Michigan marijuana businesses await changes in federal regulations – The Morning Sun
Archive photo. (Stephen Frye/MediaNewsGroup)
Molly MacDonald doesn’t know much about the complicated federal regulations surrounding marijuana, but she’s grateful for a local cannabis company’s donation of over $50,000 to her breast cancer charity.
“We accept monetary donations from almost anyone,” says MacDonald, CEO of the Southfield-based Pink Fund, which provides financial assistance to patients with non-medical bills. Patients often cannot pay their rent, mortgage, utilities or car loans while receiving medical treatment because they lose income.
Many companies not in the cannabis industry donate to nonprofits and benefit from tax breaks. Josey Scoggin, executive director of the Great Lakes Expungement Network, said the organization is largely funded by donations from the cannabis industry.
“It’s the only industry that has a legal obligation to do good, like in a social justice context – where you have to present a plan of what you’re going to do to help a community that you’re licensed to serve,” she said, adding that 88% of her donors don’t ask for a receipt for the money because they know it’s not deductible.
How can cannabis companies meet these requirements without violating federal laws that still consider the sale and consumption of cannabis to be illegal activities?
Cannabis businesses are not allowed to take deductions beyond the cost of storing the product itself. According to IRS rules, no business involved in the illegal trafficking of Schedule I or II drugs can take any deductions, “even if it operates in states that have legalized the sale of marijuana, because trafficking in marijuana remains illegal under federal narcotics law.”
Michigan voters approved legalizing recreational cannabis use in 2018, and sales began in 2019. Medical use was legalized in 2008.
Since then, Michigan has led the nation in medical and recreational cannabis sales, and the business continues to grow. Recreational and medical sales exceeded $279.6 million in May 2024, up nearly 14% from May 2023, when sales exceeded $245.9 million.
The U.S. Department of Justice is working to reclassify marijuana from a Schedule I drug with heroin and LSD to Schedule III, which includes drugs like ketamine and anabolic steroids.
The prospect of change gives hope to Michigan cannabis entrepreneurs, as they will now have access to the normal commercial banking system and standard corporate tax deductions.
According to attorney James Allen, the federal Controlled Substances (Consumers) Act is the reason why it is “still largely illegal to offer financial services to the cannabis industry, although legislation is being worked on to reverse the decades-old enforcement regime.”
Congress has proposed bills like the SAFE Banking Act to help the cannabis industry. The House of Representatives has passed it. The Senate has not.
Allen said cannabis companies will be able to deposit and withdraw money from growing, processing, selling and transporting marijuana through a network of expensive financial institutions that specialize in such transactions. That’s because the Justice Department will focus its prosecutions on the illegal sale of cannabis rather than pursuing state-sanctioned business activities.
In addition to Michigan, the sale and use of marijuana for medical purposes is legal in 37 other states, three U.S. territories, and Washington DC, and 24 states have legalized the sale and use of marijuana for recreational purposes.
For this reason, the U.S. Attorney General’s Office gives low priority to enforcing federal bans on legal cannabis-related banking.
Entrepreneur Jerry Millen, owner of The Greenhouse of Walled Lake, said he would like to see marijuana legalized nationwide so his company and others could use standard banking services like other businesses.
He hires an auditor who specializes in cannabis business activities and pays exponentially more for banking services.
“You can’t let grandma do the books. It’s so complicated. You have to follow the laws,” he said.
Changing federal laws to legalize marijuana would not only ease pressure on business owners, it would allow the federal government to set nationwide standards, benefiting the industry as a whole, he said.
“The regulations are a nightmare,” Millen said, adding that his company makes charitable donations. But paying federal taxes on a business that is viewed by federal authorities as illegal feels like “ostensibly paying protection money to the federal government.”
Attorney Paul Tylenda has been working with cannabis companies since 2019. In the early days, he said, Michigan’s cannabis companies operated through specialty credit unions, which were structured like small banks but tasked with serving specific groups such as farmers, teachers or government employees.
This would allow cannabis companies to open accounts, deposit money from sales and withdraw money to pay their bills, he said.
As the cannabis industry has grown in Michigan, some regional banks have begun serving it.
“Because it is a newer industry, there is some perceived risk for banks, so (they charge more for their services),” Tylenda said.
He said many cannabis companies now operate as part of larger holding companies whose structure is geared toward non-cannabis activities such as property management or recruiting.
This allows cannabis businesses to lease property or manage personnel through holding companies, which in turn can be claimed by banks like other businesses for a range of business deductions, including for charitable donations.
Michigan cannabis business owners are awaiting the results of the federal lawsuit to reclassify marijuana to Schedule III. The change, if it happens, will take some time.
“Once public comment is complete and (Schedule III) goes into effect, cannabis can become a regular business,” Tylenda said.
Companies can then make direct donations and “call it a cost of doing business,” he said.
In October, Madison Heights-based Puff Cannabis announced it would donate $50,000 from product sales at its 10 stores to the MacDonald’s Pink Fund and the Chaldean Community Foundation. chaldeanfoundation.org
She said the fund received $11,000 from Wana Brands and $40,000 from Oak Canna, partners in the Puff Cannabis donation.
Citizens have until July 22 to comment on the proposed federal reclassification of marijuana. For more information, visit https://www.federalregister.gov/documents/2024/05/21/2024-11137/schedules-of-controlled-substances-rescheduling-of-marijuana.
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