Marijuana Business Magazine May-June 2020

the first place, and that would be as a C corp. Especially, if you are a store, it has to be a C corp. It’s less impor- tant if you are a manufacturer or a grower, but investors are still more comfortable in this setup if the business is going to get audited. That’s because, if you are set up as an LLC, the 280E liability flows from that and becomes an individual tax liability. Also, if you get audited as an LLC, you get audited personally, too. There are lower tax liabilities, too, as a C corp. (21%) versus a personal tax rate of 35% with an LLC. What are some of the mistakes cannabis companies make in trying to rectify financial problems? Is there any way of obtaining bankruptcy protection here or in Canada? Usually, when there are financial issues, the mistakes come from the snowballing of problems. A company needs to find money to pay for a problem with its crop, for example, and so (it) borrows money from employee withholding taxes. They then can’t pay it back once they borrow it, and so there are knock-on effects. It’s like you are borrowing from Peter to pay Paul, and the IRS sees this as stealing. Now, we can help protect against that by challenging any eventual audit, but the IRS has up to 10 years to collect any taxes. In terms of bankruptcy protection (so far, this isn’t available for U.S. cannabis businesses), I could see how people would be attracted to the possible Canadian option. However, tax debt is not really a vehicle for bankruptcy protection. Do you have any other general advice for cannabis business owners? Quit listening to the financial adviser telling them they are going to make zillions of dollars. Instead, let’s operate from a position where we are hoping to break even. Nick Thomas covers finance for Marijuana Business Magazine. You can reach him at nickt@mjbizdaily.com. Δ9THC | THC-A | CBD | CBD-A | CBN | CBG-A | CBC* | Degraded THC* | Terpenes* Cannabis | Flower | Concentrates | Tinctures | Hemp Compliance *Terpenes+ Module Portable Cannabinoid Content Analy sis