The June 2019 Update of Cannabis and CBD

Almost two years later since cannabis was legalized in the State of Oregon in July 2015, one cannabis dispenser business owner said he is receiving some support from one of GAFA (Google, Amazon, Facebook, Apple). His business was a small startup with only one owner and one employee. I was surprised by how gigantic corporations conduct their market research before entering a controversial but potentially profitable industry by minimizing the risk of reputation and compliance. By affiliating with a tiny business, instead of establishing their own research team or subsidiary as a preparation to get into a new market, they had gradually made themselves ready to commence a new business.

Now in 2019, a reasonable number of states has moved to legalize cannabis. Federal registration and agencies are discussing further movement in the cannabis industry. With that, the cannabis business is no longer a mama-and-dad business. Large corporations have been engaging the business. Cronos Group announced that Altria, tobacco giant, is buying a 45% stake in Cronos for around $1.8 billion. In 2018, Coca-Cola was rumored to be in discussion with two major marijuana growers: Aphria and Aurora Cannabis.

Still, trademark of CBD-infused food products, transportation, banking, and taxation are major areas of confusion.

26 U.S. Code § 280E states “[n]o deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business … consists of trafficking in controlled substances … which is prohibited by Federal law or the law of any State in which such trade or business is conducted.” 2018 Farm Bill legalized hemp with not more than 0.3% THC. Technically, if all of a cannabis dispenser’s products are produced from hemp with no more than 0.3&% THC, its business is neither “trafficking in controlled substances” nor an activity “prohibited by Federal law.” In reality, the IRS disallows any deduction for ordinary and necessary business expenses of the high percentage of cannabis businesses.