Business
New Jersey Governor Signs Bill Extending Tax Deductions to Cannabis Companies
New Jersey Gov. Phil Murphy has signed legislation to separate state tax law from federal regulations that deny standard tax deductions for cannabis businesses.
New Jersey Governor Phil Murphy this week signed legislation to grant standard business tax deductions to licensed cannabis companies in a move designed to improve the viability of the state’s regulated marijuana industry. The measure, which decouples New Jersey’s tax laws from Section 280E of the federal tax code, was signed by Murphy on Monday following passage of the bill by the state legislature in February.
In many states that have legalized cannabis for recreational or medical use, tax laws follow the lead of Section 280E of the federal tax code, which denies most standard business tax deductions for cannabis businesses. Under the rule, cannabis operators are only allowed to deduct the cost of goods sold, while deductions for other standard business expenses such as rent, payroll and utilities are not allowed for most businesses.
The bill from Democratic Assemblymembers Annette Quijano, Clinton Calabrese and Linda Carter was passed by the New Jersey General Assembly on February 27. An identical companion measure, sponsored by Democratic state Senators Troy Singleton and Shirley Turner, also passed in the state Senate on the same day by a vote of 32-3.
Under the new legislation, which goes into effect immediately and applies to tax years beginning on January 1, 2023, cannabis companies will be permitted to deduct certain business expenses on their state tax returns. The bill does not affect the federal tax liability owed by the businesses. The sponsors of the legislation say that the bill will help improve diversity in the regulated cannabis industry, which faces steep barriers to entry and high taxes and regulatory fees.
“We have seen here in New Jersey, and around the country, that legal cannabis businesses tend to lack diversity both in gender and race amongst its ownership ranks,” Singleton said in a statement quoted by local media. “This law aims to level the playing field for all cannabis businesses.”
“It will ensure that dispensaries are paying a fair amount of taxes by taking into account critical business expenditures and allowing these deductions from their income,” he added.
“New Jersey’s cannabis industry is still in its infancy, and we need to act early to provide equal opportunity for all businesses to succeed,” Turner said. “Supporting dispensaries while promoting diversity within the cannabis industry is better for our local economy and also helps to ensure that the profits from recreational cannabis are being funneled back into the communities that need it most.”
The legislation to grant standard business tax deductions to New Jersey cannabis companies is also supported by representatives of the regulated cannabis industry, including the New Jersey Cannabis Trade Association (NJCTA), a trade group that said the legislation “will provide a more economically viable landscape for our young industry and those wishing to enter it.”
“The continued implementation of 280E placed several financial constraints on cannabis operators, big and small, by prohibiting them from deducting common business expenses from their taxes,” the NJCTA said in a statement. “Now, New Jersey’s licensed cannabis operators will be treated like any other legal enterprise operating in New Jersey, a sense of normalcy that our industry will cherish.”
James Leventis, executive vice president of legal, compliance & government affairs for Verano, a company that operates three Zen Leaf dispensaries in New Jersey, applauded the passage of the new legislation, saying it eliminates “a key barrier that has impeded entrepreneurship and the growth of the cannabis industry across the nation.”
“It’s inspiring to see New Jersey take this bold step to support one of the fastest-growing industries in the nation,” Leventis wrote in an email to High Times. “I hope to see similar courageous action by leaders across additional states – and, most importantly, at the federal level – to deliver further cannabis reforms that will allow our industry to finally reach its full potential as a catalyst for positive economic and social progress across the U.S.”
Other states that have legalized marijuana including New York, California, Hawaii, Michigan, Colorado and Oregon have passed legislation to separate their state tax laws from Section 280E. Similar legislation is pending in Connecticut.
New Mexico regulators fined a cannabis operator nearly $300,000 and revoked its license after the company allegedly created fake reports in the state’s traceability software.
The New Mexico Cannabis Control Division (CCD) accused marijuana manufacturer and retailer Golden Roots of 11 violations, according to Albuquerque Business First.
Golden Roots operates the The Cannabis Revolution Dispensary.
The majority of the violations are related to the Albuquerque company’s improper use of BioTrack, which has been New Mexico’s track-and-trace vendor since 2015.
The CCD alleges Golden Roots reported marijuana production only two months after it had received its vertically integrated license, according to Albuquerque Business First.
Because cannabis takes longer than two months to be cultivated, the CCD was suspicious of the report.
After inspecting the company’s premises, the CCD alleged Golden Roots reported cultivation, transportation and sales in BioTrack but wasn’t able to provide officers who inspected the site evidence that the operator was cultivating cannabis.
In April, the CCD revoked Golden Roots’ license and issued a $10,000 fine, according to the news outlet.
The company requested a hearing, which the regulator scheduled for Sept. 1.
At the hearing, the CCD testified that the company’s dried-cannabis weights in BioTrack were suspicious because they didn’t seem to accurately reflect how much weight marijuana loses as it dries.
Company employees also poorly accounted for why they were making adjustments in the system of up to 24 pounds of cannabis, making comments such as “bad” or “mistake” in the software, Albuquerque Business First reported.
Golden Roots was fined $298,972.05 – the amount regulators allege the company made selling products that weren’t properly accounted for in BioTrack.
The CCD has been cracking down on cannabis operators accused of selling products procured from out-of-state or not grown legally:
- Regulators alleged in August that Albuquerque dispensary Sawmill Sweet Leaf sold out-of-state products and didn’t have a license for extraction.
- Paradise Exotics Distro lost its license in July after regulators alleged the company sold products made in California.
Golden Roots was the first alleged rulebreaker in New Mexico to be asked to pay a large fine.
Source: https://mjbizdaily.com/new-mexico-cannabis-operator-fined-loses-license-for-alleged-biotrack-fraud/
Four marijuana companies, including a multistate operator, have filed a lawsuit against U.S. Attorney General Merrick Garland in which they allege the federal MJ prohibition under the Controlled Substances Act is no longer constitutional.
According to the complaint, filed Thursday in U.S. District Court in Massachusetts, retailer Canna Provisions, Treevit delivery service CEO Gyasi Sellers, cultivator Wiseacre Farm and MSO Verano Holdings Corp. are all harmed by “the federal government’s unconstitutional ban on cultivating, manufacturing, distributing, or possessing intrastate marijuana.”
Verano is headquartered in Chicago but has operations in Massachusetts; the other three operators are based in Massachusetts.
The lawsuit seeks a ruling that the “Controlled Substances Act is unconstitutional as applied to the intrastate cultivation, manufacture, possession, and distribution of marijuana pursuant to state law.”
The companies want the case to go before the U.S. Supreme Court.
They hired prominent law firm Boies Schiller Flexner to represent them.
The New York-based firm’s principal is David Boies, whose former clients include Microsoft, former presidential candidate Al Gore and Elizabeth Holmes’ disgraced startup Theranos.
Similar challenges to the federal Controlled Substances Act (CSA) have failed.
One such challenge led to a landmark Supreme Court decision in 2005.
In Gonzalez vs. Raich, the highest court in the United States ruled in a 6-3 decision that the commerce clause of the U.S. Constitution gave Congress the power to outlaw marijuana federally, even though state laws allow the cultivation and sale of cannabis.
In the 18 years since that ruling, 23 states and the District of Columbia have legalized adult-use marijuana and the federal government has allowed a multibillion-dollar cannabis industry to thrive.
Since both Congress and the U.S. Department of Justice, currently headed by Garland, have declined to intervene in state-licensed marijuana markets, the key facts that led to the Supreme Court’s 2005 ruling “no longer apply,” Boies said in a statement Thursday.
“The Supreme Court has since made clear that the federal government lacks the authority to regulate purely intrastate commerce,” Boies said.
“Moreover, the facts on which those precedents are based are no longer true.”
Verano President Darren Weiss said in a statement the company is “prepared to bring this case all the way to the Supreme Court in order to align federal law with how Congress has acted for years.”
While the Biden administration’s push to reschedule marijuana would help solve marijuana operators’ federal tax woes, neither rescheduling nor modest Congressional reforms such as the SAFER Banking Act “solve the fundamental issue,” Weiss added.
“The application of the CSA to lawful state-run cannabis business is an unconstitutional overreach on state sovereignty that has led to decades of harm, failed businesses, lost jobs, and unsafe working conditions.”
Alabama regulators are targeting Dec. 1 to award the first batch of medical cannabis business licenses after the agency’s first two attempts were scrapped because of scoring errors and litigation.
The first licenses will be awarded to individual cultivators, delivery providers, processors, dispensaries and state testing labs, according to the Alabama Medical Cannabis Commission (AMCC).
Then, on Dec. 12, the AMCC will award licenses for vertically integrated operations, a designation set primarily for multistate operators.
Licenses are expected to be handed out 28 days after they have been awarded, so MMJ production could begin in early January, according to the Alabama Daily News.
That means MMJ products could be available for patients around early March, an AMCC spokesperson told the media outlet.
Regulators initially awarded 21 business licenses in June, only to void them after applicants alleged inconsistencies with how the applications were scored.
Then, in August, the state awarded 24 different licenses – 19 went to June recipients – only to reverse themselves again and scratch those licenses after spurned applicants filed lawsuits.
A state judge dismissed a lawsuit filed by Chicago-based MSO Verano Holdings Corp., but another lawsuit is pending.
Source: https://mjbizdaily.com/alabama-plans-to-award-medical-cannabis-licenses-dec-1/
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