A Montana judge has ordered state cannabis regulators to delay the enforcement of steep new fees for marijuana dispensary business licenses while a suit challenging the new fee structure is heard by the courts. The 60-day preliminary injunction was ordered by Lewis and Clark County District Court Judge Mike Menahan, with the move agreed to by attorneys for the state and three cannabis businesses that filed the legal action in August.

The plaintiffs in the case are challenging new fees established by the Montana Department of Revenue’s Cannabis Control Division under a law passed by the state legislature earlier this year. Under the new fee schedule, business owners are required to pay a fee of $5,000 for the first dispensary, with the fee increasing by $5,000 for each additional dispensary license.

“This means a license’s initial dispensary fee is $5,000, its second dispensary renewal fee is $10,000, its third is $15,000, and so on,” Angela LeDuc, an attorney for the plaintiffs, wrote in court documents filed last month, as reported by the Independent Record.

The owners of the businesses that brought the suit—Granite Peak Holdings, Inc. doing business as Elevated; TSB Montana LLC, and MariMint LLC—say that if the new licensing fees were to go into effect, they would be forced to close several dispensary locations. Such a move would result in layoffs for the employees who work at the shuttered weed dispensaries and a lack of access to medical marijuana for patients, the plaintiffs argued. Elevated noted in court documents the license fees for 10 of its dispensaries would increase by 680%, from $50,000 to $280,000.

“Enforcement would require Plaintiffs to cease many of their business operations through the state; it jeopardizes their licensure with the state and would result in the loss of their interest in those licenses; it would cause the loss of hundreds of jobs and expose Plaintiffs to liability based on their inability to continue to honor their leasehold interest in those dispensaries and it would jeopardize the medical marijuana patrons that they serve,” attorneys for the plaintiffs wrote in their amended complaint, according to a report from the Daily Montanan.

State Attorneys Defend New Fees

Attorneys for the Montana Department of Justice and the lawyers for the plaintiffs have spent months arguing if the new fee structure is legal. Under state law, the Montana Department of Revenue is prohibited from collecting fees beyond the costs of regulating the cannabis industry. Attorneys for the plaintiffs say that the new fees are far more than the revenue department’s costs to regulate the marijuana program.

Attorneys for the state countered that because Montana is the fourth-largest state in the union by land mass, regulators need more funding to adequately regulate the state’s marijuana industry.

“All of this takes time and resources for which the taxpayers of Montana should not be on the hook,” the state argued in a brief opposing a preliminary injunction.

The state’s attorneys also argued that the plaintiffs’ claims of injury by the new fees should not be upheld by the court because the business owners can avoid the charges by simply operating only one dispensary. The argument also suggested that the legal action was filed purely over money.

“There exists one reason and one reason only that Plaintiffs seek to open different marijuana industry locations under the same license – they want to make money,” the state argued in an October 24 court filing. “Logic dictates that if a fee of $5,000.00 for a new location is going to make or break that location, then it is not a profitable location and should not be opened in the first place. Plaintiffs just want to make more money at the expense of the taxpayers.”

The plaintiffs are also challenging the new fees on procedural grounds, arguing that they were added to the bill without an opportunity for public comment after the legislation had been approved in committee. Other legal issues in the case revolve around separate legislation that changes the conditions for preliminary injunctions like the one issued by Menahan.

Last week, attorneys for both sides agreed to a 60-day preliminary injunction to pause enforcement of the fees while the lawsuit is litigated. Under the agreement, the new license fees will be put on hold for all licensees, not just the dispensaries owned by the plaintiffs.

Menahan’s order allows him to extend the injunction beyond its current 60 days if both sides agree to an extension. The order also reinstates the fee structure in place before the new hikes and directs the Department of Revenue to return any of the new fees already collected. 

Attorneys for both sides in the case told the judge they are negotiating and hope to reach a settlement in the next 60 days.

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Oklahoma Gov. Kevin Stitt recently renewed a moratorium on new medical cannabis businesses. Stitt originally signed legislation for the ban in May 2022, which took effect in August 2022 and was set to expire in August 2024. However, upon signing HB-2095 earlier this month, the moratorium was updated with an extension until August 1, 2026.

The bill gives authority to the Oklahoma Attorney General’s Office, the Oklahoma Bureau of Narcotics and Dangers Drugs Control, and the Oklahoma State Bureau of Investigation to manage the state’s medical cannabis regulation, according to a news report from Oklahoma News4. These agencies will have power to investigate law violations in regards to any commercial cannabis cultivators, processors, researchers, and more.

HB-2095 also states that it’s illegal for medical cannabis growers to employ undocumented immigrants, and establishes a new rule stating that only one cultivation license may be used for a single address or property.

Oklahoma Attorney General Getner Drummond praised the governor for taking action against illegal cannabis activity. “I want to thank Gov. Stitt, as well as Rep. Echols and Sen. Paxton, for this tremendous step forward in Oklahoma’s efforts to stamp out illegal marijuana grow operations,” said Drummond. “The illegal marijuana industry is crawling with Mexican cartels and Chinese crime syndicates that pose a serious threat to public safety, particularly in our rural communities. Gov. Stitt’s approval of HB-2095 ensures the Attorney General’s Office and our excellent law enforcement partners have the tools and authority to shut down these dangerous criminal enterprises.”

Oklahoma’s medical cannabis program has grown rapidly since it’s first licenses were issued in August 2018. On the first day that licenses were available for application submissions, the Oklahoma Medical Marijuana Authority (OMMA) received approximately 1,600 applications. By January 2022, an estimated 400,000 medical cannabis licenses were issued by the OMMA. 

This year in March, Oklahoma voters went to the ballot to decide on recreational cannabis initiative State Question 820. Only 38% voted in favor of the measure, but supporters remain determined. Brian Vicente of Vicente LLP told High Times that “there is still more work to be done” in regard to legalization.

Just after the ballot results, Gov. Stitt discussed the results of the measure with reporters. “I don’t think anybody expected it to be defeated that bad, but as I was traveling the state, I knew Oklahomans didn’t want it,” said Stitt. “They were so tired of a dispensary on every single corner.”

Stitt stated that while he wants to allow patients to use medical cannabis if it can benefit them, but he doesn’t believe that “anybody with a hangnail should be able to get a medical card.”

He also shared that there’s enough cannabis in Oklahoma to supply demand across the country. “That is not what this is supposed to be,” said Stitt. “This was supposed to be medical use in the state of Oklahoma, and it has gotten way out of control. So we have to get rid of the bad actors. We have got to get control over that industry.”

Other legislation introduced after the defeat of State Question 820 have also targeted the illegal industry and some of its common problems.

Recently, Senate Bill 913 was introduced earlier this month, which would require a $50,000 bond for those who obtain a grow license. Should a cultivation property be abandoned, it provides funds to clean up the area. “Ultimately, this will help clean up valuable farmland that has been harmed by illegal operations and allows OMMA or any other appropriate state agency to recoup costs associated with the cleanup,” said one of the bill’s sponsors, Sen. Darcy Jech. SB-913 was signed by Gov. Stitt on April 20.

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New Mexico’s recreational cannabis industry is barely six months old, but regulators say there are already more than two dozen businesses that are not in compliance with state rules.

Local television station KRQE reported last week that the state’s Cannabis Control Division has conducted 100 inspections since adult-use pot sales kicked off in April, finding that “31 businesses are not in compliance.”

The station reported that the division’s inspectors “go out with a checklist and look for any issues,” and that the “list includes control of waste, fire safety, and making sure businesses have security measures.”

“For retailers, they don’t typically have as extensive of a checklist because they’re not growing,” New Mexico Cannabis Control Division Director Andrew Vallejos told KRQE.

According to the station, the state “has not cited any recreational marijuana licenses since it became legal,” and regulators are not taking a punitive approach to the inspections.

“One of the grounds for suspension; is if businesses don’t enter their product in the state’s seed to sale software,” KRQE reported. “Plants are tracked whether they come from New Mexico or out of the state. However, even if businesses slip up on rules, the goal is to get them back on track.”

But per the station, New Mexico officials are “looking to hire two more compliance officers,” given that the “cannabis control division currently has eight compliance officers to inspect 478 businesses that have a recreational marijuana license.”

New Mexico legalized recreational pot for adults in 2021, when Democratic Gov. Michelle Lujan Grisham signed a bill into law.

“The legalization of adult-use cannabis paves the way for the creation of a new economic driver in our state with the promise of creating thousands of good paying jobs for years to come,” Lujan Grisham said in a statement at the time. “We are going to increase consumer safety by creating a bona fide industry. We’re going to start righting past wrongs of this country’s failed War on Drugs. And we’re going to break new ground in an industry that may well transform New Mexico’s economic future for the better.”

Adult-use weed sales officially began on April 1 of this year, with sales eclipsing $3 million on the opening weekend.

In July, adult-use cannabis sales in New Mexico exceeded $40 million, which was a new record for the state’s fledgling recreational pot market.

“These numbers show that the impressive sales generated in the first month of legalized recreational cannabis sales were no fluke – and this is only the beginning,” Lujan Grisham said in a statement at the time. “We’ve established a new industry that is already generating millions of dollars in local and state revenue and will continue to generate millions more in economic activity across the state, creating thousands of jobs for New Mexicans in communities both small and large.”

When she signed the legalization bill into law back in 2021, Lujan Grisham framed the measure as a potential economic boon for a state that, like many others, was still reeling from the COVID-19 pandemic.

“As we look to rebound from the economic downturn caused by the pandemic, entrepreneurs will benefit from this great opportunity to create lucrative new enterprises, the state and local governments will benefit from the added revenue and, importantly, workers will benefit from the chance to land new types of jobs and build careers,” Lujan Grisham said in a statement.

“This legislation is a major, major step forward for our state,” the governor continued. “Legalized adult-use cannabis is going to change the way we think about New Mexico for the better — our workforce, our economy, our future. We’re ready to break new ground. We’re ready to invest in ourselves and the limitless potential of New Mexicans. And we’re ready to get to work in making this industry a successful one.”

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Federal legislation that would permit financial institutions to provide banking services to legal cannabis businesses has been dropped from a bill designed to foster competition with China, marking the sixth time the cannabis banking provisions have failed to gain the approval of the U.S. Senate after being passed by the House of Representatives.

Known as the Secure and Fair Enforcement (SAFE) Banking Act, the legislation would have permitted banks and other financial institutions to serve companies in the legal cannabis industry. Under current regulations, providing traditional banking services such as loans and payroll, checking and deposit accounts is tightly regulated by the federal government, resulting in few financial institutions agreeing to work with marijuana businesses. Critics note that the current policy forces cannabis companies to operate primarily in cash, leaving the businesses vulnerable to crime.

The SAFE Banking Act was first introduced in Congress by Democratic Rep. Ed Perlmutter of Colorado in 2013. Since then, the House of Representatives has passed the bill six times as either a standalone bill or attached to other legislation. But the measure has failed to gain the approval of the Senate.

Most recently, the House approved provisions of the SAFE Banking Act in February as part of the America Creating Opportunities for Manufacturing, Pre-Eminence in Technology, and Economic Strength Act of 2022 (America COMPETES Act), a bill to support U.S. manufacturing and improve competitiveness with China. But on Thursday, Punchbowl News reported that the cannabis banking provisions have been dropped from the latest version of the COMPETES Act, which is currently in conference committee with House and Senate lawmakers. The report noted that the SAFE Act language had been dropped at the insistence of Republican negotiators.

“In the wake of the Senate’s inaction, people continue to be killed, businesses continue to be robbed, and employees and business owners in the cannabis industry continue to be excluded from the financial system,” Perlmutter, the lead sponsor of the SAFE Banking Act, said in a statement quoted by The Hill.

Activists and Industry React

After news that the legislation had not been included in the latest version of the COMPETES Act Morgan Fox, the political director for the National Organization for the Reform of Marijuana Laws (NORML), said that it “is mind-boggling that this is now the sixth time that SAFE Banking has been approved by the House but stalled by the Senate.”

“This narrowly tailored, incremental, and necessary legislation has broad bipartisan support in both chambers, and it is incredibly disappointing that politics continue to get in the way of saving lives and helping struggling small businesses disrupt and ultimately replace the underground cannabis market,” Fox said in a statement from the cannabis policy reform advocacy group. “If there is a legislative version of the Twilight Zone, the SAFE Banking Act seems to be stuck in it at this point.”

Some supporters of the legislation including Michael Sassano, CEO and founder of cannabis products manufacturer Somaí Pharmaceuticals, believe that Congress is missing an opportunity to make people who work in the industry safer.

“Congress continually drops the easy play by going for an all-or-nothing strategy,” Sassano writes in an email to High Times. “Avoiding the SAFE banking act only shows that they don’t care about the cannabis industry and the safety of our employees, but rather their pet projects that get embedded in every failed law they try and pass.”

Despite Thursday’s setback, representatives of the regulated weed industry have not given up on the cannabis banking bill, with hopes that lawmakers will add the legislation to an upcoming spending package.

“The support and political will is there to get the SAFE Banking Act across the finish line. We are encouraged by conversations about pairing the bill with other helpful cannabis and criminal justice reforms,” Steven Hawkins, president of the U.S. Cannabis Council, said in a statement. “We look forward to working with our members and allies to help get the job done.”

But Fox noted that the opportunity to pass meaningful federal cannabis reform this year is fading as the nation and the Congress head into the 2022 midterm election season.

“There are still some pathways available to get SAFE Banking approved in the current congressional session, but time is running out,” Fox added. “The Senate should not waste this rare chance for bicameral and bipartisan cooperation that would improve safety and opportunities for hundreds of thousands of people and foster economic development in a majority of states.”

Perlmutter, who in January announced he will not seek reelection this year, vowed to continue working to get the cannabis banking measure passed before he leaves Congress.

“I will continue to push for #SAFEBanking to be included in COMPETES, other legislative vehicles, or for the Senate to finally take up the standalone version of the bill which has been sitting in the Senate for three and a half years,” Perlmutter tweeted on Thursday.

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A group of licensed cannabis business owners rallied on the steps of the California capitol on Thursday to bring attention to the impact high cannabis taxes have on independent entrepreneurs. The demonstration, which was held in response to the proposed state budget released by Governor Gavin Newsom last month, was organized by Supernova Women, an Oakland nonprofit that works to create opportunities for Black and Brown people in the cannabis industry.

The rally featured more than fifty cannabis business owners, patients, and policymakers who are Black, Indigenous, or people of color (BIPOC) and gathered to call for several changes to the state’s cannabis regulations, including eliminating the cannabis excise tax for licensed social equity businesses.

“I have been in business 3 years and we have paid half a million dollars in excise taxes alone, and this is in addition to a state excise tax and a 4% city tax,” said Maisha Bahati, founder and owner of Sacramento licensed cannabis retailer Crystal Nugs. “This business has to survive. Failure is not an option for me. I’ve put everything I have into this business and being a social equity business taxed at 40% is killing me and my dreams of creating generational wealth for my children.”

Budget Proposal Temporarily Reduces Pot Taxes

On May 13, Newsom released a budget proposal for the 2022-2023 fiscal year that included temporary tax relief for licensed cannabis businesses. Under the proposal, Proposition 64, the 2016 ballot measure that legalized recreational pot in California, would be amended to eliminate the cultivation tax paid by cannabis growers.

But those attending the rally in Sacramento on Thursday say the proposed tax relief does not go far enough and are calling on Newsom and state legislators to take further action before the budget deadline on July 1. The proposal calls for the state to repeal the cannabis excise tax for social equity businesses, reduce the cannabis excise tax to 5% for all other companies, and codify a statewide definition of social equity to establish eligibility for the state excise tax exemption.

“Governor Newsom promoted Prop. 64 less as an opportunity for tax revenue and more as a historical opportunity for racial and social justice and economic empowerment—to remedy the damage of a drug war that had disproportionately criminalized Blacks and Latinos,” Amber Senter, rally organizer and executive director of Supernova Women, explained in a statement before the event.

“And yet five years later, California’s Black and Brown cannabis operators, many of whom voted for Newsom not once but twice, are literally sitting on the brink of extinction, due to onerous state taxes, while the Governor sits on a $100B surplus,” Senter continued. “Where is the racial and social justice in that? Without meaningful tax reform NOW, California’s few remaining BIPOC cannabis operators and social equity businesses will not survive, and the communities and patients they serve will not be able to access affordable and safe cannabis. This is a major health crisis today and a missed economic opportunity for tomorrow.”

Two Bills Would Provide Cannabis Tax Relief in California

In a video released last week, state Senator Steven Bradford expressed his support for the goals of Thursday’s rally. Bradford is the sponsor of two bills to provide tax relief to cannabis businesses and their owners, including Senate Bill 1281, which would eliminate the cultivation tax and reduce the cannabis excise tax from 15% to 5%. Separate legislation, Senate Bill 1293, would allow a $10,000 tax credit against the Personal Income and Corporation Tax for social equity applicants and licensees.

“Without meaningful changes to California’s cannabis tax policy, the industry is destined for failure, especially equity cannabis operators who are operating on a very thin margin,” Bradford said in the video posted online.

The demonstrators at Thursday’s rally are also seeking changes to the social equity provisions in California. Under state law, social equity programs, which are presently governed by local jurisdictions, are not permitted to consider race or ethnicity as eligibility criteria. Rally organizers recommend a new statewide definition establishing eligibility for businesses with at least 51% ownership by someone who has lived for at least five years in a low-income community disproportionately impacted by the War on Drugs or by a person with an immediate family member who has an arrest or conviction for a pot-related offense.

“In 2020, 75% of cannabis-related arrests in Los Angeles were Blacks and Latinos, according to LAPD records,” said Whitney Beatty, CEO of L.A. weed speakeasy Josephine & Billie’s. “With Los Angeles’ majority-minority population, L.A. alone could help rewrite our state’s recent history of white operators dominating an industry that has physically, emotionally, psychologically, and economically imprisoned so many BIPOC people… but not without true tax reform at the State level that protects our vulnerable social equity operators and BIPOC patients.”

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As war wages in Ukraine, cannabis industry businesses across the United States are doing their part to help those caught in the ravages of the conflict. Russia invaded its smaller neighbor Ukraine on February 24 after massing on the border between the two nations for months, leading to a humanitarian crisis.

In California, San Francisco’s MediThrive dispensary is raising funds to donate to the Sunflower of Peace, a Massachusetts-based nonprofit working to support the Ukrainian people in the midst of the Russian invasion. MediThrive CEO Misha Breyburg is a Ukrainian Jewish refugee who immigrated from Odessa, Ukraine to the United States as a child in the 1970s. 

“This hits especially close to home, especially for Jewish Ukrainians,” he told the Jewish News of Northern California. “I couldn’t live with myself if I didn’t do something.”

To show his support for the people of Ukraine, Breyburg had the dispensary storefront in the Mission District painted blue and yellow, the colors of the Ukrainian national flag. The business is also donating the proceeds of all cannabis sales made on March 6 to Sunflower of Peace, whose fundraising efforts are providing medical and humanitarian aid to those affected by the war in Ukraine. 

“While many charitable efforts focus on providing Ukraine with food and military aid, the medical professionals responding to the crisis in Ukraine struggle to treat the wounded and sick,” MediThrive said in a statement. “They require more medical and survival supplies.”

MediThrive will also donate 10 percent of cannabis sales through March 13 to Sunflower of Peace, which incorporates the Ukrainian national flower into its name and logo. On Monday, Breyburg said the drive had already raised “in the high five figures.”

“It felt pretty incredible,” he said.

Sunflower of Peace was founded in 2014 with a mission to mobilize support and aid for Ukrainian orphans and internally displaced persons. After the coronavirus pandemic took hold of Europe and the rest of the world, the organization turned its focus to Ukrainians most impacted by COVID-19. And following the invasion of Ukraine by Russian forces launched last month, Sunflower of Peace has again pivoted to put its efforts where they are needed most.

“Due to the current crisis in Ukraine, Sunflower of Peace started a new fundraiser to provide medical and humanitarian aid that will be used by the paramedics and doctors in the areas that are affected by the violence in Ukraine,” the group writes on its website. “We are acquiring and distributing first-aid backpacks, medicine, medical instruments and other means of survival that are saving hundreds of lives. These supplies meant the world to people affected by violence when we started our first fundraiser in 2015, and they mean the world to all Ukrainians now.”

Pot and Pierogies in Detroit

In Detroit, cannabis dispensary and cultivation center Luxury Loud is teaming up with Srodek’s Quality Polish Food for a Pot and Pierogies fundraiser for Ukraine. Luxury Loud will donate 100 percent of its sales on March 13 to UNICEF for the children of Ukraine, while Srodek’s food truck was offering complimentary pierogies and kielbasa for a donation. 

The Russian invasion of Ukraine is also personal for principals at Luxury Loud. Grower and engineering manager Marko Malinowski and his brother Christian Malinowski, one of the partners in the business, are Ukrainian Americans who are well-known in Detroit’s Ukrainian community.

“It’s a little more unique,” Malinowski told the Detroit Free Press. “Pot and Pierogi kind of catches people’s attention for some reason, and they do go well together actually.”

Cannabis public relations firm Mattio Communications is also raising funds for Ukraine by matching donations to one of several organizations working to secure the safety and security of Ukrainians. The company will match donations through a campaign on social media announced last week.

“As we watch in horror as violence and heartbreak spreads through Ukraine, the need for action has never been greater,” the company wrote in a statement to High Times. “The Mattio Communications team will be matching all donations made to the United Nations Refugee Agency, Kyiv Independent, Voices of Children, Amnesty International and CARE Ukraine Crisis Fund up to $3,000. Simply make your donation, and send a screenshot to @MattioCommuncations on Instagram.”

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First reported by the Los Angeles Times, the geographically small city of West Hollywood plans to rebrand itself as a cannabis mecca, or as “Emerald Village”—a name coined by a cannabis trade group of the same name. At less than two square miles in size, the city is packing in cannabis businesses, and could reinvent itself as the “Amsterdam of the far West.”

“Welcome to the Emerald Village, the capital of cannabis culture,” the organization says on its website. “We invite you to explore all the gems West Hollywood has to offer in this golden age of cannabis including culinary, wellness, entertainment, nightlife, art and personalized experiences.” Emerald Village calls itself the “official marketing organization for licensed cannabis businesses in West Hollywood.”

West Hollywood is currently home to just six dispensaries, but city officials plan to approve as many as 40 cannabis permits over the course of the next year.

West Hollywood is already home to one cannabis retailer for every 5,959 residents—a much higher concentration of cannabis businesses than even Los Angeles. West Hollywood Community and Legislative Affairs Manager John Leonard told Los Angeles Times that the city received over 300 applications for just eight licenses to operate dispensaries in 2018.

It would be a rebrand from West Hollywood’s current status as the LGBTQ “main street” of Los Angeles—with over 21 gay bars on Santa Monica Blvd alone. But the city’s high focus on retail is ideal for cannabis brands as well.

Current member organizations of Emerald Village West Hollywood include Alternative Herbal Health Services (AHHS), The Artist Tree, CALMA, LA Patients and Caregivers Group (LAPCG), MedMen and Zen Healing Collective.

“I really see it as a place that can redefine what the image of cannabis is to the general public,” Kelly Lyon, of The Artist Tree told CBS News. “It would be awesome to be able to have a business where you can appreciate art. If yoga is more your thing, you can walk down the street and do that while you consume and everyone is sort of bringing a different idea to the table.”

It makes sense—considering that West Hollywood is already a pioneer in cannabis culture. A few years ago, Lowell Farms opened what it called “America’s first cannabis restaurant,” a café serving cannabis-infused foods.

“From the first cannabis café in the United States to entertainment and art venues enhanced by cannabis, West Hollywood’s Emerald Village is home to the most unique and creative cannabis experiences in the world,” Scott Schmidt, Emerald Village Executive Director told WeHoville. “The Emerald Village is ready to welcome travelers who will appreciate our imaginative cannabis experiences alongside our iconic LGBT nightlife, entertainment, world-class hotels, award-winning restaurants and strong sense of community.”

The development is being driven in part by celebrities. The Parent Company—Jay-Z’s massive cannabis enterprise—recently purchased the female-run CALMA, a West Hollywood dispensary according to an October 4 press release. Patricia Arquette plans to open an edible lounge in the Flaming Saddles building—the same building where Prince recorded “Purple Rain.”

Woody Harrelson launched numerous attempts to become involved with cannabis businesses in West Hollywood, getting denied a dispensary permit in 2016. Bill Maher is also getting involved in the business plans.

Clothing and fashion stores are also getting involved. Fred Segal’s flagship Sunset location, which sits on the West Hollywood-Los Angeles border area, hosted a cannabis pop-up that drew The Freak Brothers cast Pete Davidson, Blake Anderson, John Goodman, Andrea Savage, Phil LaMarr and Danny Gendron.

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A longtime Internal Revenue Service (IRS) official participated in a recent webinar where he made recommendations on how cannabis businesses can stay tax compliant.

The IRS Commissioner of Small Business/Self-Employment (SB/SE) Examination, De Lon Harris, participated in a PBC webinar on Wednesday, alongside PBC CEO and co-founder, Josh Radbod. There, he discussed the topic of how cannabis businesses can continue to be compliant, despite cannabis’ federal status.

“It’s really our mission at the IRS, not just with marijuana and cannabis industries, but with all taxpayers, to promote voluntary compliance,” Harris said during the webinar. “And that can happen in different ways. When most people think of the IRS, they think of examinations or audits and they think that’s the only way that we interact or try to promote voluntary compliance with taxpayers, but we do our fair share of outreach and education as well. Just like what we’re doing today.” 

The PBC Conference is a B2B event for “payments, banking and compliance in the cannabis industry.” Harris was also a keynote speaker at the PBC Conference in 2021, held on September 9-10, 2021. 

Harris also spoke of the IRS’ goal of reducing audits for the cannabis industry. “Regarding the cannabis marijuana industry, we developed a strategy that we hope will increase voluntary compliance and identify and address non-compliance when it’s there,” Harris said.

“Our focus is to positively impact filing and paying and reporting compliance on the part of all cannabis businesses to keep audits to a minimum.” On the IRS’ side, Harris noted that they seek to properly educate their examiners so they can conduct a quality examination, that the different sects of the IRS communicate properly with each other, and that they continue to partner with groups like the PBC to promote education.

As Radbod proceeded to ask Harris key questions during the webinar, he shared that cannabis statis as a Schedule I controlled substance doesn’t mean that taxes shouldn’t be paid. “As I’m sure you’re aware, and everybody listening, that a business engaged in the sale or production of marijuana or cannabis is considered illegal under federal law but nevertheless, it’s a business in every sense of the word, whether its categorized under federal statute as legal or illegal, it still remains to be obligated to pay federal income tax on the taxable income that it earns.”

The Internal Revenue Code 280E complicates matters, preventing businesses who sell cannabis from receiving tax deductions, even if those businesses operate legally in states that have legalized cannabis sales. However, that section does allow cannabis “to reduce their gross receipts by properly calculating a cost of goods sold to determine its income.” While a cannabis business can’t deduct advertising or selling expenses, it can reduce gross receipts, according to internal revenue code 471. 

Harris highly recommended that cannabis businesses strive to keep records of their receipts, canceled checks and any other documents that support evidence of income. “Well-organized records make it much easier to prepare the tax return, and to help provide answers if your return is selected by the IRS for an audit.”

Harris explained that all of this and more is available on the IRS website; however, users must search for “marijuana” in order to find information, rather than using the keyword “cannabis” for the time being. 

“So we’re making that change, but for now, you would type in ‘marijuana industry,’ and it would pull up the page that we give you information about, not only general information that would help you understand and meet tax responsibilities required by the cannabis industry, but the page which includes links to pages of more specific information,” he concluded.

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