Guam is a U.S. territory in the Pacific Ocean of just around 165,000 people but it has made huge head-waves by being becoming the second American jurisdiction to legalize the sales of recreational cannabis through a legislature (the first U.S. jurisdiction to do so was the Northern Mariana Islands – click here for our previous blog). Previously, only medical-use cannabis was legal.

Democratic Governor Lou Leon Guerrero signed the  Cannabis Industry Act (the “Act”) into law on April 4, 2019 stating “We must regulate this illicit drug that is the most widely used drug in our society. We have to take it and control it, monitor its use and effects, benefit from its medicinal efforts, and allow our people to live in a safer environment”.

Possession, Sales, and Home Cultivation All Legalized.

The Act permits those age 21 or older to legally possess and transfer up to one ounce of marijuana flower and/or eight grams of concentrated cannabis. The measure, which took immediate effect, also permits adults to privately cultivate up to six cannabis plants (no more than three mature) in an “enclosed, locked space”.  Public consumption of cannabis will remain a violation of law.

The Act creates a new regulatory board to draft rules governing the plant’s commercial production and retail sale. The board has a one-year timeline to adopt rules necessary to permit for the operation of licensed cannabis establishments.

Guam Follows A 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 31 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 10 states.

Ten 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, Maine, Massachusetts, Michigan, Nevada, Oregon, Vermont and Washington and now 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.

Two bills currently being considered by the California State legislature that would authorize legal cannabis businesses to provide free cannabis or cannabis products to a medicinal cannabis patient and would allow temporary licenses to be re-validated if an annual license application has been submitted. These measures if enacted into law could help legal cannabis businesses to thrive and level the playing field with cannabis businesses that continue to operate in the grey and black markets.

Senate Bill 34 (The Compassionate Care Bill, formerly SB 829)

The proposed legislation, which is sponsored by state Senator Scott Weiner, was introduced in the current session on December 3, 2018 would allow licensed cannabis businesses to provide free cannabis or cannabis products to a medicinal cannabis patient if specified requirements are met. This is more liberal that existing administrative law which prohibits a retailer licensee from providing free cannabis goods to any person or allowing individuals who are not employed by the retailer to provide free cannabis goods to any person on the licensed premises. The bill also provides relief from the imposition of state taxes on the donated cannabis and cannabis products. The full text of the Bill can be viewed here.

Senate Bill 67

The proposed legislation, which is sponsored by state Senator Mike McGuire, was introduced in the current session on January 8, 2019 would revalidate an expired temporary license if the licensee submitted an application for an annual state license before the licensee’s temporary license expiration date, and would require the extended temporary license to expire on December 31, 2019, unless otherwise revoked. This legislation has serious ramifications for the legal cannabis industry in California as many businesses are operating under temporary licenses and there are delays and other challenges poised at the local level that could result in temporary licenses expiring before final annual licenses are issued. If this legislation is not enacted into law, current temporary license holders will not be able to operate after their temp licenses expire, leaving the state with a major supply crisis and discouraging future investment into legal cannabis. The full text of the Bill can be viewed here.

Even though 33 states have legalized cannabis for medical or adult use, banks and financial institutions are hesitant to provide services to cannabis businesses because federal law still classifies cannabis as an illegal Schedule 1 drug under the Controlled Substances Act.

Higher Federal Taxes Still Remain

While the developments listed above are favorable for California cannabis business, 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.

Federal 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, Inland Empire (Ontario and Palm Springs) and other California locations protect you and maximize your net profits.

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 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.

How things have changed –

• Medical marijuana is now legal in 33 states plus the District Of Columbia, Guam, Puerto Rico and the Northern Mariana Islands and recreational marijuana is legal in 10 states plus the District Of Columbia and the Northern Mariana Islands. The ten states legalizing recreational marijuana being Alaska, California, Colorado, Maine, Massachusetts, Michigan, Nevada, Oregon, Vermont and Washington.
• According to a 2017 Yahoo News/Marist Poll survey, 83% of Americans support legalization of marijuana.
• Republican Congressman John Boehner has joined the advisory board of Acreage Holdings, a company that cultivates, processes and dispenses cannabis in 11 U.S. states.
• Democratic Senator Dianne Feinstein now says the federal government should not interfere in California’s legal marijuana market. Feinstein’s office said her views changed after meetings with constituents, particularly those with young children who have benefited from medical marijuana use.
• President Trump discusses with Republican Senator Cory Gardner how he would consider backing Congressional legislation that would protect states with legalized marijuana from the Department of Justice.

Representatives Tulsi Gabbard and Don Young Introduce Landmark Bipartisan Marijuana Reform on March 7, 2019

Representatives Tulsi Gabbard (D-HI) and Don Young (R-AK) on March 7, 2019 introduced two bipartisan marijuana bills:

• The Ending Federal Marijuana Prohibition Act of 2019 would remove marijuana from the federal Controlled Substances list and allow states the freedom to regulate marijuana as they choose, without federal interference.
• The Marijuana Data Collection Act of 2019 would study the effects of state legalized medicinal and non-medicinal marijuana programs from a variety of perspectives, including state revenues, public health, substance abuse and opioids, criminal justice, and employment.

In a press release issued by Congresswoman Tulsi Gabbard’s Office she stated “Our archaic marijuana policies– based on stigma and outdated myths–have been used to wage a failed War on Drugs. Families have been torn apart, communities left fractured, and over-criminalization and mass incarceration have become the norm. In 2017 alone, our country arrested 600,000 people just for possession of marijuana. Our bipartisan legislation takes a step toward ending the failed War on Drugs, ending the federal prohibition on marijuana, and ensuring that our policies are guided by facts and the truth”.

Congressman Don Young stated “I am a passionate supporter of a states’ rights approach to cannabis policy. For too long, the Federal government has stood in the way of states that have acted to set their own marijuana policy, and it is long past time Congress modernized these outdated laws. Since Alaska legalized marijuana, I have heard from many constituents – including small business owners – who have been impacted by archaic Federal marijuana policy that criminalizes them for selling marijuana-derived products otherwise legal under state law. Additionally, our nation’s prisons are overcrowded with non-violent offenders who too frequently have their lives ruined by harmful and outdated policies.  As co-founder of the Congressional Cannabis Caucus, I am proud to introduce two pieces of bipartisan legislation with Congresswoman Tulsi Gabbard to get the Federal government out of the way of state-level policymaking. I look forward to working with Congresswoman Gabbard and my friends on both sides of the aisle to see these initiatives become law”.

Higher Taxes Still Remain

While the developments listed above are favorable for cannabis business, 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, Inland Empire (Ontario and Palm Springs) and other California locations protect you and maximize your net profits.