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Canna Aid

Cannabis Regulators Tighten Enforcement on Non-Compliant Businesses

State regulators and government officials across the United States are intensifying their efforts to enforce compliance and collect unpaid fees, taxes, and business expenses from cannabis companies, as reported by MJ Biz Daily. The most recent state to take a strong stance is New Jersey, which recently revoked cultivation and manufacturing licenses from a company with outstanding fees. This crackdown follows similar actions in California, Michigan, Nevada, New York, and Oregon.

The cannabis industry faces numerous challenges, including overproduction, falling wholesale prices, high taxation and compliance costs, and competition from unlicensed businesses. Many operators find themselves in a difficult position due to the misapplication of federal tax provisions, such as Section 280E, which prevents them from claiming the same business deductions as mainstream companies. Chris Lindsey, the Director of State Advocacy and Public Policy for the American Trade Association of Cannabis and Hemp, highlights the burden faced by compliant businesses who are not only competing with others in the legal market but also with the illicit market.

The increased enforcement efforts primarily target well-established cannabis markets and are driven by concerns over public safety, health, and the need to collect owed funds. Brooke Butler, Vice President of Partnerships at Simplifya, a Colorado-based compliance service and software provider, emphasizes the importance of compliance in these areas for businesses to avoid penalties. “It’s about public safety and health. And it’s about the state getting their money,” she said. “Those are the two biggest areas of compliance that people need to worry about.”

Various states are taking action in response to the credit crisis. California lawmakers and New York regulators have proposed credit laws similar to those in the liquor industry, penalizing vendors for non-compliance with 30-day credit-payback plans. New York recently enacted a law allowing civil penalties against companies failing to pay taxes and established a tax fraud crime for evading cannabis taxes.

Michigan and Oregon are also expanding their regulatory authority to address outstanding debts. In Michigan, large operators facing financial difficulties, such as Skymint, have had their assets auctioned off due to unpaid bills. In Oregon, Chalice Brands, a subsidiary of the state’s third-largest retail chain, filed for receivership with $35 million in debt, while La Mota, the second-largest retailer, owes at least $621,000 in back marijuana taxes.

Cannabis businesses face unique challenges when it comes to settling outstanding debts. The federal prohibition on marijuana prevents them from accessing U.S. bankruptcy courts, and small-claims filings are often insufficient due to the high amount owed. Receiverships, while an option, are rarely used due to the associated costs, making them more suitable for resolving larger disputes.

According to MJ Biz Daily, the New Jersey Cannabis Regulatory Commission (CRC) recently revoked Harmony Foundation’s cultivation and manufacturing licenses due to unpaid fees of $700,000. However, the company is still permitted to sell recreational cannabis from its store in Secaucus but must source supply from other growers in the state.

In Oregon, regulators plan to discuss a proposal by Governor Tina Kotek to withhold licenses from cannabis retailers with outstanding state taxes. This measure aims to level the playing field and prevent businesses from gaining an unfair advantage by avoiding tax payments. Additionally, the Oregon revenue department intends to publish an online list of taxpayers with significant tax debts, penalties, and interest owed.

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