ST. LOUIS, Jan. 24, 2020 /PRNewswire/ -- PRESS RELEASE -- Justice Grown, a multi-state cannabis operator which holds licenses in Missouri, California, Pennsylvania, Illinois, New Jersey, Massachusetts, and Utah, has announced that it has been awarded an additional eight new Missouri medical cannabis licenses.

Having just won three cultivation licenses in Missouri in early January, Justice Grown was also granted three manufacturing licenses, as well as five dispensary licenses for the state's medical cannabis program, bringing the company to a total of 11 licenses for the Show-Me State. The manufacturing licenses will allow the company to create cannabis-infused products, such as edibles, concentrates and tinctures, while the dispensary licenses will allow for the opening of five medical marijuana storefronts across Missouri. Additionally, the previously won cultivation licenses will allow for the growing of exceptional cannabis flower products in the state.

The licenses were awarded by the Missouri Department of Health and Senior Services after a blind review of hundreds of applications. Candidates that scored the highest in the application process and that met all of the eligibility requirements were ultimately selected, with 86 licenses awarded in manufacturing and 192 licenses awarded for dispensaries.

"We are very excited to work with our native Missouri partners in building out our businesses in the area," said Justice Grown CEO Darin Carpenter "We expect to create over 250 new jobs for local Missourians when our cultivation, production, and dispensary operations are fully built out."

This commitment to job creation in Missouri is a high priority on the company's list, as it will soon be looking to fill positions for people with backgrounds in agriculture, retail, and security. Justice Grown is rapidly expanding its operation, with the recent installation of Darin Carpenter as Chief Executive Officer, who previously served as Director of Operations for Tryke Companies / Reef Dispensary, which is currently under acquisition by Cresco Labs for $282.5 million.

Justice Grown operates two medical dispensaries in Pennsylvania, with multiple dispensary and cultivation projects currently under construction in Pennsylvania, California, New Jersey, Illinois and Utah.

Thanks to additional regulatory, legal and financial scrutiny, tax season is far more challenging for cannabis businesses than most any other enterprise or industry.

Much of that extra scrutiny stems from Internal Revenue Code 280E, the federal statute that severely limits what expenses plant-touching cannabis businesses can deduct on their taxes.

While these limitations are certainly frustrating, they are not insurmountable. They simply require cannabis businesses to perform a little extra diligence and preparation to successfully navigate tax season and stay on track for sustainable growth in the years to come.

Navigating 280E

While most other businesses can deduct any number of expenses when preparing their tax returns—salaries, rent, equipment, etc.—thanks to the nuanced limitations of 280E, those in cannabis can only deduct expenses directly related to earning a profit, or the cost of goods sold (COGS).

That doesn’t mean cannabis companies can’t deduct rent and salaries—just those that play a direct role in selling cannabis.

Square Footage: For example, dispensary owners will want to become intimately familiar with their building’s floorplan and not dedicate much space to a lobby or breakroom. That’s because those spaces don’t play a direct role in sales. If a dispensary’s square footage is split between 75% sales floor and 25% lobby, only 75% of rent is eligible for tax deduction because cannabis transactions did not take place in the lobby. The same applies to growers and their spaces. Only square footage designated for actual growing and cultivating of the plant is eligible as a tax deduction.

Employee Duties: Employee classification can be subject to even more subtlety since the IRS takes a keen eye at salary deductions for cannabis businesses. For instance, a dispensary or cultivator might split certain employees’ time between grower and budtender duties. Since, technically, budtenders aren’t required to sell cannabis, only the employees’ time worked as a grower or cultivator can be deducted.

Why Detailed Records are Important

Strong record-keeping is a cornerstone of all good businesses, but for cannabis companies it takes on a whole different level of importance—especially come tax time.

Like all things to do with cannabis and taxes, the reason comes back to 280E and the extra scrutiny the IRS disproportionately gives to cannabis businesses.

That means proper documentation and classification records for employees, square footage and other aspects of the business to justify the claims, deductions and numbers on the tax return. Without good records and documentation to back up the numbers, cannabis businesses likely will face ample penalties and fees when the IRS reviews their filings.

The cannabis industry’s heavy reliance on cash also requires diligent record-keeping. Since cash doesn’t create a natural paper trail, cannabis companies must keep detailed records of those transactions including sales, deposits, wages, bills and any others. Plus, large amounts of cash and cash transactions will draw the attention of the IRS. Unfortunately, the agency will put zero effort into investigating the accuracy of businesses’ numbers. Instead, it will likely assume the worst when reviewing unless proper records and documentation have been provided.

The bottom line is: Because cannabis companies receive far more scrutiny from the IRS, they must prove their numbers with detailed records.

Other Ways to Save

While detailed records are the foundational piece to a successful tax season for all plant-touching businesses, they aren’t the only element in good tax prep. Here are a few more tips to seriously consider when readying to file taxes.

• Take Advantage of Automation: Technology can play a big role in helping dispensaries, cultivators and other plant-touching cannabis firms with successfully navigating tax season. Making use of the right tools for inventory management and seed-to-sale movement will allow operators to properly track and segment product and sales. More efficient automation tools and tracking technology ensures expenses are tracked and classified properly to make it easier to back up the numbers on a tax return when the IRS comes calling.
• Apply Same Tax Methods: Consistency in tax methodology is the friend to cannabis businesses. Using the same methods allows for better comparability year to year. If a cultivator tries to change the way they classify a certain employee or a dispensary suddenly claims a few extra square feet, they will likely raise red flags at the IRS. Now, if there are legitimate reasons for certain reclassifications or a shift in methodology in determining deductions, be sure to have proper documentation to justify those changes.
• Recruit a Pro: The most surefire way for dispensaries and cultivators to maximize their tax savings and limit liabilities is to recruit a tax professional familiar with the cannabis industry. 280E is a unique part of the tax code that not all accountants have worked with. A cannabis-savvy accountant will know the ins and outs of 280E and will be able to evaluate and identify relevant business expenses for a specific business. In addition to addressing 280E issues, an experienced tax professional will be able to highlight other tax code changes that may impact a cannabis business. Every operation is different—even across the cannabis industry—and because the tax code is long, complex and susceptible to new rules and interpretations by the government, it’s vital to have a strong accountant at the helm to navigate a business through tax season.

Diligence is Key

As difficult as 280E compliance (and tax prep in general) can seem for dispensaries and cultivators—just be diligent. While it may be tempting to cut corners or fudge a number here or there, these potential time- and cost-saving decisions can come back to bite hard. Putting in the proper work will go a long way to positioning the business for success today and into the future.

Photo courtesy of Rebel Rock

Melissa Diaz is a co-founder and CFO of Arizona-based Rebel Rock, which provides cannabis businesses across North America with specialty accounting solutions, income tax services (U.S. only), CFO and controller services, and business system implementation. She guides companies of all sizes through GAAP compliance, financial modeling, financial reporting and general financial accounting inquiries and functions. 

The Missouri Department of Health and Senior Services (DHSS) is in the process of issuing 192 medical cannabis dispensary licenses.

The state began notifying the more than 1,100 license applicants of their status on the morning of Jan. 23, according to a Springfield News-Leader report.

The final list was published on the DHSS website Jan. 24.

The licenses were divided evenly among the state’s eight congressional districts, as required by law, according to a St. Louis Public Radio report. The law requires a minimum of 192 licensed dispensaries, the news outlet reported, which means that the state could issue more, but officials first want to see if the minimum number can meet patient demand.

DHSS aims to launch medical cannabis sales this spring. Already, the state has issued roughly 25,000 medical cannabis cards to patients enrolled in the program.

Last month, the state issued 10 medical cannabis testing lab licenses, as well as 60 cultivation licenses. Eighty-six manufacturing licenses were awarded earlier this month.

The California Bureau of Cannabis Control proposed emergency regulations Jan. 23 that would require state-licensed cannabis retailers to display their unique Quick Response (QR) Code certificates in their shop windows in an effort to crack down on illicit cannabis sales.

The QR Code certificate must also be carried with licensed businesses while transporting or delivering cannabis, according to a Bureau of Cannabis Control (BCC) press release. The code can be scanned by a smartphone’s camera and links to the BCC’s Online License Search, where the user can verify the retailer’s license status. The system also displays the retailer’s address and license location to protect against counterfeit information, according to the press release.

The proposed emergency regulations are meant to help consumers identify state-licensed cannabis retail stores, assist law enforcement and support the legal cannabis market.

“The proposed regulations will help consumers avoid purchasing cannabis goods from unlicensed businesses by providing a simple way to confirm licensure immediately before entering the premises or receiving a delivery,” Bureau Chief Lori Ajax said in a public statement. “These requirements will also assist law enforcement in distinguishing between legal and illegal transportation of cannabis goods.”

The BCC previously launched a voluntary QR Code campaign that encouraged cannabis licensees to post their QR Code certificates for consumers to scan when they visit licensed retailers in the state.

The proposed emergency rules require a minimum five-working day notice to the public, and the BCC will then file the regulations with the Office of Administrative Law (OAL). A five-day public comment period will then begin once the OAL publishes the proposed regulations as being “under review” on its website.