The PATH Act and Your Marijuana Business

  • by Elizabeth Morris
  • Feb 08, 2016
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At the end of 2015, the Protecting Americans from Tax Hikes Act (PATH) was signed into law, allowing marijuana-related business owners to once again take advantage of depreciation and energy tax benefits. The new package provides a set of incentives that could greatly reduce tax costs for qualifying businesses.

Section 179
The first benefit for cannabis businesses that made equipment, asset and building improvements in 2015 is the Section 179 deduction. These businesses can now expense a combined $500,000 for production equipment (new or used), off-the-shelf software, and up to $250,000 in leasehold improvements. This deduction phases out dollar-for-dollar for equipment and improvements costing more than $2 million, and carries the stipulation that these upgrades need to have been “in service” by December 31st of the tax year. The example below demonstrates how beneficial this deduction could be for tax savings.

Assuming upgrades were “in service” in 2016, the following cost savings could be applied to a purchase of $500,000 in equipment:

   $500,000 in equipment
–  $175,000 assuming a 35% tax rate
= $325,000 true equipment cost

Bonus Depreciation
The next development to come from the PATH Act is bonus depreciation. Bonus depreciation is the provision that allows businesses to expense off a portion of an asset in the year it is added. This has proven to be very helpful for businesses with large amounts of qualifying equipment, as they are able to save large amounts of tax in the year of purchase. A gradual phasedown has been implemented. The bonus depreciation plan through 2019 breaks down as follows:

  • As of January 1, 2015 through December 31, 2017: 50%
  • As of January 1, 2018 through December 31, 2018: 40%
  • As of January 1, 2019 through December 31, 2019: 30%

These rates mean that production equipment and improvement purchases with less than 20 year lives will be able to be expensed at 50% of the asset price in the year of purchase through 2017, 40% in 2018, and 30% in 2019. While this section does carry certain stipulations around qualified assets, it is a great opportunity for companies to invest in necessary equipment for a significant amount of savings.

Qualified Leasehold Improvements
Another significant piece of the PATH to help marijuana businesses saving on taxes comes via qualified leasehold improvements. Depreciation lives are reduced to 15 years, instead of the 39 year schedules normally applied. This means that after Section 179 and bonus depreciation deductions, a business will be able to accelerate remaining tax value of improvements over 15 years instead of 39 years. This rapidly reduces the timeframe in which a business can depreciate an asset and enjoy the tax benefits more quickly.

Energy Tax Incentives
The final benefit to cannabis business owners to come out of the PATH Act is the extension of the Energy Efficient Commercial Buildings deduction, or Section 179D. Now available through December 31, 2016, this is a deduction of up to $1.80/sf available to those investing in energy-efficient improvements that aim to reduce energy use within the building envelope (insulation, doors, windows, etc.), air conditioning and heating ventilation, and energy-efficient lighting. To qualify for the deduction, the building’s energy systems must be a specified percentage more efficient than the American Society of Heating, Refrigerating, and Air-Conditioning Engineers (ASHRAE) 2001 standards. It should be mentioned that these incentives are different than Energy Investment Tax Credits, which pertain to alternative energy sources like solar, geothermal, and wind.

Overcoming Barriers in Cannabis Real Estate | Challenges and Solutions

  • by Elizabeth Morris
  • Oct 30, 2015
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real-estate-300x157As more states legalize some form of marijuana use, business owners are finding new barriers to entry in the industry. One of the biggest involves the search and procurement of real estate. Acquiring an operation license is only the first step in what can be a long, tedious, uphill battle toward a successful cannabis operation.

Lack of Lending and Mortgages

Since the growth, sale and distribution of marijuana is still illegal at the Federal level in the U.S., financial institutions have steered clear of businesses with involvement in the cannabis industry. Banks face criminal prosecution, asset forfeiture and large amounts of liability if they are found to be involved with illegal businesses. It is because of this that marijuana-related businesses do not have access to traditional forms of lending and mortgages. Without access to the capital processes that other businesses have, many have to find other ways to raise funds.

Risk of Civil Forfeiture

As any association with a marijuana-related business is deemed illegal by the Federal government, many landlords and property managers are hesitant to lease space to them at the risk of civil forfeiture. Just like with banks, any property associated with the marijuana business can be subject to asset seizure, though the Federal government has several guidelines which state that they will not spend resources pursuing state-legal and compliant marijuana businesses. Despite these guidelines, some property owners don’t want to carry the risk of this even taking place. Those who do, however, are indulging in the increased rent and property values in areas like Denver, where warehouse prices have doubled (and in some cases even tripled) in the last five years.

Finding Conducive Property

leasingFinding real estate that works for the growth and sale marijuana can be very challenging. Zoning and restrictions regulating the distance from schools, day care centers, rehab facilities and other make it difficult in a mature market like Denver. Business owners who want to get into the industry now are buying existing locations, since they are already “grandfathered in” and have met proper distance and zoning requirements.  Most marijuana production facilities are large, open spaces that require ample ventilation and can sustain lighting and watering systems. Finding property that meets all of these criteria can certainly be a challenge, and has even led to the emergence of marijuana-focused real estate brokers and agencies.

An Industry Stigma

Even when business owners are able to overcome the challenges described above, they still face a stigma about marijuana and the cannabis industry. People still associate marijuana-related enterprises and their owners with a lazy, laid back, “stoner culture” mentality. These business owners find it difficult to be taken seriously, and being an illegal substance in the eyes of the Federal government doesn’t help. These barriers have driven marijuana businesses to band-together to not only change the perception of the industry, but to make the process easier and more conducive so that everyone can be more successful.

Announcing Dynamic Alternative Finance

DYNAMIC ALTERNATIVE FINANCE LAUNCHES AS CAPITAL ARRANGER AND FINANCIAL ADVISOR FOR CANNABIS INDUSTRY

Denver, CO — September 1, 2015 – Dynamic Alternative Finance (DAF) announces its formation and official launch as an independent capital arranger and financial advisor to alternative businesses, with a specific focus on the cannabis industry. The company helps marijuana business owners and other businesses arrange financing solutions for equipment, real estate and working capital.

“We use our existing relationships and referral business partners to find the right funding for alternative businesses, including those in the cannabis industry,” says Dynamic Alternative Finance. “Banks and traditional lenders are currently not an option for marijuana business owners, which is where we come in – helping to source the proper financing while protecting company assets, intellectual property and preserving working capital.”

DAF has arranged over $12.5 million in loans and equipment leases for the cannabis industry and other businesses this past year. He is an author, speaker and nationally recognized finance expert in the cannabis industry, helping business owners’ access debt-based funding solutions and preserve equity in their companies.

“Dynamic Alternative Finance helped us obtain the  money  we needed  for expansion without requiring us to give  up  any  equity or control  in our company,“ says Erich Pearson,  owner  of SPARC, a San Francisco marijuana collective.

 

Cannabis World Congress and Business Expo – September 16-18, 2015

  • by Elizabeth Morris
  • Aug 30, 2015
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Cannabis World Congress and Business Expocwcbe-logo-450x105
Los Angeles, CA
September 16-18, 2015

DAF will be presenting Debt-Based Capital for your Marijuana Business: an in-depth look at how to obtain private, non-bank financing for working capital, equipment or real estate loans. Learn which options are available for financing your existing marijuana business, and how every marijuana business owner can create wealth by owning their commercial real estate.

Inside America’s Billion-Dollar Weed Business: The Grass Is Greener

weed-businessInside America’s Billion-Dollar Weed Business: The Grass Is Greener

https://news.vice.com/video/inside-americas-billion-dollar-weed-business-the-grass-is-greener

VICE News takes a closer look at the investors who are cashing-in on the “green rush,” and finds out just how much the rest of the country is missing. Notice DAF discussing business opportunities with colleagues at 3:06.