Does The Employee Retention Tax Credit Enable Cannabis Companies to Receive Tax Relief?

2.4 min readPublished On: October 28th, 2022By

SAN DIEGO– Cannabis companies were deemed ‘’essential services’’ in the COVID-19 pandemic. But that didn’t translate into access to the wealth of government grants that were made available to non-cannabis companies. 

Restrictions imposed by Section 280E prevented cannabis enterprises from taking advantage of the majority of government-sponsored economic recovery programs in the wake of the pandemic, there may be some positive news. 

Cannabis businesses are not specifically excluded from eligibility for the Employee Retention Tax Credit (ERTC) in the ERTC.

Cannabis businesses that meet the requirements may be able to benefit from the credit that rewards employers for keeping their employees on the payroll during the pandemic since Portion 280E, which is situated in the income tax section of the statute, does not apply to employment payroll taxes.

The ERTC offers an incentive to employers who had business interruptions and revenue losses as a result of the epidemic. It’s issued as a reimbursement of an employer’s Form 941. Cannabis businesses that paid staff while facing these difficulties might be entitled to ERTC refunds going forward. On qualified earnings, including some employee health costs, the refundable credit can be claimed.

With IRS Section 280E, which forbids cannabis businesses from deducting regular business expenses from gross revenue for tax purposes, canna-cos were not eligible for a Paycheck Protection Program (PPP) loan. This is due to the fact that, despite numerous states now considering and enacting legislation to legalize cannabis, the drug continues to be regarded as illicit by the federal government under the Controlled Substances Act (and hence subject to IRS Section 280E).

How do cannabis businesses apply for relief?

The 280E mitigation strategy adopted by cannabis companies is predicated on the notion that payroll tax is not subject to the regulation; only income tax is. Additionally, cannabis businesses previously believed to be ineligible for relief can now claim it if they match the requirements because the ERTC is a payroll tax credit and issued as a refund who can demonstrate that their percentage of gross receipts fell in the calendar quarters affected by the COVID-19 pandemic compared to the quarters before, or because to COVID-19 restrictions, such as forced closure or quarantine, they experienced a full or partial government suspension.

Technically, cannabis enterprises can take advantage of the opportunity because the IRS has not yet commented on the cannabis debate. A cannabis firm must submit information on Form 941, the Employer’s Quarterly Federal Tax Return, including quarterly revenues, payroll tax returns, employee wages, and lines of business in order to be considered qualified.

If you have any questions feel free to reach out [email protected] and we can refer you to professionals who have had success in getting refunds at scale to your cannabis business. Or drop me a direct message to Mark Collins on Linkedin by clicking here 

Get your money…after all cannabis companies are essential services and deserve their piece of the pie. 

About the Author: News Team

Newsteam at Highly Capitalized are some of the most experienced writers in cannabis and psychedelics business & finance. We cover capital markets, finance, branding, marketing and everything important in between. Most of all, we follow the money.

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