Marijuana Business Factbook 2019

237 © Copyright 2020, Marijuana Business Daily , a division of Anne Holland Ventures Inc. You may NOT copy this Factbook, or make public the data and facts contained herein, in part or in whole. For more copies or editorial permissions, contact CustomerService@MJBizDaily.com or call (720) 213-5992, ext. 1. Financial & Operational Data: Retailers | Chapter 5 MJBIZDAILY.COM CHART 5.09: The Impact Of 280E On A Retailer’s Bottom Line 1. Revenue $1,000,000 $1,000,000 2. Cost of Goods Sold $500,000 $500,000 a Wholesale Cost $400,000 $400,000 b Delivery $75,000 $75,000 c Storage $25,000 $25,000 3. Rent $100,000 $100,000 4. Utilities $100,000 $100,000 5. Insurance $50,000 $50,000 6. Maintenance $50,000 $50,000 Taxable Income $500,000 $200,000 Tax Burden at 25% Rate $125,000 $50,000 Income After Taxes & Expenses $75,000 $150,000 A marijuana retailer and a traditional retailer are allowed to adjust their taxable income based on the cost of goods sold (essentially a tax deduction), but this is the only adjustment a marijuana retailer can make Marijuana retailers cannot deduct these business expenses, while traditional retailers can So in this example, taxable income for cannabis dispensaries/rec stores is $500,000 – reflecting only cost of goods sold adjustments – while traditional retailers have taxable income of $200,000 As a result, cannabis retailers pay more in taxes Form 1125-A (Rev December 2012) Department of Revenue INCOME STATEMENT OMB No 1545-2225 MARIJUANA RETAILER TRADITIONAL RETAILER A cannabis dispensary or rec shop ends up with about half the income of a traditional retailer despite having the same expenses and revenue While much has been made of the rapid growth of the marijuana industry throughout the United States, cannabis business owners still face significant obstacles turning sales into profits. The most notable hurdle is IRS tax requirement 280E, which creates a high tax burden on marijuana companies, particularly retailers. Under Section 280E of the federal tax code, the only tax deduction marijuana retailers may claim pertains to the cost of goods sold ― or the direct expenses attributable to the production of products sold by a company. As a result, vertically integrated retailers can take higher deductions, as these businesses are directly involved in the production of marijuana and infused products, whereas stand-alone retailers are not. To illustrate how these tax considerations affect a business’ bottom line, the chart above shows a hypothetical income statement from a stand-alone marijuana retailer compared with a traditional retailer. Although there has been no movement on changing 280E to date, lawmakers are working to push through other changes, such as the Secure and Fair Enforcement (SAFE) Banking Act. In addition to loosening federal restrictions that prevent banks from working with marijuana companies, the SAFE Banking Act would address the limitations of 280E. Source: 2019 Marijuana Business Daily © 2019 Marijuana Business Daily, a division of Anne Holland Ventures Inc. All rights reserved.