Choosing the right entity in which to conduct your business could be one of the most important decisions you make. In my opinion, it is even more important to businesses in the cannabis industry. The usual deciding factors don’t always apply to this industry. There are many traps for the unwary, so it’s crucial to enlist the services of qualified professionals to help you make this decision.

There are three main options to consider: limited liability company (LLC), S Corporation and C Corporation. Truthfully, there is a fourth option—a sole proprietorship—but I would never recommend operating any business as a sole proprietorship. Doing so could expose you to unnecessary personal liability. Let’s explore the first three of these options in greater detail.

Limited Liability Company (LLC)

An LLC is a popular and flexible entity type. It is known as a pass-through entity, which means the company itself does not pay any tax on its income. Instead, members of the LLC pay tax on their share of the company’s income that passes through to them. The income that passes through to the member is also subject to self-employment tax if that member is working in the business. The flexibility of the entity allows for multiple classes of membership. For instance, one could have multiple investor class memberships (voting and non-voting), founder memberships and so on. Also, profit and loss sharing and distributions don’t necessarily have to follow ownership percentages on a year-by-year basis. They eventually need to be trued-up, but not every year.

S Corporation

An S Corporation is also a pass-through entity, but it is not as flexible as an LLC. Members of an LLC or C Corporation can be corporations, S Corporations, another LLC or even trusts. This is not allowed for S corporations. All shareholders of an S Corporation must be individuals. Distributions to shareholders must be pro rata (a proportional allocation) based on shareholder ownership. Only one class of shares is allowed.

There is also a requirement that a “reasonable” salary be paid to owner/operators of an S corporation. Under normal circumstances (non-cannabis business) this isn’t a problem. However, in a cannabis retail business, many salaries are either nondeductible or partially nondeductible due to the stipulations of IRS Tax Code 280E. This can have the unfortunate consequence of doubling the tax rate on shareholder employee salaries. If the salary is nondeductible, the income of the company that passes through to the owner is higher by that amount and the owner employee must include the W-2 salary in their income. Effectively, that amount is taxed twice. (Editor’s Note: For more on this and how the cannabis industry is fighting back, read “See You in Court,” Cannabis Business Times, February 2018.)

The reasonable salary requirement for S Corporations is important to note. If upon examination by the IRS it was determined that the owner employee was not taking a large enough (reasonable enough) salary, the double-tax problem could become much larger.

Section 280E of the Internal Revenue Code states that if you are in the trade or business of trafficking a controlled Schedule I or II substance as defined by the Controlled Substances Act, then you are only allowed to take cost of goods sold (COGS) as a deduction against income. Unfortunately, this leaves cannabis retailers in a situation where many of their expenditures are not deductible for tax purposes. You could find yourself in a situation where your economic income could be relatively low, yet your taxable income is much higher. The example on pg. 74 illustrates this point.

C Corporation

The third option is to conduct your retail business as a C Corporation. In my opinion, this is the preferred vehicle to operate a medical dispensary or recreational cannabis store. A C Corporation is not a pass-through entity like an LLC or S Corporation. It is a tax-paying entity. The shareholders, therefore, are not individually liable for the taxes of the C Corporation.

In the previous example, even though the company is profitable on a pre-tax basis, it experiences a loss after taxes. This is because the selling, general and administrative expenses (SG&A) are nondeductible for tax purposes. The tax is computed on gross margin rather than pre-tax net income. Therefore, it’s wise to use the C Corporation vehicle to contain the tax liability inside the corporation. If you were to operate your business as a pass-through entity (LLC or S Corporation) the tax liability would fall to the individual members or shareholders. If there was difficulty paying the tax, you could potentially expose your other assets outside of the business to potential liens or levies from the IRS. Because the C Corporation is a tax-paying entity, the tax liability stays with the corporation and does not pass on to the individual shareholders. Using the C Corporation therefore gives the business owners some protection from this scenario’s downside.

I would like to point out that the C Corporation is not as tax efficient as a pass-through entity because there are two levels of tax to be paid. Once at the corporate level and then again at the individual level when wages or dividends are paid. However, it is likely worth this inefficiency to protect the individual shareholders from the above scenario. 

Another item to consider when using a C Corporation is the low-salary and high-dividend strategy. Since most salaries in a cannabis retailer are either completely or partially nondeductible, it doesn’t make sense to pay an owner/operator a large salary. Dividends are also nondeductible by the C Corporation, but they are taxed to the individual shareholder at a lower rate than wages.

No matter what form of business entity you choose, make sure that you have a written operating agreement or shareholder agreement if you have business partners. A good business attorney can help with this. The agreement should spell out the duties and obligations of each member or shareholder. These should include management of the business, sharing of profits, distributions, voting rights, transfer of an interest, dispute resolution and termination or dissolution of the business.

NOTE: This column is only an overview and should not be relied upon as business advice, nor for every circumstance. Consult a financial professional before making any business decisions.

Lawrence, N.J., March 2, 2021 – PRESS RELEASE – Grow America Builders (GAB) is underway on construction of another New Jersey dispensary, this time in Lawrence Township. The new Zen Leaf dispensary will have over 4,000 square feet of state-of-the-art space, and the project will encompass both a full-interior renovation, as well as an overhaul of the exterior.

The new facility will feature high-open ceilings, natural wood display cases, rift oak accents, custom light fixtures and 4-foot porcelain tiles. The spacious sales floor has been designed to comply with current COVID-19 measures, but also for the post-COVID world where the consumer cannabis market will be in high demand.

“We’re beyond thrilled to be working on another project for Verano NJ,” said David Fettner, managing partner of GAB. “This is our fourth Zen Leaf dispensary in the last year for Verano, and that familiarity allows us to work seamlessly with their first-rate construction and design team. We’re really excited to see this location open up in a few months. New Jersey has been a robust market for us, and we consider ourselves fortunate to have an outstanding East Coast team. We hope to continue this trend in New Jersey in 2021 as the state opens up for adult use.”

The construction schedule projects the dispensary to open in early spring 2021.

Grow America Builders is one of the only national construction companies focused solely on the cannabis industry and has had projects in Illinois, Michigan, Arkansas, New Jersey, Arizona, Missouri, Massachusetts and West Virginia, among others.

Bryan Faust | Adobe Stock

Republican majority leaders in the Wisconsin state legislature spoke loud and clear: cannabis legalization doesn’t belong in their state’s biennial budget.

Two years ago, they rejected Democratic Gov. Tony Evers’ proposal to decriminalize adult-use cannabis and legalize medicinal cannabis. And when Evers introduced another proposal last month, to regulate and tax adult-use cannabis for the 2021-23 biennium, Rep. Mark Born and Sen. Howard Marklein, the Joint Finance Committee co-chairs, deemed it dead on arrival.

While there’s not much hope for cannabis legalization in the governor’s budget—an avenue that also has proved fatal in other states—Evers’ proposals have continued to fan the flame of debate in Wisconsin, where only cannabidiol (CBD) sale and consumption is legal. During a March 4 virtual luncheon hosted by WisPolitics, an online magazine and news service covering political and governmental news in Wisconsin, Senate Minority Leader Janet Bewley and Assembly Minority Leader Gordon Hintz were split on whether a medical cannabis measure would survive in a standalone bill.

“That could pass,” said Bewley, a Democrat who represents a rural district in the northern part of the state. “I think that nationwide this is something that all states are going to deal with. And I think we could approach it from the way that the governor did, which is to put it in the budget with all of these different aspects and ways.”

After rejecting Evers’ budget measure last month, Marklein said cannabis legalization is a significant enough policy change that it should be debated in the light of day on its own.

Last week, Bewley said medical cannabis legalization is a no-brainer. In 2019, a Marquette University Law Poll found that 83% of Wisconsin voters supported legalizing medical cannabis with a doctor’s prescription. It also found 59% supported adult-use legalization.

“I think the medical marijuana portion of it is the one that we all know is widely accepted,” she said. “I heard [more than] 80% of the people of Wisconsin are in favor of that. I believe that it could pass as a standalone. But, for now, it’s in the budget, in a larger form. But we will be seeing something happen on marijuana in the future.”

Bewley’s minority leader colleague in the lower chamber wasn’t so sure.

“I don’t know that I see it passing,” said Hintz, a Democrat who represents an urban district that encompasses Oshkosh. “Perhaps I see it getting further along. I know that I’ve talked to some of my Republican colleagues, both some who are more libertarian in nature, some who just recognize the benefits of medicinal marijuana, and certainly see and hear the public support.

“I’m an incrementalist in being reasonable. If we can get a hearing on it, answer some questions, maybe explain to folks who don’t understand, then we can get further and maybe we can get there. But it’s up to the legislature to decide that we want to join the majority of states out there; that we want to recognize that the public overwhelmingly wants this, and that attitudes and responses are changing.”

Neighboring states Illinois and Michigan both have adult-use cannabis programs, while Minnesota has a medical program, Hintz pointed out. To the southwest, Iowa is in the same CBD-only boat as Wisconsin.

In Evers’ budget proposal, he said legalizing adult-use cannabis is expected to generate more than $165 million annually in the state, beginning in the second year of the biennium. That extra revenue would hold extra weight if Wisconsin were in fiscal distress—it’s not. According to the MacIver Institute, a Wisconsin-based conservative think tank, the state’s general fund balance was roughly $1.2 billion in October 2020, which represented the largest year-end balance Wisconsin had seen in the past two decades.

That in mind, Hintz said the $165 million in potential revenue is nothing to sneeze at, but he doesn’t think that’s the reason state lawmakers should pass legislation in favor of adult-use cannabis. He said non-monetary factors and impacts also should be taken into consideration.

“I’m glad that [Evers] put it out there,” Hintz said. “I think just the proposal alone accelerates the discussion, and I think we will eventually get there. I just don’t know if it’s going to be in the next six months or in the next decade.”

Today is International Women’s Day—an opportunity to celebrate women have chosen to challenge the status quo, helping break down barriers for themselves and others. It’s also a moment where we look toward the future with hope for all the more we can achieve for women around the world by working together.

Each year on March 8, we honor this tradition by highlighting the women of Cannabis Conference, an impressive roster of women shattering glass ceilings, making space for themselves and other notable women in the burgeoning cannabis industry.  

This listing is just a start. As we continue to announce speakers for Cannabis Conference (Aug. 24-26, 2021, at the Paris Las Vegas Hotel & Casino), there will be plenty more women innovators, leaders, entrepreneurs and trailblazers to highlight—so keep an eye on CannabisConference.com for continued updates to our speaker roster.

 

Bennett

Theresa Bennett

Editor, Hemp Grower

Theresa Bennett is editor of Hemp Grower. She joined HG and Cannabis Business Times as associate editor in November 2019 after working for GIE Media’s Recycling Group of magazines. Prior to her time with GIE, Bennett was the K-12 education reporter for the Akron Beacon Journal. Bennett is also a freelance writer whose work has appeared in Modern Farmer and newspapers across the country.

 

 

Boyajian

Salpy Boyajian

Executive Vice President / Board Chairman, Flower One

Salpy Boyajian joined Flower One in October of 2018 following the acquisition of NLV Organics (NLVO), a renowned consumer brand and luxury cultivator she co-founded in 2014. Boyajian now serves as the company’s Executive Vice President and Board Chairman, having previously held the title of Chief Operating Officer. Before entering the cannabis space, she served as the Mental Health Director for several leading non-profits in Los Angeles, ultimately founding her own non-profit organization before relocating to Nevada.

 

Goldsberry

Debby Goldsberry
Executive Director, Magnolia Wellness, FLOR
Co-Founder, Berkeley Patients Group collective 

Debby Goldsberry is executive director at Magnolia Wellness, an award-winning dispensary in Oakland, Calif., and the managing director of the Berkeley Community Care Center dispensary at Amoeba Music. She co-founded the Berkeley Patients Group (BPG) medical cannabis collective in 1999, directing its growth for more than 11 years. In 2017, Goldsberry published her first book, “Idiot’s Guide: Starting and Running a Marijuana Business.”

 

Kowalski

Emily Kowalski
Vice President of Cultivation, LeafLine Labs

Emily Kowalski is the Vice President of Cultivation at LeafLine Labs, LLC, one of two medical cannabis companies serving the patients of Minnesota. She utilizes her 10-plus years of experience in propagation, greenhouse production, and outdoor nursery production to cultivate consistent, healthy cannabis in LeafLine’s state-of-the-art indoor facility. Kowalski never settles for status quo and digs deep into data to drive quality and efficiency within her operation.

 

 

Neiden Tomaselli

Cassie Neiden Tomaselli

Conference Programming Director, Cannabis Conference

Contributing Editor, Cannabis Business Times, Cannabis Dispensary and Hemp Grower

Cassie Neiden Tomaselli is a media professional with 10+ years’ experience generating print, web, video and podcast content for both trade and consumer markets. She now serves as Conference Programming Director for Cannabis Conference, where she works with the event’s Advisory Board and editorial teams from Cannabis Business Times, Cannabis Dispensary and Hemp Grower to craft high-quality education for industry events. Previously, Neiden Tomaselli served as Director of Marketing & Communications for Firelands Scientific, an Ohio-based medical cannabis company.

 

 

Ratliff

Alisia Ratliff, PMP
Chief Executive Officer & Founder, Victus Capital Ventures, LLC

Alisia Ratliff, the CEO of Victus Capital Ventures and licensed project management professional, is a technical conference speaker, esteemed author, and ambitious entrepreneur. Possessing over 14 years of leadership experience expanding over several industries—Ratliff effectively manages technical and executive teams cross-departmentally while simultaneously overseeing all business operations, including supply chain, manufacturing, laboratory operations and product formulation. Ratliff helps her clients avoid repeating failed business models and implement sustainable business strategies no matter the ever-changing regulatory environment.

 

Ruscitto

Andriana Ruscitto

Assistant Editor, Cannabis Business Times, Cannabis Dispensary, Hemp Grower

Andriana Ruscitto was hired as an associate editor for Cannabis Business Times, Cannabis Dispensary and Hemp Grower in January 2021. Before joining GIE, Ruscitto attended Kent State University, where she worked in the university communications and marketing department, writing stories for the Kent State Today.

 

 

Schiller

Melissa Schiller

Senior Digital Editor, Cannabis Business Times & Cannabis Dispensary

Melissa Schiller joined the Cannabis Business Times team as an Assistant Digital Editor in June 2017 and now serves as Senior Digital Editor. Previously, she worked as an Audience Development Associate for GIE Media’s Ornamental Group of publications, where she managed the circulation for Cannabis Business Times, Garden Center, Nursery Management, and Greenhouse Management. She has also worked as a contributing writer and editorial assistant for a community newspaper and as a freelance writer for Northeast Ohio Media Group and Modern Tire Dealer.

 

Shreeve

Anna Shreeve
President, Urban Paragon, Inc., Targeted Intent, Inc., and The Bakeréé

Anna Shreeve is President of Urban Paragon, Inc., Targeted Intent, Inc., and The Bakeréé. Shreeve entered the medical cannabis industry seven years ago with her son, and she and her team opened The Baker, a division of Cookie Fam Genetics, a collaboration with legendary breeder “Jigga.” Shreeve’s group holds two recreational producer/processor licenses in Washington, and a recreational retail/processor license in Oregon.

 

 

 

Simakis

Michelle Simakis

Editor, Cannabis Business Times

Michelle Simakis is editor of Cannabis Business Times. She joined GIE Media in 2012 and most recently served as editor of Garden Center magazine, the leading trade publication covering the independent garden retail market. Under her direction, Garden Center expanded its Top 100 Independent Garden Centers List by devoting an entire issue to telling the stories of the leaders and companies ranked on the list. She also helped to launch the Garden Center Executive Summit, the educational conference for key-decision makers in the industry, and recently developed a the only daily e-newsletter in the market.

 

Skodzinski

Noelle Skodzinski

Editorial Director, Cannabis Business Times, Cannabis Dispensary, Hemp Grower, Cannabis Conference

Noelle Skodzinski has 25+ years of publishing experience. She co-founded Cannabis Business Times with previous owner Tim Hermes in 2014. She has been named among the Top 50 Most Influential Women in Cannabis. Previously, she held numerous editorial leadership roles, including serving as editorial director of the Publishing Group at North American Publishing Co., where she oversaw two national business magazines, all digital content products, as well as the annual Publishing Business Conference and related events. In 2018 and 2020, Skodzinski was named one of the “Top Women in Media” by Folio.  

 

 

Wiseman

Hope Wiseman
Owner, Mary & Main Dispensary

Born and raised in Prince George’s County, Md., Hope Wiseman has always been passionate about serving her community. After spending a year at SunTrust as an Equity Institutional Sales Analyst, Wiseman decided to continue striving for excellence by pursuing her dreams of entrepreneurship. In Fall 2017, Wiseman became the youngest Black woman dispensary owner in the United States with the opening of Mary & Main dispensary in Prince George’s County, Maryland. She has been featured in Black Enterprise, Huffington Post, Blavity, and Cannabis Dispensary. Wiseman is also a speaker and consultant to those looking to enter the industry.