When Cannabis Businesses Are No Longer Subject to IRS 280E

When Cannabis Businesses Are No Longer Subject to IRS 280E

May 31, 2024 | Federal Laws, USA news

IRS 280E and Cannabis Businesses

What is IRS Section 280E?

Section 280E of the Internal Revenue Code restricts businesses from deducting typical business expenses from their gross income related to the distribution of Schedule I or II substances per the Controlled Substances Act.

But you still have to pay taxes on it.

Komorn Law PLLC: Your Partner in Strategic Growth

At Komorn Law PLLC, we understand the importance of aligning business strategies with the latest regulatory and tax developments. Our expertise in cannabis law enables us to provide tailored advice that anticipates shifts in the regulatory landscape and leverages them for our clients’ benefit. We encourage cannabis businesses to consult with our team to navigate these changes effectively, ensuring they are positioned to capitalize on new opportunities in a more favorable legal environment.

Strategic Tax Planning for Cannabis Businesses in the New Regulatory Era

As legal professionals at Komorn Law PLLC deeply engaged with the evolving landscape of cannabis law, we are at the forefront of advising and representing businesses navigating these changes.

The recent recommendation by Attorney General Merrick Garland to reclassify cannabis from a Schedule I to a Schedule III controlled substance marks a pivotal shift, promising significant legal and financial implications for the industry.

Decoding the Reclassification Benefits

Cannabis, currently grouped with substances like heroin under Schedule I, has faced disproportionately stringent regulations. This reclassification to Schedule III, which includes less stringently controlled substances such as ketamine and testosterone, rectifies a longstanding regulatory misalignment. It acknowledges cannabis’s lower risk compared to many Schedule II drugs that have contributed to widespread public health issues.

For cannabis businesses, the most immediate benefit of this shift is the potential alleviation from the severe limitations imposed by Internal Revenue Code Section 280E. Currently, businesses involved with Schedule I substances are denied the ability to deduct typical business expenses, drastically increasing their tax burden. The reclassification promises to normalize tax treatments, significantly reducing effective tax rates and enhancing overall business profitability.

Attorney Michael Komorn

Attorney Michael Komorn

State / Federal Legal Defense

With extensive experience in criminal legal defense since 1993 from pre-arrest, District, Circuit, Appeals, Supreme and the Federal court systems.

KOMORN LAW (248) 357-2550

Navigating Beyond IRC 280E

While overcoming IRC 280E is a significant victory, it is just one piece of the tax puzzle for cannabis businesses. Many such businesses operate as C corporations, subjecting them to a flat 21% federal income tax rate on profits, with an additional tax on dividends paid to shareholders. This double taxation framework can lead to an effective tax rate nearing 44.8% at the federal level alone, not including potential state and local taxes.

Given the inherent tax challenges in the C corporation structure, especially regarding asset sales, Komorn Law PLLC advises a strategic reassessment of business structures. The sale of assets by a C corporation incurs federal, state, and local taxes on gains, followed by further taxation of the distributed dividends, compounding the financial burden.

Advising on Strategic Business Realignments

With the regulatory changes on the horizon, it’s critical for cannabis businesses to reevaluate their entity structure. Transitioning from a C corporation to an S corporation or a partnership offers several advantages, primarily the elimination of double taxation on distributions. This can be significantly more tax-efficient, particularly when considering the sale or transfer of business assets.

For businesses anticipating an increase in value following the reclassification, it is crucial to implement these structural changes before this appreciation occurs. Such proactive adjustments can optimize tax efficiencies and enhance the business’s long-term financial health.

Contact Komorn Law for More Insight

At Komorn Law we specialize in cannabis law, providing strategic advice that anticipates regulatory shifts and leverages them for our clients’ advantage.

Consult with our team to navigate changes effectively and position yourself to capitalize on new opportunities in a more favorable legal environment.

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THC Associated with Increase of Survival Time in Palliative Cancer

THC Associated with Increase of Survival Time in Palliative Cancer

May 20, 2024 | Blog, Medical Marijuana, Science, USA news

Summary from the official government website (Link Below)

The Use of Tetrahydrocannabinol Is Associated with an Increase in Survival Time in Palliative Cancer Patients: A Retrospective Multicenter Cohort Study

The study, conducted by researchers in Germany, analyzed data from the palliative treatment documentation of over 9,000 patients from five ambulatory palliative care teams. The researchers divided the patients into three groups: those who did not receive THC, those who received a low dose of THC (less than or equal to 4.7mg per day), and those who received a higher dose of THC (greater than or equal to 4.7mg per day). They then compared survival rates between the groups.

The analysis revealed that THC use was associated with a statistically significant increase in survival time, but only for patients who received a daily dose exceeding the median amount of 4.7mg. In this group, patients lived an average of 15 days longer compared to those who did not receive THC.

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Key takeaway: This study suggests that THC may offer a survival benefit for ambulatory palliative care patients, but only at higher doses. More research is needed to confirm these findings and to explore the underlying mechanisms.

Additional considerations:

  • The study was observational and cannot definitively prove that THC caused the observed increase in survival time. Other factors may have played a role.
  • The optimal dosage of THC for palliative care patients is still being investigated.
  • THC use can have side effects, and it is important to weigh the potential risks and benefits when considering it as a treatment option.

Further readings:

Source: NIH

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Justice Department Submits Proposal to Reschedule Marijuana

Justice Department Submits Proposal to Reschedule Marijuana

May 16, 2024 | USA news

Proposed Rule Seeks to Move Marijuana from Schedule I to Schedule III, Emphasizing its Currently Accepted Medical Use in Treatment in the United States

The Justice Department announced today that the Attorney General has initiated a formal rulemaking process to consider reclassifying marijuana from a schedule I to schedule III drug under the Controlled Substances Act (CSA).

After all… it’s an election year.

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Marijuana has been classified as a schedule I drug since Congress enacted the CSA in 1970. On Oct. 6, 2022, President Biden requested a scientific review of marijuana’s federal scheduling from the Attorney General and the Secretary of Health and Human Services (HHS).

After receiving HHS’s recommendations last August, the Attorney General sought the legal advice of the Justice Department’s Office of Legal Counsel (OLC) on questions relevant to this rulemaking. Taking into consideration HHS’ medical and scientific determinations, as well as OLC’s legal advice, the Attorney General exercised his authority under the law to initiate the rulemaking process to transfer marijuana to schedule III.

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The rescheduling of a controlled substance follows a formal rulemaking procedure that requires notice to the public, and an opportunity for comment and an administrative hearing.

Throughout this process, the Drug Enforcement Administration will gather and carefully consider input from the public to determine the appropriate schedule for marijuana. Until a final rule is published, marijuana will continue to be classified as a schedule I controlled substance.

The notice of proposed rulemaking submitted by the Department can be viewed here, and the OLC memorandum regarding questions related to the potential rescheduling of marijuana can be found here.

Learn more about the rulemaking process here

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The Legal Significance of Marijuana Reclassification

The Legal Significance of Marijuana Reclassification

May 9, 2024 | Blog, USA news

The Impact of Marijuana Reclassification on Legal Landscape

On May 6, 2024, the DEA made a groundbreaking decision, accepting the US Department of Health and Human Services’ recommendation to reclassify marijuana from Schedule I to Schedule III controlled substance. This move marks a significant shift in federal drug policy, potentially altering the legal framework surrounding cannabis cultivation, distribution, and use.

Reclassification from Schedule I to Schedule III places marijuana alongside substances like acetaminophen with codeine, ketamine, and testosterone, removing it from the category that includes heroin, LSD, and ecstasy. While federal legalization isn’t on the table, this reclassification acknowledges marijuana’s accepted medical use and low potential for abuse.

However, this change doesn’t impact state marijuana laws in the 24 states, two territories, and Washington D.C. that have legalized adult recreational use or the 38 states permitting medical cannabis. But it does offer substantial tax breaks for businesses involved in marijuana production and sales. Under the current Internal Revenue Code, businesses selling Schedule I substances can’t deduct business expenses, but reclassification would allow for significant tax savings, potentially reaching hundreds of thousands or even millions of dollars.

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Moreover, reclassification opens doors for cannabis companies to access major stock exchanges, attracting investment capital for further growth. Yet, it doesn’t address banking industry challenges. Federal illegality prohibits cannabis businesses from utilizing deposit accounts and other financial services, leaving many operating solely in cash due to banks’ reluctance to engage with them.

Despite reclassification, cannabis remains illegal under federal law, leading to financial service limitations and unresolved conflicts between state and federal laws. For instance, Michigan legalized recreational marijuana, but employers still hold the right to refuse employment or discharge individuals for violating workplace drug policies, unaffected by federal reclassification.

“I guess reclassification to a three is a good start.  It’s better than a one” said Attorney Michael Komorn

The shift to Schedule III also raises regulatory concerns, potentially subjecting medical marijuana to increased FDA oversight, affecting licensing and distribution protocols. However, it doesn’t resolve issues like lack of bankruptcy protection or federal trademark registrations for state cannabis companies.

Cannabis businesses remain ineligible for federal bankruptcy protection due to their violation of the Controlled Substances Act, a hurdle unaffected by rescheduling. Likewise, federal trademark registrations are unavailable due to cannabis’ federal illegality, leaving companies vulnerable to trademark infringement and legal disputes.

While reclassification signifies growing recognition of cannabis companies, its effects are pending. The proposal must undergo review by the Office of Management and Budget, followed by publication in the Federal Register and a 60-day public comment period, possibly leading to further review by an Administrative Law Judge.

The reclassification of marijuana from Schedule I to Schedule III represents a significant step towards legitimizing cannabis businesses and altering the legal landscape. However, its full impact remains uncertain, pending further regulatory and legal developments.

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Traffic Laws FAQs – Cellphones

Traffic Laws FAQs – Cellphones

May 8, 2024 | Blog, Driving, Michigan Laws

Michigan Traffic FAQs – Cellphones

  • Know the laws before you make the call.
  • Know the laws if you get pulled over.
  • Know who to call if you need legal defense if a violation turns into a DUI or worse.

Cell Phones

Note: These are from the Traffic FAQs – For this subject follow the link down below for more important distracted driving information that’s bound to be used to get in your vehicle and get some charges thrown at you.

Question: I was told that you could dial *677 from your cell phone and it would connect you directly to the state police. Is this true?

Answer: This internet myth is based partially in reality, but does not apply to Michigan. In Michigan, as well as most states, the number to contact for an emergency is 911. Some states have a non-emergency number as well, with *677 being the variant that works in Ontario (677=OPP on the telephone keypad).

Question: Is it against the law to talk on a cell phone while driving in Michigan?

Answer: MCL 257.602b prohibits texting while driving at any age, while MCL 257.602c (Kelsey’s Law), is a different law aimed at discouraging verbal cell phone communication in graduated level drivers less than 18 years old.  Additionally, a driver who becomes distracted by using a cell phone and commits a traffic violation could be charged with careless driving, or with the specific violation, such as improper lane use, if they are drifting in and out of their lane.

Some municipalities have recently enacted local ordinances that prohibit using a cellular phone while driving within their respective jurisdiction.  Any municipality that establishes such an ordinance should post notification at their jurisdictional boundaries to alert motorists.

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RED ALERT

Distracted driving law now in effect:

Governor Gretchen Whitmer signed into law a bill making it illegal to manually use a cell phone or other mobile electronic device while operating a vehicle on Michigan roads. Under the law, a driver cannot hold or support a phone or other device with any part of their hands, arms, or shoulders.

Even if a cell phone or other device is mounted on your dashboard or connected to your vehicle’s built-in system, you cannot use your hands to operate it beyond a single touch.

As a result, you cannot manually do any of the following on a cell phone or other electronic device while driving:

  • Make or answer a telephone or video call.
  • Send or read a text or email message.
  • Watch, record, or send a video.
  • Access, read, or post to social media.
  • Browse or use the Internet.
  • Enter information into GPS or a navigation system.

Hands-free Law Guide

Michigan State Police Legal Update

Disclaimer: This Frequently Asked Questions page is provided solely as a means of providing basic answers to questions about the Michigan Vehicle Code and is not designed or intended to provide a basis to contest a citation for a violation of the code. The positions stated are only those of the Michigan Department of State Police and are not binding on any other law enforcement agency or any Court. If our position is supported by case law then it will be enumerated within the answer provided. Source of Information – Traffic Laws FAQ