The Leaf Online: “A byzantine legal memo of potentially disastrous implications has been released by the Internal Revenue Service, articulating a new theory of the tax code which could result in punitive audits, crippling tax bills and even federal raids for state-legal cannabis retailers — though, curiously, not necessarily for growers. The federal memo [Warning: extremely esoteric — Ed.], released on January 23rd, poses an existential threat to state-legal dispensaries and adult-use retail stores which have heretofore operated under the largesse of US Tax Court decisions like Californians Helping to Alleviate Medical Problems, Inc. v. Commissioner of Internal Revenue“
Phoenix New Times: “A few Republican lawmakers are trying to sneak past the Voter Protection Act with a draconian DUI bill that targets the state’s medical-marijuana users. State Representative Sonny Borrelli, R-Kingman, is the prime sponsor of HB 2273, a bill that could result in DUI convictions for medical-cannabis users who aren’t impaired while driving. Borrelli’s bill would reverse an Arizona Supreme Court ruling in April 2014 that prohibits DUI convictions based solely on the presence in the bloodstream of a marijuana compound known to be incapable of causing impairment.”
Forbes.com: Internal Revenue Code “Section 280E provides that ‘no deduction is allowed for any amount incurred in a business that consists of trafficking in controlled substances.’ Because marijuana finds itself on Schedule I of the Controlled Substances Act, the IRS has the ammunition necessary to deny the deductions of any facility that sells the drug. And it does. Regularly. On Friday, the IRS released Chief Counsel Memorandum 201504011, which sheds some interesting new light on what expenses a seller of marijuana businesses may and may not deduct, but in order to understand the memo’s impact, we’ve got to take a tour through several Internal Revenue Code provisions – namely Sections 61, 471, and 263A — and understand how they interplay with Section 280E.”
The following questions and answers are from Chief Counsel Memorandum 201504011:
(1) How does a taxpayer trafficking in a Schedule I or Schedule II controlled substance determine cost of goods sold (‘COGS’) for the purposes of §280E of the Internal Revenue Code (‘Code’)?
(2) May Examination or Appeals require a taxpayer trafficking in a Schedule I or Schedule II controlled substance to change to an inventory method for that controlled substance when the taxpayer currently deducts otherwise inventoriable costs from gross income?
(1) A taxpayer trafficking in a Schedule I or Schedule II controlled substance determines COGS using the applicable inventory – costing regulations under §471 as they existed when §280E was enacted.
(2) Yes, unless the taxpayer is properly using a non-inventory method to account for the Schedule I or Schedule II controlled substance pursuant to the Code, Regulations, or other published guidance.
Vincent Mehdizadeh, founder and majority shareholder of Medbox Inc. issued the following statement about the Josh Crystal vs. Medbox, Inc. lawsuit:
“I just wanted to clarify that one lawsuit was filed and announced on the company’s ticker without, to my knowledge, obtaining the company’s consent. Thereafter, 8 different Plaintiff’s firms, or potentially just referral services, announced that same lawsuit, again without seeking the company’s permission in citing the company’s ticker symbol, in an effort to further solicit clients. It’s a shame that we live in a ‘sue first and get clients later’ type of world but that is the reality,” stated Vincent Mehdizadeh, Founder and Majority Shareholder at Medbox. “I was personally sued in the lawsuit and I can safely say that the allegations contained in the complaint are not accurate. During my tenure with the company I personally witnessed a very supportive shareholder base and I still believe the same holds true to this day. In addition, I will be personally engaging an independent public company accounting firm, on my own, to review prior periods as stated and address GAAP compliance, materiality, and fight this suit vigorously. Although this is not a formal company response on the matter, I needed to set the record straight and now I have.”
The Hill: “Colorado’s decision to legalize marijuana was a bad idea, the state’s governor said Friday. Gov. John Hickenlooper, a Democrat who opposed the 2012 decision by voters to make pot legal, said the state still doesn’t fully know what the unintended consequences of the move will be.”
In Josh Crystal vs. Medbox, Inc. (MDBX), Medbox and several of its current and former officers and directors were sued in a class action lawsuit filed in the U.S. District Court for the Central District of California. Also named as a defendant in the lawsuit are Pejman Vincent Mehdizadeh, Bruce Bedrick, Thomas Iwanski, Guy Marsala and Douglas Mitchell. Here are some interesting allegations from the Complaint:
1. This is a securities class action on behalf of all purchasers of the common stock of Medbox between November 20, 2013 and December 29, 2014 . . . .
3. Medbox was founded in 2010 by Defendant Pejman Vincent Mehdizadeh (“Mehdizadeh”), a mid-30s aged Iranian immigrant with a checkered history of business failures and criminal conduct, including grand theft in 2013. At the start of the Class Period on November 20, 2013, Defendant Mehdizadeh was Medbox’s controlling shareholder, owning approximately 65% of its common stock, and served as the Company’s Chief Operating Officer(“COO”) and Chairman of its Board of Directors (“Board”). . . .
4. During the Class Period, Defendants issued materially false and misleading statements regarding the Company’s financial results for the fiscal year ended December 31, 2013 (“FY 2013”) and each of the interim financial periods ended September 30, 2013 (“3Q 2013”), December 31, 2013 (“4Q 2013”), March 30, 2014 (“1Q 2014”), June 30, 2014 (“2Q 2014”) and September 30, 2014 (“3Q 2014”). Specifically, Defendants overstated Medbox’s revenues . . . .
13. Thereafter, on October 31, 2014, the Company disclosed that it had appointed a special board committee to investigate a letter from a former Company employee to the SEC “alleging wrongdoing by a former officer of the Company who
Associated Press: “Washington’s legal marijuana market opened last summer to a dearth of weed. Some stores periodically closed because they didn’t have pot to sell. Prices were through the roof. Six months later, the equation has flipped, bringing serious growing pains to the new industry. A big harvest of sun-grown marijuana from eastern Washington last fall flooded the market. Prices are starting to come down in the state’s licensed pot shops, but due to the glut, growers are — surprisingly — struggling to sell their marijuana.”
The Arizona Department of Health Services issued its 2014 annual report with statistics about the state of medical marijuana use in Arizona. See the Arizona Medical Marijuana Act 2014 End of Year Report.
For more read the Arizona Capital Times story called “Arizona patients consumed 10 tons of medical marijuana in 2014.” The story starts with:
Arizona’s more than 63,000 medical marijuana patients ate, drank or smoked more than 10 tons of the drug last year. . . . It comes out, on average, to the equivalent of one joint per patient per day, though clearly some are using more and some are using less. And figuring an estimated price of $350 an ounce, that means Arizonans spent about $112 million on marijuana.
A new report Thursday from the Arizona Department of Health Services also finds:
- 85 dispensaries were up and running last year;
- – More than two thirds of qualifying patients are male;
- – The average patient made 17 transactions during the year.
Los Angeles Business Journal: “Vincent Mehdizadeh, founder and majority shareholder of West Hollywood’s Medbox Inc., notified investors Friday that he will replace the marijuana dispensing company’s board of directors, its chief executive and its chief financial officer. It’s just the latest in a string of dramatic moves Mehdizadeh has made over the past year.”
Yahoo News: “A year into the nation’s experiment with legal, taxed marijuana sales, Washington and Colorado find themselves wrestling not with the federal interference many feared, but with competition from medical marijuana or even outright black market sales. In Washington, the black market has exploded since voters legalized marijuana in 2012, with scores of legally dubious medical dispensaries opening and some pot delivery services brazenly advertising that they sell outside the legal system.”
Seattle Times: “Cooking with pot faces two big problems: It’s hard to control how high people get when they eat marijuana, and it really doesn’t taste that good. Recreational marijuana is both illegal and controversial in most of the country, and its relationship to food does not rise much above a joke about brownies or a stoner chef’s late-night pork-belly poutine. But cooking with cannabis is emerging as a legitimate and very lucrative culinary pursuit.”
“People with post-traumatic stress disorder are eligible for a medical marijuana card in Arizona starting Jan. 1. The state health department isn’t expecting a big increase in applicants.”