Small Deals Securities Regulation

Small Deals Securities Regulation

Small Deals Securities Regulation – It seems that just about everywhere I look, someone is offering some type of cannabis-related investment, particularly small investments. The issue that scares the crap out of me…and it doesn’t matter if the investment opportunity is good or bad is the LACK of awareness, let alone compliance with the laws that govern securities regulation.

Let’s limit the discussion to non-public offerings, and I am going to use California law as an example since it is what I know…just about every state has something similar.

Securities issued in California must either be exempted or qualified. You can rely on the limited offering exemption provided by Corporations Code section 25102(f) if you meet all of the requirements in that section. To claim this exemption, a Limited Offering Exemption Notice “LEON” must be filed.

The Limited Offering Exemption Notice can be filed here. The Self-Service DOCQNET Portal found on DBO’s website allows filers to file the exemption notice and pay the required fee online.

There are four requirements to claim the Limited Offering Exemption Notice pursuant to Corporations Code section 25102(f). –

  • Sales of securities are limited to no more than 35 unaccredited investors, including those located outside California,
  • Each investor is required to have a pre-existing business or personal relationship with the issuer of the securities, or, in the alternative, can be demonstrated to be a sophisticated investor,
  • advertising of the securities is prohibited, and
  • at the time of purchase, the investor must not intend to resell the securities.

The Limited Offering Exemption Notice must be filed within 15 calendar days after the first sale of a security in California or within 15 business days after discovery of the failure to file the notice or after demand by the commissioner, whichever occurs first. The notice may be filed in advance of the first sale of a security.

What happens if you advertise the investment opportunity…such as in a local newspaper, or perhaps in an online forum?

The advertisement could jeopardize the availability of the Limited Offering Exemption Notice exemption pursuant to Corporations Code Section 25102(f). The possible absence of the required pre-existing relationship or sophistication on the part of those who respond to the advertisement could also be a problem. If you rely on the 25102(f) exemption and one or more of the requirements are not satisfied, the exemption would be lost and each investor would be statutorily authorized to rescind his or her investment.
You can find more information here

An attorney’s advice is usually a good idea for this stuff…retain one…we have relationships with some very high-quality attorneys if you need a referral

Small Deals Securities Regulation

IRC Sec. 280E Transportation Cost

IRC Sec. 280E Transportation Cost

IRC Sec. 280E and Transportation Cost this post were prompted in part by some of the questions we have received regarding IRC Sec. 280E.[1] Some in the cannabis industry appear to not realize that IRC Sec. 280E applies to the industry before the retail [Dispensary] level.

We begin a series of posts relating to IRC Sec. 280E with a discussion of the application of this issue to the transportation [e.g. how an item gets from “here” to “there”] of cannabis. The framework for our discussion is the commercial cannabis industry in California. IRC Sec. 280E Transportation Cost

The three principal governmental agencies involved in the promulgation of cannabis regulations relating to transportation are the Bureau of Cannabis Control (“BCC”); the California Department of Public Health (“ CDPH”); and the California Department of Food & Agriculture (“CDFA”).  Other California governmental agencies with a significant interest in the application of these regulations include: the California Department of Tax and Fee Administration (“CDTFA”); the California Highway Patrol (“CHP”); the Division of Occupational Safety and Health (“CAOSHA”); and State of California Economic Development Department (“EDD”).  The principal bodies of existing California law relating to transportation are found in the California Vehicle Code and the California Uniform Commercial Code.

The regulations relating to cannabis transportation conflict with existing laws and regulations as well as established commercial practices relating to transportation. In those instances in which federal or California law already addresses a particular topic, or for which there are time-honored commercial practices involving the commercial movement of commodities, California’s cannabis regulations must be interpreted and applied in a manner that does not severely conflict with already established rules of law. If the conflicts are too severe, the cannabis regulations are likely to be determined to be preempted and not enforceable.

California’s regulations relating to the transportation of commercial cannabis are founded on the utilization of a Manifest to facilitate the tracking of all commercial cannabis from source to consumer.  A Manifest as the word is used in California’s cannabis regulations is a specialized form of record of selected shipping information.  The Manifest specified by California’s cannabis regulations is a subset of the information addressed generally in commercial shipments in a Bill of Lading.  The Manifest specified in California’s cannabis regulations requires some information that would not be required by most commercial Bills of Lading.  California’s cannabis regulations also specify more extensive record retention requirements that would be followed in general commercial practices.  However, the Manifest specified by California’s cannabis regulations also appears to not have considered a wide range of matters that may be addressed in Bills of Lading.

Bills of Lading are generally divided into two principal categories – negotiable and non-negotiable Bills of Lading.  Notwithstanding this simple division into two categories, there are an almost infinite variety of special provisions dictated by the special requirements associated with specific materials or forms of transportation. The fundamental difference between a negotiable and a non-negotiable Bills of Lading turns on whether title to the material being transported passes on the delivery of the material to the transporter. One question which must be asked is whether the establishment of a transportation-only classification of a transporter in California’s regulations considered whether such a business could utilize both negotiable and a non-negotiable Bills of Lading

We begin our analysis by defining a number of terms which are a prerequisite to understanding the discussion which follows:

  • FOB Shipping Point”- is a contraction of the term “Free On-Board Shipping Point.” The term means that the buyer takes delivery of goods being shipped to it by a supplier once the goods leave the supplier’s shipping dock. Since the buyer takes ownership at the point of departure from the supplier’s shipping dock, the supplier should record a sale at that point. The Buyer assumes the risk of loss for goods from that point as well. The Buyer is responsible for the cost of shipping the goods.

 

  • FOB Destination” is a contraction of the term “Free On-Board Destination.” The term means that the buyer takes delivery of goods being shipped to it by a supplier once the goods arrive at the buyer’s receiving dock. The supplier records the sale when the goods are received by the buyer and bears the risk of loss while the goods are in transit. The supplier is usually responsible for the shipping cost.

 

  • Transport” means the physical movement of cannabis goods from one licensed premises to another licensed premises. Reg. Sec. 5000 (r)

 

  • Transportation Procedures[2]” – A description of the applicant’s procedure for transportation of cannabis goods, including whether or not the applicant will be transporting cannabis goods or contracting for transportation services. Reg. Sec. 5002 (c)(29)(A)(i)

 

  • Track and Trace System” – A licensee shall create and maintain an active and functional account within the track and trace system prior to engaging in any commercial cannabis activity, including the purchase, sale, test, packaging, transfer, transport, return, destruction, or disposal, of any cannabis goods. Reg. Sec. 5048(a)

 

  • Shipping Manifest – The document which is required to accompany any commercial cannabis shipment, with specifically enumerated information[3]

 

  • Distributor” Distributor licensees are responsible for transporting cannabis goods, arranging for testing of cannabis goods, and conducting quality assurance review of cannabis goods to ensure they comply with all the packaging and labeling requirements. Distributor transport licenses allow for the transport of cannabis goods between licensed cultivators, manufacturers, and distributors. A distributor transport licensee may not transport cannabis goods to a licensed retailer and may not engage in any other distributor activates There is a specific definition provided for a “Distributor Transport Only License[4]
  • Retailer” A Retailer (storefront) sells cannabis goods to customers at its premises or by delivery. A retailer must have a licensed physical location (premises) where commercial cannabis activates are conducted. A retailer (non-storefront) licensee must have licensed premises, but it is not open to the public.
  • Manufacturer” means any involved in any aspects of the extraction process, and/or infusion process, and packaging and labeling processes, including processing, preparing, holding, and storing, packaging, or labeling of cannabis products. Manufacturing also includes any processing, preparing, holding, or storing of components and ingredients.
  • Cultivator” means anyone involved in any activity involving the planting, growing, harvesting, drying, curing, grading, or trimming of cannabis Reg. Sec. 8000(g)
IRC Sec. 280E Transportation Cost

Commercial cannabis originates with a Cultivator that is in simple terms, a farmer[5]. The expenditures made by a Cultivator in producing a cannabis crop are, in general, classified as “Cost of Goods Sold”. So long as the Cultivator refrains from engaging in other activities which bring them closer to the “line” with activities that cross over into Distribution, a Cultivator should have minimal exposure to falling within the ambit of IRC Sec. 280E. [We will revisit the topic of Cultivator’s engaging in other activities in a separate post.]

Consider two minor variations in the same simple transaction – a Cultivator sells cannabis to a Distributor or Manufacturer. The focus of this scenario is on the classification of transportation costs. In the first alternative, the Cultivator sells the cannabis to a Distributor, for a set price with shipping terms, FOB Shipping Point. The Cultivator gets paid for the cannabis and the transportation costs are paid directly by the Distributor. In the second alternative, the Cultivator ships OB Destination and pays the transportation costs. The final delivered cost of the cannabis is identical under both scenarios. Some may assert Cultivator’s payment of the transportation costs in the second alternative will cause the transportation costs to be exposed to disallowance under to IRC Sec. 280E because transportation constitutes a “trafficking” expense in many instances.

While there is no clear definition of trafficking, we do not believe IRC Sec. 280E should apply the transaction for two reasons:

  • The results in both alternatives are identical. We believe the party that pays in an otherwise identical transaction that does not otherwise change the substance of the transaction should alone cause a different result for income tax purposes.

IRC Sec. 280E Transportation Cost

  • More importantly, the Cultivator has not in our opinion engaged in sufficient activities constituting trafficking to appear to has crossed into the Distributor type activities which constitute trafficking, such as testing, packaging for retail sale, and labeling.

 

Where cannabis is transported to a Manufacturer, a similar analysis should apply. We further believe that a similar result applies to transportation costs are incurred in bringing other supplies which are used in the extraction process such as alcohol, propane, etc.

 

Where a Distributor operates as a Transport Only business, the distributor appears to be solely performing a service provider role. The operating costs of such a business should NOT fall within IRC Sec. 280E as such a business is merely functioning as a shipping company. We will consider the activities of a Distributor that does more than transport and deliver in a subsequent post.

IRC Sec. 280E Transportation Cost

[1]

““No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is conducted.””

[2]  Reg. Sec. 5311 – Requirements for the Transportation of Cannabis Goods The following requirements apply when transporting cannabis goods between licensees or licensed premises:

IRC Sec. 280E Transportation Cost

  • Transportation shall only be conducted by persons holding a distributor license under the Act, or employees of those persons

(b)All vehicles transporting cannabis goods for hire shall be required to have a motor carrier permit pursuant to Chapter 2 (commencing with Section 34620) of Division 14.85 of the Vehicle Code.

(c) Transportation by means of aircraft, watercraft, drone, rail, human powered vehicle, and unmanned vehicle is prohibited.

(d) Cannabis goods shall only be transported inside of a vehicle or trailer and shall not be visible or identifiable from outside of the vehicle or trailer.

(e) Cannabis goods shall be locked in a box, container, or cage that is secured to the inside of the vehicle or trailer. For purposes of this section, the inside of the vehicle includes the trunk.

(f) While left unattended, vehicles and trailers shall be locked and secured.

(g) A distributor shall not leave a vehicle or trailer containing cannabis goods unattended in a residential area or parked overnight in a residential area.

(h) At a minimum, a distributor shall have a vehicle alarm system on all transport vehicles and trailers. Motion detectors, pressure switches, duress, panic, and hold-up alarms may also be used.

(i) Packages or containers holding cannabis goods shall not be tampered with, or opened, during transport.

(j) A distributor transporting cannabis goods shall only travel between licensees shipping or receiving cannabis goods and its own licensed premises when engaged in the transportation of cannabis goods. The distributor may transport multiple shipments of cannabis goods at once in accordance with applicable laws. A distributor shall not deviate from the travel requirements described in this section, except for necessary rest, fuel, or vehicle repair stops.

(k) Under no circumstances may non-cannabis goods, except for cannabis accessories as defined in Business and Professions Code section 26001(g), be transported with cannabis goods.

(l) Vehicles and trailers transporting cannabis goods are subject to inspection by the Bureau at any licensed premises or during transport at any time.

(m) Notwithstanding subsections (d) and (e) of this section, if it is not operationally feasible to transport cannabis goods inside of a vehicle or trailer because the licensed premises that the cannabis goods will be transported from and the licensed premises that will be receiving the cannabis goods are located within the same building or on the same parcel of land, the cannabis goods may be transported by foot, hand truck, fork lift, or other similar means. A shipping manifest that complies with this division is required when transporting cannabis goods pursuant to this subsection.

IRC Sec. 280E Transportation Cost

[3] § 5314. Shipping Manifest

  • Prior to transporting cannabis goods, a distributor shall generate a shipping manifest through the track and trace system for the following activities:

(1) Testing and sampling;

(2) Sale of cannabis goods to a licensee;

(3) Destruction or disposal of cannabis goods; and

(4) Any other activity, as required pursuant to this division, or by any other licensing authority.

  • The distributor shall transmit the shipping manifest to the Bureau and the licensee that will receive the cannabis goods prior to transporting the cannabis goods.

(c) The distributor shall ensure and verify that the cannabis goods being taken into possession for transport at the originating licensed premises are as described and accurately reflected in the shipping manifest. For purposes of this section, the distributor may verify that the cannabis goods are accurately reflected in the shipping manifest by confirming that the number of boxes of cannabis goods, type of cannabis goods, weight or units of cannabis goods matches the label on the boxes containing the cannabis goods.

(1) The distributor shall not take into possession or transport:

(A) Any cannabis goods that are not on the shipping manifest; or

(B) Any cannabis goods that are less than or greater than the amount reflected on the shipping manifest.

(2) The distributor is responsible for any discrepancies between the shipping manifest and the cannabis goods in its possession during transport, and subject to any enforcement or disciplinary action related to such discrepancy.

(3) A distributor shall not void or change a shipping manifest after departing from the originating licensed premises.

(d)A shipping manifest shall accompany every transport of cannabis goods.

(e) Notwithstanding subsection (a) of this section, if a transporting distributor has not obtained access to the track and trace system, the distributor shall complete the shipping manifest outside of the track and trace system and transmit it to the Bureau and the licensee receiving the shipment by electronic mail.

IRC Sec. 280E Transportation Cost

(f) If the transporting distributor has access to the track and trace system and the licensee receiving the shipment has not obtained access to the track and trace system, the distributor shall complete the shipping manifest in the track and trace system and transmit it to the Bureau. However, the distributor shall send a copy to the licensee receiving the shipment by electronic mail.

[4] 5315. Distributor Transport Only License

(a) A distributor transport only licensee may transport cannabis goods between licensees; however, they shall not transport any cannabis goods except for immature plants and seeds to a retailer or to the retailer portion of a microbusiness.

(b)A complete application for a distributor transport only license shall include all the information required in an application for a Type 11-Distributor license.

  • The licensing fee for a distributor transport only license will be based in part upon whether the licensee intends to transport only cannabis goods that the licensee has cultivated or manufactured (self-distribution), or whether the licensee intends to transport cannabis goods cultivated or manufactured by other licensees.
  • A distributor transport only licensee shall comply with all of the requirements for a holder of a Type 11-Distributor license, except for those related to quality assurance and testing.

(e) A distributor transport only licensee shall not hold title to any cannabis goods unless the licensee also holds a state-issued cultivation, manufacturing, retailer, or microbusiness license.

(f) Holding a distributor transport only license shall not authorize a licensee to:

(1) Engage in the delivery of cannabis goods as defined in Business and Professions Code section 26001(p);

(2) Engage in the wholesale, destruction, packaging, labeling, or storing of cannabis goods; or

(3) Arrange for the testing of cannabis goods by a testing laboratory.

(g) Notwithstanding subsection (e) of this section, a distributor transport only licensee who is licensed to engage in self-distribution and whose premises will be on the same property as their licensed cultivation or manufacturing premises shall not be required to comply with the security provisions contained in Article 5 of this division.

[5] The issue of where cannabis cultivation in California is an agricultural activity which qualifies as a trade or business under the Internal Revenue Code is a complex analysis in itself. See California Cannabis Cultivation – Qualification as Farming

IRC Sec. 280E Transportation Cost

Cannabis Regulatory Agency Representation

Cannabis Regulatory Agency Representation

Cannabis Regulatory Agency Representation is a topic that we had previously written to BCC, CDFA – CalCannabis,

Cannabis Regulatory Agency Representation
Cannabis Regulatory Agency Representation

and CDPH about. We had requested information about their procedures for the representation of licensees and license applicants. You can read our original post here.

We received a negative from CDPH and that was confirmed by the other two regulatory agencies. So, we finally had time today and wrote a letter to the California Attorney General and the named General Counsel at all three agencies.  The following is an excerpt from our letter.

Cannabis Regulatory Agency Representation

Dear Counsel,

We are writing to follow up on discussions that we have had as follow up to inquiries which we have made to each of your respective agencies in connection with the policies and procedures which were going to be put in place with respect to the representation of cannabis license applicants and licensees with your respective agencies. We are licensed as certified public accountants though our expectation is that similar rules would apply to attorneys. The statute and regulations which apply to the commercial cannabis industry in California are quite evolving rapidly and, of necessity, quite complex.

The completion of license applications, as well as the completion of numerous regulatory compliance tasks each of your respective agencies, may require specialized technical skills which are beyond the reasonable capabilities of a licensee or applicant. As such, administrative agencies make provision for representation of applicants and licensees by third parties, in many cases, the individuals who are permitted to represent an individual before an agency are required to have professional licensure. We are going to use agencies with which we are familiar as tax professionals, specifically, the California Franchise Tax Board [“FTB”] and the California Dept. of Tax and Fee Administration [“CDTFA”] provide for the authorization of representation with FTB Form 3520 or CDTFA Form 392, copies attached.

The response to our inquiry with respect to the completion of a license application from CDPH MCSB stated: “Because of this definition in state law, I do not anticipate any immediate changes to our system to allow a representative (non-owner) to complete the application”. We received similar responses from BCC and CalCannabis.

We are aware that CDPH does has a “Special Power of Attorney” for HIV related matters [Form CDPH 8456] and Marriage Licenses [Form VS124] but, we have not been able to identify a comparable form for Cannabis Licenses and other matters involving MSCB. We had submitted a similar question to the BCC’s initial Cannabis Advisory Committee Subcommittee Survey on January 30, 2018, and to our knowledge, no action was ever taken on the matter. Our experience with CalCannabis similarly failed to yield a mechanism for representation.

A party to an action may appear in his own proper person or by attorney[1]. The right to petition the government for the redress of grievances is provided for in the California Constitution[2]. California

[1] Board of Commissioners vs. Younger (1865), 29 Cal, 147, 149

[2] Article 1, Section 3 states

  • The people have the right to instruct their representatives, petition government for redress of grievances, and assemble freely to consult for the common good.

(1) The people have the right of access to information concerning the conduct of the people’s business, and, therefore, the meetings of public bodies and the writings of public officials and agencies shall be open to public scrutiny.

(2) A statute, court rule, or other authority, including those in effect on the effective date of this subdivision, shall be broadly construed if it furthers the people’s right of access, and narrowly construed if it limits the right of access. A statute, court rule, or other authority adopted after the effective date of this subdivision that limits the right of access shall be adopted with findings demonstrating the interest protected by the limitation and the need for protecting that interest.

(3) Nothing in this subdivision supersedes or modifies the right of privacy guaranteed by Section 1 or affects the construction of any statute, court rule, or other authority to the extent that it protects that right to privacy, including any statutory procedures governing discovery or disclosure of information concerning the official performance or professional qualifications of a peace officer.

(4) Nothing in this subdivision supersedes or modifies any provision of this Constitution, including the guarantees that a person may not be deprived of life, liberty, or property without due process of law, or denied equal protection of the laws, as provided in Section 7.

(5) This subdivision does not repeal or nullify, expressly or by Implication, any constitutional or statutory exception to the right of access to public records or meetings of public bodies that is in effect on the effective date of this subdivision, including, but not limited to, any statute protecting the confidentiality of law enforcement and prosecution records.

(6) Nothing in this subdivision repeals, nullifies, supersedes, or modifies protections for the confidentiality of proceedings and records of the Legislature, the Members of the Legislature, and its employees, committees, and caucuses provided by Section 7 of Article IV, state law, or legislative rules adopted in furtherance of those provisions; nor does it affect the scope of permitted discovery in judicial or administrative proceedings regarding deliberations of the Legislature, the Members of the Legislature, and its employees, committees, and caucuses.

(7) In order to ensure public access to the meetings of public bodies and the writings of public officials and agencies, as specified in paragraph (1), each local agency is hereby required to comply with the California Public Records Act (Chapter 3.5 (commencing with Section 6250) of Division 7 of Title 1 of the Government Code) and the Ralph M. Brown Act (Chapter 9 (commencing with Section 54950) of Part 1 of Division 2 of Title 5 of the Government Code), and with any subsequent statutory enactment amending either act, enacting a successor act, or amending any successor act that contains findings demonstrating that the statutory enactment furthers the purposes of this section.

(Sec. 3 amended June 3, 2014, by Prop. 42. Res.Ch. 123, 2013.)

Cannabis Regulatory Agency Representation

Alterman TC Memo 2018-83 Alternative View

Alterman TC Memo 2018-83 Alternative View

Alterman TC Memo 2018-83 Alternative View presents an angle on the decision that is substantially different from what appears to be the majority view of the case…there may be a surprise here.

On June 13, 2018, the United States Tax Court published its Opinion in Alterman & Gibson v. Commissioner, T.C. Memo 2018-83.  Alterman involved income tax Alterman TC Memo 2018-83 Alternative Viewdeficiencies and penalties asserted by the IRS for 2010 and 2011 against individual taxpayers who owned and operated a small Colorado cannabis dispensary.  The individual taxpayers had filed joint returns for 2010 and 2011 in which they reported the income from their cannabis dispensary.

The amount of the income tax deficiencies and penalties asserted by the IRS against the taxpayers (2010: Tax $157,821, Penalty, $31,564; 2011: Tax $233,421, Penalty, 46,684) undoubtedly represented substantial liabilities to the individuals.  These deficiencies, however, are modest for a case involving a cannabis dispensary.  These deficiencies are also modest for a case that proceeds to trial before the Tax Court with such a limited likelihood of success.

The decision in Alterman was published as a memorandum decision.  A Tax Court Opinion is published as a memorandum opinion when the Tax Court considers the case solely involves the application of well-established principles of federal tax law to situations that are not unusual.  Anyone interested in the taxation of the cannabis industry should read the Alterman opinion for that very reason.  The Alterman opinion describes how a dispensary should not be operated. The taxpayers did a poor job or maintaining financial and inventory records. Their accountant did not provide the detailed workpapers that are a requirement to support the amounts reported in the tax return. There was no evidence that the taxpayers maintained proper inventory records to support amount recorded as Cost of Goods Sold.  The taxpayers in Alterman lost on every issue except for those issues the IRS conceded before the commencement of the trial.

The decision against the taxpayers in Alterman is primarily the result of failure to comply with the basic recordkeeping requirements of the Regulations and IRS guidelines. The case primarily involves recordkeeping, compliance with reporting requirements, and the maintenance of a comprehensive system of internal accounting controls. Taxpayers are expected to maintain proper records, and tax return preparers, particularly Circular 230 practitioners, are held to a higher standard than taxpayers are.

Tax professionals should be particularly careful to correct deficiencies identified as part of the annual tax return preparation process. A failure to take corrective action lays the foundation for the Internal Revenue Service to assert the existence of a pattern of repeated and potentially reckless and intentional disregard of the regulations and requirements.  Such a pattern can result in the assertion of the “second tier” enhanced penalty under IRC Sec. 6694(b)(2).  Such a penalty assertion could result in an additional sanction through a practitioner disciplinary referral to the Office of Professional Responsibility [“OPR”].

The issues where the taxpayers did not prevail go beyond IRC 280E. The taxpayers in Alterman lost principally because they failed to create and maintain the types of books of account, records and another documentary evidence required that is required of taxpayers. The deficiencies in Alterman could have been significantly reduced if the taxpayers had prepared, maintained and presented to the Court adequate financial records and supporting documentation.

Alterman TC Memo 2018-83 Alternative View

The statute, regulations and IRS policy provide a basis for the abatement of all of the asserted delinquency penalties under IRC§ 6651(a) and the accuracy-related substantial understatement penalty contained in IRC Sec. 6662. The delinquency penalties for failure to file returns and failure to pay tax as well as the accuracy-related penalty do not apply if the taxpayer’s failure to comply is due to reasonable cause and not to willful neglect[1]. Reasonable cause means that the taxpayer exercised ordinary care and prudence[2]. It is clear from the Opinion that the Court did not believe the taxpayers’ actions met the burden that is imposed on taxpayers to demonstrate the existence of reasonable cause at the time of the failure to file, of the failure to pay, or of the disregard of the rules which caused the accuracy-related penalty to apply.

The Internal Revenue Manual defines reasonable cause as conduct which, when judged separately based on the facts and circumstances at hand, justifies the non-assertion or abatement of applicable penalties against taxpayers who have exercised ordinary business care and prudence in addressing their tax filing, payment, and record keeping responsibilities[3].

Further, courts have held that “reasonable cause exists where:

  • A taxpayer relies on the advice of counsel that a tax return is not required to be filed[4].
  • A taxpayer’s good faith belief that no return is due may constitute reasonable cause for late filing[5].
  • A taxpayer’s reliance upon on the advice of a competent tax advisor[6]. The taxpayer must have received incorrect advice after contacting a tax advisor who is competent on the specific tax matter and who is furnished all necessary and relevant information.
  • In addition, the taxpayer must have exercised ordinary business care and prudence in determining whether to obtain additional advice based on the taxpayer’s own information and knowledge.

The “reasonable care” requirement in connection with the execution of recordkeeping and maintenance of records relating to the operation of a business can provide a foundation for a waiver by the IRS of the assertion of the twenty percent substantial understatement penalty.

The bulk of the issues in the Alterman case involved IRC §280E either directly or indirectly.  We have previously written extensively on this topic.[7] Alterman should be read by anyone contemplating engaging in commercial business within the cannabis industry. Alterman is a “poster child” example of what not to do. Alterman provides a punch list of actions to avoid. Diligence is required of a cannabis industry business in vetting professionals [e.g. attorneys, certified public accountants] as well as in securing appropriate advice relating to compliance, security, and inventory control. The selection of an advisor lacking in competence will exacerbate the problems for a cannabis business.

Alterman TC Memo 2018-83 Alternative View

Alterman is likely significant for the cannabis industry for another reason.  A dispensary case is pending before the Tax Court – Patients Mutual Assistance Collective Corporation d.b.a. Harborside Health Center v. Commissioner (Docket Nos. 29212-11, 30851-12 and 14776-14) – that involves much larger income tax deficiencies than the deficiencies in Alterman.

Harborside had been fully briefed and pending decision for over a year when the Opinion in Alterman was filed.  A decision in the consolidated Harborside cases appeared imminent.  However, the IRS filed a motion to reopen the record in the Harborside cases on June 14, 2018 – the day after the Opinion in Alterman was filed. The IRS undoubtedly moved to reopen the record to address an oversight relating to the IRS’ penalty assertions.  A motion to reopen the record is required in some Tax Court cases as a consequence of the decision of the Tax Court in Graev v Commissioner, 149 T.C. No. 23 (December 20, 2017). The reopening of the record in the Harborside cases will delay for at least a couple of months the issuance of a decision.

The Opinion in Alterman is significant for the cannabis industry for another reason.  Judge Richard T. Morrison’s analysis in Alterman is likely to portend the analysis the Tax Court will apply in the consolidated Harborside cases.  We are hopeful the accounting and inventory records in the Harborside cases will create a substantially stronger evidentiary record.  Strong internal accounting controls, proper recordkeeping, and diligence are critical create a foundation to minimize the impact of IRC §280E on a cannabis dispensary.

Taxpayers will continue to lose in proceedings in the Tax Court unless they have prepared and maintained complete and accurate financial records.  The creation and maintenance of complete and accurate financial records for a cannabis dispensary require the guidance of qualified professionals as well as adherence to the recordkeeping guidance they provide.

Alterman TC Memo 2018-83 Alternative View

[1] IRC §6651(a)(1)

[2] Rags. §301.6651-1(c);  U.S. v. Boyle, 469 U.S. 241 (1985)

[3] IRM 20.1.1.3.1 (8-20-98)

[4] See U.S. v. Boyle, 469 U.S. 241 (1985); Paxton Est. v. Comr., 86 T.C. 785 (1986).

[5] See, e.g., LFAM Corp. v. U.S., 99-1 USTC ¶50,223 (Fed. Cl. 1999); Diaz v. U.S., 90-1 USTC ¶50,209 (C.D. Cal. 1990) (Good faith belief that employees were independent contractors is reasonable cause for failure to file employment tax returns).

[6] U.S. v. Boyle, 469 U.S. 241 (1985). See also Henry v. Comr., 170 F.3d 1217 (9th Cir. 1999) (Reliance on accountant in treating option sale as capital gain instead of ordinary income held reasonable); IRM 20.1.1.3.2.4.3 (8-20-98).

[7] A Methodology for Cost and Expense Allocations for IRC Sec. 280E – in particular, Footnotes 9, 10, 11 and 12 contain an extensive elucidation of IRS requirements with respect to internal accounting controls over cash, IRS requirements for reporting certain cash transactions, the purpose, use, and type of accounting records which must be maintained, and record retention requirements.

Alterman TC Memo 2018-83 Alternative View

Alterman TC Memo 2018-83 Alternative View

CA Cannabis Regulators Extend Emergency Regs

CA Cannabis Regulators Extend Emergency Regs

CA Cannabis Regulators Extend Emergency Regs
CA Cannabis Regulators Extend Emergency Regs

CA Cannabis Regulators Extend Emergency Regs – The Bureau of Cannabis Control, California Department of Public Health and California Department of Food and Agriculture have proposed to readopt their emergency regulations that are currently in effect, extending the time those regulations are in effect for another 180-day period. The three licensing authorities are proposing some changes to the regulatory provisions to provide greater clarity to licensees and to address issues that have arisen since the emergency regulations went into effect.

Highlighted among the proposed changes is that applicants may now complete one license application and obtain one license to conduct medicinal and adult-use cannabis activity. Additionally, licensees may continue to engage in commercial cannabis activities with other licensees regardless of designation as this provision is no longer limited by time.

“These proposed changes to our emergency regulations are based on feedback from our stakeholders, and information gathered over the first four months of implementation,” said Bureau of Cannabis Control Chief Lori Ajax.

Other highlighted changes from each licensing authority’s proposed emergency regulations can be viewed by clicking the following links listed below:

Bureau of Cannabis Control:

https://bcc.ca.gov/law_regs/emergency_regs_proptext.pdf

https://bcc.ca.gov/law_regs/emergency_regs_factsheet.pdf

California Department of Food and Agriculture:

https://bcc.ca.gov/law_regs/emergency_regs_proptext_cdfa.pdf

https://cannabis.ca.gov/wp-content/uploads/sites/13/2018/05/CA-Department-of-Food-and-Agriculture-Readoption-of-Emergency-Regulations-Fact-Sheet.pdf

California Department of Public Health:

https://bcc.ca.gov/law_regs/emergency_regs_proptext_cdph.pdf

https://cannabis.ca.gov/wp-content/uploads/sites/13/2018/05/CA-Department-of-Public-Health-Readoption-of-Emergency-Regulations-Fact-Sheet.pdf

PUBLIC COMMENT: The proposed readoption of the emergency regulations will be subject to a public comment period. The public comment period will begin when the California Office of Administrative Law (OAL) posts the proposed emergency regulations on its website and will last 5 calendar days. The posting may not occur before May 25, 2018, to allow for the 5 working day notice to the public that the licensing authorities provided today.

The emergency regulations were developed to implement the Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA), which was signed into law in June 2017. The initial emergency regulations became effective on December 7, 2017, and remain in effect for 180 days. The readoption will allow the emergency regulations, as modified, to be in effect for an additional 180 days. During this time, the three licensing authorities will engage in the regular rulemaking process to develop final regulations.

For additional information about the proposed readoption of the emergency regulations, or to subscribe to email alerts to hear about updates as they become available, please visit the Bureau’s website at http://www.bcc.ca.gov/. For information on all three state licensing authorities, please visit the state’s California Cannabis Portal at https://cannabis.ca.gov/. Follow the Bureau on Facebook, Twitter, and Instagram for daily news and updates.

Readopt

Cal. Code Regs., Tit. 16, §§ 5005, 5007, 5009, 5010, 5011, 5012, 5013, 5016, 5017, 5019, 5020, 5021, 5022, 5028, 5030, 5033, 5034, 5035, 5036, 5037, 5038, 5039, 5041, 5043, 5046, 5049, 5050, 5051, 5052, 5053, 5054, 5055, 5300, 5301, 5302, 5304, 5305, 5308, 5309, 5310, 5312, 5400, 5401, 5402, 5403, 5404, 5405, 5406, 5407, 5408, 5409, 5410, 5411, 5412, 5413, 5414, 5415, 5416, 5419, 5420, 5421, 5422, 5423, 5424, 5425, 5426, 5503, 5504, 5505, 5506, 5603, 5701, 5702, 5703, 5704, 5705, 5706, 5709, 5710, 5711, 5712, 5713, 5714, 5715, 5716, 5717, 5720, 5721, 5722, 5723, 5724, 5725, 5728, 5729, 5731, 5732, 5733, 5734, 5735, 5736, 5737, 5738, 5739, 5801, 5802, 5803, 5804, 5805, 5806, 5807, 5809, 5810, 5811, 5812, 5813, and 5814

Readopt and Amend

Cal. Code Regs., Tit. 16, §§ 5000, 5001, 5002, 5003, 5004, 5006, 5008, 5014, 5015, 5018, 5023, 5024, 5025, 5026, 5027, 5029, 5031, 5032, 5040, 5042, 5044, 5045, 5047, 5048, 5303, 5306, 5307, 5311, 5313, 5314, 5315, 5417, 5418, 5500, 5501, 5502, 5600, 5601, 5602, 5700, 5707, 5708, 5718, 5719, 5726, 5727, 5730, 5800, and 5808

Notice Date: May 18, 2018

NOTICE IS HEREBY GIVEN that the Bureau of Cannabis Control (Bureau) proposes to amend and readopt emergency regulations necessary for the immediate preservation of the public peace, health, safety, or general welfare.

The Finding of Emergency, the proposed text, and the Bureau of Cannabis Control’s Disciplinary Guidelines November 2017 are available for review on the Bureau’s website at www.bcc.ca.gov, under the Important Announcements tab.

PUBLIC COMMENT

Government Code section 11346.1(a)(2), and California Code of Regulations, Title 1, section 48, requires that, at least five (5) working days prior to submission of the proposed emergency action to the Office of Administrative Law (OAL), the Bureau provided to every person who has filed a request for notice of regulatory action with the Bureau. After submission of the proposed emergency to OAL, any interested person will have five calendar days to submit related comments to OAL as set forth in Government Code section 11349.6. Also upon submission, OAL will have 10 calendar days within which to review and make a decision on the proposed adoption.

If you wish to comment on the proposed amendment and readoption of these emergency regulations, you must submit your comment directly to OAL within five calendar days of OAL’s posting of the proposed amendment and readoption to OAL at:

Office of Administrative Law
OAL Reference Attorney
300 Capitol Mall, Suite 1250
Sacramento, CA 95814
Email: [email protected]

When you submit a comment to OAL, you must also submit a copy of your comment simultaneously to the Bureau:

Bureau of Cannabis Control
2290 Kilgore Rd.
Rancho Cordova, CA 95670
Email: [email protected]

OAL will confirm that the Bureau has received the comment before considering it. Pursuant to California Code of Regulations, Title 1, section 55(b)(1) through (4), the comment must state that it is about an emergency regulation currently under OAL review, and include the topic of the emergency.

Amendment and readoption of emergency regulations do not require a response to comments. Any responses to comments from the Bureau will be submitted to OAL within eight (8) calendar days following the date of submission of the proposed emergency regulation to OAL unless specific exceptions are applicable.

Inquiries concerning the proposed administrative action may be directed to:

Ashlynn Blackshire
Phone: (916) 465-9030
Email:  [email protected]

The backup contact person for these inquiries is:

CJ Croyts-Schooley
Phone: (916) 465-9029
Email: [email protected]

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CA Cannabis Excise Tax – Extraction – Processing

CA Cannabis Excise Tax – Extraction – Processing

This post is the second in a series of posts we expect to publish related to CA Cannabis Excise Tax – Extraction – Processing.  Our previous post focused on a simple example involving the collection,

CA Cannabis Excise Tax - Extraction - Processing
California Dept. of Tax and Fee Administration

reporting, and remittance of California’s Cannabis Excise Tax (“CET”) related to flower, it was complicated. When we begin to move to extraction, processing, and distribution, the complexity expands, almost exponentially.  We continue to be amazed by the number of comments relating to the CET that merely regurgitate information published by the California Department of Tax and Fee Administration [“CTDFA”]. The example in this post illustrates some of the inadequacies of the CDTFA’s analysis and propose some solutions.  The inadequacies of CDTFA’s analysis are principally the product of:

  • The failure of CDTFA to address the realities of the cannabis supply chain.
  • The failure of CDTFA to address the complexities of the calculation of CET.

In January CDTFA published the two CET examples that follow:

The first calculation is the CDTFA’s “arm’s length” example.

Example #1 – The retailer purchased five pounds of cannabis flowers for $7,500 and 50 cannabis candy bars for $300 in an arm’s length transaction. The average market price in the case of an arm’s length transaction is the wholesale cost of the cannabis plus a markup. This example assumes a 60 percent markup.

The wholesale cost of flowers

$7,500

Markup for flowers ($7,500 × 60%)

$4,500

Average market price of flowers

$12,000

The wholesale cost of candy bars

$300

The mark-up for candy bars ($300 × 60%

$180

Average market price of candy bars

$480

Total average market price ($12,000 + $480)

$12,480

Total cannabis excise tax due ($12,480 × 15%)

$1,872

The distributor is responsible for reporting and paying the $1,872 CET to the CDTFA on his/her cannabis tax return. The distributor is not responsible for verifying the retail selling price of the cannabis. The CET is based on the average market price. In an arm’s length transaction, the average market price is not based on the retailer’s gross receipts from the retail sale.

The second calculation is the CDTFA’s assumed “non-arm’s length” example.

Example #2 – The retailer, which is part of a microbusiness, sells four pounds of cannabis flowers for $9,600 and 25 cannabis candy bars for $500 to their customers (the consumer). This is considered a non-arm’s length transaction because the microbusiness is both the distributor and the retailer. The average market price in the case of a non-arm’s length transaction is the cannabis retailer’s gross receipts from the retail sale.

Gross receipts from the sale of flowers

$9,600

Gross receipts from the sale of candy bars

$500

Total average market price ($9,600 + $500)

$10,100

Total cannabis excise tax due ($10,100 × 15%)

$1,515

The microbusiness is responsible for reporting and paying the $1,515 cannabis excise tax to CDTFA on their cannabis tax return.

CA Cannabis Excise Tax – Extraction – Processing

CDTFA’s simplistic explanation of the collection, reporting, and remittance of the CET is inadequate for the real world business. A real business world example illustrates the inadequacies of CDTFA’s analysis. The inadequacies of CDTFA’s analysis exist whether or not a micro-business is involved.  The weakness in CDTFA’s analysis principally arises from the fact multiple transfers of cannabis material and multiple transformations of cannabis material are likely to occur between a cultivator and a consumer.

CDTFA provides the following as “official” conversion rates:

Weight Conversion Chart

1 Gram = 0.035 Ounces = 0.001 Kilograms

1 Ounce = 28.35 Grams = 0.0625 Pounds

1 Pound = 453.6 Grams = 16 Ounces

Our Example – Grow LLC is a licensed cannabis Cultivator. Grow LLC harvests cannabis trim with a total weight of 1,000 pounds (wet weight). Grow LLC sells the entire 1,000 pounds [16,000 ounces] to Ed the Extractor for $20/pound based on the wet weight. Ed the Extractor will extract oil from the trim for medical use.  Ed the Extractor is a California cannabis micro-business that is licensed for Manufacturing, Distribution, and Retail.  Ed the Extractor picks up the trim from Grow LLC and transports the trim to its facility.  The California Cannabis Cultivation Tax (“CCT”) that Grow LLC is required to pay over to Ed the Extractor for subsequent payment to CDTFA is $20,640 [16,000x$1.29/ounce].  Ed the Extractor assumes Grow LLC’s CCT liability as an addition to the purchase price for the trim. The complexity of CA Cannabis Excise Tax – Extraction – Processing grows.

Ed the Extractor dries the trim and extracts cannabis oil from the 16,000 ounces of trim.  Ed the Extractor produces 750 ounces [21,262 grams] of raw oil. Ed the Extractor’s cost of extraction and testing the 21,262 grams is $23,200 including the costs incurred in picking up the raw material. The value of the oil is $5.00/gram for a total value of $106,313 in a bulk sale.

The CET Ed the Extractor owes to CDTFA is $25,515. The CET is based on the value of the oil increased by 60% to a presumed eventual retail sale value of $170,101 [$106,313 x 1.6 = $170,101]. The CET is $25,515 [$170,101 x 15% = $25,515].

We note that the costs incurred by Ed the Extractor are part of his Cost of Goods Sold (“COGS”) for income tax purposes, but these costs are not part of the CET computation. We also note that Ed the Extractor is responsible for remitting the CCT of $20,640 to CDTFA.  Ed the Extractor owes CDTFA $46,155 for CCT and CET.

Ed the Extractor sells the entire lot of 21,262 grams of raw oil to Boris the Baker, a California cannabis edibles manufacturer, for $106,313 plus $25,515 (CET). The CET must be separately stated in order to facilitate tracking by CDTFA as well as other businesses.  Ed the Extractor’s gross margin is $42,473 [$106,313 – $20,000 – $23,200 – $20,640 (CCT) = $42,473].

CA Cannabis Excise Tax – Extraction – Processing

Boris uses an entire lot of raw oil together plus $17,000 of ingredients and $22,000 of labor to produce 500 packages [600 cookies per wholesale package] of Prune flavored cannabis cookies which have a total wholesale value of $220,000.

The CET Boris the Baker owes CDTFA is $27,284 based on the wholesale value of the cookies. The CET is based on the incremental increase in wholesale value [Exit Wholesale Value – Intake Wholesale Value; $220,000 – $106,313 = $113,687] increased by an assumed retail sale mark-up. The mark-up of the incremental increase in value is $181,899 [$113,687 x 1.6 = $181,899]. The CET owed to CDTFA by Boris the Baker based on his incremental addition to the wholesale value of the cannabis product is $27,284 [$181,899 x 15% = $27,284].

Boris the Baker’s gross margin for income tax purposes is $74,867 [$220,000 – $106,313 – $17,000 – $22,000]. Boris the Baker sells the 500 packages of cookies to Doug the Distributor for $272,799 [$220,000 + $52,799 [$25,515 + $27,284] (CET)].

Doug the Distributor incurs $35,000 in additional costs for packaging, labeling and testing the cookies for retail sale. Doug the Distributor sells the cookies to Dismal Dispensary for $365,799 [$295,000 + $70,799 (CET)]. The $70,799 of CET includes $52,799 of CET owed to CDTFA by Ed the Extractor ($25,515) and Boris the Baker ($27,284) plus the additional $18,000 in CET Doug the Distributor owes CDTFA based on his incremental addition of $75,000 to the value of the cannabis material [$75,000 x 1.6 = $115,000 x 15% = $18,000].

Dismal Dispensary advises Doug, the Distributor the cookies will be sold at retail for $475,000. Dismal Dispensary’s statement of the amount for which it will sell the cookies raises a question.  Is the CET that Doug the Distributor owes CDTFA determined by Dismal Dispensary’s statement of the retail sale price $475,000 x 15% = $71,250, or is the CET $70,799 [$18,000 from Doug the Distributor’s incremental increase in the value of the cookies plus the $52,799 (CET carried forward)].  Doug the Distributor’s gross margin for income tax purposes is $40,000 [$295,000 – 40,000 – $220,000 = $40,000].

The CET owed to CDTFA by Doug the Distributor will be reduced by the $52,799 [$25,515 + $27,284] which is owed to CDTFA by Ed the Extractor and Boris the Baker, earlier participants in the supply chain leading to the retail level.  Doug the Distributor owes either $18,451 or $18,000 in CET to CDTFA.  The author believes the CDTFA’s answer must be $18,000.  Tax computations cannot be based on the opinions of a retailer of the price at which a product will be sold.  Also, CDTFA’s regulations anticipate adjustments to the assumed 60% retail markup.

The preceding presentation of a methodology for the computation, collection and remittance of CET to CDTFA in a real business world model is similar to the incremental value added tax model of the European Union’s Input VAT.  The basic CDTFA model, CA Cannabis Excise Tax – Extraction – Processing, is inadequate for real-world transactions. The utilization of this model provides a foundation for addressing other complexities arising from California’s CET regime such as the relationship between the timing of product transfers, payments, tax collection and tax remittance. The critical observation that must be made is that each step in the stream of commerce adds new information, which is dependent on all of the information from each prior step. The authentication, validation, and integrity of the data relating to the movement of cannabis in c-commerce build in an interdependent fashion.  As a consequence, California’s regulated cannabis industry is an ideal candidate for the utilization of BLOCK-CHAIN technology.  California’s regime for the taxation of cannabis coupled with California’s plans relating to the tracking of cannabis demands the implementation of BLOCK-CHAIN technology.

The preceding real business world example of the computation, collection, and remittance of Cannabis Excise Tax literally screams “BLOCK-CHAIN”.  The reason the preceding screams BLOCK-CHAIN has NOTHING to do with Bitcoin or another cryptocurrency.  The decentralized transactional recordkeeping, authentication, and verification required at each incremental step in the stream of commerce make BLOCK-CHAIN technology ideal for record-keeping for all aspects of California’s regulation of its cannabis industry.

CA Cannabis Excise Tax – Extraction – Processing

Reporting and Collection of California’s Cannabis Taxes

Reporting Collection CA Cannabis Taxes

Reporting collection CA cannabis taxes are highlighted in this post.  The material that follows was prepared to illustrate the computation, collection and remittance of California’s cannabis excise taxes, and the computation of the gross profit for the parties to a cannabis business transaction, in the simplest of commercial cannabis transactions – the regulated commercial

Reporting Collection CA Cannabis Taxes
Calculating Reporting CA Cannabis Taxes

movement of flower from the the cultivator to a dispensary.  The sole difference between the two examples of the commercial movement the flower is the number of parties involved.  In the first example, the flower is sold by a cultivator to a distributor that in turn sells the flower to a dispensary.  In the second example, the cultivator sells to a distributor that sells to a second distributor that in turn sells to the dispensary.  The total of the costs incurred in the movement of the flower is the same in both examples as is the total profit shared by the cultivator and the distributor or distributors.

These two examples do not address the truly difficult issues that arise in connection with business record-keeping and tax reporting for California’s regulated cannabis industry.  The challenging record-keeping and tax reporting issues include:

(a) selection of appropriate record-keeping and reporting methodologies;

(b) accurate determination of responsibility for the collection, reporting and remittance of taxes;

(c) accurate assessment of the impact of record-keeping and reporting methodologies on tax efficiency;

(d) accurate assessment of the impact of consistency in record-keeping and reporting methodologies in connection with transactions among cannabis businesses; and

(e) the integration of the record-keeping and reporting relating to California’s cannabis excise taxes with the reporting and remittance of local cannabis taxes, sales and use taxes, and income taxes as well as the impact of such taxes on profitability.

Consideration of the application of Internal Revenue Code (“IRC”) §280E to commercial transactions among regulated cannabis businesses provides an excellent illustration of some of the many difficult questions that arise in connection with record-keeping and tax reporting for California’s regulated cannabis industry.  IRC §280E is discussed in connection with the introductory portion of the first illustration because a cultivator that operates as a micro-business and distributes its own flower may be deemed to be subject to IRC §280E.  A cultivator who incurs business expenses generally associated with trafficking in a controlled substance may be subject to the disallowance of the deduction of such expenses pursuant to IRC §280E by the IRS.  Consideration of IRC §280E is beyond the scope of this presentation, but this provision of the Internal Revenue Code must not be ignored.

California Cultivator, which is licensed as a micro-business, sells 100 lbs. of flower in a bulk sale to a licensed Distributor for $852 per lb.  California Cultivator and Distributor agree Distributor will assume Cultivator’s obligation to pay the Cannabis Cultivation Tax of $14,800 ($148 per pound) to the California Department of Tax and Fee Administration (“CDTFA”).  In connection with this transaction California Cultivator pays an unrelated third-party $10,000 for preliminary testing and for packing and delivering the flower to Distributor.  California Cultivator records the $10,000 expenditure as a business expense rather than as part of the cultivation costs.  Assume California Cultivator’s costs for growing the 100 lbs., including depreciation, amortization, harvesting, drying and trimming, etc., are $500 per lb. not including the $10,000 paid to the third-party.

(A) Is California Cultivator a distributor for California’s Cannabis Excise Tax purposes as a consequence of its micro-business licensing and its payment of $10,000 to a third-party in connection with the testing and delivery of the flower?  Should California Cultivator include the $10,000 paid to the third-party in COGS for reporting purposes in order to avoid classification as a distributor?  If California Cultivator is treated as a distributor for regulatory purposes, is California Cultivator necessarily also subject to IRC §280E?  Can California Cultivator be a distributor for California regulatory purposes and be solely a cultivator for income tax purposes?  Can California Cultivator include the $10,000 paid to the third-party in its COGS both for regulatory purposes and for income tax purposes in order to avoid all of these issues?  The answers to these questions involve substantial uncertainty.  Multiple tax issues turn on whether California Cultivator is a distributor.  Arguably California Cultivator could be a distributor for regulatory purposes, but not for federal and California income tax purposes.

  If the costs paid to the third-party are classified as post-production distribution expenses, an argument could be readily made that California Cultivator is acting as a distributor and the sale to Distributor is the first in a series of sales leading to the retail sale of the flower to consumers.  If California Cultivator is deemed to be a distributor for California regulatory purposes, California Cultivator should collect a Cannabis Excise Tax from Distributor.  The Cannabis Excise Tax attributable to this sale will be $24,000 ($100,000 x 1.6 x 15% = $24,000).  If the $10,000 of costs California Cultivator paid to the third-party are classified as post-production distribution expenses, the Internal Revenue Service (“IRS”) may well classify the $10,000 as a IRC §280E expense for federal income tax purposes.  As is indicated by the preceding, subtle changes in the facts, i.e., licensing, timing, elections, classification of activities, relationships between taxpayers, etc., could have a significant impact on California Cultivator’s reporting of this simple transaction.

(B) If California Cultivator includes the $10,000 paid to the third-party in COGS, and does not claim to be the distributor, and no tax or regulatory agency disagrees with this treatment, what will be California Cultivator’s gross profit?  What will be Distributor’s COGS?  California Cultivator will have gross profit from this transaction of $25,200 (($100,000 – $14,800 = $85,200) – $60,000 ($50,000 + $10,000) = $25,200).  Distributor’s COGS is $100,000 ($85,200 paid to California Cultivator plus $14,800 (Cannabis Cultivation Tax) due CDTFA).

(C) Distributor spends an additional $30,000 for testing, packaging and labeling the flower. Distributor sells the flower to Dispensary for $150,000 plus the Cannabis Excise Tax.  What is Distributor’s gross profit from the sale to Dispensary?  How much does Distributor owe to CDTFA for Cannabis Cultivation Tax and Cannabis Excise Tax?  Distributor has $20,000 of gross profit from the sale to Dispensary ($150,000 – ($100,000 (purchase of flower) – $30,000 = $20,000).  The value Distributor has added to the flower for the purposes of the Cannabis Excise Tax computation is $50,000.  The Cannabis Excise Tax Distributor must collect from Dispensary is $36,000 ($150,000 x 1.6 x 15% = $36,000).  Dispensary must pay Distributor $186,000 ($150,000 + $36,000 = $186,000).  Distributor owes CDTFA $50,800 ($14,800 + $36,000 = $50,800).  Notice that Distributor’s tax liability to CDTFA is 2 ½ times Distributor’s gross profit.

Please consider whether Distributor can include the $30,000 of expenses in its COGS or whether Distributor is engaged in a business which consists of trafficking in a controlled substance for the purposes of IRC §280E.  In the event Distributor is deemed to be engaged in a business which consists of trafficking in a controlled substance, some or all of the $30,000 expenses will not deductible for federal income tax purposes pursuant to IRC §280E and cannot be included in Distributor’s COGS.

(D) How do the computations change if California Cultivator sells to First Distributor for $850 ($702 + $148), First Distributor assumes California Cultivator’s Cannabis Cultivation Tax liability of $14,800 to the CDTFA and pays the net amount of $702 to California Cultivator.  In addition, assume First Distributor incurs the same $10,000 of costs that California Cultivator paid to the third-party, and further assume First Distributor adds $5,000 of profit for this first step in the movement of the flower into the commercial market.  Further, assume First Distributor sells the flower to Distributor for $100,000 plus the Cannabis Excise Tax attributable to this first step.  What is California Cultivator’s gross profit from the sale to First Distributor as a consequence of these changes to the illustration?  What is First Distributor’s gross profit?  How much does First Distributor owe to CDTFA?  How much must First Distributor collect from Distributor?

What is Distributor’s COGS?  California Cultivator’s gross profit will be reduced by $5,000 to $20,200 by this change in the arrangements for the commercial movement of the flower (($$85,000 – $14,800 = $70,200) – $50,000 = $20,200).  First Distributor’s gross profit is $5,000 ($100,000 – $85,000 – $10,000 = $5,000).  First Distributor has the $5,000 of gross profit that belonged California Cultivator in the first iteration.  First Distributor owes CDTFA $38,800 ($14,800 Cannabis Cultivation Tax + $24, 000 ($100,000 x 1.6 x 15% = $24,000) = $38,800).  First Distributor must collect $124,000 from Distributor ($100,000 + $24,000 = $124,000).  Distributor’s COGS for the purchased flower is $100,000.  In addition, Distributor will have a credit for $24,000 in connection with its collection and remittance of Cannabis Excise Tax to CDTFA on its subsequent sale of the flower to a Dispensary.

(E) Distributor spends the same additional $30,000 for testing, packaging and labeling the flower as is described above in the first illustration.  The distributor sells the flower to Dispensary for $150,000 plus the Cannabis Excise Tax as is described in the first illustration.  How much does Distributor owe to CDTFA for Cannabis Excise Tax?  How much must Distributor collect from Dispensary?  What is Distributor’s gross profit from the sale to Dispensary?  The value Distributor has added to the flower for the purposes of the Cannabis Excise Tax computation is $50,000.  The Cannabis Excise Tax Distributor must collect from Dispensary is $36,000 ($150,000 x 1.6 x 15% = $36,000).  Distributor in this second illustration, however, has a credit for the $24,000 of Cannabis Excise Tax liability that Distributor paid to First Distributor.  The distributor will be required to pay $12,000 in Cannabis Excise Tax to CDTFA in connection with its sale to Dispensary.  Distributor’s gross profit from its sale to Dispensary in this second illustration is the same $20,000 ($150,000 – ($100,000 (purchase of flower) + $30,000 = $130,000) = $20,000) as in the first illustration.

The issues referenced above in the note between (C) and (D) relating the treatment of costs incurred by intermediary business functions in the movement of flower from cultivator to dispensary appear to be heightened when the flower moves from one distributor to a second distributor and then to a dispensary.  In the second illustration increased cost and gross profit are generated between the cultivator and the dispensary.  It seems likely increasing the number of transactions and the amount of money involved in the transactions between the cultivator and the dispensary increases the likelihood the IRS may seek to apply IRC §280E.

The preceding was prepared to illustrate the significance of record-keeping and tax reporting relating to the movement of regulated and taxed cannabis in California.  In each of the two illustrations, $50,800 in cannabis excise tax is due CDTFA.  The $50,800 due CDTFA consists of a Cannabis Cultivation Tax of $14,800 and a Cannabis Excise Tax of $36,000.  In each of the two illustrations described above the total gross profit is $45,200.  In the first illustration, California Cultivator’s gross profit is $25,200 and Distributor’s gross profit is $20,000.  In the second illustration, California Cultivator’s gross profit is $20,200, First Distributor’s gross profit is $5,000, and Distributor’s gross profit is $20,000.  The collection, reporting and remittance of the cannabis excise taxes in the two illustrations dramatically differ.  The total cannabis taxes paid to CDTFA are the same in both illustrations.

The difficult complexities relating to record-keeping and tax reporting for California’s regulated cannabis industry flow from the issues of: timing; record-keeping and reporting methodologies; consistency relating to record-keeping and reporting among cannabis businesses; and the integration of collection, reporting and remittance of California cannabis taxes with local cannabis taxes, sales and use taxes and income taxes.  The manner in which the record-keeping and reporting complexities relating to the taxes California has imposed on its regulated cannabis businesses are resolved is likely to be the single most significant factor in determining which businesses are profitable.  Decisions relating to the collection, reporting, and remittance of California cannabis taxes are likely to the set of decisions that have the greatest impact on the long-term survival of a California cannabis business.

The IRS may be prepared to argue all of the costs of the distributor function in California’s regulated cannabis industry are non-deductible expenses for federal income tax purposes by virtue of IRC §280E.  The two examples above will produce significantly different results to the parties when IRC §280E impacts the determination of the income tax consequences.  Even the Cannabis Excise Tax may be deemed to be a non-deductible expense pursuant to IRC §280E under the IRS’ current position.  A forceful argument can be made, however, that California’s Cannabis Excise Tax does not enter into the taxable income computation if this tax is separately stated in each buyer’s invoice and this tax is specifically identified as an item reimbursed to each seller by each buyer as cannabis moves through the chain of commerce.

 

Which Green Is It?

Which Green Is It?

Well, we have identified a problem that we were not expecting, let’s call it the case of Which Green Is It? We are not thrilled about it, but some of you may enjoy it ever since the BCC issued the first licenses. Perhaps this is caused by my spending WAY TOO MUCH Time reading articles that seem to repeat the same information about the legalization of cannabis for recreational use. Well the situation we have identified is quite a bit like those articles, but somewhat different. If we start from the beginning, it appears that a bunch of

Which Green Is It?
Sean O’Stoner

leprechauns managed to get hoodwinked by a couple of evil characters that convinced them that cannabis was a new type of clover.

We learned of the situation when we almost tripped over this gentleman, who was just laying on the front lawn stoned out of his mind. I would introduce him properly, but he couldn’t even remember his name.  He kept mumbling something about having made a batch of infused soda bread with some oil he bought from two guys that were working as disposal and maintenance techs for a local dispensary. He said that the two of them were looking for someone who could help them

Which Green Is It?
The Delivery Guys

apply for a license to be a delivery only dispensary so they could stop having to spend their night clean out the garbage from the dispensary and the extraction lab in the building next door. 

Perhaps, the way people look doesn’t prove anything, but my bet is that we could probably perform a lobotomy on these two, and they would never realize what was going on. However, as we later discovered, the two of them happen to be very shrewd businessmen. Well, maybe a mongrel mix of stoners, grifters, and businessmen. Anyway, back to the story. It seems that the passage of Proposition 64 was seen by a long time, cannabis chemist who had been running a volatile extraction operation “under the radar” for many years, that the time was ripe to “come out of the darkness” and create a legal operation.

Which Green Is It?
Weed Wizard

The extractor, let’s call him the “Weed Wizard” was referred to us by an attorney we have worked with on a number of matters over a long period of time. After meeting with the Weed Wizard, we recommended that he form a new limited liability company which would be taxed as a partnership. After seeing his operation, we decided that he would file for a “Micro-Business License” choosing to be a Manufacturer, Distributor, and Retail Delivery Only licensee.

In a subsequent post, we will take you through the step by step process we followed with the Weed Wizard so could apply for a Temporary License with the Bureau of Cannabis Control [“BCC”], the California Dept. of Public Health  [“CDPH”] Manufactured Cannabis Product division, and obtain the  required tax permits from the California Dept. of Tax and Fee Administration [“CDTFA”] and environmental.

Which Green Is It?
The Money Guy

The process for the Weed Wizard was a nightmare, particularly because he was as truthful with us as we would have hoped. He had told us that he was going to be bringing in a partner for his operation. He would qualify as the “Owner” because he was going to keep 51% of the equity in the new LLC and be its sole Managing Member. So Which Green Is It?

 

The Money Guy had initially stated that his bank would make the loan so that it would qualify for an exception in the Regulation which would have let him not be identified on the license applications. As it turns out, his bosses at the bank found out what he was doing and fired him, which resulted in his receiving a large severance package [or so he said at the time], and he would become a 25% partner in the business with no say in its management. He later learned that meant that he had a “financial interest in the Wicked Wizard’s cannabis business. It turns out that the actual source of the funds that the Money Guy was going to invest came from his brother, some Really Evil Dude who brought a machine guy everywhere he went. The Really Evil Dude was a career criminal with multiple violent felony convictions, and that made him a “prohibited person” who was neither permitted to own firearms nor could he have a financial interest in a cannabis business in California. He was essentially seeking to use his brother, the Money Guy as a strawman for his investment. So Which Green Is It?

Which Green Is It?
Dim-Witted Investor

Suffice it to say, when the Really Evil Dude’s involvement was discovered halfway through the licensing process, it caused us no end of anxiety, and the Weed Wizard almost choked when we told him what our fees were going to be.  Luckily for the Weed Wizard, we were able to identify a Dim-Witted Investor who was foaming at the mouth to be able to “invest in cannabis”, partially because the Delivery Guys had told him absurdly wild stories about how much money he could make in cannabis. The day he met the Weed Wizard in our office, he brought two shopping bags full of cash, ask us Which Green Is It? and signed the investment paperwork without reading any of it. [Spoiler: Things did not end well for the Dim-Witted Investor, DON’T BE a Dim-Witted Investor, the cannabis market is going to be a rough ride. If you can’t afford what you are thinking about investing, just don’t do it.

BACK TO REALITY

If you are interested in how the accounting, tax, licensing and regulatory compliance for commercial cannabis in California actually work feel free to follow the adventures of the Weed Wizard. We intend to walk everyone through the process that every single one of the characters in the narrative above went through. Obviously, we can’t reveal the identities of the Leprechauns [unlike the Bureau of Cannabis Control’s public disclosure requirements. Just to encourage participation in this adventure, individuals that register, and comment regularly will be eligible for a drawing on St. Patrick’s Day where the Weed Wizard is going to give someone, not gold, and not cannabis, but a $500 Gift Card from amazon.com. Keep checking back in with us to get more information, and follow our story. I asked the Weed Wizard what he would say to anyone that wasn’t interested in his adventure, and he gave us a very clear response. 

Which Green Is It?
Kiss My Irish Ass!

CA Cannabis Legal 2018 – Professional Advisors

CA Cannabis Legal 2018 – Professional Advisors Critical
CA Cannabis Legal 2018 - Professional Advisors Critical
aBIZinaBOX CPA’s Cannabis Practice

Happy New Year – CA Cannabis Legal 2018 – Professional Advisors Critical, both your attorneys and certified public accountants. We have spent the last four years months working for our CA cannabis industry clients. However, the last ten or so months had a substantial increase in the intensity of our involvement.

Rather than yammering about what we think the law or the regulations say. We encourage you to visit our website and investigate for yourselves. Iyou are wondering what is out there, the very end of this blog summarizes what we discovered when we “googled “California cannabis industry and CPA”. It would be an understatement to say “an unmitigated disaster.

We thought that by highlighting some of our direct experiences over the past year.

Federal Tax Issues
CA Cannabis Legal 2018 - Professional Advisors Critical
Internal Revenue Service

Situation with IRC Sec. 280E –  which you can read the background to here. The short version is that IRS Chief Counsel’s Office issued a memorandum, CCM 201504011 which provided guidance and bright lines for proper application of IRC Sec. 280E. We had a cannabis dispensary client for which we prepared four years worth of corporate tax returns. The IRS commenced an examination of the returns in early June 2017, and we closed the audit with a “no change letter” in early December. Might be interesting to ask a prospective advisor about their IRS audit experience with IRC Sec. 280E rather than just letting them espouse their “approach”.

California Sales, Excise, and Gross Receipts Taxes – Cannabis

Calculating The Tax – The interaction between new taxes, and the classification of cannabis as Type -M [medicinal] or Type -A [adult use] is complex, and a very significant “trap for the unwary”. Our prediction is that two-three years from now, there is going to be a world of hurt for retail dispensaries when CDFTA starts auditing the tax returns and produces huge underpayments due to improper calculation of these taxes. We wrote a detailed blog about the calculations that you can read at Calculations – California Cannabis Taxes – Retail 

CA Cannabis Legal 2018 - Professional Advisors Critical
California Dept. of Tax and Fee Administration

While on the topic, two additional observations we made regarding the CA taxes:

Product in Inventory or Under Contract pre-1/1/2018 – Cannabis products which were in a Distributor’s inventory, or purchased but not delivered to the Distributor by December 31, 2017, were exempt from the new taxes if sold by June 30, 2018. The rules for retail sales are quite different, and any sales at retail after December 31 are subject to excise tax. Further, if a Distributor sells cannabis purchased prior to January 1 to another Distributor, they are required to remit the tax. [See Emergency Regulation 3701]. One might surmise that a Distributor that purchased cannabis prior to January 1 which it did not take delivery of until 2018 might generate a substantial benefit.

Draconian Consequences for Late Payments – CDFTA has promulgated SEVERE penalties for late payment of cannabis tax.

The penalties for late filing and late payment of Sales Tax are:

• A 10 percent penalty if you do not file your tax return by its due date

• A 10 percent penalty if your tax payment is late

There is an additional penalty for cannabis cultivation or excise tax –

(f) Penalties.

(1) Late Payments. In addition to any other penalty imposed pursuant to the Fee Collection Procedures Law (commencing with section 55001 of the Revenue and Taxation Code) or any other penalty provided by law, a penalty of 50 percent of the amount of the unpaid cannabis excise tax or cannabis cultivation tax shall be added to the cannabis excise tax and cultivation tax not paid in whole or in part within the time required pursuant to sections 34015 and 55041.1 of the Revenue and Taxation Code.

(2) Relief from Late Payment Penalty for Reasonable Cause. If the Department finds that a person’s failure to make a timely payment is due to reasonable cause and circumstances beyond the person’s control, and occurred notwithstanding the exercise of ordinary care and the absence of willful neglect, the person may be relieved of the penalty provided by subdivision (f)(1) for such failure.

Any person seeking to be relieved of the penalty shall file with the Department a statement under penalty of perjury setting forth the facts upon which the claim for relief is based.

If the fifty percent penalty wasn’t enough, the Bureau of Cannabis Control [“BCC”] Disciplinary provisions piles on:

It appears that the imposition of a 50% penalty by CDFTA will invoke a Tier 2 sanction under the BCC rules which imposes

Minimum: revocation stayed, 15 to a 30-day suspension, a fine (as determined by the “Fine Formula” below), or a combination of a suspension and fine.

Maximum: Revocation of License

Bureau of Cannabis Control [BCC”] License Applications

While the BCC licensing process has been relatively smooth, we have encountered some difficult questions in the following areas:

Should we apply for both a Type-M [Medicinal] and a Type-A [Adult Use] license?

Our answer, at least for Temporary Licenses is absolutely.

Our answer is based on several reasons.

CA Cannabis Legal 2018 - Professional Advisors Critical
California Dept. of Public Health

Medical Card Sales Tax Exemption – There is a clear and substantial advantage for customers to avail themselves of a ” medical card” due to potential savings of sales tax [but clearly not excise tax] on purchases. Sales of medical cannabis to those who have a medical marijuana identification card (MMIC) issued on a county-by-county basis by the California Department of Public Health (CDPH) and a valid government-issued identification card are now exempt from sales and use tax. Consumers can obtain the CDPH-issued cards at their county health department, at a cost that varies by county  [See Medical Cannabis Tax Exemption].  The taxes on recreational cannabis can be as high as 45%, whereas medical cannabis users can witness a 25% reduction in taxes.

Age Requirements – Medicinal vs. Adult Use – the required age for Adult Use is twenty-one, while Medicinal is available to anyone between the ages of 18 and 20, and to any minor with an adult caregiver, for they’ll still be able to access their medicine.

Quantities For Personal Plants and Purchases Higher for Medicinal  – Recreational marijuana rules in California dictate that citizens can grow six plants at home and keep an ounce in their pockets — no more, no less. With a doctor’s recommendation, however, medical cannabis patients can expect more, as in more of everything.

Greater THC Concentrations in Edibles – Starting on Jan. 1, the standard for edible cannabis products is 100 mg of THC, and that 100 mg must be divided into identifiable servings of no more than 10 mg each. Topicals and tinctures with more than 1,000 mg of THC are similarly banned.

However, there’s a loophole, and an exception: Medical cannabis patients will be able to access topicals or tinctures with up to 2,000 mg of THC. And these medical patients will also be able to legally purchase otherwise contraband edibles. Products that don’t abide by the new 100 mg rule will be able to be sold in medical dispensaries until July 1, provided they’re affixed with a label identifying them as strong medicine.

In summary,

Gifts and product giveaways are not allowed for recreational marijuana users. On the other hand, medical users are exempt from this restriction under certain circumstances. Recognizing the need for low cost, easier access to cannabis for veterans and lower-income individuals, this is a huge step forward for California’s cannabis consumers.

Furthermore, medical card holders will get twice the THC limit prescribed for edibles as well. On top of that, a medicinal user will also be eligible to carry cannabis products with them on a plane.

Owner Submissions 

CA Cannabis Legal 2018 - Professional Advisors Critical
Bureau of Cannabis Control

The Owner Submission rules can be somewhat complicated. Our summary of the provisions are as follows:

An “Owner” is defined as:

Any person with an aggregate ownership interest of 20 % or more in the person applying for a license or a licensee, unless the interest is solely a security, lien, encumbrance.

Chief executive officer of a nonprofit or other entity.

A member of the board of directors of a nonprofit.

Any individual who would participate in the direction, control, or management of the person applying for a license.

Entity-specific rules include

(A) A general partner of a commercial cannabis business that is organized as a partnership.
(B) A non-member manager or managing member of a limited liability company of a commercial cannabis business that is organized as a limited liability company.
(C) An officer or director of a commercial cannabis business that is organized as a corporation.

Financial Interest in a Commercial Cannabis Business

A financial interest means an investment in a commercial cannabis business, a loan provided to a commercial cannabis business, or any other equity interest in a commercial cannabis business except for

(1) A bank or financial institution whose interest constitutes a loan;
(2) Persons whose only financial interest in the commercial cannabis business is through an interest in a diversified mutual fund, blind trust, or similar instrument;
{3) Persons whose only financial interest is a security interest; lien; or encumbrance on property that will be used by the commercial cannabis business; and
(4) Persons who hold shares of stock that is less than 5 percent of the total shares in a publicly traded company.
The detailed lists of information required to be included in an Owner Submission can be reviewed here.
Finally….a commercial break before the “googling”. aBIZinaBOX is the right choice for a California Cannabis CPA Advisor because:
  • The Managing Directors – Jordan S. Zoot, CPA and Samuel E. Levinson, CPA each have over thirty-five years of professional practice experience. Jordan was a Tax Partner with Arthur Andersen LLP, and Sam was an Executive Director with E&Y, and a Tax Partner with Deloitte LLP
  • The firm is a licensed California CPA Corporation, and Jordan is a licensed California CPA with attest qualifications.
  • We don’t spend our time yammering at seminars, we spend it serving clients located in San Diego, Orange, Los Angeles, Monterrey, San Francisco, Alameda, Sonoma, Napa,  Humboldt, Mendocino, and Trinity counties [and we are growing by the day.

And now back to the “googling” and preface the following with the proviso that other then where we explicitly mention having had direct personal contact with the firms or individual practitioners identified below, our comments are general, and any prospective client is encouraged to perform their own due diligence in making an advisor selection. We suggest that asking probing questions about the topics we have identified and discussed above will certainly enlighten you with regard to the practitioners competence and current knowledge of the commercial cannabis industry in California today.

We decided to conduct an experiment to see to investigate what everyone is likely to find if they are seeking an advisor. So we performed the Google search “California cannabis and certified public accountant” and these firms showed up on page 1.

California Cannabis CPA – is led by a Derek Davis, a California CPA with six years of experience that lacks the qualifications to conduct attest engagements. The majority of their staff are Enrolled Agents, rather than CPA’s which means that may not have ANY accounting education or experience.

The next group comes from ganjapreneur.com and there isn’t much there to be had:

LC Solutions Michigan, PLLC – which was IMMEDIATELY disqualified because neither the firm nor anyone associated we could find was licensed or registered in California.

My Cannabis Accountant – isn’t even a CPA firm, its an EA with no verifiable connection to California.

420 CPA – is the Los Angeles offices of Abraham Finberg, CPA and while we commend his service in the US Army, there is no indication that he has any experience with the cannabis industry.

New Era CPA’s – is a San Diego based firm, and we will comment on them later. We have direct experience in having had to attempt to “clean up” after the work they did for an extractor that was operating a business near San Diego.

Anthony W. Imbimbo, CPA  a San Diego based firm is identified on his website as a Cannabis Industry Expert, but the content of the site hasn’t been updated in two years.

If we tighten the search by adding “and Oakland” we find:

Luigi Zamarra, CPA – an Oakland based CPA that does have verifiable, cannabis industry experience. We know of him and will come back to comment on some history with IRC Sec. 280E,

We encourage you to investigate and draw your own conclusions. You are welcome to mention to any other firm that you saw them listed in our post. We are both hopeful and confident that you will reach out and engage with us. We rely on my grandmother’s Yiddish expression “I would rather lose to a smart person than win with an idiot”.  Once again, a Happy, Healthy, and Successful 2018 to everyone.

aBIZinaBOX Firm Leadership

 

 

MARCUSA Enforcement – Disciplinary Rules

We have been warning our clients for months that the requirements for tax, accounting and recordkeeping were going to be broad and onerous. Yesterday, the California cannabis regulatory agencies Bureau of Cannabis Control [“BCC”] California Department of Tax and Fee Administration [“CDTFA”] California Department of Public Health [“CDPH”] Issued a combined total of close to … Continue reading “MARCUSA Enforcement – Disciplinary Rules”

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We have been warning our clients for months that the requirements for tax, accounting and recordkeeping were going to be broad and onerous. Yesterday, the California cannabis regulatory agencies Bureau of Cannabis Control [“BCC”] California Department of Tax and Fee Administration [“CDTFA”] California Department of Public Health [“CDPH”] Issued a combined total of close to … Continue reading "MARCUSA Enforcement – Disciplinary Rules"
To access this post, you must purchase Distribution Services Document Suite.