Connect with us

Does My International Cannabis Business Need to Pay U.S. Federal or State Taxes?

We regularly field inquiries from international companies and existing international clients regarding U.S. cannabis business operations. This post and the two that follow will answer questions for foreign cannabis companies regarding when they need to pay U.S. federal and state income taxes, when they need to register a U.S. business entity, and what options are

The post Does My International Cannabis Business Need to Pay U.S. Federal or State Taxes? appeared first on Harris Bricken.

Published

on

We regularly field inquiries from international companies and existing international clients regarding U.S. cannabis business operations. This post and the two that follow will answer questions for foreign cannabis companies regarding when they need to pay U.S. federal and state income taxes, when they need to register a U.S. business entity, and what options are available to them to establish U.S.-based banking operations.

First, you need to recognize that your law firm will stay within its core area of expertise and focus on the legal requirements of your business rather than the execution of your tax obligations. You will want to engage a U.S.-based accounting firm to help with ensuring your tax filings are completed on time and accurately. This may mean you need to hire a CPA firm with international tax expertise and a local CPA firm where you do business in the U.S. Or you may want to hire one international CPA firm to deal with both your international and domestic tax obligations.

Many of our international cannabis clients have been very successful in their home countries and have started to engage in some U.S. sales. These sales may be accomplished directly from abroad to consumers, from abroad through brokers, or by directly engaging in U.S. business operations in country. Many of these companies understand the potential perils of the international cannabis trade and want to ensure they are exactly compliant to avoid any business or immigration issues for owners and employees.

U.S. Federal Income Tax

All U.S.-based income is initially subject to U.S. income tax unless an income tax treaty applies between the U.S. and a foreign company’s home country. If a tax treaty applies, then the foreign company can claim a reduction in U.S. federal income tax if the foreign company already paid income tax in the foreign company’s home country on that U.S.-based income. The U.S. has an income tax treaty with 68 countries, many of them dating back decades. You may be surprised at some of the countries on the list: Venezuela, Russia, Malta, Switzerland, and Cyprus, for example, and others that are not on the list: Singapore, Hong Kong, British Virgin Islands, Bermuda, Argentina, and Brazil.

Generally, as soon as an international cannabis company closes its first U.S. sale, it will incur some U.S. federal income tax obligations. If as an international cannabis company you want to continue to do business with the U.S., you will want to do everything possible to take advantage of income tax savings under an applicable income tax treaty, even if it means first setting up a new subsidiary in a country that has an income tax treaty in place with the U.S.

As an international business you can generally determine how you want to be taxed at the U.S. federal level. You should consult with legal and tax counsel to help you choose your optimal U.S. federal tax classification (c corporation, partnership (LLCs and partnerships), and sole proprietor (s corporation status is not available to international owners).

U.S. State Income Taxes and Related Taxes

U.S. state income taxes vary from state to state, and not all states honor the effect of an international income tax treaty. For instance, both California and New Jersey require payment of state income tax based on revenue from sales in their states even if a tax treaty with a foreign country exists at the U.S. federal level.

You will need to check the requirements of each state where you make sales to determine whether and when they require payments of income tax or a similar tax. For instance, Washington does not have a state income tax, but it has a gross receipts tax that is similarly based on sales within Washington. This means that the gross receipts tax is seen as outside the effect of an income tax treaty. See below:

State Income Tax Other Tax Comments
Washington (WA) None Gross receipts tax (0.484% of gross receipts) Gross receipts = gross income or gross sales from WA buyers
California (CA) 8.84% of net income for corporations Depends on current business operations Only based on CA sales, not U.S. or worldwide sales
New Jersey (NJ) 6.5-9.0% of net income (percentage change based on income bands) None identified based on SCA’s current operations Only based on NJ sales, not U.S. or worldwide sales

States generally require sellers to collect and remit monthly or quarterly payments of sales tax that is collected on retail sales, so you want to ensure that you are collecting the appropriate amount of tax for each transaction.

None of these states requires a company or its U.S.-based brokers to collect sales tax from wholesale buyers because sales tax is only collected on retail sales. But international companies should collect and should require that their brokers collect a reseller permit from each wholesale buyer to keep in their tax records. The reseller permit does not need to be shown at each transaction but can be kept on file for the life of the buyer-seller relationship.

Many states also require an excise tax to be paid on marijuana (not hemp) transactions, which are not considered a sales tax.

Potential Immigration Issues with Engaging in a U.S. Marijuana Business

Lastly, I need to flag the issue of U.S. immigration for non-U.S. citizens who are somehow involved or thinking about getting involved in a U.S. cannabis marijuana business, whether from their home country or while you are in the U.S. My colleague Akshat Divatia wrote a cautionary blog post discussing how involvement could cause foreign individuals to have significant problems with USCIS (U.S. Citizenship and Immigration Services) and USCBP (U.S. Customs and Border Protection). In that post, Akshat wrote:

Even a foreign national who has never consumed marijuana could be declared inadmissible under the INA [Immigration and Nationality Act] based on his or her involvement in a [U.S.] legal cannabis [marijuana] business, either as ‘a knowing aider, abettor, assister, conspirator, or colluder with others’ or ‘an illicit trafficker’ of a controlled substance.

In short, if you are a non-U.S. citizen you want to participate in any way in a state-legal U.S marijuana business, and if you have any plans on entering the U.S., you should consult with an immigration attorney before you come to the U.S.

Further Questions to Ponder

As you are digesting this information, keep in mind the following questions:

Do you want to engage in business with the U.S. directly by becoming the seller? Or, do you want to form a new company in a country to take advantage of an income tax treaty?

  • If you will be engaging directly in business with the U.S., how will that entity be taxed?
  • How important is it to you to simplify your U.S. obligations, and would it be more beneficial to form a wholly-owned U.S. subsidiary company to simplify your U.S. state registrations, tax payments, and U.S. banking?

Stay tuned for upcoming posts in this series on U.S. banking for international cannabis businesses, and international cannabis registration requirements.

The post Does My International Cannabis Business Need to Pay U.S. Federal or State Taxes? appeared first on Harris Bricken.

Continue Reading

Growing

How to Identify Pests in Your Cannabis Grow

Experienced and novice cannabis growers alike understand that pests can ruin a crop, no matter how well watered, fed, or tended. One of the keys to making sure that your plants grow into healthy, robust, and consumable cannabis is to keep a close eye o…

Published

on

Experienced and novice cannabis growers alike understand that pests can ruin a crop, no matter how well watered, fed, or tended. One of the keys to making sure that your plants grow into healthy, robust, and consumable cannabis is to keep a close eye on any pests that might infiltrate your grow, then take the appropriate steps to eradicate them without ruining your garden. Not only will it help keep the plants alive, thriving plants have more energy to produce trichomes and terpenes, making for better bud

Let’s take a look at some common pests found on cannabis plants, how to identify them, and lastly, get rid of them for good. With just a little maintenance and vigilance, your cannabis garden can be pest-free.

Ad

Common Pests Found on Cannabis Plants

According to the Smithsonian Institution, there are likely more unclassified insects in the world than classified, and the running guess is somewhere between 2 million and 30 million. Thus, this is by no means a definitive list of bugs that feed on cannabis but should serve as a good starting point for most pest problems. 

Caterpillars

Before a caterpillar turns into a beautiful butterfly and flits away, it can be very hazardous to your cannabis plants. You know that book The Very Hungry Caterpillar? Turns out it’s a true story about how caterpillars eat everything in sight, including that tasty cannabis. Caterpillars can be very dangerous because they tend to go unnoticed, especially if they are a borer caterpillar, meaning they burrow into the plant and eat it from the inside out. But even caterpillars on the exterior will nosh away, potentially causing great damage to your plants. 

To figure out if caterpillars are ruining your plants, inspect the leaves weekly for holes from feeding, droppings on the leaves that look like tiny black specks, holes, and damage to the stems, and yellowing on upper leaves.

Natural enemies of caterpillars are wasps and praying mantises, and introducing those to the environment could make a difference. These options are typically easier for outdoor grows, but can also work indoors with some preparation. Other interventions include using a product like Bug Blaster spray or neem oil (which you can make at home).

Neem oil use has been controversial in some cannabis circles, as there is a belief among some that it may play a role in CHS (Cannabis Hyperemesis Syndrome), however, no definitive statements can be made without more research. The connection between neem oil and cannabis hyperemesis syndrome has yet to be fully explored or verified, but it’s still good to be aware and to be sure to closely follow usage directions.

Aphids

Even house plants have the occasional plague of aphids. Tiny and red, yellow, black, pale, green, or brown, these bugs can be easy to miss because they cling to the underside of leaves, reproduce quickly, and drain your plant of nutrients. Outdoor grows tend to fare a little better in the battle against aphids since natural predators are present, but indoor plants can be decimated quickly by these teensy pests. Not only do they siphon nutrients away from the plant, they leave a sweet substance called “honeydew” that attracts other insects and turns the leaves black and moldy

Aphids and their honeydew on a plant

The honeydew left behind from aphids leads to further damages to the plant by attracting even more pests. photo credit

Because that honeydew attracts other pests, if you begin to notice a lot of ants or ladybugs coming around your plants, it’s a pretty good sign that you’re well into an aphid problem. Aphids can be hard to shake, but wasps and ladybugs are natural predators. Nonetheless, you should visually inspect the underside of plant leaves at least once a week. If introducing predators doesn’t ameliorate the problem, there are a couple of natural solutions to get rid of cannabis pests to try, like garlic or tomato leaf water. 

Spider Mites

Spider mites are like the supervillains of cannabis pests: uber reproductive, zombie-like in their ability to come back from what you thought was death, capable of spinning webs while eating everything in sight then completely disappearing before turning up again – they’re nearly impossible to spot and even harder to eradicate. Spotting spider mites is difficult because they are minuscule, but doing a daily inspection of both sides of your plant leaves could help to prevent a massive infestation.

Signs of spider mites begins with speckles, then a browning or yellowing of leaves, and premature leaf death.

If any parts of your plant are covered in fine webbing, that’s a sure sign you’re in a bad spot. The best way to avoid mites is to stay vigilant with your leaf inspections. If you do notice signs of mites, try introducing a fan into the environment. Strong air currents make it difficult for mites to breed. Spider mites also prefer temperatures of 60-80 degrees, so experimenting with temperature might also slow an infestation down. Since mites are likely to come back, consider a spray like Azamax or Spinosad to get rid of them for good (again, be sure to follow use directions carefully).

Fungus Gnats

Fungus gnats are just as hungry as caterpillars, but their gourmet meal is from the stem and roots of your plants and not the leaves. Beginning at the topsoil level, both larvae and adults will munch their way down into the root system, badly impact plant drainage, and compromise the structural stability of your plants. However, they’re nearly impossible to spot because they are dark in color, as is soil.

Fungus Gnats

Although fungus gnats are small, the damage they leave behind is mighty. photo credit

Seeing swarms of gnats near the base of your plant is one sign you’ve got a fungus gnat problem. Other symptoms are stems that weaken and simply fall over, adult plants that start to droop, wilt, spot, or yellow, or plants that stop growing altogether. 

Fungus gnats love moist conditions, so keeping the top layer of soil dry is a smart preventative measure. Some other hacks to try include placing a cloth on top of the soil to prevent female gnats from laying eggs or laying a sticky pad near the plant’s base to stick larvae. You could also mix some peroxide and water and spray it around the area of gnat infestation. A common-sense tactic for an indoor grow is to put screens on the windows and the doors closed to keep gnats out. 

Why Pests and Bugs Are Attracted to Cannabis

Something to keep in mind about pests, in general, is that they love a monoculture or a space dedicated to growing only one crop. Researchers from the University of California Davis theorize that if an insect makes itself at home in that one crop, it has a large food supply, creating an all-you-can-eat kind of scenario for the pest, making it that much harder to eradicate. As you likely don’t want to introduce other plants into a cannabis garden (for a number of reasons), this issue will always exist to some degree when dealing with weed. 

This is why, as mentioned, another option is to introduce other beneficial insects. Not only do they prey on harmful pests, but they are also an excellent chemical-free pest control option. The bugs already want to be there, you’re just bringing them to the dinner table. 

Ad

The Wrap Up

Identifying pests should be a regular ritual, just like watering and delivering nutrients to your plants. When you keep them pest-free, all that hard growing work will hopefully pay off in healthy and efficacious plants. Once you’ve harvested, you can move on to other fun challenges like doing a proper cure for your cannabis harvest, and how to store your cannabis stash


How do you deal with pests in your cannabis grow? Share your techniques in the comments!

Photo Credit: ilovegrowingmarijuana (license)

Continue Reading

Connecticut

Governor of Connecticut Pushes For Legalizing Adult-Use Cannabis In Budget Address

Connecticut’s Governor Ned Lamont proposed legalizing recreational cannabis in his budget address this week.

Published

on

Connecticut’s Governor Ned Lamont proposed legalizing recreational cannabis in his budget address this week.

Continue Reading

News

South Dakota Governor Delays Implementation of Medical Marijuana Initiative

It seems that Governor Kristi Noem isn’t quite done derailing voter-approved cannabis initiatives.

Published

on

It seems that Governor Kristi Noem isn’t quite done derailing voter-approved cannabis initiatives.

Continue Reading

Trending