Insights from UConn’s Advanced Cannabis Horticulture Course – The Impact of 280E and Financial Cannabis Trends

CannaBlog by Kevin Collins, Senior Consultant, Bridge West CPAs & Advisors to the Cannabis Industry

A few weeks ago, I had the pleasure of giving a presentation to the University of Connecticut’s Advanced Cannabis Horticulture: Production and Industry course regarding the impact of tax code 280E and other financial cannabis trends.  I started the presentation with some slides that discussed the history of 280E and how it came to have such a strong effect on the cannabis industry.  As cannabis is still considered a schedule 1 drug, there is a very large tax burden on the industry as only costs considered “costs of goods sold” are able to be deducted as operating expenses. I also touched briefly on the importance of entity structure and ways that 280E can be mitigated. Some of the questions that I received were related to the difference between retail businesses compared to producers or manufacturers.  I explained that retail businesses bare the largest tax burden of the three as they are not able to consider their selling and budtender labor as a COG (cost of goods sold).  Retailers will have a higher tax burden compared to producers and manufacturers where most labor is considered a COG expense.

I then switched over to a custom Excel model that I presented to the class that showed the impact of the 280E tax burden on an income statement for both a retail and a producer’s model.  I was able to show how a standard non-cannabis business would be taxed on their net income, which would include all expenses like selling, general and administrative costs.  I then compared this to the taxes that would occur under a scenario of 280E where the taxable income without these deductions was much higher.  This gave the students a good glimpse of the real-world impact that 280E will have on a company’s profitability.  I then answered a few more questions related to the potential of federal legalization and how this would change the tax laws around cannabis and what the market might look like with federal legalization.  I also weighed in on the potential market in Connecticut that is currently in the final stages of collecting first-round license applications.  I think that Connecticut will have high prices at first as the industry starts to grow with prices leveling out somewhere around years 3-5 like we are currently seeing in Massachusetts.

After I concluded my presentation, I was able to watch as the class cut down their hemp plant that they had been growing in a tent all semester.  The students were very engaged in this as they had been watching the plant grow all semester and were finally able to harvest it.  The plant looked great as you can see from some of the pictures below.  Before the class concluded I was able to speak to a few students who were excited about potentially starting their careers in cannabis.  I always try to act as a resource to these students by connecting them with some of my contacts in the industry.  The University of Connecticut is truly leading the way in cannabis research and education and I am proud to be a UConn alum.

Kevin Collins is a Senior Consultant of Bridge West LLC, CPAs & Advisors to the cannabis industry. For more information or to schedule a confidential consultation, contact Cory Parnell at cparnell@bridgewestcpas.com or 303-651-0304.