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TerrAscend Corp. is the latest marijuana multistate operator to announce a plan to stop paying taxes owed under Section 280E of the Internal Revenue Code, and an executive hinted at the company’s legal basis for doing so.
Executive Chair Jason Wild said the company has “changed our tax position related to the applicability of Section 280E, which will result in amended returns and expected refunds of approximately $26 million.”
TerrAscend has reclassified $59.2 million worth of tax liabilities on its balance sheet as of the end of 2023, Chief Financial Officer Keith Stauffer said during the company’s fourth-quarter earnings call late Thursday.
Those liabilities have been marked as “long term liabilities and an uncertain tax position on our balance sheet,” he said.
Stauffer said TerrAscend, which keeps its head office in Canada, will be filing amended tax returns for 2020, 2021 and 2022.
The $26 million in expected tax refunds includes “federal and state refunds related to 2020 and 2021,” Stauffer said during prepared comments.
TerrAscend intends to “make payments as an ordinary taxpayer going forward, without 280E,” he added.
Questioned by an equity analyst about TerrAscend’s exact legal strategy for nonpayment of taxes owed under 280E, Stauffer said the company’s legal interpretation is “along the lines of the Boies Schiller lawsuit, and some of the same legal aspects that are outlined in that lawsuit.”
In that lawsuit, which remains unresolved, four state-regulated cannabis companies represented by law firm Boies Schiller are challenging the U.S. Department of Justice over federal marijuana prohibition, claiming the Controlled Substances Act is unconstitutional.
TerrAscend’s 280E announcement comes toward the tail end of a cannabis earnings season dominated by buzz around marijuana companies trying to avoid 280E tax obligations.
Trulieve Cannabis Corp. said it has already received $113 million in tax refunds after amending previous tax returns using its own undisclosed interpretation of its 280E obligations, although it’s unclear whether the Florida-headquartered MSO will ultimately keep that money.
New York-based Ascend Wellness Holdings has also filed amended federal tax returns and anticipates refunds, and Boca Raton-headquartered Jushi Holdings said this week it has its own 280E strategy.
TerrAscend reported $86.6 million in net revenue for the quarter ended Dec. 31, up 25.4% over the same quarter in 2022.
The company posted a $41.8 million quarterly net loss from continuing operations.
For all of 2023, TerrAscend reported net revenue of $317.3 million (up 28% year-over-year) and a net loss from continuing operations of $82.3 million.
TerrAscend moved its shares from the Canadian Securities Exchange to the Toronto Stock Exchange in 2023, the first of several U.S. MSOs to switch stock exchanges in Canada.
The company’s shares trade as TSND on the TSX.
Solomon Israel can be reached at solomon.israel@mjbizdaily.com.
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