Pubdate: Sat, 21 Nov 2015
Source: Ukiah Daily Journal, The (CA)
Copyright: 2015 The Ukiah Daily Journal
Contact: http://www.ukiahdailyjournal.com/feedback
Website: http://www.ukiahdailyjournal.com/
Details: http://www.mapinc.org/media/581
Author: Kate Maxwell

MEDICAL MARIJUANA: THE FUTURE OF CANNA-BUSINESS

The new Medical Marijuana Regulation and Safety Act will legalize 
commercial medical marijuana sales in California beginning in 2016, 
but for existing businesses hoping to become compliant, demonstrating 
a history of established business practices or establishing a new 
legal business entity will be an important step in transitioning to 
the new regulations.

The first step in compliance with new laws is for businesses to 
ensure they have established the legal steps to operating as a 
commercial entity. The new laws create a system of dual state and 
local licenses, and require applicants to work with a variety of 
agencies depending on business type: cultivators will be regulated as 
agriculture under the Department of Food and Agriculture, the 
Department of Consumer Affairs will oversee the licensing system, and 
new standards for processing, product testing and labor regulations 
for employees will also become applicable over the next two years.

However, all businesses will need to declare tax revenue and register 
with the state tax agency, the Board of Equalization, as well as 
comply with county regulations.

The Board of Equalization requires dispensaries and cultivators to 
register with the agency to declare income from cannabis activity, 
although currently federal regulations do not allow for electronic 
payments or bank accounts related to cannabis businesses.

The Board of Equalization has recently established a new website at 
boe.ca.gov/cannabis that outlines current regulations, which require 
a seller's permit and sales tax payment on cannabis products for 
retailers, and for cultivators selling wholesale, a resale 
certificate, declared income, and documented records needed for compliance.

Businesses can register for free online with the Board of 
Equalization right now, and are being encouraged to do so once they 
have established a business structure and organization.

Maintaining records of inventory and other transactions is considered 
an essential business practice for those considering applying for 
future licenses, and fines of up to $30,000 can be incurred for not 
maintaining proper documentation required for licensure. Some type of 
marijuana tracking system "from seed to sale" will also be required 
with the new regulations.

Businesses are required to declare personal property and equipment 
located inside dispensaries but those who are registered as a sole 
proprietorship or individual business can only deduct the cost of 
goods sold from income taxes.

Henry Levy, tax attorney speaking at the September Golden Tarp Awards 
in Garberville, explained during a session on tax compliance that 
whether businesses were structured as sole proprietorships, 
non-profits, or otherwise, there are often requirements and 
liabilities for filing taxes on several years worth of undeclared 
back taxes once a business is formally registered as a cannabis 
business. He encouraged everyone to pick a simple business structure 
and consult with an attorney or accountant as to the best strategy 
for their specific business and back tax situation.

At a Laytonville meeting of the California Growers' Association held 
Nov. 15, Sacramento-based compliance lawyer Melissa Sanchez of the 
Harvest Group encouraged locals to explore the formation of a 
non-profit mutual benefit corporation as one business structure that 
could allow for compliance during the transition period and then be 
changed into a different kind of commercial structure.

Sanchez said such non-profit structures were safe until the full 
transition to commercial cannabis and that other types of consumer 
cooperatives or registration as an individual could present more 
complicated tax, structure and banking requirements or make a 
transition to another business structure difficult.

Currently, legislation is being considered that would allow an 
exemption on the existing 10 percent penalty for non-electronic 
payments so that cannabis businesses would not be penalized for cash 
transactions.

There are also proposals which would create a tax amnesty to allow 
businesses to declare past income and taxes and come into compliance 
without further penalties for cannabis businesses who have been 
operating in a gray area prior to the new MMRSA requirements. 
Assemblyman Mike Gibson said in a Nov. 6 tax forum that such 
initiatives were intended to "encourage you to pay your debt and not 
be penalized...to make this transition as easy as possible to help 
individuals and companies do it right."

The BOE offers free tax consultations to businesses and individuals 
to help clarify what regulations apply to what type of business. In 
additional, board members have been hosting events and forums around 
the state to answer questions concerning the increased regulations 
for cannabis businesses under new requirements.

One major concern was how federal regulations would impact local 
businesses in compliance with California law. The BOE encourages 
businesses to be as compliant with state law as possible to ensure 
protection with potentially changing federal regulations or policy, 
but marijuana businesses are not currently protected from federal 
investigations.

Currently those applying for licenses are required to face background 
and fingerprinting checks, and those with serious criminal history or 
certain violations related to medical marijuana commercial activity 
can be denied licenses. Some marijuana groups are lobbying to change 
this requirement to ensure a greater equality of access to the new market.

Businesses were being urged to comply with the appropriate state 
labor laws. Legal and tax professionals around the state have 
recommended those considering starting cannabis businesses 
familiarize themselves with current labor laws to determine which 
workers would be considered employees or independent contractors, as 
businesses will need to pay payroll taxes, workers comp, unemployment 
and comply with other standard labor practices.

The BOE is seeking ways to assist with banking and current electronic 
payment requirements. Some of the other agencies involved with the 
commercial regulations are the Franchise Tax Board, the Department of 
Consumer Affairs, the IRS, as well as local agencies regulating businesses.

Currently, North Coast Assemblyman Jim Wood is considering new 
proposed regulation that would add an excise tax to marijuana sales.

In addition, local authorities retain the ability to add local taxes 
under MMRSA legislation. RCRC legislative representative Paul Smith 
said during a special presentation to the Board of Supervisors Oct. 
25 that local taxation and control, including the ability to ban 
certain commercial activity, was a key aspect of the new legislation 
that representatives from rural cultivator counties had requested and 
achieved during legislative negotiations.

One issue raised in the Nov. 6 forum was whether a wide range in 
local taxes would cause businesses to cluster in certain counties, 
and how varying local taxes might impact transportation routes, as 
MMRSA legislation prohibits counties from banning transportation 
through their county from one legal location to another. This 
particularly impacts mobile and delivery services that may be 
traveling through different localities.

On Friday at 10 a.m., North Coast Board Member Fiona Ma hosted a 
conference (available by telephone) in Sacramento concerning how new 
regulations will impact cannabis transportation. More information is 
available on her website and by calling 916-445-4081.
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MAP posted-by: Jay Bergstrom