Marijuana Business Magazine November December 2018

Here are tips for how to decide what corporate structure best suits your can- nabis business and a look at the differ- ent options that are available. Start With the Basics In Logan’s law office, she begins with the basics as she walks cannabis clients through their options. “We start with, ‘What is your busi- ness, and what do you want to do?’” she said. “At the end of the day, your cor- porate structure is very often dictated by two key considerations: your source of funding and tax efficiency.” Tax liabilities, Logan and Bodamer emphasized, are a top consideration for cannabis firms given Section 280E of the federal tax code, which prevents cannabis companies from taking the same deductions that mainstream businesses do. Organization Options To help limit a firm’s tax burden, Logan advises her cannabis clients to consider building a corporate family of entities – in other words, creating a separate entity for each type of business activity the company might perform. For example, if a marijuana company has cultivation and distribution operations, separating the two activities into their own business entities can limit tax liabilities and ensure that problems in one line of business don’t sink the company. “This is a good way to ensure that a liability that threatens one business line doesn’t take down the entire operation,” Logan said. “If you had a harvest that somehow became contaminated, for example, and then patients began to file lawsuits, they would not be able to recover against the distribution side of the business, which could continue to operate.” Other considerations: • Construct a separate business entity for your intellectual prop- erty.That IP can be licensed out to third parties and will serve as another line of business. • Certain equipment used in your operations can be placed into a holding company that charges your other operations rent for their use. “If you’re paying rent on equipment, it becomes a cost-of- goods-sold line item that you can fold into a business plan for tax- planning purposes,” Logan said. • Some businesses have even placed a company’s management opera- tions into a separate entity – but Logan advised treading cautiously in this area. “If it is just a shell and not a substantive business entity, then regulators will prevent you from treating the operation as its own,” she said. For those who recently launched a new cannabis enterprise or are advanc- ing their venture to its next chapter, here is a brief overview of the most common business entities – and a few of the pros and cons to consider with each: Lawyer Benton Bodamer says tax liabilities are a top consideration for cannabis firms. Photo courtesy of Dickinson Wright Selecting the right legal structure for your cannabis venture is critical to your company’s success and ability to grow. Photo by Igor Lobzov 96 • Marijuana Business Magazine • November/December 2018