On November 5th, the LA Times released an article discussing how state-imposed taxes and fees are likely to drive up the cost of adult-use and medicinal cannabis when sales are legalized next year. While the article raises some interesting points about the change in cost-efficiencies that come with a regulated economy, there are a number of issues and opportunities that are not addressed.

We see the increase in government imposed tax burden as a challenge for the impending regulated market, yet there are several other challenges that need to be considered as part of the equation, specifically, IRS Code Section 280e, which disallows certain standard business deductions, as well as other industry challenges, such as the lack of robust and formal financial services solutions.

These challenges also contribute to the higher cost of products, as every operator within the supply chain needs to maintain certain margins in order to operate their business. They are thereby passing some of the operating costs on to patients and consumers. As the industry emerges and regulations change, the focus will be on allowing businesses to operate as any other industry, and therefore could also pass on any operational savings to those impacted by these taxes, thereby reducing the final purchase price, inclusive of taxes.

With the impending legalization of adult use (or responsible use) cannabis in California, state and local governments have been evaluating the impact of local taxes and regulations on cannabis businesses, patients, and consumers. Compliance with applicable laws and regulations is crucial in obtaining, and maintaining, the relevant licenses for an operating cannabis business.

ELLO’s advisors assist clients by providing guidance to navigate complex compliance requirements and monitor changes to rules and regulations; provide accurate financial reporting for agencies and regulators; and optimize business operations with effective solutions built around the right mix of people, process and technology.

About the author(s)

Evan Eneman
Evan has more than 18 years of experience assisting private and public companies in a variety of industries including Cannabis, Financial Services, Healthcare, Technology, Media, and Entertainment. His areas of expertise include: strategy, compliance, enterprise risk management, business process, internal controls, audit, governance, and IPO readiness. Evan also has experience founding and running an early stage venture capital firm and a branding and marketing agency dedicated to the cannabis industry. Prior to his involvement in the cannabis industry, Evan spent 12 years with a Big Four firm, advising Fortune 100 and emerging growth companies on various aspects of governance, risk, compliance, operations and strategy.