LOUISVILLE, Ky. — As shippers of CBD, growing their business with THC would make sense.
When Kentucky passed medical marijuana, Cornbread Hemp planted a seed of uncertainty, cultivating fiscal doubt that they as a small business could really capitalize on cannabis.
“Generally speaking, in legal cannabis states, there’s not a lot of companies making money,” Jim Higdon, Cornbread Hemp co-founder, said.
Dispensing medical marijuana would be very taxing and Cornbread Hemp, at least for now, cannot bank on normal financial services.
“If you’re a cannabis business, you probably don’t even have a bank account, let alone a loan,” Eric Zipperle, Cornbread Hemp co-founder, said.
However, Congress could change all of that.
The SAFER Banking Act passed committee on Sept. 27, but it’s still waiting for debate on the Senate floor, as well as a vote.
“We need the Senate to pass this, the House has already done it,” Rep. Morgan McGarvey, D-Kentucky, said. “We’ve got to have our laws catch up to what’s happening in the states.”
From his days in the Kentucky Senate to his days in the U.S. House, Congressman McGarvey has been a strong supporter of legalized marijuana, and from a financial standpoint, he said a SAFE or SAFER Banking Act will greatly ease the burden on legitimate cannabis businesses by unblocking basic banking services – such as setting up safe accounts to deposit money in.
“There are too many obstacles right now,” he said. “From what I understand, in other states, there's dealing in cash, they have nowhere to put it. That's right. And then they're targets. If you're a legitimate business, and you can't deposit your funds into a bank, you can be a target, it's not good for that business, it's less safe for them.”
Another basic banking service? Getting a loan to get a business up and running.
That will be crucial for any budding business in Kentucky.
If you want to make sure that you have these local mom and pop stores in the cannabis space, they’re going to have to get access to capital,” McGarvey added.
Kentucky House Majority Whip, Jason Nemes, who helped get medical marijuana passed on the state level, urges change on the federal level.
“The best thing that can happen is that Congress could do its job, which is to not only pass the SAFER Banking Act, but more importantly, to remove marijuana from Schedule I, it ought not be a Schedule I, it never should have been in the first place, but it certainly shouldn't be now,” Nemes, who represents District 33, said.
Still a Schedule I, grouped with hard drugs such as heroin and LSD, marijuana carries a hefty tax burden.
That means those licensed in the business of marijuana in states where it's legal cannot write off normal expenses, other businesses can.
It's called IRS Code, Section 280E.
“Let's encourage small businesses. that's right. Kentuckians to get into the game. That's right. But when they have to face this. Yeah. Why would they want to get in the game? It's another challenge, right? That's why the particular businesses that come into this space need to have their eyes wide open,” Nemes said.
Rescheduling cannabis, the state told FOCUS, "would eliminate this tax issue."
In the meantime, in some other states, they have "de-coupled" their tax code from 280E, meaning they don't adhere to that section, allowing deductible business expenses on state taxes.
Doing that in Kentucky, however, "would take an Act of the General Assembly."
“We're going to have a bill this year to do some cleanup stuff, and that's one thing that we could have, I will certainly reach out to the governor's office on that, because we want to make sure that we're helping Kentucky businesses succeed in this space,” Nemes said.
With the law, the Kentucky Medical Cannabis Program must establish regulations for licensing by July 1, 2024.
The program is supposed to be up and running by Jan. 1, 2025.
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