recreational use — no doctor’s letter required — for adults over the age of 21. Those ten states being Alaska, California, Colorado, Illinois, Maine, Massachusetts, Michigan, Nevada, Oregon, Vermont and Washington and the territory of Guam.

Amendment Spearheaded By Rep. Earl Blumenauer, co-founder of the Congressional Cannabis Caucus.

The amendment was voted in by Congress in a 267 to 165 bipartisan vote. “It’s past time we protect all cannabis programs,” said Rep. Earl Blumenauer. “We have much more work to do. The federal government is out of touch and our cannabis laws are out of date. I’m pleased that the House agrees and we are able to move forward.”

The fate of whether this amendment will continue in the 2021 Federal budget is unknown for now. Historically the Senate’s Appropriations Committee has been relatively open to attaching marijuana riders to spending bills, and has consistently approved the medical cannabis protections, but the body’s Republican leadership may be reluctant to go against President Trump’s wishes when it comes to enforcing federal prohibition against licensed businesses and consumers in states that allow marijuana use and sales.

Keep in mind that if this amendment is part of the 2021 Federal budget that ultimately gets approved, to avail yourself of the protections of the amendment, you must be in complete compliance with your State’s cannabis laws and regulations. 

But until Federal law changes, the cannabis industry will still have to bear the followings risks and challenges:

Higher Taxes Still Remain

It still remains to be seen when favorable changes will be made to the Internal Revenue Code which treats businesses in the marijuana industry differently resulting in such business paying at least 3-times as much in taxes as ordinary businesses.

Generally, businesses can deduct ordinary and necessary business expenses under I.R.C. §162. This includes wages, rent, supplies, etc. However, in 1982 Congress added I.R.C. §280E. Under §280E, taxpayers cannot deduct any amount for a trade or business where the trade or business consists of trafficking in controlled substances…which is prohibited by Federal law. Marijuana, including medical marijuana, is a controlled substance. What this means is that dispensaries and other businesses trafficking in marijuana have to report all of their income and cannot deduct rent, wages, and other expenses, making their marginal tax rate substantially higher than most other businesses.

Reporting Of Cash Payments Still Remain

The Bank Secrecy Act of 1970 (“BSA”) requires financial institutions in the United States to assist U.S. government agencies to detect and prevent money laundering. Specifically, the act requires financial institutions to keep records of cash purchases of negotiable instruments, and file reports of cash purchases of these negotiable instruments of more than $10,000 (daily aggregate amount), and to report suspicious activity that might signify money laundering, tax evasion, or other criminal activities. The BSA requires any business receiving one or more related cash payments totaling more than $10,000 to file

IRS Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business.

The minimum penalty for failing to file EACH Form 8300 is $25,000 if the failure is due to an intentional or willful disregard of the cash reporting requirements. Penalties may also be imposed for causing, or attempting to cause, a trade or business to fail to file a required report; for causing, or attempting to cause, a trade or business to file a required report containing a material omission or misstatement of fact; or for structuring, or attempting to structure, transactions to avoid the reporting requirements. These violations may also be subject to criminal prosecution which, upon conviction, may result in imprisonment of up to 5 years or fines of up to $250,000 for individuals and $500,000 for corporations or both.

Marijuana-related businesses operate in an environment of cash transactions as many banks remain reluctant to do business with many in the marijuana industry. Like any cash-based business the IRS scrutinizes the amount of gross receipts to report and it is harder to prove to the IRS expenses paid in cash. So it is of most importance that the proper facilities and procedures be set up to maintain an adequate system of books and records.

How Do You Know Which Cannabis Tax Attorney Is Best For You?

Given that cannabis is still illegal under existing Federal law you need to protect yourself and your marijuana business from all challenges created by the U.S. government especially if President Trump’s budget proposal slashing all legal protection for state medical marijuana programs passes.  While cannabis is legal in California, that is not enough to protect you.  It’s coming down that the biggest risk is TAXES.  Be proactive and engage an experienced Cannabis Tax Attorney in your area. Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County, Los Angeles and other California locations protect you and maximize your net profits. And if you are involved in crypto currency, check out what a Bitcoin Tax Attorney can do for you.

medical marijuana cannabis

Can Cannabis Help People Who Suffer From Migraines?

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For those of us who regularly experience migraines, life carries unique challenges. Migraines are a recurring type of headache. They cause moderate to severe pain that is throbbing or pulsing. The pain is often on one side of your head. Some people may also experience other symptoms, such as nausea and weakness. Some may even be sensitive to light and sound.

According to the Migraine Research Foundation, Migraines are an extraordinarily prevalent neurological disease, affecting 39 million people in the U.S. and 1 billion worldwide.

Here are some of the main statistics published by the Foundation:

  • Every 10 seconds, someone in the U.S. goes to the emergency room complaining of head pain, and approximately 1.2 million visits are for acute migraine attacks.
  • While most sufferers experience attacks once or twice a month, more than 4 million people have chronic daily migraine, with at least 15 migraine days per month.
  • More than 90% of sufferers are unable to work or function normally during their migraine.

Although drugs commonly prescribed for the prevention and treatment of migraines may help some individuals, they do not offer relief for all. Another problem is that a lot of these medications cause unwanted side effects. However, initial research seems to conclude that cannabis use may be an effective treatment for migraines and chronic headaches. 

A research study published in the November 2019 issue of the Journal of Pain reported that cannabis could reduce migraine and headache severity by 50%, and that cannabis use does not exacerbate headaches or migraines over time.

While this appears to be a breakthrough for those who suffer from migraines, further research is still needed especially how much, and when to dose as well as what form and type of cannabis is most effective. Concentrates appeared to offer more significant relief than flower. Yet certain strains of cannabis may do better for some over other strains for others. This preference may be due to the potent analgesic, anti-inflammatory, and antiemetic properties of THC. With more research in this area, it is possible that cannabis use could be more prevalent and successful in treating people suffering from migraines.

Developments like this contradict the basis of classification of cannabis under Federal law which makes cannabis illegal.

The Anti-Federal U.S. Climate

The Federal Controlled Substances Act (“CSA”) 21 U.S.C. § 812 classifies marijuana as a Schedule 1 substance with a high potential for abuse, no currently accepted medical use in treatment, and lack of accepted safety for use under medical supervision. Although you can still face federal criminal charges for using, growing, or selling weed in a manner that is completely lawful under California law, the federal authorities in the past have pulled back from targeting individuals and businesses engaged in medical marijuana activities. This pull back came from Department of Justice (“DOJ”) Safe Harbor Guidelines issued in 2013 under what is known as the “Cole Memo”.

The Cole Memo included eight factors for prosecutors to look at in deciding whether to charge a medical marijuana business with violating the Federal law:

  • Does the business allow minors to gain access to marijuana?
  • Is revenue from the business funding criminal activities or gangs?
  • Is the marijuana being diverted to other states?
  • Is the legitimate medical marijuana business being used as a cover or pretext for the traffic of other drugs or other criminal enterprises?
  • Are violence or firearms being used in the cultivation and distribution of marijuana?
  • Does the business contribute to drugged driving or other adverse public health issues?
  • Is marijuana being grown on public lands or in a way that jeopardizes the environment or public safety?
  • Is marijuana being used on federal property?

Since 2013, these guidelines provided a level of certainty to the marijuana industry as to what point could you be crossing the line with the Federal government.  But on January 4, 2018, Former Attorney General Jeff Sessions revoked the Cole Memo.  Now U.S. Attorneys in the local offices throughout the country retain broad prosecutorial discretion as to whether to prosecute cannabis businesses under federal law even though the state that these businesses operate in have legalized some form of marijuana.

Joyce-Blumenauer Amendment (previously referred to as the Rohrabacher-Farr Amendment)

Medical marijuana is legal in 33 states.

The medical use of cannabis is legal (with a doctor’s recommendation) in 33 states and Washington DC. Those 33 states being Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Hawaii, Illinois, Maine, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, Utah, Vermont, Washington and West Virginia. The medical use of cannabis is also legal in the territories of the Northern Mariana Islands, Guam and Puerto Rico.

Building on the DOJ’s issuance of the Cole Memo, in 2014 the House passed an amendment to the yearly federal appropriations bill that effectively shields medical marijuana businesses from federal prosecution. Proposed by Representatives Rohrabacher and Farr, the amendment forbids federal agencies to spend money on investigating and prosecuting medical marijuana-related activities in states where such activities are legal.

The amendment states that:

“None of the funds made available under this Act to the Department of Justice may be used, with respect to any of the States of Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin, and Wyoming, or with respect to the District of Columbia, Guam, or Puerto Rico, to prevent any of them from implementing their own laws that authorize the use, distribution, possession, or cultivation of medical marijuana.”

This action by the House is not impacted by Sessions’ change of position with the DOJ. However, unless this amendment gets included in each succeeding federal appropriations bill, the protection from Federal prosecution of medical marijuana businesses will no longer be in place.

Fortunately for medical marijuana businesses in the last budget extension approved by Congress, this amendment was included. This means that the DOJ is precluded from spending funds to circumvent any of the foregoing states from implementing their medical cannabis laws.

Clearly, to avail yourself of the protections of the amendment, you must be on the medical cannabis side and you must be in complete compliance with your State’s medical cannabis laws and regulations. You may not be covered under the amendment if you are involved in the recreational cannabis side even if legal in the State you are operating.

What Should You Do?

Given the illegal status of cannabis under Federal law you need to protect yourself and your cannabis business from all challenges created by the U.S. government.  Although cannabis is legal in California, that is not enough to protect you. Be proactive and engage an experienced Cannabis Tax Attorney in your area. Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County, Inland Empire (Ontario and Palm Springs) and other California locations protect you and maximize your net profits. Also, if you are involved in crypto currency, check out what a Bitcoin Tax Attorney can do for you.

When Facing An IRS Tax Audit, How Do Marijuana Businesses Explain To IRS A Cash Stash Accumulated From The Past?

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With the proliferation of licensed cannabis businesses sprouting in the State Of California and a growing number of States, a lot of cannabis business will be filing tax returns with the IRS for the first time. But beware, the IRS is well aware that successful cannabis businesses don’t just sprout overnight and now that your business is on the radar screen you can bet that the IRS will be inquiring how you accumulated all that cash before 2019. We refer to this accumulation of cash as “legacy cash”.

Legacy Cash Is A Big Problem For Successful Cannabis Businesses

In the early days of cannabis operations, the biggest issue was what to do with all the cash? Cash is bulky and risky, but you have to do something with it and cannabis entrepreneurs can’t just take it to their local bank and make a deposit like every other kind of business can. So what have cannabis entrepreneurs been doing for all these years? For the most part they are keep the cash and where that income was never reported on prior tax returns, they now run the risk of being caught by IRS and prosecuted for tax evasion.

Yes – Marijuana Businesses Have to Report Income To IRS And Pay Taxes!

While the sale of cannabis is legal in California as well as in a growing number of states, cannabis remains a Schedule 1 narcotic under Federal law, the Controlled Substances Act. As such businesses in the cannabis industry are not treated like ordinary businesses. Despite state laws allowing cannabis, it remains illegal on a federal level but cannabis businesses are obligated to pay federal income tax on income because I.R.C. §61(a) does not differentiate between income derived from legal sources and income derived from illegal sources.

The Sixteenth Amendment of the U.S. Constitution prohibits the Federal government from taxing “gross receipts”. In Edmondson vs. Commissioner, 42 T.C.M. (CCH) 1533 (T.C. 1981), the Tax Court decided that Jeffrey Edmonson, self-employed in the trade or business of selling amphetamines, cocaine, and cannabis, was permitted to deduct his business expenses resulting from his trade. Discomforted by this outcome, the following year Congress enacted I.R.C. §280E, disallowing all deductions and credits for amounts paid or incurred in the illegal trafficking in drugs listed in the Controlled Substances Act.

Under I.R.C. §280E, taxpayers cannot deduct any amount for a trade or business where the trade or business consists of trafficking in controlled substances…which is prohibited by Federal law. Cannabis, including medical cannabis, is a controlled substance. While I.R.C. §280E disallows cannabis-related businesses to deduct “ordinary and necessary” business expenses, it would be unconstitutional for the IRS to disallow businesses to deduct Cost Of Goods Sold when calculating gross income. This concept was first applied in the Tax Court case of Olive vs. Commissioner Of Internal Revenue, 139 T.C. 19 (2012).

I.R.C. Section 280E IRS Tax Audits

It is no surprise that cannabis businesses are proliferating as more States legalize cannabis and make available licenses to grow, manufacture, distribute and sell cannabis. The IRS recognizes this and it is making these cannabis businesses face Federal income tax audits. IRC §280E is at the forefront of all IRS cannabis tax audits and enforcement of §280E could result in unbearable tax liabilities.

Proving deductions to the IRS is a two-step process:

  • First, you must substantiate that you actually paid the expense you are claiming.
  • Second, you must prove that an expense is actually tax deductible.

Step One: Incurred And Paid The Expense.

For example, if you claim a $5,000 purchase expense from a cannabis distributor, offering a copy of a bill or an invoice from the distributor (if one is even provided) is not enough. It only proves that you owe the money, not that you actually made good on paying the bill. The IRS accepts canceled checks, bank statements and credit card statements as proof of payment. But when such bills are paid in cash as it typical in a cannabis business, you would not have any of these supporting documents but the IRS may accept the equivalent in electronic form.

Step Two: Deductibility Of The Expense.

Next you must prove that an expense is actually tax deductible. For a cannabis businesses this is challenging because of the I.R.C. §280E limitation; however a cannabis business can still deduct its Cost Of Goods Sold (“COGS”). Cost of goods sold are the direct costs attributable to the production of goods.

For a cannabis reseller this includes the cost of cannabis itself and transportation used in acquiring cannabis. To the extent greater costs of doing business can be legitimately included in COGS that will that result in lower taxable income. You can be sure the IRS agents in audits will be looking closely at what is included in COGS.

Appealing An I.R.C. Section 280E IRS Tax Audit

Now if your cannabis IRS tax audit is not resolved, the results may be challenged. After the Revenue Agent has concluded the tax examination, the agent will issue a copy of the examination report explaining the agent’s proposed changes along with notice of your appeals rights. Pay attention to the type of letter that is included as it will dictate the appeals process available to you.

The “30-day letter”

The “30-day letter” gives you the right to challenge the proposed adjustment in the IRS Office Of Appeals. To do this, you need to file a Tax Protest within 30 days of the date of the notice. The Appeals Office is the only level of appeal within the IRS and is separate from and independent of the IRS office taking the action you disagree with. Conferences with Appeals Office personnel are held in an informal manner by correspondence, by telephone, or at a personal conference.

The “Notice Of Deficiency”

If the IRS does not adopt your position, it will send a notice proposing a tax adjustment (known as a statutory notice of deficiency). The statutory notice of deficiency gives you the right to challenge the proposed adjustment in the United States Tax Court before paying it. To do this, you need to file a petition within 90 days of the date of the notice (150 days if the notice is addressed to you outside the United States). If you filed your petition on time, the court will eventually schedule your case for trial at the designation place of trial you set forth in your petition. Prior to trial you should have the opportunity to seek a settlement with IRS Area Counsel and in certain cases, such settlement negotiations could be delegated to the IRS Office Of Appeals. If there is still disagreement and the case does go to trial, you will have the opportunity to present your case before a Tax Court judge. The judge after hearing your case and reviewing the record and any post-trial briefs will render a decision in the form of an Opinion. It could take as much as two years after trial before an Opinion issued. If the Opinion is not appealed to a Circuit Court Of Appeals, then the proposed deficiency under the Opinion is final and your account will be sent to IRS Collections.

IRS Area Counsel are experienced trial attorneys working for the IRS whose job is to litigate cases in the U.S. Tax Court and look out for the best interests of the Federal government. So to level the playing field, it would be prudent for a taxpayer to hire qualified tax counsel as soon as possible to seek a mutually acceptable resolution without the need for trial, and if that does not happen, to already have the legal expertise in place to vigorously defend you at trial.

Dealing With The Cash Legacy Problem

The IRS has not yet announced a specific tax amnesty for people who failed to report their income from cannabis but coming forward under Voluntary Disclosure could result in non-compliant taxpayers avoiding criminal prosecution and lower penalties.

What Should You Do?

While more States are legalizing cannabis, risks to the cannabis industry still exist. Considering the risks of cannabis you need to protect yourself and your investment. Level the playing field and gain the upper hand by engaging the cannabis tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), the Inland Empire (including Ontario and Palm Springs) and other California locations. We can come up with solutions and strategies to these risks and protect you and your business to maximize your net profits. And if you are involved in crypto currency, check out what a bitcoin tax attorney can do for you.