Under the Federal Controlled Substance Act, the production and/or distribution of marijuana is a punishable offense. However, under state law and depending on where you are, the law may allow you to run a marijuana business. The problem is. There are strict rules on who may produce or sell and who may buy. That means that starting a marijuana business is not similar to starting a lemonade stand. If you start one today, you must adhere to compliance rules and regulations set by the FDA and drug enforcement agencies.
To avoid problems with the federal government, there are three things you should never do:
- Never sell to minors.
- Sell or use marijuana on federal property.
- Use your business to provide revenue to criminal activity.
Here is why.
The federal government has six very important roles in the marijuana industry. According to the Cole memo, the federal government’s role is to:
- Prevent Distribution to minors
- Prevent revenue to criminal enterprises
- Prevent diversion to other states.
- Prevent drugged driving.
- Prevent growing on public grounds.
- Prevent its use a pretext.
If you violate these laws and are caught, there will be consequences.
Before you choose a location for your marijuana business, you must make sure that the location is outside of 500 feet from a school, church, playground, public park, library or public playground. Click here to find out more.
Note that marijuana licenses are specific to locations and the requirements are different, because of that, don’t purchase anything or sign a lease agreement before you obtain a license to operate in the area. Remember, there is no guarantee that you will be awarded a provisional license even if you comply with all the requirements.
The Board of Equalization estimated in 2008 that more than 300 marijuana dispensaries in California currently pay taxes with another 500 evading, why?
As a seller or distributor, you are required to collect and remit applicable sales tax due unless a specific exemption exists.
In some states, prescription drugs such as marijuana are exempt from sales tax or are subject to a special tax rate. For example, in California, certain sales of medical cannabis are exempt from sales and use tax. Keep in mind that sale and use tax does not apply to retail sales of concentrates, edibles and topical cannabis products in California. In January of this year, the sale of recreational marijuana became subject to sales tax in California.
The point is, keep up with the changes.
The thing is, each state taxes weed in some way. So as a business owner, it is in your best interest to find out what you must pay to the government and what you can get away with. If you don’t, you risk losing your business and your freedom.
Another important thing you should be aware of is. Thanks to a 1982 federal law that is still being enforced by the IRS. Marijuana businesses are not allowed to take advantage of any of the tax credits or deductions that are available to other small businesses.
What I am trying to tell you is very simple. The federal government and the IRS don’t recognize marijuana businesses as legal for tax purposes. The reason why you are required to pay taxes if you operate a marijuana business is, your business generates income, and anyone who earns an income is required by law to pay income tax. If you don’t pay taxes, the IRS can prosecute you for tax evasion. You may end up losing your source of income, freedom and a lot of money if that happens. As they say “give to Caeser what is Caeser’s”.
How to Avoid High Taxes Imposed on Marijuana Businesses
As you might have guessed the only way to completely avoid taxes is to start an illegal marijuana business, the problem is, if you get arrested you may have to pay fines or do time.
One way to reduce tax burden for your business is to start another business that does not involve a controlled substance in the same location and hire a family member, why?
As mentioned above, marijuana businesses are exempt from taking advantage of tax breaks available to other small businesses. The reason for that is weed is still illegal on the federal level. If you operate a legal business in the same space you operate a marijuana business, you will enjoy some tax breaks. Just make sure that the second business is legit and it doesn’t sell complementary goods. For example, you could start a coffee shop or café and keep the books different (two separate entities).
The reason why you should hire a family member to run the second business is, if you hire let’s say your wife, husband or child to operate the legal business, you will pay a lower marginal rate, or eliminate income tax if you hire your child to operate it.
Keep in mind that state laws are different, so before you set up a second business, it is advisable to talk with a tax professional to make sure that you are not breaking any laws.
Structure your Entity
The type of entity you choose can have an enormous impact on your tax liability. That’s why it’s important to work with a tax advisor when setting up your business.
When structuring your business, make sure that your business documents and structure comply with all requirements in your state.
Find the Right Insurance
There are lots of cases where insurance companies sold policies to marijuana businesses and failed to pay, so the question is, why should you pay for coverage?
What if an employee trips and breaks his neck or what if your product makes someone sick, are you willing to pay that person out of pocket?
The truth is, finding an insurer for your marijuana business is not difficult; the hard part is getting paid.
To avoid getting screwed over by your insurer, it is very important to pick the right policy and understand what you are getting yourself into. What you need is general liability, property liability or product liability insurance. Very few carriers underwrite these types of policies and their exclusions vary.
Because of that, if you get a policy, it is very important to read the fine print. You must understand the limits and everything that is covered, if you don’t understand the wording, get on the phone and talk to your agent or find someone to help you understand that policy before you start paying premiums.
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