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Topic: Regulations

5 Tips for Setting Up Your Business in the U.S. 

This article is part of an ongoing series, “Navigating the Complexities of Setting Up a Business in the USA”.

Key Takeaways:

  • Expand into the U.S. market to access a large and diverse customer base.
  • Navigate the multi-layered U.S. tax system and adapt to cultural differences.
  • Choose the right business entity and plan for compliance with U.S. regulations.

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Expanding your business into the United States can significantly increase your market share and open the door to new opportunities. However, the process involves navigating a complex landscape of regulations, tax considerations, and operational challenges. This series provides an overview to help you understand how to successfully set up your business in the U.S.

Why Expand to the U.S.?

Expanding into the U.S. market allows you to:

  • Access a large and diverse customer base.
  • Leverage the economic scale of the U.S. market.
  • Explore opportunities for growth and innovation that may not be available in other countries.
  • Have access to what may be a significant amount of capital (whether this may be equity or debt or other arrangements).

Moving into the U.S. market can help you drive more sales and reach new types of customers. You may also launch new products here that might not succeed in your home market.

5 Key Considerations for Foreign Businesses

When setting up a business in the U.S., you must navigate a range of unique challenges — including:

1. Multi-Layered Tax System

In many countries, businesses deal with a single national tax system where their provinces or states mimic or have congruent rules with federal rules. In contrast, the U.S. has a multi-layered tax system involving federal, state, and local taxes that at many times are not congruent.

When you start a business in the United States you are dealing with 50 states (and the District of Columbia), multiple localities, and certain territories. Each state has its own set of rules and regulations applicable to income taxes, which can be quite different from a single national system (and often at odds with the federal rules).

In addition, state and local jurisdictions impose taxes unique to the state and local level — including sales tax, property tax, and gross receipt tax. Finally, not all states honor the provisions of U.S. tax treaties with foreign countries.

2. Cultural and Business Practice Differences

Understanding and adapting to cultural and business practice differences is crucial. For instance, business practices that are common in Europe or Asia might not be as effective in the U.S. Additionally, legal agreements and formalities that might be less stringent abroad are often necessary in the U.S. to protect business interests.

3. Legal Structure and Entity Choice

Choosing the right business entity is vital as it affects tax obligations, legal liability, and operational flexibility. Options include C corporations (or C corps), limited liability companies (LLCs), foreign corporations with or without U.S. branches, partnerships or joint ventures, or franchising or direct importing. An S corporation (S corp) is not an option for foreign businesses due to ownership restrictions.

Each structure has its own set of advantages and legal implications, which should be carefully considered.

4. Regulatory Compliance

The Corporate Transparency Act is one newly created obligation for all businesses operating in the U.S. Failure to comply can result in significant penalties. It is important to understand the reporting requirements and file all necessary documentation on time.

In addition, you should consult a lawyer to ensure the entity form is respected — including prompt organizational filings with the Secretary of State and obtaining necessary business licenses.

These are just a few of the myriad of regulations your business must navigate. That’s why it’s critical to hire the right professionals to build your team, as missing any of these requirements may place your business in peril.

5. Operational Challenges  

Operational planning is essential for a successful U.S. expansion. Key operational considerations include: 

  • Employee benefits and regulations: U.S. regulations on health insurance, retirement plans, and other employee benefits can be significantly different from those in other countries. For example, in Europe, many employee benefits are government-run, while in the U.S., they are often the responsibility of the employer.
  • Logistics and supply chain management: Choosing the right location for operations includes considerations such as proximity to logistics centers and understanding regional operational costs.
  • Insurance and banking: Obtaining necessary insurance coverage and opening bank accounts can be challenging for foreign businesses. Some U.S. banks may not provide accounts to foreign-owned companies, and those that do might have stringent requirements. Certain banks may refuse to conduct business with certain entities in industries such as cannabis and cryptocurrency, to name a couple.

Establishing a U.S. Presence for Your Business

Setting up a business in the U.S. requires thorough planning and an understanding of various regulatory and operational challenges. From navigating the multi-layered tax system to selecting the right business entity and following U.S. regulations, each step is crucial for a successful expansion. By addressing these key considerations and seeking professional guidance, you can effectively establish your presence in the U.S. market.  

For more detailed insights and personalized help, connect with our International Tax team and start your journey towards successful U.S. market entry today. 

Setting up a business in the U.S., requires thorough planning and an understanding of various regulatory and operational challenges. This series will delve into various aspects of this process, providing guidance and practical tips. Our next article will discuss navi

Tax Deadlines for California Storm Victims Extended

The IRS and the Franchise Tax Board (FTB) have granted California taxpayers affected by winter storms who reside or have a principal place of business in a county where a federal disaster declaration was made more time to file tax returns and to make tax payments. Taxpayers not in a covered disaster area, but whose records necessary to meet a deadline are in one, also qualify for relief.  

The tax relief postpones tax filing and payment deadlines occurring between January 8, 2023, and May 15, 2023, to a new due date of October 15, 2023. 

Some of the filings and payments postponed include:  

  • Individual income tax returns due on April 18 
  • Business tax returns normally due on March 15 and April 18 
  • 2022 contributions to IRAs and health savings accounts 
  • Quarterly estimated tax payments normally due January 17 and April 18 
  • Quarterly payroll and excise tax returns normally due on January 31 and April 30 

The current list of counties that qualify for this relief can be found here. 

If you qualify for this postponement, you generally do not need to contact the IRS or FTB to obtain relief. Relief is automatically granted for affected taxpayers who have an address of record located in one of the designated counties. However, if you still receive a late filing or late payment notice and the notice shows the original or extended filing, payment, or deposit due date falling within the postponement period, you should call the number on the notice to have the penalty abated.  

If you have questions or need assistance, contact MGO’s experienced State and Local Tax team. 

Raising Capital: Navigating Tax Challenges When Classifying Debt Versus Equity

The corporate fundraising environment has changed dramatically this year due to several factors, including a wide sell off in the equity markets, high interest rates, inflation, and a general tightening of the credit markets. Prior to the recent downturn, companies had the luxury of spending to develop their products and marketing ideas first, and then focusing on turning a profit later.

Because of these newly tightened conditions, companies may face challenges when raising capital, forcing them to adopt a more thoughtful approach to seek funding. Likewise, investors will want to ensure their priorities are protected and their returns met. The combination of a given borrower’s need for capital and a financer’s desire to seek favorable returns may lead to the creation of agreements that have characteristics of both debt and equity. As such, it is crucial for all parties involved to understand the resulting tax classification and the treatment of these arrangements, so all expectations are met.

The taxation of debt and equity

For borrowers, the difference between debt and equity can be critical because interest payments are generally tax deductible and subject to certain limitations. Dividends or other payments related to equity would not be deductible for U.S. federal income tax purposes.

Enacted as part of the Tax Cuts and Job Act (TCJA) of 2017, one main limit on interest deductibility is the IRC 163(j) limit on the amount of business interest that can be deducted each year. This limit is calculated as 30 percent of adjusted taxable income, which prior to the 2022 tax year closely resembled earnings before interest, taxes, depreciation, and amortization (EBITDA). However, starting with the 2022 tax year adjusted taxable income excludes depreciation and amortization, becoming EBIT. This should result in a lower limit on the amount of interest expense that can be deducted each year. Any interest expense exceeding this annual limit can be carried forward to future years.

Determining if an arrangement is debt or equity for federal income tax purposes

Classifying an arrangement as debt or equity is made on a case-by-case basis depending on the facts and circumstances of a given agreement. While there is currently little guidance in this area beyond case law, the Internal Revenue Service (IRS) has issued a list of factors to consider when questioning whether something is debt or equity. (Keep in mind, however, that the IRS states not one factor is conclusive.) The factors include whether:

  • An agreement contains an unconditional promise to pay a sum certain on demand or at maturity,
  • A lender can enforce the payment of principal and interest by the borrower, and
  • A borrower is thinly capitalized.

The courts have also established a broader — but similar — list of factors to consider when determining whether an instrument should be treated as debt or equity. Both the IRS and the courts have generally placed more weight on whether an instrument provides for the rights and remedies of a creditor, whether the parties intend to establish a debtor-creditor relationship, and if the intent is economically feasible. Some factors include:

  • Participation in management (as a result of advances),
  • Identity of interest between creditor and stockholder,
  • Thinness of capital structure in relation to debt, and
  • Ability of a corporation to obtain credit from outside sources.

For international companies, the characterization of debt or equity when considered in a cross-border funding arrangement is important, as withholding tax rates may apply to interest payments and may differ from tax rates applied to dividends. Further, withholding tax obligations occurs when a cash payment is made. If you have a cross-border arrangement, it is crucial to know if you have debt or equity on your hands.

Special rules related to payment-in-kind

Once it is determined that an agreement should be classified as debt for U.S. federal income tax purposes, some borrowers may prefer to set aside interest payments or pay interest with securities, which is often referred to as payment-in-kind (PIK). This is generally done to preserve cash flow for operations and growth of the business. When a borrower chooses this route, U.S. federal income tax rules will impute an interest payment to the lender.

While using a PIK mechanism will not automatically result in the debt being recharacterized as equity for federal income tax purposes, it can support viewing the instrument as equity.

Limits to deductible debt interest

There are limitations that can apply to interest deductibility. As noted above, IRC 163(j) limits deductibility of business interest; for a corporation, this is deemed to be all interest regardless of use. Another provision that can result in interest deductibility limitation is IRC 163(l), which applies to certain convertible notes and similar instruments held by corporations.

For cannabis operators, it is important to consider that IRC 280E disallows interest deductions. Hence, it is highly detrimental for cannabis operators to issue debt from entities that are cannabis plant-touching.

How we can help

Due to the nature of the debt versus equity analysis, companies thinking about fundraising should plan on how they intend to perform the raise and whether to have the raise treated as equity or debt. If debt classification is desired, a borrower should take the steps needed to strengthen the facts of the transaction to support the arrangement as a debt instrument.

MGO’s dedicated tax team has extensive experience advising companies across industries on capital-raising, debt refinancing and restructuring, recapitalizations, and other tax transactions. If you are planning to fundraise, or you are currently in the process of conducting a debt versus equity analysis, contact us today.

Tax Highlights of the Inflation Reduction Act

On August 16th, 2022, President Biden signed the Inflation Reduction Act (IRA) of 2022 into law. The Act is a slimmed down version of the Biden Administration’s proposed Build Back Better legislation and addresses several key areas including:

  • Increasing Internal Revenue Service (IRS) budget
  • Implementing a corporate tax minimum
  • Instituting and increasing tax credits focused on investing in green technologies

Notable items that were not addressed in the IRA include removing the $10,000 SALT cap and mandatory capitalization of research and development (R&D) expenses, both provisions of the Tax Cuts and Jobs Act of 2017.

The bill is over 300 pages in length with a number of wide-ranging components. In the following summary we’ll provide the key points that will be affecting taxpayers in the coming years.

Additional funding to the IRS for tax enforcement

One of the most talked-about provisions involves increased funding for the IRS.

Key details:

  • Approximately $80 billion in funding over the next 10 years for tax services, operations support, business system modernization, and enforcement
    • Enforcement – $46 billion
    • Operations support – $25 billion
    • Business systems modernization – $5 billion
    • Taxpayer services – $3 billion
  • An estimated $124 to $200 billion will be generated from enforcement and compliance efforts
  • Enforcement is focused on taxpayers – both corporate and non-corporate – with income greater than $400,000

Extension of the business loss limitation of noncorporate taxpayers

The IRA extends the excess business loss limitation for noncorporate taxpayers.

Key details:

  • Two year extension on IRC Sec. 461(l) until December 31, 2028
  • IRC Sec. 461(l) limits noncorporate taxpayers from deducting business losses above thresholds that are annually indexed for inflation
  • These limits are $540,000 for married filing jointly and $270,000 for single and married filing single for the 2022 tax year
  • Suspended amounts are converted to net operating losses and may be able to be used in subsequent years

Excise tax on repurchases of corporate stock

The IRA includes a 1% excise tax on stock repurchases by domestic public companies listed on an established securities market. The tax applies to repurchases executed after December 31st, 2022.

Key details:

  • 1% excise tax on the full market value (FMV) of stock repurchased by publicly traded US corporations
  • Will impact redemptions and certain acquisitions and repurchases of publicly traded foreign corporation stock
  • Not an income tax for purposes of ASC 740
  • Includes special rules for “applicable foreign corporations” and “surrogate foreign corporations”
  • Notable exceptions:
    • Stock is contributed to employer sponsored retirement plan
    • Stock repurchase is part of a corporate reorganization
    • Total value of stock repurchased during the taxable year does not exceed $1 million
    • Repurchase by securities dealer in ordinary course of business
    • If the repurchase qualifies as a dividend
    • If the repurchase is by a regulated investment company (RIC) or a real estate investment trust (REIT)

15% corporate alternative minimum tax

The IRA reinstates the corporate alternative minimum tax (AMT) for large corporations, which had been previously eliminated by the Trump Administration’s Tax Cuts and Jobs Act.

Two key elements to note is that this revised AMT only impacts corporations with annual profits exceeding $1 billion, and includes carve-outs for certain manufacturers and subsidiaries of private equity firms.

Key details:

  • 15% tax on adjusted financial statement income (i.e., this would be a book minimum tax)
  • Affects tax years beginning after December 31, 2022
  • Applies to corporations with profits over $1 billion based off adjusted financial income
  • For US corporations with foreign parents, it would apply to income earned in the US of $100 million or more of average annual earnings in three prior years and where the overall international financial reporting group has income of $1 billion or more
  • Treatment of split offs remains uncertain. Even though these are tax-free reorganizations for tax purposes, gain is recorded for financial accounting purposes
  • Joint Committee on Taxation expects that this new tax would apply to only about 150 corporate taxpayers, approximately equal to 30% of the Fortune 500

Tax credit additions and modifications

A significant number of provisions add or enhance credits and incentives that pertain to domestic research and green energy initiatives. Noteworthy changes include:

Increased small business payroll tax credits for research activities:

  • Qualified payroll tax credit for increasing research activities raised from $250,000 to $500,000
    • First $250,000 will be applied against the FICA payroll tax liability. Second $250,000 will be applied against the employer portion of Medicare payroll tax.
    • Applies for taxable years beginning after December 31, 2022
    • Limited to tax imposed for calendar quarter with unused amounts being carried forward
  • Qualifying small businesses are required to have less than $5 million in gross receipts in current year and no gross receipts prior to the 5 year period ending with the current year

Green initiative tax credits and incentives:

  • Credits for purchasing new and previously-owned clean vehicles
  • Extension of IRC Sec. 45L – New Energy Efficient Home Credit – extended to qualified new energy efficient homes acquired before January 1, 2033. Increase value of available credit for single-family homes to $2,500 and modified the credit available for multi-family homes.
  • Extension, increase, and modifications to IRC Sec. 25C nonbusiness energy property credit
  • Extension and modification of IRC Sec. 25D residential clean energy credit
  • IRC Sec. 48 energy credit for businesses and investors
    • Expansion of qualifying property, extension of credit including phasedown and phaseout rules, and introduction of incentives
  • Credit for producing energy from renewable sources (IRC Sec. 45)
    • Retroactive for facilities placed in service after December 31, 2021
    • Extends beginning of construction deadline to projects beginning construction before January 1, 2025 including solar energy facilities
  • Increased energy credit for solar and wind facilities in certain low-income communities
  • New credit for clean hydrogen production
  • New credit for zero-emission nuclear power
  • Extension of incentives for biodiesel, renewal diesel, and alternative fuels
  • Extension of biofuel producer credit
  • New income and excise tax credits allowed for sustainable aviation fuel
  • Modification of IRC Sec. 179D – Energy Efficient Commercial Buildings Deductions
    • Modification of building qualifications
    • Deduction increased from $1.88 per square foot to up to $5 per qualified square foot
  • Changes in depreciation for certain green energy properties

Final thoughts

The Inflation Reduction Act should have wide-ranging impacts on taxpayers, especially large corporations and high-net-worth individuals. In the coming weeks our tax leaders will dive into the specifics of the legislation, outline immediate and long-term impacts, and provide tax-planning strategies and considerations.

Businesses Can File Retroactive Claims for the Employee Retention Tax Credit

Many people are excited about the pace of economic recovery, and it’s fair to say we are moving in the right direction. But as the excitement continues and life feels more like it is returning to normal after the pandemic, make sure you don’t forget to take advantage of some of the programs that were put in place to help us through the COVID-19 crisis.

Employee Retention Tax Credit

The Employee Retention Tax Credit (ERTC) is a refundable tax credit created by the Coronavirus Aid, Relief and Economic Security (CARES) Act, to encourage businesses to keep employees on their payroll. For 2020, the credit is 70% of up to $10,000 in wages paid by an employer whose business was fully or partially suspended because of COVID-19 or whose gross receipts declined by more than 50%

For 2021, an employer can receive 70 percent of the first $10,000 of qualified wages paid per employee in each qualifying quarter. The credit applies to wages paid from March 13, 2020, through December 31, 2021. And the cost of employer-paid health benefits can be considered part of employees’ qualified wages.

It’s an attractive credit if you qualify.

Eligible businesses

The credit applies to all employers regardless of size, including tax exempt organizations that had a full or partial shutdown because of a government order limiting commerce due to COVID-19 during 2020 or 2021. With the exceptions of state and local governments or small businesses that take Small Business Administration loans, this credit is available to almost everyone.

Of course, there is some fine print:
• To qualify, gross receipts must have declined more than 50 percent during a 2020 or 2021 calendar quarter, when compared to the same quarter in the prior year.
• For employers with 100 or fewer full-time employees, all employee wages qualify for the credit, whether the employer is open for business or shutdown.
• For employers with more than 100 full-time employees, qualified wages are wages paid to employees when they are not providing services due to COVID-19-related circumstances.

One bright point about the ERTC is that employers can be immediately reimbursed for the credit by reducing the amount of payroll taxes they would usually have withheld from employees’ wages. That was a nice touch by the IRS.

Retroactive claims for the ERTC

Although it appears the IRS tried to make this as easy as possible, you may still need a tax professional to sort it out. For instance, if your business had a substantial decline in gross receipts but has now recovered, you can still claim the credit for the difficult period

Retroactive claims for refunds will probably be delayed because currently everything is delayed at the IRS. The credit can be claimed on amended payroll tax returns as long as the statute of limitations remains open, which is three years from the date of filing. So you have some time to claim the credit, but why wait?

Keep December 2021 in mind

The economy is in a state of change, and it is fair to say that we are once again in uncharted territory. On the positive side, there seems to be significant resources and support for businesses from both government and consumers. You and your tax professional should keep your eyes open for credits and benefits to make sure you don’t miss any opportunitie

The ERTC expires in December 2021. Though it may be difficult to think about year-end in the middle of the summer, you’ll want to figure out your position on this credit before December. A tax professional can help you understand the ERTC and help you decide on your next step.

About the author

Michael Silvio is a partner at MGO. He has more than 25 years of experience in public accounting and tax and has served a variety of public and private businesses in the manufacturing, distribution, pharmaceutical, and biotechnology sectors.

Emergency Cannabis QR Requirements

In February, the California Bureau of Cannabis Control (CBCC) announced the implementation of a new regulation mandating that cannabis retailers and delivery services have a Quick Response (QR) code certificate “in plain sight” on their windows and a copy in their delivery vehicles.

According to the CBCC press release, the emergency regulations are meant to address the vaping crisis: “The emergency regulations are designed to help consumers identify licensed cannabis retail stores, assist law enforcement, and support the legal cannabis market, where products such as vape cartridges are routinely tested to protect public health and safety.”

The code certificate needs to be posted within three feet of any public entrance to a cannabis dispensary or “in a locked display case mounted on the outside wall of the premises.” In addition to paper, the QR code certificate can be printed on glass, metal, or other material. It needs to be 8 ½ inches by 11 inches, the size of a standard sheet of paper. The code itself needs to be 3.75 inches by 3.75 inches.

The regulatory change was pursued by the CBCC to allow consumers and law enforcement officials to be able to quickly discern the origin of a product and ensure its safety after the code is scanned. QR codes will help consumers know they are purchasing a product from a vendor in the legal market.

The cartridges that caused the illnesses that led to the vaping crisis last year originated in the underground market. As of February 18th, 2020, the CDC reported 2,807 cases of illness associated with e-cigarettes across the U.S. and 68 cases resulted in deaths, with four of those in California.

“The proposed regulations will help consumers avoid purchasing cannabis goods from unlicensed businesses by providing a simple way to confirm licensure immediately before entering the premises or receiving a delivery,” said CBCC Chief Lori Ajax.

Unfortunately, illegal cartridges with a lethal amount of Vitamin E look nearly identical to those from legal retailers, as do underground sellers who maintain brick and mortar stores. And because they are underground, they do not comply with regulations. Recent estimates have shown that in California, the underground black market is more than twice the size of the legal market.

Those with smartphones will be able to scan the QR codes to ensure the product comes from a licensed retailer. When they scan the code, it will send them to the BCC’s License Search database where they will be able to see the business license number, license type, its official name, contact information, business structure, premise address, license status, issue date, expiration date, and activities.

In addition, you can see whether the business holds a license for adult use, medical, or both. The database also includes phone numbers and email addresses for all the businesses. In addition, you can see if they hold multiple licenses. Many of the businesses also have links to their respective websites. Active licenses are listed along with those who are suspended, canceled, revoked, inactive, or expired.

While the emergency regulations present another regulatory hurdle for compliant California cannabis businesses, the silver lining is that legal market operators can now advertise their compliance with safety standards – an additional edge in the battle to win market share from black market operators.

Cannabis Regulatory Round-Up – SAFE Act, STATES Act, New York, New Jersey and more

The legal, legislative, and regulatory landscape of cannabis in North America is dynamic and if there has been one constant since pioneering states implemented a legal ‘seed-to-sale’ adult-use market in 2014, it is change. And it is unrelenting.

To help cannabis entrepreneurs and investors keep up with the fast pace of change in the cannabis industry we will be providing monthly summaries of the latest regulatory and legislative news to provide a snapshot of latest happenings while also highlighting matters of interest looking forward.

This month the focus is on prominent federal legislative activity (e.g. the SAFE Act and the STATES Act), state legalization measures (e.g. NJ, NY, IL, and others), and two bills in Colorado that have the potential to attract out-of-state investment to that market.

Changes in federal cannabis legislation

With control of the House of Representatives being transferred to the Democratic party, several bills that have the potential to profoundly impact the cannabis landscape have advanced in Congress.  For example, the last week of March saw the House Financial Services Committee move forward the Secure And Fair Enforcement (SAFE) Banking Act to a full House vote, reportedly “within weeks.” Following the momentum of the House bill, U.S. Sens. Jeff Merkley (D-OR) and Cory Gardner (R-CO) have introduced the companion bill in the Senate.

The latest SAFE iteration addresses the cannabis banking crisis and includes amendments that offer protection to insurance companies and other financial services companies.

The banking issue is long-standing and predates even the implementation of recreational cannabis in the US. The lack of straight forward access to fundamental banking services for the cannabis industry creates a multitude of challenges, most notably the operational and financial difficulties of a multi-billion-dollar industry operating almost entirely in cash. This has obvious implications for public safety and potential diversion to the black market, among other concerns.

The inability to access banking services is often identified as a major hindrance to market entry for large and well-resourced corporations and removal of this barrier could herald a seismic shift in investment into the cannabis industry. At time of writing the House Bill had 152 cosponsors, including 12 Republicans, whereas the Senate bill has 20 co-sponsors.

Adding further momentum to the SAFE bill, last week Last week,  Secretary Steve Mnuchin offered his support for a legislative fix for the banking issues facing the cannabis industry. “There is not a Treasury solution to this. There is not a regulator solution to this,” he said. “If this is something that Congress wants to look at on a bipartisan basis, I’d encourage you to do this.”

Another potentially substantial piece of legislation is the Strengthening the Tenth Amendment Through Entrusting States Act (STATES Act), which aims to reduce conflict between federal and state laws as they relate to cannabis. The STATES Act is a potential gamechanger for the cannabis industry, allowing legal certainty for companies seeking to operate in dozens of jurisdictions across the US.

Although this legislation stalled in December, it was reintroduced on April 4th, alongside other measures, which include:

  • the Ending Federal Marijuana Prohibition Act that would effectively legalize marijuana at the federal level by removing it from the Controlled Substances Act.
  • The Marijuana Justice Act of 2019

The extent to which these bills have bipartisan support may be crucial if they are move beyond the House.

Four steps forward and two steps back in state legalization efforts

It has been a mixed month in terms of advancing cannabis legalization measures at the state level. On the one hand, there has been progress in multiple states, such as Connecticut, Illinois, and New Hampshire. While on the other hand there was a couple of snags holding up the implementation of recreational markets in New Jersey and New York.

Recent adult-use cannabis legalization headlines include:

  • The New Jersey cannabis legalization bill was pulled due to lack of support although Gov. Murphey (D) reportedly stated he remained committed to getting the bill passed.
  • New York dropped cannabis legalization from its budget bill where it was viewed as more likely to pass, however, regulators remain optimistic of progress later in the year. The New York City Council also voted to ban cannabis testing for job applicants.
  • A General Law Committee in the Connecticut Legislature approved a bill that would legalize an adult-use cannabis market in the state.
  • In New Hampshire, the House Ways and Means Committee approved a vote on the floor on legislation that would legalize an adult-use cannabis market.
  • A bill to legalize retail cannabis in Illinois was introduced and passed to a subcommittee for further consideration.
  • Governor of Guam signed a bill legalizing cannabis, becoming the first US territory to do so.

Despite the hiccups outlined above, there is a clear trend towards legal cannabis across the US. Moreover, several states took steps towards expansion or liberalization of their medical cannabis markets. Certainly in the long term, the outlook is optimistic for the cannabis industry on a number of fronts.

Back to the future as Colorado looks to position itself as an investment hub for cannabis

When Colorado became the first state to implement an adult-us cannabis framework in 2014, out of state investment was restricted. This allowed the state to build upon its existing medical cannabis market.

The understandable caution has since been questioned, however, and a Bill offering more flexibility in investment passed both the Colorado House and Senate in 2018, only for then Gov. Hickenlooper to veto it. In 2019, a replacement Bill was introduced and has recently passed its third reading in the House unamended.

As an established market with mature regulations and market stability, Colorado has low-risk potential when compared to emerging markets in other states – although competition is likely to be strong, with ever-thinning margins as prices continue to drop in the state.

Out-of-state investors exploring options in Colorado may be interested in acquiring social consumption licenses in Denver, or seek opportunities for market expansion in the delivery segment of the market. If passed, HB19-1234 would allow licensed dispensaries to offer these services for the first time.