DOCSLIB.ORG

1 the Cannabis Industry

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
1 the Cannabis Industry ACCOUNTING CONTINUING EDUCATION Accounting, Auditing and Tax Considerations for the Cannabis Industry (CANA4) Accounting, Auditing, and Tax Considerations for the Cannabis Industry (CANA4) 2021 Edward K. Zollars, CPA Kenneth Heaslip, MS, MBA, CPA, CGMA ACCOUNTING, AUDITING, AND TAX CONSIDERATIONS FOR THE CANNABIS INDUSTRY (CANA4) ©2021 Kaplan, Inc. Published in 2021 by Kaplan Financial Education. Printed in the United States of America. All rights reserved. The text of this publication, or any part thereof, may not be translated, reprinted or reproduced in any manner whatsoever, including photocopying and recording, or in any information storage and retrieval system without written permission from the publisher. TABLE OF CONTENTS SECTION 1 The Cannabis Industry ........................................................................................................................ 1 Learning Objectives ........................................................................................................................................................................................ 1 History................................................................................................................................................................................................................ 1 Organizational Structure ............................................................................................................................................................................... 4 Risks ................................................................................................................................................................................................................... 6 Ethics .................................................................................................................................................................................................................. 8 Separating Product and Period Costs ........................................................................................................................................................ 8 Segment Reporting ...................................................................................................................................................................................... 12 Internal Control ............................................................................................................................................................................................ 12 Financial Statements and Audits of Cannabis Entities ....................................................................................................................... 12 SECTION 2 Internal Control for Cannabis Entities .............................................................................................. 15 Learning Objectives ..................................................................................................................................................................................... 15 Overview ......................................................................................................................................................................................................... 15 Internal Controls For the Cannabis Industry ......................................................................................................................................... 16 Regulatory Considerations ........................................................................................................................................................................ 17 Smaller Entities and Challenges in Implementing Internal Controls ............................................................................................... 18 The Three Critical Controls ....................................................................................................................................................................... 20 Control Environment ................................................................................................................................................................................... 30 Risk Assessment ........................................................................................................................................................................................... 46 Information and Communication ............................................................................................................................................................ 55 Monitoring ..................................................................................................................................................................................................... 63 iv SECTION 3 Federal Income Taxation of Cannabis Businesses ............................................................................ 69 Learning Objectives ..................................................................................................................................................................................... 69 Federal Taxation of an Ordinary Business vs. a Cannabis Business .................................................................................................69 Inventory Costs ............................................................................................................................................................................................. 70 Other Ordinary and Necessary Business Deductions (§162) .............................................................................................................. 81 How This Works for a Cannabis Business ............................................................................................................................................... 83 §199A and the Cannabis Business ........................................................................................................................................................... 97 What if §199A Doesn’t Apply to a Cannabis Business? ...................................................................................................................... 109 SECTION 4 Federal Income Tax Issues for Cannabis Businesses ...........................................................................................1 20 Learning Objectives ................................................................................................................................................................................... 120 Tax Court Decides that §280E Does Not Violate the EightH Amendment ..................................................................................... 120 IRS Using State Reports Filed by Legal Sellers to Target §280E Examinations ............................................................................ 123 Maintenance of Books and Records – Reconstruction of Income Issues ..................................................................................... 124 Multiple Trades or Businesses ................................................................................................................................................................ 126 CHAMP – A Truly Separate Trade or Business ..................................................................................................................................... 127 Olive – Did Not Have a Separate Trade or Business .......................................................................................................................... 132 Alterman – Taxpayer Again Fails to Meet the CHAMP Standard ..................................................................................................... 135 Businesses Related to Cannabis Businesses ....................................................................................................................................... 137 Impact of State Level Taxes on Federal Taxable Income ................................................................................................................. 139 Risks in Using the Special Inventory Rules Under §471(c) ................................................................................................................ 140 SECTION 5 State and Local Tax Issues for Cannabis Businesses ............................................................................................14 4 Learning Objectives ................................................................................................................................................................................... 144 Introduction ................................................................................................................................................................................................ 144 v State Taxation in General ......................................................................................................................................................................... 146 Sales and Use Tax Issues .......................................................................................................................................................................... 147 State Income Taxation of Cannabis Businesses ................................................................................................................................. 148 State and Local Excise Taxes Specific to Cannabis Businesses
Load more

Recommended publications
  • The Green Regulatory Arbitrage
    Table of Contents I. EXECUTIVE SUMMARY ...................................................................................................... 1 II. PROHIBITION - HOW CANNABIS BECAME ILLEGAL ..................................................... 4 III. THE LEGAL LANDSCAPE .................................................................................................... 7 A. Federal Law And Its Impact On The Cannabis Industry ..................................................... 7 1. Cannabis Is A Schedule 1 Substance ............................................................................ 7 2. Access To Capital Markets Restricted ......................................................................... 9 3. Banking Services Limited .......................................................................................... 10 4. Tax Burdens .............................................................................................................. 11 5. Interstate And International Commerce Restrictions ................................................. 11 6. Insurance Options Limited ........................................................................................ 12 7. Medical Research And Clinical Trials Stymied .......................................................... 12 8. Professional Services Harder To Find ........................................................................ 13 9. Real Estate Challenges .............................................................................................. 13 B. The States
    [Show full text]
  • The Rise and Decline of Cannabis Prohibition the History of Cannabis in the UN Drug Control System and Options for Reform
    TRANSNATIONAL I N S T I T U T E THE RISE AND DECLINE OF CANNABIS PROHIBITION THE HISTORY OF CANNABIS IN THE UN DruG CONTROL SYSTEM AND OPTIONS FOR REFORM 3 The Rise and Decline of Cannabis Prohibition Authors Dave Bewley-Taylor Tom Blickman Martin Jelsma Copy editor David Aronson Design Guido Jelsma www.guidojelsma.nl Photo credits Hash Marihuana & Hemp Museum, Amsterdam/ Barcelona Floris Leeuwenberg Pien Metaal UNOG Library/League of Nations Archives UN Photo Printing Jubels, Amsterdam Contact Transnational Institute (TNI) De Wittenstraat 25 1052 AK Amsterdam Netherlands Tel: +31-(0)20-6626608 Fax: +31-(0)20-6757176 [email protected] www.tni.org/drugs www.undrugcontrol.info www.druglawreform.info Global Drug Policy Observatory (GDPO) Research Institute for Arts and Humanities Rooms 201-202 James Callaghan Building Swansea University Financial contributions Singleton Park, Swansea SA2 8PP Tel: +44-(0)1792-604293 This report has been produced with the financial www.swansea.ac.uk/gdpo assistance of the Hash Marihuana & Hemp Museum, twitter: @gdpo_swan Amsterdam/Barcelona, the Open Society Foundations and the Drug Prevention and Information Programme This is an Open Access publication distributed under (DPIP) of the European Union. the terms of the Creative Commons Attribution License The contents of this publication are the sole responsibility (http://creativecommons.org/licenses/by/2.0), which of TNI and GDPO and can under no circumstances be permits unrestricted use, distribution, and reproduction regarded as reflecting the position of the donors. in any medium, provided the original work is properly cited. TNI would appreciate receiving a copy of the text in which this document is used or cited.
    [Show full text]
  • Ianthus Capital Holdings, Inc
    iAnthus Capital Holdings, Inc. MANAGEMENT’S DISCUSSION AND ANALYSIS For the Three Months Ended March 31, 2019 and 2018 Management’s Discussion and Analysis For the three months ended March 31, 2019 and 2018 (In thousands of U.S. Dollars, unless stated otherwise) Company Overview iAnthus Capital Holdings, Inc. (the “Company”, or “ICH”, or “iAnthus”) is one of the largest Multi-State Operators (MSOs) in the United States, providing investors with diversified exposure to the regulated cannabis industry. We develop, own and operate, what we believe to be, the best-in-class licensed cannabis cultivation, processing and dispensary facilities and we offer our innovative branded cannabis products in the United States. Through our subsidiaries, we currently own and/or operate 21 dispensaries and 13 cultivation/processing facilities throughout the eastern and western regions of the United States and distribute our cannabis products to over 100 dispensaries. Under our existing licenses, interests and contractual arrangements, we have the capacity to own and/or operate up to 68 dispensaries and up to 15 cultivation/processing facilities, and manufacture and distribute our cannabis products in 11 states with an aggregate population of approximately 121 million. Our multi-state operations encompass the full spectrum of medical and adult-use cannabis enterprises, including cultivation, processing, product development, wholesale-distribution and retail. Our cannabis products include flower and trim, products containing cannabis flower and trim (such as pre-rolls), cannabis infused products, and products containing cannabis extracts (such as vape cartridges, concentrates, wax products, oils, tinctures, topical creams and edibles). We are an innovative leader in the burgeoning regulated cannabis industry in the United States and we are committed to creating a distinctive customer retail experience at our branded stores nationally and a portfolio of branded cannabis products recognized both in the United States and around the world.
    [Show full text]
  • Important Dates in Hemp History 10,000-Year History of Marijuana Use in the World
    Important dates in Hemp History 10,000-year History of Marijuana use in the World 8,000+ BCE Use of hemp cord in pottery identified at ancient village site dating back over 10,000 years, located in the area of modern day Taiwan. 6,000 BCE Cannabis seeds and oil used for food in China. 4,000 BCE Textiles made of hemp are usedina. in China and Turkestan. 2,737 BCE First recorded use of cannabis as medicine by Emperor Shen Neng of China. 1,500 BCE Cannabis cultivated in China for food and fiber. Scythians cultivate cannabis and use it to weave fine hemp cloth. 100 BCE First evidence of hemp paper, invented in China. 100 Imported hemp rope appears in England. 105 Legend suggests that Ts'ai Lun invents hemp paper in China, 200 years after its actual appearance (see 100 BCE above). 300 A young woman in Jerusalem receives medical marijuana during childbirth. 570 The French queen Arnegunde is buried with hemp cloth. 500-600 The Jewish Talmud mentions the euphoriant properties of Cannabis. 850 Vikings take hemp rope and seeds to Iceland. 900 Arabs learn techniques for making hemp paper. 1271-1295 Marco Polo brings cannabis to Europe. 1300 Ethiopian pipes containing marijuana suggest the herb has spread from Egypt to the rest of Africa. 1533 King Henry VIII fines farmers if they do not raise hemp for industrial use. 1549 Angolan slaves brought cannabis with them to the sugar plantations of northeastern Brazil. They were permitted to plant their cannabis between rows of cane, and to smoke it between harvests.
    [Show full text]
  • Ianthus Capital Holdings, Inc
    iAnthus Capital Holdings, Inc. MANAGEMENT’S DISCUSSION AND ANALYSIS For the Three and Nine Months Ended September 30, 2019 and 2018 Management’s Discussion and Analysis For the three and nine months ended September 30, 2019 and 2018 (In thousands of U.S. Dollars, unless stated otherwise) Company Overview iAnthus Capital Holdings, Inc. (the “Company” or “iAnthus”) is one of the largest Multi-State Operators (“MSOs”) in the United States, providing investors with diversified exposure to the regulated cannabis industry. The Company develops, owns, and operates, what it believes to be, the best-in-class licensed cannabis cultivation, processing, and dispensary facilities, and the Company offers innovative branded cannabis and cannabidiol (“CBD”) products in the United States. Through its subsidiaries, the Company currently owns and/or operates 27 dispensaries and 13 cultivation/processing facilities throughout the United States and distributes cannabis and CBD products to over 200 dispensaries and 1,500 retail stores, respectively. Under the Company’s existing licenses, interests, and contractual arrangements, the Company has the capacity to own and/or operate up to 68 dispensaries and up to 15 cultivation/processing facilities, and manufacture and/or distribute its cannabis products in 11 states with an aggregate population of approximately 121 million. Incorporated in British Columbia, Canada in 2014, the Company became the first licensed multi-state cannabis operator in the United States to publicly trade on the Canadian Securities Exchange (the “CSE”) in 2016. iAnthus’ multi-state operations encompass the full spectrum of medical and adult-use cannabis enterprises, including cultivation, processing, product development, wholesale-distribution, and retail.
    [Show full text]
  • VERMONT CANNABIS EQUITY COALITION Act 164 Formation Guide Vermont Cannabis ACT 164 Formation Guide Equity Coalition
    Vermont Cannabis ACT 164 Formation Guide Equity Coalition As a coalition of local organizations and businesses working to increase racial and economic equity, criminal justice reform and repair, and agricultural access in the coming regulated cannabis market in Vermont - we’ve developed this informational material to help you understand the timeline for this process, the entities involved and their responsibilities and accountability. Below is a timeline of the rollout of Act 164 leading up to the market in 2022. • On or before November 1, 2020: Appointments to the Cannabis Control Board Nominating Committee shall be made. • On or before November 4, 2020: The Governor shall send the names of candidates for the Cannabis Control Board to the Nominating Committee. • On or before December 18, 2020: The Committee shall send the names of well-qualified candidates to the Governor. • On or before January 8, 2021: The Governor shall appoint members to the Cannabis Control Board. • On or before January 15, 2021: The Senate shall take up the issue of the confirmation of the Governor’s appointments to the Board. • On or before January 19, 2021: Cannabis Control Board members’ shall begin their terms. • On or before April 1, 2021: The Cannabis Control Board shall propose sweeping recommendations to the General Assembly • On or before May 1, 2021: Members of the CCB Advisory Committee shall be appointed. • On or before June 1, 2021: The Cannabis Control Board shall initiate rulemaking. • On or before July 1, 2021: New fees for cannabis establishments take effect. • On or before September 1, 2021: Cannabis Control Board develops a program to develop outreach, training, and employment programs focused on providing economic opportunities to individuals who historically have been disproportionately impacted by cannabis prohibition.
    [Show full text]
  • 2018 Annual Report CEO Letter
    Maximum zip file size limit reached. Zip file size cannot be greater than 200 MB 2018 Annual Report CEO Letter Dear Shareholders, Over the past year, iAnthus has continued to build a strong foundation as a leader in the United States’ fastest growing industry. As you may have heard me say throughout the year, to succeed in the U.S. cannabis market, you must be good at raising capital, expanding your retail footprint, and hiring experienced people to execute your plan. In the last 12 months, we proved our ability in all three. From a capital perspective, iAnthus continued its focus on a strong balance sheet, broad investor base and improving liquidity. Our balance sheet today is as strong as it has ever been in our Company’s history. We have over $50mm of cash reserves earmarked to fund our growth strategy, and we continue to focus on our cost of capital by accessing different sources of investors and lenders. We currently have over 60,000 shareholders across six continents, a tremendous breadth of investors and they can look for information on iAnthus from any one of the 10 banks that cover us in research. The Company was recently recognized as the third best performing stock in 2018 by the OTCQX exchange, demonstrating that iAnthus continues to resonate with investors who are seeking growth and transparency in their portfolio. And from a liquidity perspective, our trading volume has continued to increase to the point where we consistently have the highest float and highest volume in the industry in relation to our market capitalization.
    [Show full text]
  • Testimony Before the Vermont Senate Judiciary Committee on S. 54 – an Act Relating to the Regulation of Cannabis
    Testimony before the Vermont Senate Judiciary Committee on S. 54 – An act relating to the regulation of cannabis David L. Nathan, MD, DFAPA January 31, 2019 Thank you and good morning Senator Sears and members of the Vermont Senate Judiciary Committee. My name is David Nathan. Originally from the Philadelphia area, I attended Princeton University, received my M.D. from the University of Pennsylvania School of Medicine and completed my residency at Harvard Medical School. I am a board-certified psychiatrist, and for the past 20 years I have maintained a private practice in Princeton, New Jersey, where I live with my wife and our two teenage children. I am a Clinical Associate Professor at the Rutgers Robert Wood Johnson Medical School and a Distinguished Fellow of the American Psychiatric Association. I am the founder and board president of Doctors for Cannabis Regulation (or DFCR). With a prestigious roster of physicians, including former Surgeon General Joycelyn Elders and integrative medicine pioneer Andrew Weil, DFCR is the first and only national medical association dedicated to the legalization, taxation and – above all – the effective regulation of cannabis in the United States. Esteemed committee members: The time has come to regulate the retail sale of cannabis in Vermont. The legalization of personal possession and cultivation of cannabis in Vermont last year was a major step forward in the move away from the failed prohibition of the preceding 80 years, although it lacks many of the essentials of full legalization and regulation that are necessary to serve the interests of public health and social justice.
    [Show full text]
  • Tobacco and Cannabis Free Policy
    OFFICE OF AUDIT AND COMPLIANCE SERVICES UVM.EDU/POLICIES POLICY Title: Tobacco and Cannabis-Free Policy Statement The possession and use of Tobacco and Cannabis is prohibited on University Property. Reason for the Policy This Policy is designed to articulate the rationale, general expectations, and restrictions associated with Tobacco and Cannabis, as defined herein, whether smoked, inhaled, or ingested. Tobacco Cigarette smoking causes more than 480,000 deaths in the United States each year, including an estimated 42,000 deaths from exposure to secondhand smoke. Smokeless tobacco can lead to nicotine addiction and cause cancer of the mouth, esophagus and pancreas. (Source: Centers for Disease Control and Prevention). There has been an explosion in the use of E-cigarettes (electronic cigarettes) in our youth. E-cigarettes are not safe for youth, young adults, pregnant women, or adults who do not currently use tobacco products. E- cigarettes produce aerosolized nicotine and can also be used to deliver Cannabis and other drugs. Nicotine is highly addictive, toxic to developing fetuses and can harm brain development in adolescents and young adults. E-cigarette aerosol can contain harmful and potentially harmful substances. E-cigarettes can cause unintentional injuries due to fire, explosions and accidental ingestion of the liquid. (Source: Centers for Disease Control and Prevention). Cigarette butts, primarily from filtered cigarettes, are believed to be the most common source of litter on the planet, and these non-biodegradable plastic filters contain harmful chemicals and carcinogens. (Source: US Department of Health and Human Services). Additionally, empty pods and cartridges are becoming an increasing source of litter.
    [Show full text]
  • Ianthus Capital Holdings, Inc
    iAnthus Capital Holdings, Inc. MANAGEMENT’S DISCUSSION AND ANALYSIS For the Three and Six Months Ended June 30, 2019 and 2018 Management’s Discussion and Analysis For the three and six months ended June 30, 2019 and 2018 (In thousands of U.S. Dollars, unless stated otherwise) Company Overview iAnthus Capital Holdings, Inc. (the “Company”, or “ICH”, or “iAnthus”) is one of the largest Multi-State Operators (“MSOs”) in the United States, providing investors with diversified exposure to the regulated cannabis industry. The Company develops, owns, and operates, what the Company believes to be, the best-in-class licensed cannabis cultivation, processing, and dispensary facilities, and the Company offers innovative branded cannabis and CBD products in the United States. Through its subsidiaries, the Company currently owns and/or operates 26 dispensaries and 13 cultivation/processing facilities throughout the Eastern and Western regions of the United States and distributes cannabis and CBD products to over 110 dispensaries and 1,100 retail stores, respectively. Under the Company’s existing licenses, interests and contractual arrangements, the Company has the capacity to own and/or operate up to 68 dispensaries and up to 15 cultivation/processing facilities, and manufacture and distribute our cannabis products in 11 states with an aggregate population of approximately 121 million. The Company’s multi-state operations encompass the full spectrum of medical and adult-use cannabis enterprises, including cultivation, processing, product development, wholesale-distribution, and retail. The Company’s product offerings include flower (smokable flower and pre-rolls), concentrates (vaporizer cartridges, wax products, tinctures, topicals, etc.), cannabis infused edibles, as well as a full suite of CBD products.
    [Show full text]
  • Commission Adoption of Tax and Regulate
    Recommendations for Possible Taxing and Regulating of Adult- Use Marijuana in Vermont as Adopted by the Governor’s Advisory Commission on Marijuana Governor’s Marijuana Advisory Commission Submitted by Co-Chairs, Governor’s Marijuana Advisory Commission Montpelier, Vermont December 2018 TABLE OF CONTENTS Subcommittee on Taxation and Regulation.................................................................................... 5 Purpose of Report ..................................................................................................................................... 5 Subcommittee Role................................................................................................................................... 5 Subcommittee Membership ...................................................................................................................... 5 Executive Summary........................................................................................................................ 6 Revenue and Budget ....................................................................................................................... 8 Proposed Tax Structure............................................................................................................................. 8 Other States’ Cannabis Tax Structures ..................................................................................................................8 20% Cannabis Excise Tax....................................................................................................................................12
    [Show full text]
  • Ianthus Capital Holdings, Inc
    iAnthus Capital Holdings, Inc. MANAGEMENT’S DISCUSSION AND ANALYSIS For the years ended December 31, 2019 and 2018 Management’s Discussion and Analysis (In thousands of U.S. Dollars, unless stated otherwise) Company Overview iAnthus Capital Holdings, Inc. (the “Company” or “iAnthus”) is one of the largest Multi-State Operators (“MSOs”) in the United States, providing investors with diversified exposure to the regulated cannabis industry. The Company develops, owns, and operates licensed cannabis cultivation, processing, and dispensary facilities, and the Company offers innovative branded cannabis and cannabidiol (“CBD”) products in markets across the United States. As at December 31, 2019, through its subsidiaries, the Company currently owns and/or operates 35 dispensaries and 13 cultivation/processing facilities throughout the United States as compared to four dispensaries and three cultivation/processing facilities as at December 31, 2018. The Company also distributes cannabis and CBD products to over 200 dispensaries and more than 2,300 retail stores (2018 ⸺ None) throughout the United States. The Company’s existing licenses, interests, and contractual arrangements provide the Company with the capacity to own and/or operate up to 73 dispensaries and up to 15 cultivation/processing facilities, and manufacture and/or distribute its cannabis products in 11 states within the United States, with an aggregate population of approximately 121.0 million. Incorporated in British Columbia, Canada in 2014, the Company became the first licensed multi-state cannabis operator in the United States to publicly trade on the Canadian Securities Exchange (the “CSE”) in 2016 under the ticker symbol “IAN”. The Company’s shares are also quoted on the OTCQX, part of the OTC Markets Group, under the ticker symbol “ITHUF”.
    [Show full text]