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According to MariMed CEO Jon Levine, the 250th anniversary of the original Boston Tea Party presented the perfect opportunity for the company to shine a bright light of publicity on 280E, an IRS code that disallows licensed cannabis companies from deducting normal business expenses. In an attempt to raise public awareness of this onerous tax that has punished the industry since its inception, the company on Wednesday took a literal page out of the original partyers play book. “Channeling the Boston Tea Party’s rebellious spirit while dressed in traditional colonial garb,” said the company in a press release, “MariMed executives and team members staged the ‘Boston 280E THC Party’ from a boat in Boston Harbor on July 12.”
For MariMed, the protest is also personal. “Being a Boston company and being traditional, we just thought this was a great protest on the anniversary of our patriotic ancestors, and we felt this was a great statement to say that 280E is unjust, and that there should be representations for taxation,” Levine told Cannabis Business Executive. “280E, as you said, has been around and it’s incorrectly taxed on cannabis.”
The actual harm done by 280E is specific to each individual company, of course, and not easy to quantify. “I don’t have exact numbers because it’s pretty complicated,” said Levine when asked about its impact on MariMed. “I will say that we’ve done a good job of managing our 280E taxes, making sure that we had proper cash at the start, and that we understood 280E, and how to properly maintain the business in a way that we are being conservative in the way that we spend, because 280E does not allow companies to take ordinary expenses and deduct them.”
He elaborated, “You can only deduct costs that are associated with the cost of goods sold (COGS) that you’re selling. A retailer, for example, can only deduct the expense of buying the product, not the expense of selling the product. When I say selling the product, that means rent, payroll, and insurance for your employees, and utilities. Basically, you have to understand how those expenses are defined as non-cost and have those arguments ready to deal with the IRS if you get audited.
“MariMed has been very fortunate in that we and I have been in this industry for a very long time dealing with 280E, and understanding how to follow the guidelines that are in the IRS regs,” he added. “We have been successful with a couple of audits, but I look at the industry as a whole, and it’s very difficult for a social equity person to raise enough money and not understand that they’re at risk, because startup costs are going to have a negative cash flow implementation on them, and they’re not going to have enough money to operate and pay their taxes. So, they work out a payment plan and they never catch up, because this is a very difficult thing to do when you’re paying more than two times the regular tax.”
Some MSOs have not been as skilled or fortunate when it comes to 280E. In a Seeking Alpha article from last October titled “Impact Of 280E On MSO Income,” James V. Baker shoed “the impact of 280E on the net income after taxes for 11 of the largest, vertically integrated, publicly held MSO companies,” with numbers.
“In total, the 11 companies in the exhibit reported $452,224M in additional taxes because of 280E,” Baker calculated, adding, “Even without 280E these companies would have reported a combined loss, but it would have been $260.404M or 36.5% lower than what they reported.”
As stated, 280E has been a thorn in the industry’s side for the entirety of its existence, and the toll is has taken and continues to take – not to mention the pressure it puts on smaller businesses and social equity applicants – some states have passed laws to help ameliorate its effects.
“MariMed is very fortunate that three of our states have had the smarts to understand that 50 percent of the states have legalized cannabis,” said Levine. “Massachusetts, Illinois, and Maryland have all changed their tax laws to allow companies that are in the cannabis industry to be treated as regular taxation in those three states. So, in those three states we’re now going to be able to take regular deductions.”
It is by no means a solution, however. “It helps a little bit, not a ton,” noted Levine. “The tax differential between the federal government and the state of Massachusetts is the feds are somewhere around 20 to 25 percent, and Massachusetts is only a six-and-a-half percent.”
One problem with doing away with 280E is that it is legislatively tied to DEA Drug Scheduling, and would need to be rescheduled from Schedule 1, where it is now, down to at least Schedule 3 to undo the 280E requirement.
“You’re correct, you would either have to bring it down to a three or four to get rid of the 280E taxes, or deschedule it altogether,” said Levine. “And that would be a start, telling people that, yes, 90 percent of the country is for cannabis and understand that this is not a Schedule 1 drug, and therefore they should look at descheduling it, or bringing it down to a three or four.”
As mentioned in the press release, “A growing number of U.S. Congressmen and women are aligned with MariMed’s take on 280E: “State-legal cannabis businesses are denied equal treatment under 280E,’ Congressman Earl Blumenauer (D-OR) said earlier this year, referencing it as ‘grotesquely unfair treatment’ and urging his colleagues to ‘allow legal cannabis operations to deduct business expenses, just like any other industry.’”
MariMed is hoping that Wednesday’s reenactment of an episode in American history that has come to represent the perpetual tension between government and the people resonates not just with politicians, but equally with the citizens they represent.
“It’s going to be fun to be dressed up as our patriotic ancestors and storming a ship, chanting about representation without taxation and getting rid of 280E,” said Levine. “That’s an important message, and we hope that people see this and will be like, ‘Oh my God, look at those people dressing up like our ancestors and protesting something that should be understood. It’s an issue that costs not just the companies but ends up costing the consumer trying to pay for this medicine that costs more because of 280E.”
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