Ohio Voters Pass Recreational Adult Use Cannabis: A New Era of Cannabis

Date November 9, 2023
Authors Victoria R. Lehn, MAcc
Categories

In a significant move, Ohio has joined the growing list of 23 other U.S. states that have legalized recreational cannabis for adult use. On November 7, 2023, Ohio voters supported Issue 2. This historic decision marks a pivotal moment in the state’s evolving stance on cannabis and reflects a broader trend towards cannabis decriminalization and regulation across the country.

The Road to Legalization

The path to legalizing recreational cannabis in Ohio has been a long and often contentious journey. Ohio Voters in 2015 originally rejected a recreational marijuana ballot previously known as Issue 3. In 2016 the State of Ohio legalized medical marijuana through House Bill 523, offering relief to thousands of patients suffering from various medical conditions. This move opened the door to broader discussions about the potential benefits of cannabis, leading to increased public support for recreational legalization setting the stage for the 2023 ballot measure known as Issue 2.

Key Provisions of the New Law

The newly signed law, known as the Ohio Recreational Cannabis Act, outlines key provisions and regulations for the legal use of cannabis in the state. Here are some of the most important elements from Issue 2:

  1. Age Restriction: Adults aged 21 and older are allowed to purchase, possess, and use cannabis for recreational purposes. This age restriction is similar to the rules governing alcohol consumption.
  2. Possession Limits: Adults can legally possess up to 2.5 ounces of cannabis and up to 15 grams of cannabis concentrates for personal use.
  3. Retail Licensing: Similar to the medical marijuana control program, the law continues a system for licensing and regulating cannabis dispensaries, ensuring that the product is sold safely and responsibly. Under the new law, the Division of Cannabis Control is responsible for regulating, licensing, production, and compliance of cannabis operators and facilities. Licensing for distribution facilities is expected to be complete around Fall 2024. Currently, Ohio has 34 licensed cultivators and 107 medical cannabis dispensaries statewide.
  4. Home Cultivation: Ohio residents are permitted to cultivate a limited number (6 per individual, 12 total per household) of cannabis plants for personal use, provided they follow specific guidelines and restrictions.
  5. Taxation: A portion of the 10% excise tax and 5.75% sales tax revenue generated from cannabis sales will be allocated to public health and education initiatives, which is a common practice in states that have legalized recreational use. For Ohio, the cannabis social equity and jobs program will be designed to provide financial support and assistance for license applications to individuals who have been disproportionally impacted by past cannabis-related law enforcement.
  6. Workplace Regulations: The law includes provisions to address workplace concerns, emphasizing the importance of responsible consumption and maintaining a drug-free work environment.

Economic Impact

One of the most compelling arguments for legalizing recreational cannabis is its potential to boost the state’s economy. The new law projects to bring in $1.5 to $2 billion in the first year and approximately $3.5 to $4 billion within four years of the program’s inception. Legal cannabis markets have proven to be significant revenue generators for states that have taken this step. Ohio is expected to experience similar economic benefits, including increased tax revenue, job creation, and new business opportunities. With almost 12 million residents but only 180,000 active medical patients, Ohio’s medical cannabis industry is expected to reach approximately $575 million by the end of 2023.

Public Health and Education

The Ohio Recreational Cannabis Act places a strong emphasis on public health and education. A portion of the tax revenue from cannabis sales will be dedicated to these sectors. This investment can help fund programs that raise awareness about responsible cannabis use, provide support for addiction treatment, and enhance public health services.

Next Steps

According to the Ohio Constitution, the state legislature can modify or repeal initiative statutes right after they are passed. With 57% of voters favoring the law, it is unlikely that the General Assembly would completely repeal the legalization, but it has been vowed by some officials to edit the initiative after passage. Currently, the measure will go into effect 30 days after the election.

Ohio’s decision to legalize recreational cannabis reflects a broader shift in the United States toward the changing political landscape and opinions associated with cannabis. With a well-crafted and comprehensive regulatory framework, the state aims to strike a balance between individual freedom, economic growth, and public health and safety. As Ohio joins the ranks of states allowing recreational cannabis use, the path forward will be closely monitored, with an eye toward the potential benefits and challenges this new era may bring.

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Rescheduling Cannabis Could Mean Tax Relief and More to Cannabis Companies

Date November 8, 2023
Authors Ofek Peer
Categories

In recent years, the landscape regarding the legal production, sale, and use of cannabis in the U.S. has been in constant development. One significant change that has been proposed and debated is rescheduling Tetrahydrocannabinols (THC) including Delta-8 THC, Delta-9 THC, dronabinol and others (hereinafter referred to as cannabis) from its current status as a Schedule I controlled substance to a Schedule III controlled substance. Such a move should have wide-reaching implications, including dramatic changes in cannabis companies’ income tax reporting and obligations.

In the U.S., controlled substances are classified into different “schedules” under the Controlled Substances Act (CSA). The scheduling system, overseen by the Drug Enforcement Administration (DEA), categorizes substances based on their potential for abuse and accepted medical use. Schedule I substances are considered the most dangerous, with a high potential for abuse and no recognized medical value, while Schedule V substances are considered the least dangerous. Currently, cannabis is classified as a Schedule I substance, which has significant implications for both its legal status and how it is taxed.

As a Schedule I substance, cannabis is subject to particularly burdensome federal taxation through a provision known as Section 280E of the Internal Revenue Code. Section 280E disallows businesses trafficking in CSA Schedule I and II controlled substances from deducting ordinary business expenses when calculating their federal income tax. This results in effective tax rates for cannabis businesses that can exceed 70 percent, making it highly challenging for legal cannabis businesses to compete and thrive.

On August 29, 2023, The Department of Health and Human Services sent a letter to the DEA requesting a rescheduling of cannabis to a Schedule III controlled substance. Rescheduling cannabis would ultimately signify that the government acknowledges its potential for medical use. The change in status could also have several significant tax-related effects:

  • Tax deductions: Under Schedule III, cannabis businesses can deduct a broader range of their business expenses when calculating federal income tax leading to lower tax burdens for cannabis companies, making it easier for them to operate profitably.
  • Improved industry viability: Lower tax liabilities may attract more entrepreneurs and investors to the cannabis industry, thereby promoting its growth. This growth could create jobs, generate tax revenue for local, state, and federal governments, and reduce the influence of the illicit market.
  • Increased research and development: Rescheduling could encourage more research and development in the cannabis industry, leading to innovations in both medical and recreational products. Such innovations could further expand the industry’s economic potential.
  • It is unclear, but unlikely, the Internal Revenue Service will allow amending previous years’ tax returns to exclude the limitations under section 280E.

    Rescheduling cannabis is a complex issue with many considerations beyond taxation. It would require legislative action, and there is no guarantee of its success. The process would also involve extensive research to determine the appropriate scheduling and regulatory framework. Additionally, some stakeholders may express their concerns about potential consequences of rescheduling, such as its impact on public health and safety.

    If you have questions, please contact the HBK Cannabis Solutions.

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    Assessing the True Value of Cannabis Companies: Financial Metrics and Valuation Methods

    Date October 23, 2023
    Authors Stacey D. Udell
    Categories

    From a presentation to the Benzinga Capital Conference

    Assessing the true value of a cannabis company can be a complex task due to the unique dynamics of the industry and the evolving regulatory landscape. However, there are several financial metrics and valuation methods that can be applied to gain insight into the value of the company. Here are some key considerations:

    Revenue and Growth: Look for consistent and sustainable revenue streams, as well as a strong growth trajectory. This can be challenging due to regulatory constraints and market volatility, so it’s important to assess the company’s ability to generate revenue within these limitations.

    EBITDA and Profitability: Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) is often used as a measure of a company’s operating profitability. In light of cannabis companies’ unique tax and accounting challenges, EBITDA can provide a clearer picture of their financial performance. Assess the company’s ability to generate positive EBITDA and ultimately achieve profitability.

    Cash Flow: Analyzing a cannabis company’s cash flow is crucial for understanding its liquidity and ability to fund operations and growth. Positive cash flow indicates the company has enough cash to cover expenses and invest in expansion. Negative cash flow may suggest a need for additional financing, which can impact valuation.

    Comparable Company Analysis: Compare the target company to similar publicly traded cannabis companies or companies in related industries. Key valuation multiples such as price-to-earnings (P/E), price-to-sales (P/S), or enterprise value-to-EBITDA (EV/EBITDA) can be used to assess relative value. Carefully select comparable companies to ensure they have similar business models, growth prospects, and market positions.

    Discounted Cash Flow (DCF) Analysis: DCF analysis is a valuation method that estimates the present value of a company’s future cash flows. It involves projecting future cash flows, applying a discount rate to account for the time value of money and risk, then summing the present value of these cash flows. DCF analysis requires making assumptions about future revenue growth, profitability, and risk factors, making it more challenging in the cannabis industry due to the uncertainties unique to the industry.

    Market and Industry Analysis: Analyzing the overall market and industry trends can provide insights into a cannabis company’s potential. Factors such as market size, growth rates, competitive landscape, and regulatory environment can impact the valuation. Assess the company’s market share, growth potential, and competitive advantages within the industry.

    Management Team and Operational Efficiency: Evaluate the management team’s experience and track record in the cannabis industry. Strong leadership, effective operational strategies, and efficient cost management can contribute to a company’s value.

    The cannabis industry is still evolving, and valuing cannabis companies can be challenging due to the regulatory complexities, legal restrictions, and market volatility. Therefore, a comprehensive assessment should consider both financial metrics and qualitative factors to form a well-rounded valuation. Additionally, consulting with industry experts or financial professionals experienced in the cannabis sector can provide valuable insights.

    For more information on HBK Cannabis Solutions Group, contact us at hbkcannabis@hbkcpa.com, or visit our website at www.hbkcpa.com/cannabis.

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    HHS Recommends Rescheduling Cannabis to Schedule III

    Date August 31, 2023
    Authors Stacey D. Udell
    Categories

    In October 2022, President Biden asked “the Secretary of Health and Human Services (HHS) and the Attorney General to initiate the administrative process to review expeditiously how marijuana is scheduled under federal law.” On August 29, 2023, the HHS made its recommendation to the U.S. Drug Enforcement Agency (DEA) to reschedule cannabis to Schedule III, a category assigned to drugs having low to moderate potential for abuse and/or addiction, and less dangerous than Schedule I or II. It is now up to the DEA, which has final authority on scheduling or rescheduling drugs under the Controlled Substances Act.

    If the DEA reschedules cannabis, it will still be an illegal substance, but a little “less illegal.” Cannabis will remain subject to the regulations of the Food and Drug Administration and there will still be a difference between legal status at the state and federal levels for those states that legalize cannabis for adult recreational use.

    The impact of rescheduling on banking and financial services is unknown. Perhaps most significantly, businesses in the cannabis industry will pay less taxes because rescheduling to Schedule III eliminates the tax burdens of Internal Revenue Code Section 280E.

    An August 30 Politico article called the move “potentially the biggest change in federal drug policy in decades.”

    Until the DEA completes its review, there will be a lot of speculation. Let’s just hope good things come to those who wait.

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    HBK’s Stacey Udell: A Top 10 New Jersey Business Accounting Power

    Date June 29, 2023
    Authors Stacey D. Udell

    HBK CPAs & Consultants’ Stacey D. Udell, CPA/ABV/CFF, CVA, has been named among the 2023 Top 10 of the New Jersey Business Accounting Power 50, an annual list compiled by the editorial staff of NJBIZ study recognizing “the most influential men and women in the profession” who New Jersey business owners count on for guidance.

    Stacey is a Principal in HBK Valuation, Litigation, and Forensics in Cherry Hill and the Mid-Atlantic Regional Director of HBK Cannabis Solutions, a team of specialists focused on the business challenges confronting businesses in the cannabis industry. Her experience in business valuation, forensic accounting, economic damages, and litigation support services spans more than 25 years. She has been involved in the various accounting-related aspects of the cannabis industry since 2014 providing a wide range of services in the industry in multiple states, specializing in financial modeling and business valuation. Stacey has helped cannabis industry clients before obtaining their license, new operators and experienced operators, buyers and sellers of cannabis businesses, and those involved in litigation.

    Stacey has spoken nationally, regionally, and locally for a variety of professional groups and organizations on various business valuation, litigation-related, and cannabis industry topics. She is the author of multiple published articles on topics related to valuation, economic damages, family law, and the cannabis industry. She co-authored the first known book on valuation in the cannabis industry, The Cannabis Industry Accounting and Appraisal Guide, currently in its second edition.

    HBK Cannabis Solutions is a dedicated team of cannabis industry subject matter experts within HBK CPAs & Consultants, an Accounting Today Top 50 CPA firm. We were among the first accounting firms to specialize in the cannabis industry and have worked beside entrepreneurs in all industry segments—cultivators, processors, retailers—from single facility to multi-location and integrated operations. We counsel owners, management and investors in multiple states and countries, helping them with key financial activities: from planning start-ups to connecting operators with investment bankers to facilitating M&A; from pre-offering projections, state applications, and licensing to management planning and operations. Our cannabis-specific expertise is recognized throughout the industry; we regularly address industry meetings and conferences, and are active in the organizations and associations dedicated to moving the industry forward.

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    Webinar: Confronting the Challenges Unique to Cannabis Manufacturing

    Date September 22, 2022
    Categories

    Cannabis manufacturers face challenges unique to their industry on a number of fronts. Owners and operators must understand industry workflows, material costs, labor time, and operations costs. Understanding the cannabis industry supply chain, knowing how to identify quality product, and implementing effective manufacturing practices, including building partnerships with licensed farmers and securing the right retail and delivery partners, are essential to developing the kind of products that will succeed and last in the market. And all with a careful eye to the pervasive issues related to compliance.

    Join Christopher Marrie, CPA, CCIFP, and Director of HBK Cannabis Solutions, and Warren Harasz, Vice President of Regulatory Compliance, Cannaspire, as they discuss some of the challenges of maintaining a cost-effective and compliant manufacturing business.

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    Software Programs: Cannabis Companies Have Many Options

    Date September 13, 2022
    Authors Lynn Helm
    Categories

    There are many off-the-shelf software programs available to track the activities of a cannabis business – and most cannabis companies will require more than one. For example, tracking inventory requires a seed-to-sale system, such as MJ Freeway or Biotrack while a retail business requires a point-of-sale software program to record sales transactions. And both will also need a dedicated accounting software.

    Accounting Software

    Accurate accounting allows owners and management to assess the profitability of their business. When choosing a software program, some things to consider are ease of use, customer support, cost, and available data storage.

    As to customer support, consider whether the cost is included in the licensing fee or is an additional cost. Also find out the length of the period support is provided.

    As to the cost of the program and/or licensing fees, most software is priced as a monthly fee based on the number of users who require access to the program. User companies are billed either a fixed fee for a certain number (or unlimited number) of users or charged per user.

    When it comes to data storage, such as receipts and invoices, some programs allow for attachments to each transaction, while others offer a folder for storing program items.

    Ideally, any software you use should be cannabis compliant. Four of the most common programs are:

  • QuickBooks/QuickBooks Online: Designed for small business owners without an accounting background. Probably the most commonly used option but not cannabis compliant.
  • Xero: An online accounting solution designed for accountants and bookkeepers with apps for invoicing, expense management, inventory management, project management, and bill payment. Xero includes a mobile app and supports unlimited users.
  • Sage Intacct (Intacct): A stand-alone accounting system that integrates with ERP and CRM software. Good for multi-state operators and multiple entities needing to consolidate.
  • Oracle NetSuite (NetSuite): Advertised as an all-in-one “software suite” including customer relationship management, enterprise resource planning, and accounting modules.
  • None of these programs provide an inventory management module that works well for tax- and GAAP-compliant cannabis companies.

    Seed-to-Sale Inventory Software

    Inventory is one of the most important things cannabis companies track. Knowing the steps from seed to the sale of each plant allows for reliable tracking and results in more useful and accurate financial statements. Many states require the use of seed-to-sale software to ensure accountability.

    Things to consider when selecting a seed-to-sale program include cost, ease of use, technical support, and compatibility with regulatory software and accounting software. There are numerous seed-to-sale software programs available, with more being introduced regularly, including:

    Cultivation and Processing:

    • Agrisoft
    • Biotrack THC*
    • Canix
    • Flouish
    • Growflow
    • LeafLogix (acquired by Dutchie in 2021)*
    • MJ Freeway
    • Nugistics
    • ProSoft XP (manufacturing only)
    • SAP Business One
    • SilverLeaf
    • StashStock
    • Traceweed
    • Trellis
    • Viridian Sciences

    Retail:

    • Agrisoft
    • Cova
    • Blaze
    • Flourish
    • Flowhub*
    • Growflow
    • IndicaOnline (also available for delivery)
    • Treez*
    • Viridian Sciences

    * Recommended by Melissa Diaz of Rebel Rock Accounting

    Payroll Software

    Many accounting software programs offer a payroll module at an additional charge; others do not. They vary in terms of cost, ease of use, ability to link with the accounting software and general ledger, human resource services available, leverage efficiencies of scale HCM capabilities, and recruiting and onboarding capabilities, including benefits management.

    Payroll programs:

    • Gusto*
    • Paychex*
    • Primepay
    • Wurk *
    • ADP (in the future)
    • Workday (in the future)

    * recommended by Melissa Diaz of Rebel Rock Accounting

    Document Management Software

    Document Management programs allow users to store documents on physical servers or in cloud-based platforms. Considerations include whether the documents can be automatically categorized or associated with each other, whether it is an external system with the ability to write or read the storage location, how easy it is to access the storage or get help, and finally, the established standards for repository structure and naming convention of retained documents.

    Document management solutions:

    • Dropbox
    • Google Drive
    • Hubdoc
    • ShareFile

    Accommodating your needs

    Cannabis companies have many software options, and each business will prefer a different software for different reasons. The best approach to securing the best fit for your business is to do your research and try a program before you buy. Make a list of the services you need and determine which software will meet the needs of your business. Some software providers offer a questionnaire you can use to determine if their product is a good match.

    Many companies welcome feedback and encourage users to submit ideas to improve their programs, while others remain reluctant to work with cannabis businesses. We are seeing some of those companies open to change and hope more will be willing to support the needs of cannabis businesses.

    If you have questions on Software Programs with Cannabis Companies, please contact the HBK Cannabis Solutions.

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    Congress Proposes Bill on Marijuana Research Funding

    Date August 4, 2022
    Authors Eric T. Grischow Manager, HBK Cannabis Solutions Group
    Categories

    The Medical Marijuana and Cannabidiol Research Expansion Act would improve access to funding for marijuana research.

    The Cannabis industry has a long history of encountering multiple obstacles in its attempt to do legitimate business. Of course, the main obstacle is that the U. S. Government still classifies cannabis as a Schedule I drug, meaning any form of marijuana, including medical-grade marijuana, cannot be legally prescribed or sold in the U.S., and anyone caught buying or selling it is subject to federal penalties.

    In recent years, many states have enacted legislation legalizing marijuana. Nineteen states, Washington, DC, and Guam have legalized recreational marijuana, and South Dakota, which voted for legalization in 2020—the measure was overthrown—is likely to vote on the issue again this November. Most of those that have legalized recreational marijuana have launched adult-use cannabis sales, and three more—Connecticut, Rhode Island, and Vermont—will likely do so later this year.

    But even as decriminalization and legalizations efforts have been increasingly successful, hurdles to cannabis businesses of all kinds have remained: applying for licenses, finding the real estate, building out facilities, finding banks that will make loans or even take deposits, state as well as federal regulations.

    Research funding and focus history

    Another hurdle inhibiting the growth of the industry is the availability of research. Because Cannabis is a Schedule 1 drug, federal funding for research is limited and extremely politicized. Estimates have overall cannabis research funding in the United States increasing from about $30 million in 2000 to more than $143 million in 2018, but most federal funding has been dedicated to determining the health benefits or harms of these products.

    According to Science magazine (https://www.science.org/doi/10.1126/science.369.6508.1155), an “analysis of cannabis research funding in the United States, Canada, and the United Kingdom has found that $1.56 billion was directed to the topic between 2000 and 2018—with about half of the money spent on understanding the potential harms of the recreational drug. Just over $1 billion came from the biggest funder, the U.S. National Institute on Drug Abuse (NIDA), which doled out more money for research on cannabis misuse and its negative effects than for studies of cannabis and cannabis-derived chemicals as a therapeutic drug.”

    Congressional proposal to expand research funds

    A new bill in Congress, the Medical Marijuana and Cannabidiol Research Expansion Act (H.R.8454), would improve access to funding for marijuana research. The bill establishes a separate registration process to facilitate research on marijuana. Central to the proposal are provisions that would streamline the application process for researchers. The U.S. attorney general would have 60 days to approve or disapprove an application, or to request more information from the applicant. It would also make it easier for researchers to gain access to larger quantities of cannabis.

    On July 27, 2022, the U.S. House of Representatives passed the Medical Marijuana and Cannabidiol Research Expansion Act. Representative Andy Harris, MD says, “This bill makes it easier to do the necessary, rigorous medical research—just like is done for any other drug that has a claim of efficacy in this country. The American public deserves to know what medical marijuana is useful for because, for anyone with those conditions where it is found to be useful, it could be a godsend—but for other conditions where the claims won’t be found to be valid with rigorous research, it would be found to be ineffective.

    If the U.S. Government conducts more research, it could open the door for prohibition to end. If not prohibition, it could bring a broader understanding and vision for users of cannabis products, as well as the physicians who are recommending these products. At the very least, it will help promote cannabis as a replacement for opioids.

    If you have questions on Marijuana Research Funding, please contact the HBK Cannabis Solutions.

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    Entering the New Jersey Cannabis Market? Understand the Applicable Taxes and Fees

    Date July 8, 2022
    Authors Kurt Seifert
    Categories

    The cannabis industry is expanding and competition in new markets from cannabis startups to established industry leaders is picking up. New Jersey is one such market where demand for adult-use cannabis soared following the passing of the Cannabis Regulatory Enforcement Assistance, and Marketplace Modernization Act (CREAMMA) on August 19, 2021. Before entering the New Jersey market, cannabis companies should understand the applicable taxes and fees involved in operating their business, costs that could be substantial and will vary based on several factors, including business purpose—retail or cultivation—as well as the type of customers the company is targeting.

    Background

    With the enaction of CREAMMA, New Jersey joined 18 other states that have legalized marijuana for both adult use and medicinal purposes. New Jersey previously passed the Compassionate Use Medical Marijuana Act in 2014 and the Jake Honig Compassionate Use Medical Cannabis Act in 2019, granting access to medical cannabis products for those 18 and older and for minors under the supervision of a parent, guardian, or custodian.

    To compete in the New Jersey cannabis market, a business must first obtain an Employer Identification Number from the Internal Revenue Service (https://www.irs.gov/businesses/small-businesses-self-employed/apply-for-an-employer-identification-number-ein-online) and then register with the New Jersey Division of Revenue and Enterprise Services (https://navigator.business.nj.gov/onboarding). The company can then apply for the cannabis license or licenses of their choosing with the New Jersey Cannabis Regulatory Commission (CRC).

    Cultivation operations (Class 1 licensees)

    Cultivators are subject to the Social Equity Excise Fee (SEEF) when selling or transferring cannabis to other businesses. The SEEF rate is one-third of 1 percent of the CRC-determined statewide average retail price of an ounce of usable recreational cannabis. This rate currently equates to $1.10 per ounce and is expected to be updated annually. Companies subject to SEEF will file Form SF-100 monthly, due by the 20th day of the following month.

    The SEEF will apply only to business-to-business sales; cultivators’ retail customers are exempt from the fee. As well, products sold or transferred to another Class 1 license holder or sold for use in medical cannabis dispensing and treatment are not subject to SEEF.

    New Jersey municipalities reserve the right to impose a Local Cannabis Transfer Tax on recreational cannabis transactions at a ceiling of 2 percent. The rate and decision to levy the tax is up to the municipality, as is the administration of the collection of the tax.

    Retail operations (Class 2 licensees)

    Retailers of adult-use cannabis products are subject to sales and use tax at New Jersey’s established standard rate of 6.625 percent as reported on Form ST-50C quarterly. Sales and use taxes on medical cannabis were phased out completely as of July 1, 2022.

    The right of New Jersey municipalities to impose and administer a Local Cannabis Transfer Tax on recreational cannabis transactions of up to 2 percent also applies to retail sales.

    Sales and use tax relief for New Jersey operators

    Cannabis operators can mitigate their tax liabilities through several existing New Jersey sales and use tax exemptions. The following three forms can be used to generate substantial tax savings:

    • Form ST-3 Resale Certificate: Exempts from taxation transactions of tangible personal property intended to be resold to customers or used as a component of a sellable item to customers. Ultimately, sales tax will be collected on the items when they are sold in the retail space.
    • Form ST-4 Exempt Use Certificate: Exempts from taxation equipment or materials purchased to produce cannabis products, including machinery used in the production process and packaging materials. The exemption does not apply to small tools or supplies.
    • Form ST-7 Farmer’s Exemption Certificate: Exempts from taxation the purchase of farm equipment or services used in cultivating adult-use cannabis and personal property used directly at the farming enterprise for the production and sale of adult-use cannabis.

    Constantly evolving rules

    The legal and taxable nature of cannabis products is constantly evolving. It is important for companies operating in the industry to stay current on the rules and regulations of all states where they operate. As well, because cannabis is considered a high-risk industry, companies should expect to be audited by taxing authorities and should keep detailed records of all transactions.

    If you have questions on the taxes and fees for the New Jersey Cannabis Market, please contact me at KSeifert@hbkcpa.com.

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    Compete for Cannabis Employees with a Top-Notch Retirement Plan

    Date May 6, 2022
    Authors Eric T. Grischow, CPA
    Categories

    Employee attraction and retention is a hot button issue in every industry. The cannabis industry is no different. As markets and businesses mature, attracting and retaining talent is becoming more competitive. One incentive a company can offer is a retirement plan. If a prospective employee is considering companies with similar pay, health benefits, and bonus structures, a top-notch retirement plan could make the difference between accepting and rejecting your job offer. Still, given the unique challenges cannabis and cannabis-related entities face relative to banking and regulatory laws, getting the ball rolling on a retirement plan can be difficult. Here are some tips to help you get started:

    Consult with your financial institution. Chances are your financial institution representative will be able to establish a meeting with potential third-party administrators, advisors, and investment managers who are familiar with the cannabis space.

    Be upfront with third parties about the structure of your business. If there is an entity structure in place where, for example, plant-touching employees are employed by a different company that provides the retirement plan, it is best to share that information with all parties. You don’t want to be in a position where an advisor needs to back out because of your relationship with cannabis.

    Ask advisors questions. Being honest and upfront in the beginning of the process should be sufficient to explain the challenges you face as a cannabis business. However, ask the advisors if they have experience with cannabis-related companies. Request and review a copy of their most recent SOC1 report.

    Consult with an ERISA attorney. Retirement plans are beneficial for companies and employees if operated efficiently. The cannabis industry, medical or recreational, is scrutinized enough; you don’t want compliance issues with the Department of Labor or the Internal Revenue Service over a retirement plan.

    Consult with your CPA. A substantial amount of employee benefit plans are going to have a large number of eligible participants, which may subject your retirement plan to an employee benefit plan audit.

    Determine your budget for the plan. You need to know the potential cost of establishing and maintaining the plan to make sure it makes financial sense. Will the employer or the plan be responsible for paying administrative expenses?

    Know your legal obligations. An employee benefit plan is a long-term commitment to provide a financially secure retirement to participating employees. Even though you can outsource certain administrative functions of the plan, you are ultimately responsible for plan oversight.

    HBK CPAs & Consultants can help you determine whether you need an audit, help prepare you for an audit in the future, and conduct the audit. In addition, HBK is a member of the American Institute of Certified Public Accountants (AICPA) Employee Benefit Plan Audit Quality Center. Our professional staff serving employee benefit engagements uses this affiliation to keep abreast of the latest developments in accounting for employee benefit plans, communicating with AICPA staff and other members on technical benefit issues, and continuing education and technical research in the field.

    HBK Cannabis Solutions was among the first CPA firms to specialize in the cannabis industry and we have worked beside entrepreneurs in all industry segments—cultivators, processors, and retailers—from a single facility to multi-location and vertically integrated operations. We can assess your current accounting system, advise, and install accounting that complies with GAAP and IRS rules.

    Speak to one of our professionals about your organizational needs

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