THREE TIPS FOR BUSINESS SUCCESS IN Oklahoma’s Cannabis Market
If you are a part of the more than 1,000 groups who have submitted an application to become a cultivator, processor or dispensary under SQ 788, congratulations! You’ve cleared the first hurdle to become a successfully operating cannabis business. In fact, the Oklahoma Medical Marijuana Authority (OMMA) has implemented the application process so efficiently that you may be thinking that it’s smooth sailing from here. However, there are still some potentially significant bumps in the road ahead of you. This article will address three things that any aspiring cannabis business owner needs to know to be successful in the Oklahoma market; taxes, the rules and investors.
TAXES
It’s no one’s favorite topic but it’s completely different and more crucial in this industry than in any other in which you may have had experience. This is because of § 280E of the federal tax code, which reads: “No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business…consists of trafficking in controlled substances [within the meaning of Schedule I and II of the Controlled Substances Act] which is prohibited by Federal law.”
In plain language, this means that you will not be allowed to deduct normal business expenses for your cannabis business. If you fail to follow this rule, you could end up with a huge tax bill, potential criminal liability and a major headache for your new business. But don’t panic just yet—there are some deductions that are allowed under §280E and proper planning of your corporate structure and operating processes will allow you to maximize those deductions and keep more of your pro ts. Your to-do list should include a consultation with a tax attorney experienced in this industry sooner rather than later.
THE RULES
You can be assured that the current rules will change to incorporate new restrictions and specifications. For example, I can’t imagine that the state will allow the market to open and mature without put- ting laboratory testing requirements and standards in place. Similarly, the current rules don’t have guidelines for security, access and other operational issues that have become the industry standard in other states. As a result, you should plan your business to meet the industry standards nationwide, not the minimum requirements as they currently exist.
By going above and beyond now, you will not love valuable time and money retrofitting your facility when the Legislature acts, either on the legislation that has been proposed or its own ideas. A good place to start is by reading proposed legislation by different industry and patient groups in the so-called “unity draft” and the Care Act.
INVESTORS
I know that many of you have put together a business plan and pro forma and realized that you will need more capital than you have on hand. If seeking out investors is new to you, there is one thing to be aware of before you accept a check: be very careful about making any promises on the return on an investment. For example, you might be asked to agree to 10% equity and repayment of $100,000 with 10% interest in the first 12 months of operation. If you are unable to deliver on that repayment promise for whatever reason—catastrophic crop failure, a fire, unexpected tax bills, etc—your investor could contend that you defrauded them by promising certain investment returns that you did not provide. As with the federal tax issue, an experienced attorney can help you to structure the investment so that you can accomplish the investor’s goals without opening yourself up to securities fraud issues.
The bottom line: the size of the potential patient market under SQ 788 and the easy licensure process has created a real opportunity for Oklahoma businesses to get established quickly and create a well-known brand. Don’t waste that opportunity and endanger your business by missing crucial planning steps on the front end.