Page 79 - BusinessWest August 18, 2021

Even without a change in the law, Foster explained, “the banking situation is getting bet- ter. We’re seeing some banks and some credit unions more willing to lend into the cannabis space now — much more than a couple years ago. They’re becoming more comfortable with lending for real-estate purposes — not for buying things, necessarily, but for buildout and for creat-
“The taxes are crushing — you can’t deduct wages, rent, or other ordinary deductions. Most of these companies are looking at an effective tax rate of 70% to 90% in that, of their profit at the end of the day, 70% of it goes to pay federal taxes.”
ing a space, including cultivation spaces. So that’s a change. A very small change, but the fact that it’s happening at all is a big deal.”
The other federal law cannabis operators want to see changed is Internal Revenue Code Section 280E, which severely limits tax deductions for business that deal in controlled substances pro- hibited by federal law. In short, businesses can deduct the cost of goods sold, but are not allowed any other deductions or credits on their return, including for wages.
“The taxes are crushing — you can’t deduct wages, rent, or other ordinary deductions,” Foster said. “Most of these companies are looking at an effective tax rate of 70% to 90% in that, of their
profit at the end of the day, 70% of it goes to pay federal taxes. And this is after they pay state and local taxes. So the federal government is mak- ing a lot of tax money off of cannabis companies across the U.S.
“It’s been challenged multiple times in mul- tiple states,” he went on, “and every tax court and every appellate court has said, ‘Congress can change it, but they were unequivocal in what they said.’ It’s a completely constitutionally valid statute.”
Decriminalizing cannabis federally would neuter the impact of 280E on the industry, which would be massive news for cannabis businesses that are already paying higher-than-average state taxes, while their host communities get a cut of between 3% and 6% as well.
But decriminalization would open many other doors as well, like broadening the market for insuring these businesses.
“There’s a risk that your insurance company could, almost at any point, say, ‘well, what you’re doing is a violation of federal law; therefore, we’re not going to insure you,’” Foster said. “The com- panies are getting insurance — they’re required to get insurance by the CCC — but they’re not the traditional companies; they’re not the Allstates
or the companies you see advertising. They’re smaller, specialty, boutique insurance companies that have figured out it’s worth the risk to them to get into that space because the premiums are appreciably higher than they would be for a com- parable business.”
So, again, the lack of federal legislation to decriminalize cannabis is increasing the cost of doing business, he went on. “If that happened, I think the cost of insurance would go down
because you’d have more competition overnight in the space.”
Another barrier to continued growth that is slowly coming down is stigma surrounding the products themselves.
“For decades, it was drilled into people’s heads that this was a bad thing,” Gallagher said. “It’s going to take time to change that, and the most powerful tool is social proof and people seeing their friends and relatives using it to either treat various ailments or enhance their lifestyle; they see they’re successful, healthy individuals, and this is just a way to improve their lives. But I think it’s going to take time.”
For example, Gottschlicht added, “we have
a bedtime edible to help you sleep, and we’ve seen people who were non-cannabis users start using that and come into the space because of that. It’s incredible how many people have gotten off standard pharmaceuticals and gone to half a gummy every night. The feedback has been, ‘it doesn’t make me groggy; it doesn’t give me the melatonin hangover I’ve gotten in the past. I feel normal in the morning, and it helps me sleep through the night.’”
Hearing those testimonies from friends and family is often how the stigma barrier falls for people who have been nervous about stopping by, he noted. “They think, ‘hey, there’s some good benefit to this.’ Or as an alternative to opioids after surgery — we’ve had a lot of people come in who just don’t want to take opioids for pain after surgery; they want to try cannabis because it’s not as addictive as some of the opioids out
Cannabis
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