In 2018, voters in the state of Missouri legalized medical cannabis. Despite this, the sale, distribution and cultivation of cannabis is still illegal in the state under federal law. This has created some challenges for the infant industry. For instance, cannabis companies in the state aren’t allowed to deduct business expenses on their taxes, despite being legal businesses.
During a Senate hearing held earlier in this year, Senator Denny Hoskins raised the issue, noting that cannabis business owners who weren’t allowed to deduct business expenses on their tax returns had to pay significantly higher taxes.
In the legislative session that recently ended, legislators in the state of Missouri approved a bill that will allow medical cannabis companies to deduct business expenses on their tax returns. The legislation, which was approved with almost no opposition, has been advanced to Gov. Mike Parson’s desk.
This bill will permit medical cannabis businesses that are authorized under the state’s constitution to claim income tax deductions in any amount equal to their expenditures. It should be noted, however, that a provision in the tax code prevents deductions for expenses that are sustained while operating any business or trade that is made up of or involves the trafficking of controlled substances.
While the federal law is yet to be altered, this legislation will ease some of the burden that cannabis business owners in the state bear. Under the federal law classification of substances, cannabis is categorized as a Schedule I controlled substance. This clause is used by the Internal Revenue Service (“IRS”) to prevent marijuana businesses from deducting business expenses on their returns.
Missouri Medical Cannabis Trade Association executive director Andrew Mullins noted that by making this change, legislators in the state were putting medical marijuana businesses on a level playing field with other small businesses in the state in terms of taxes.
CPA David Smith, who works with various medical cannabis companies, noted that the current law could mean an effective tax rate for businesses of 70% or more, adding that some companies may be subject to income taxes, despite operating at a loss.
Hippos Cannabis CEO Nicholas Rinella explained that this was because, without the deductions, companies had to pay taxes on gross profit instead of gross income. He added that sometimes, expenses could outweigh the income of a business, particularly if it was just starting out. Rinella also noted that this taxation level limited the industry’s ability to reinvest in communities, create employment opportunities and serve patients.
This change in Missouri is a much-needed one in all jurisdictions where cannabis companies operate. As those tax deductions are rolled out, companies such as Hero Technologies Inc. (OTC: HENC) will be at par with other licensed businesses.
NOTE TO INVESTORS: The latest news and updates relating to Hero Technologies Inc. (OTC: HENC) are available in the company’s newsroom at https://cnw.fm/HENC
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