Cannabis MSO Jushi benefiting from little-used IRS tax-credit program

The IRS owes Jushi Holdings about $6 million in Employee Retention Credit (ERC) claims, but the cannabis multistate operator didn’t want to wait for it.

Instead, Jushi sold its ERC claims to a third party for about $5.1 million in cash.

The ERC is a refundable tax credit for eligible businesses and tax-exempt organizations whose employees were affected during the COVID-19 pandemic.

It’s a program that few cannabis businesses have taken advantage of.

“If a business is eligible, it can be a particularly lucrative tax credit,” Glen Frost, managing partner of Annapolis, Maryland-based Frost Law, told MJBizDaily.

“It’s a big opportunity, and a lot of cannabis businesses have missed out on this credit.”

It’s not too late for cannabis businesses to take advantage of the program, but time is running out.

ERC claims still can be submitted for the 2021 tax year, but it must be done by April 15.

Why Jushi sold its ERC claims

Trent Woloveck, Jushi’s chief strategy officer, said selling the ERC claims to a third party is like invoice factoring, a form of alternative financing that involves selling your outstanding invoices to a third party in exchange for cash up front.

“IRS has been slow in getting refunds to many different industries for the ERC program,” Woloveck told MJBizDaily.

“For us to receive cash today, it helps for liquidity on our balance sheet.”

Jushi, which received a $1.3 million check from the IRS for various claims it filed previously, has another $3 million in ERC claims outstanding.

The Boca Raton, Florida-based MSO expects those claims to be paid by the IRS “in due course,” Woloveck said.

Jushi had to file more than 40 claims to account for each entity it operates.

The evolution of the ERC

The ERC was enacted in March 2020 as part of the Coronavirus Aid, Relief and Economic Security (CARES) Act to encourage businesses to keep employees on their payrolls during the pandemic.

The ERC has since been amended three times.

Rachel Gillette, a cannabis industry-focused attorney with the Denver-based Holland & Hart firm, said the IRS was issuing the credits quickly at first, but now it might take up to two years before payment is received.

The IRS placed a moratorium on processing claims submitted after Sept. 14, 2023, because it received a surge of potentially fraudulent submissions.

“Promoters” would handle filing ERCs on behalf of businesses for a percentage of the claim, but they weren’t doing the analysis to determine whether a business was eligible, Gillette said.

“So, IRS said, ‘We’re going to hit the brakes because we want to figure out whether companies are qualified to make the claim,’” Gillette said.

Failing an ERC audit has significant repercussions, ranging from a 20% penalty for accuracy issues to 75% for fraud. A business also could face criminal charges.

Frost said the ERC program is so complicated that businesses wanting to claim the credits hire a licensed tax professional to help them.

“I would recommend that no taxpayer do this on their own – the IRS has described this program as one of the most complex that’s ever been administered,” he said.

How ERC credits work

A business can qualify for an ERC credit in one of three ways:

• If it had a reduction in gross receipts during a particular quarter.
• If it had a full or partial suspension of operations because of a government order.
• If it launched during the pandemic.

Most cannabis retailers are eligible because local governments ordered them to restrict their operations during the pandemic.

Cannabis retailers had to limit capacity in their stores or offer only curbside transactions or delivery.

Businesses that filed claims before Sept. 14, 2023, are starting to get their ERC checks.

And the IRS is paying interest – sometimes more than 15% – dating to when the original return was filed, Frost said.

Woloveck said the fact the IRS is allowing cannabis businesses to participate in the program is a positive sign for the industry.

That Jushi could potentially receive nearly $10 million through the ERC program demonstrates the impact the cannabis industry has on the U.S. workforce and the economy.

“I think it speaks volumes to the legitimacy of this industry that at a time the economy was retracting, this whole industry was growing like gangbusters and hiring tens of thousands of people at a time when the country needed it,” Woloveck said.

“It’s a shame we continue to have the handcuffs placed on us. With federal normalization, you can see very clearly what this industry will become.”

The company’s shares trade as JUSH on the Canadian Securities Exchange and JUSHF on the over-the-counter markets.

Margaret Jackson can be reached at margaret.jackson@mjbizdaily.com.