💸 High Impact

The Sweet Leaf of Tax Relief

When cannabis is finally reclassified from a Schedule I to a Schedule III drug, there will be a collective sigh of relief throughout the cannabis industry—followed by the uncorking of some very expensive bottles of bubbly. For years, cannabis companies have been shackled by the notorious Section 280E of the IRS tax code, which has kept their balance sheets as lean as a dieter in January. But now, with the potential removal of this tax albatross, the industry is poised to enjoy a green rush of a different kind—tax savings.

What’s the Big Deal with 280E?

Let’s get one thing straight: Section 280E is the party crasher that no cannabis company invited. Introduced in the 1980s to prevent drug dealers from deducting business expenses, 280E was never intended to ensnare legitimate businesses. But because cannabis remains a Schedule I drug under federal law, cannabis companies have been caught in its crosshairs.

Under 280E, cannabis businesses can only deduct the cost of goods sold (COGS), leaving them unable to deduct the myriad of other expenses that any "normal" business would—like rent, salaries, utilities, and marketing. This means that cannabis companies are often taxed on gross income rather than net income, resulting in effective tax rates that can reach an eye-watering 70% or more. Yes, you read that right—70%! This has been a major buzzkill for an industry that’s already dealing with razor-thin margins, regulatory headaches, and the ongoing battle to access banking services.

Reclassification: A Game-Changer

Now, imagine a world where cannabis is a Schedule III drug, sitting comfortably alongside Tylenol with Codeine and testosterone. The reclassification would mean that Section 280E would no longer apply to cannabis businesses, allowing them to deduct ordinary and necessary business expenses just like any other legitimate business. For cannabis companies, this would be nothing short of revolutionary.

The Bottom Line: Healthier Balance Sheets

Removing 280E from the equation would dramatically improve the profitability of cannabis companies. Suddenly, those absurdly high tax rates would drop to something more in line with what other businesses face—say, 20-30%. This means more cash flow, more investment in growth, and perhaps even the ability to lower prices for consumers. After all, if your tax burden drops from 70% to 30%, that’s a lot of extra green that can be reinvested in the business, used to expand operations, or—heaven forbid—actually generate a profit!

Moreover, the removal of 280E would make cannabis companies far more attractive to investors. Right now, the potential return on investment is heavily dampened by the brutal tax regime. With 280E out of the picture, the industry could see a surge in capital inflows as investors flock to what would suddenly be a much more financially viable sector. This could also lead to increased consolidation in the industry, as larger players gobble up smaller ones, driving economies of scale and further enhancing profitability.

The Bigger Picture: A More Legitimate Industry

Beyond the balance sheet, removing 280E would also signal a broader legitimization of the cannabis industry. It’s one thing to be operating in a legal gray area; it’s another to be treated like a normal business by the IRS. This shift could help further erode the stigma associated with the industry, making it easier for companies to attract top talent, form partnerships, and even access traditional banking services.

📈 Dog Walkers

New York Is Going Green

New York’s Cannabis Advisory Board has thrown down the gauntlet for cultivators to meet the state's sustainability goals as outlined in the MRTA. After a bumpy start that left farmers with a bumper crop and nowhere to sell it, the Office of Cannabis Management (OCM) is now shifting its focus to environmental stewardship. Licensed cultivators must submit an annual sustainability report by August 31, 2025, with a helping hand from a free online tool launching in September. The message is clear: measure, track, and improve. With New York's cannabis sales hitting $332 million through July 2024, staying green is the new gold.

Source: GMR

Kamala Will “Be Ready” - Kinda

If Vice President Kamala Harris clinches the presidency this November, cannabis reform could get its long-awaited moment in the sun. Democratic lawmakers are buzzing with optimism, predicting that a Harris-Walz administration will bring the first fully pro-legalization stance to the White House. Senator Jeff Merkley (D-OR), a key sponsor of a bipartisan marijuana banking bill, confidently stated that Harris would be "ready to sign" reform bills into law. The prospect of federal cannabis legalization could gain serious traction, especially with Harris at the helm. Senator Ron Wyden (D-OR) echoed this sentiment, emphasizing that Congress has been lagging behind public opinion on this issue. If Harris wins, cannabis reform might finally catch up.

Original Story - MM

RIV Capital To Report

RIV Capital Inc. is gearing up to release its financial results for the three and six months ended June 30, 2024, on August 28. With the Cansortium merger on the horizon, and a focus on building a multistate platform and a robust brand portfolio, these results will be closely watched. Investors and industry insiders alike are eager to see how RIV Capital's strategic acquisitions and partnerships are translating into growth.

🗞️ The News

New York cultivators have a year to submit a sustainability plan

Senator Says Harris Will ‘Be Ready To Sign’ Marijuana Reform Bills If Elected President

GOP Senators Claim Marijuana Is A ‘Gateway Drug’ As They Oppose Rescheduling And Legalization

RIV Capital sets date for financial results for second quarter ended June 30, 2024

📺 YouTube

All Things Cannabis w Hirsh Jain of Ananda Strategy

What we covered:

✅ On our latest Trade To Black podcast, where host Anthony Varrell will have a fireside chat with Hirsh Jain, the founder of Ananda Strategy—a consultancy advising leading cannabis brands, retailers, technology businesses, and venture capital funds across the United States, Canada, and Western Europe.

This episode will provide a comprehensive overview of the current state of rescheduling and political affairs in the cannabis industry, insights into key markets such as Ohio, and Hirsh’s perspective on what the future holds for the industry.