July 22, 2019

Missouri Medical Marijuana License Applicants Must Include Plan for Accounting and Fiscal Controls

Voters passed Missouri Amendment 2 on November 6, 2018.  At that point in time, August 3, 2019, the date that Missouri’s Department of Health and Senior Services (DHSS) would begin accepting business license applications, seemed like a lifetime away. I think I can safely speak on behalf of our Missouri medical marijuana facility license applicant clients when I say that this time has flown by.

Our Cannabis Group regularly assists clients and their advisors on a variety of topics including understanding the business entity selection and structure process, selecting accounting systems, implementing internal controls, and navigating the complex tax rules of IRS Code Section 280E. With the August 3rd date looming for our Missouri applicants, we have been increasingly focused on assisting with drafting and refining various components of our client’s facility license applications.

Of the 68 questions that apply to “all applicants” the one that clients most frequently request our guidance with is Question 40 which states, “What is the plan for accounting, including but not limited to fiscal controls?”

How to Respond

As CPAs, we could, and often do, go into great detail when working with our clients on implementing their accounting processes and procedures, best practices, internal controls, etc.  But because DHSS specifically limits the answer to Question 40 to “up to 500 words”, we have worked to keep our guidance, for application purposes, as “high level” and concise as possible.  We have also developed a checklist of common questions for our clients to consider before responding to this question. A small sample of these questions include:

  • What is your process for selecting general ledger, point of sale, and inventory tracking systems?
  • What is your plan for implementing internal controls and other accounting best practices?
  • Have you hired an employee, or outside accountant, to maintain your books and records on a daily basis?
  • Have you engaged an outside provider to assist with reviewing the work of your in-house accountant?
  • What is your process for preparing monthly/quarterly/annual payroll, sales, and income tax filings?

The Anders Cannabis Group is here to help, whether it’s before filing your application or after. If you have questions about the Missouri medical marijuana facility license application, contact an Anders advisor.

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June 28, 2019

Missouri Releases Interactive Map of Pre-Filed Medical Marijuana Application Fees by County

With the passage of Amendment 2, the Missouri Department of Health and Senior Services intends to initially license 338 medical marijuana facilities by the end of 2019. These licenses will include 60 cultivation facilities, 86 manufacturing facilities, and 192 dispensaries.

Current Application Status

As of June 20, the state has received 543 pre-application deposits totaling $3.9 million, far exceeding the number of licenses that will be initially issued by the state. On June 27, the state published an interactive map breaking down the number of pre-filed medical marijuana facility license deposits by county and by facility type.

As expected, counties with the highest population densities tended to have the most pre-filed deposits. This included Jackson County (Kansas City) with 104 pre-filed deposits, St. Louis County with 85, Boone County (Columbia) with 34, Greene County (Springfield) with 30, St. Charles County with 20, and St. Louis City with 13.  These 6 counties represent 286 of the 543 of deposits on file. Interestingly, as of June 27, there are several counties scattered throughout the state that have not received any pre-filed medical marijuana application deposits.

It is important to note that the window for applying for a Missouri medical marijuana facility license does not open until August 3. Pre-filed application deposits are not required by the state and instead can be submitted with the application itself. As a result, it seems likely that the amount of actual facility license applicants will far exceed the 543 deposits that have been received as of June 20.

To learn more about the Missouri medical marijuana facility license application process or the Anders Cannabis Group, please contact an Anders advisor.

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April 12, 2019

Adam Prest Speaks on the Business of Cannabis in St. Louis Business Journal Table of Experts

Adam S. Prest, CPA, tax principal and leader of the Anders Cannabis Group, was featured in the St. Louis Business Journal’s Table of Experts on the Business of Cannabis. In the article, Adam discusses topics affecting the Missouri cannabis industry following the legalization of medical marijuana and offers expertise and insight around:

  • Biggest concerns from the Missouri cannabis industry
  • How Anders provides value for cannabis businesses
  • How taxes and accounting differ for this industry
  • How the SAFE Banking Act of 2019 could help the cannabis industry
  • What cannabis business owners should be concerned about
  • How this new business will affect Missouri economically

Anders has a team committed to staying on the forefront of evolving regulations, licensing procedures and accounting practices for cannabis businesses. Learn more about how Anders is focusing on the cannabis industry following Missouri legalization.

Read the full article in the St. Louis Business Journal’s Business of Cannabis Table of Experts.

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April 2, 2019

Anders Focuses on Cannabis Industry Following Missouri Legalization

Anders is expanding expertise and service offerings for businesses in the cannabis industry following the legalization of medical marijuana in Missouri. With a forward-thinking outlook, Anders is dedicating resources to get in on the ground-floor of this emerging industry in the state of Missouri. The firm has a team committed to staying on the forefront of evolving regulations, licensing procedures and accounting practices for the cannabis industry.

“This is a great opportunity for the firm to enter into a progressive industry and offer valuable insight and expertise to cannabis businesses, from seed to sale,” explains Adam S. Prest, CPA, tax principal and leader of the Anders Cannabis Group.

The firm works with the entrepreneurs operating throughout the cannabis industry, including cultivators, extractors, manufacturers, dispensaries and investors. The Anders Cannabis Group has the tools to help cannabis businesses succeed and navigate regulations and complex tax challenges, including Section 280E. From helping with entity selection and business plan development prior to the license and application process, to performing valuations to assist in the sale of a business, the Anders Cannabis Group has solutions for each stage in the cannabis lifecycle.

Learn more about the Anders Cannabis Group and read Adam’s insights in the St. Louis Business Journal Cannabis Table of Experts.

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April 2, 2019

The Business of Cannabis: How Hopeful Missouri Cultivators, Manufacturers and Dispensaries Can Prepare for Amendment 2

As a result of the 2018 midterm elections, Missouri became the 31st state to legalize medical marijuana. The passage of Amendment 2 legalizes the growing, manufacturing, selling and consuming of marijuana and marijuana products for medicinal use at the state level. While this is a huge opportunity for those interested in joining the cannabis industry, there are a number of regulatory hoops to jump through before cannabis cultivators, manufacturers and dispensaries can start doing business.

Medical Marijuana Application and Licensing Process

The Missouri Department of Health & Senior Services (DHSS) is tasked with implementing the provisions of Amendment 2, including the issuance of registrations, licenses and certifications. Below is a timeline of important dates to remember if you are considering applying.

Timeline

  • Jan. 5, 2019 – Pre-filed application fee forms will begin to be accepted.
  • June 4, 2019 – Application forms and instructions will be available.
  • July 4, 2019 – Applications for identification cards will begin to be accepted.
  • Aug. 3, 2019 – Facility applications will begin to be accepted.
  • Dec. 31, 2019 – Deadline for approval of facility applications submitted on Aug 3.

Fees

The application fee is determined by the type of facility and is non-refundable, even if the application is denied.

  • Cultivation facilities require a $10,000 non-refundable application fee and a $25,000 annual fee.
  • Medical marijuana-infused manufacturing facilities require a $6,000 non-refundable application fee and a $10,000 annual fee.
  • Dispensary facilities require a $6,000 non-refundable application fee and a $10,000 annual fee.

Application Approval

According to Amendment 2, there will be a limited number of applications approved per facility type. The DHSS will approve a minimum of at least 62 cultivation facilities, 88 medical marijuana-infused manufacturing facilities and 192 dispensary facilities.

Beginning January 5, 2019, the DHSS began accepting Pre-Filed Application Fee forms. The DHSS has indicated that pre-filing fees will not result in preferential treatment or affect the order in which facility application forms are reviewed. Despite the fact that applicants will not receive preferential treatment for pre-filing fees, many applicants have chosen to submit a Pre-Filed Application Fee form and pay the applicable application fee.  As of March 11, 2019, nearly 500 Pre-Filed Application Fee forms have been submitted and fees totaling over $3.3 million have been received by the DHSS.

Learn more about the Anders Cannabis Group, or contact an Anders advisor to see how we can help your business navigate the new laws and regulations.

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April 2, 2019

How Section 280E Creates Big Tax Challenges for the Cannabis Industry

It is no secret that cannabis businesses must deal with substantially more rules and regulations as compared to most other businesses. Internal Revenue Code Section 280E is one of the biggest complications for businesses operating within the cannabis industry, causing an increased tax burden for cultivation facilities, medical marijuana manufacturers and dispensaries. Educating yourself on what expenses are deductible under IRC Section 280E, and which are not deductible, will help your cannabis business make better financial decisions.

What is Section 280E?

The IRS deems state-compliant cannabis businesses as being federally illegal, and requires this to be reflected on the federal tax return. Section 280E of the tax code states that businesses that traffic in controlled substances cannot deduct any expenses incurred in carrying on the production, distribution and sale of controlled substances. This means that businesses operating within the cannabis industry cannot deduct certain expenses, many of which are deductible for businesses operating within a legal industry.

One exception to this law is for costs of goods sold (COGS). COGS are deductible, and only account for expenses associated with producing the product. Deductible expenses include such items as seeds, soil, water, nutrients and expenses related to the cultivation and harvesting of the plant. Expenses that are part of the distribution process are not deductible, and include such items as rent, shipping, overhead and employee expenditures.

Because of Section 280E, most costs associated with doing business in the cannabis industry are not deductible, resulting in cannabis businesses paying taxes on gross profit instead of net income. This is a big concern as it can quickly make a business unprofitable.

280E Example

The example below outlines the impact of Section 280E for a corporation:

Revenue                                                                                             $2,000,000

Less: Cost of Goods Sold                                                                   –  600,000

Gross Profit                                                                                          1,400,000

Less: Other Selling, General & Administrative Expenses            –  1,100,000

Net Income                                                                                        $   300,000

Federal Income Tax Rate = 21%

Non-Cannabis Business

  • Net income of $300,000 taxed at 21% = $63,000
  • Results in net income after taxes of $237,000 and an effective tax rate of 21%

Cannabis Business

  • Gross profit of $1,400,000 taxed at 21% = $294,000
  • Results in net income after taxes of $6,000 and an effective tax rate of 98%

Thus, as a result of 280E, the state legal cannabis company ends up paying an additional $231,000 in taxes.

What Can I Do About Section 280E?

The best defense against Section 280E and other tax implications of the cannabis industry is to work with an experienced team of accountants and advisors. Anders has a team of CPAs and advisors well-versed in the industry who can help ensure your financial information is up to par with evolving regulations and your tax burden is minimized. Learn more about the Anders Cannabis Group or contact an Anders advisor to find out how we can help you keep more money in your business.

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