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    In the estate planning area, Hal has significant experience in succession planning for closely held businesses, including the transfer of ownership to the next generation with minimum estate tax cost. He also spends a significant ...

Jeff SessionsU.S. Attorney General Jeff Sessions today rescinded the Cole Memorandum, which had directed the federal justice department to de-prioritize the prosecution of federal marijuana laws in states where the use of marijuana has been legalized under state law if state enforcement procedures were in line with certain specified law enforcement priorities.

Law Balance - CannabisThis blog post will be in two parts. The first part will provide the reader with an understanding of the laws and concepts associated with the taxation of the marijuana business. The second part will take these ideas and concepts and attempt to provide some practical operational guidance.

The First Part

The income taxation of a marijuana business, whether it be a producer, processor, wholesaler or retail establishment, is very different from a non-marijuana business. Everyone entering into the business will want to talk with a tax expert experienced in the taxation of a marijuana business in order to maximize the return on their investment.

There are several sections of the Internal Revenue Code (“IRC”) that impact the taxation of the marijuana business. Businesses, in general, in which the sale of merchandise is an income producing factor, calculate their taxable income in accordance with three primary sections of the IRC. Those are code sections IRC § 162(a), IRC § 471 and IRC § 263A.

UntitledHal Snow shares his views with Puget Sound Business Journal’s Emily Parkhurst on the surprises, growth of the burgeoning marijuana industry, and issues faced by the industry such as putting together financing structures, non-Washington residents not being allowed to invest in companies, and the struggle in dealing with banking issues. Hal also discusses how GSB’s Cannabis practice group came to fruition with their team of experienced and dedicated attorneys with backgrounds ranging from business law, M&A, land use, real estate and regulatory, and also their experience in helping companies navigate the complexities of highly regulated industries.

Read the article here (subscription required):

Come tax time, taxpayers in the marijuana industry in Oregon may want to proceed with caution.  Since Oregon is tied to the Internal Revenue Code—specifically IRC § 280E—for purposes of income taxation, deductions relating to the trade or business of selling medical or recreational marijuana will be disallowed, and therefore taxpayers in this industry seeking to capitalize expenses and add them to the cost of goods should keep in mind that the taxing authorities will likely be monitoring this area closely.  For more information on this issue, please read the latest post on our firm's sister blog Larry's Tax Law.


Radio talk show host Ross Reynolds, from KUOW's The Record interviews Hal Snow, member of Garvey Schubert Barer's Cannabis practice group, on the tricky landscape of the marijuana industry. Hal gives his thoughts on topical issues related to current states compliance with federal laws under the Obama administration, banking issues, rise of medicinal and recreational marijuana, and the outlook on marijuana legalization and regulation under a new president and Congress in January 2017.

Listen here:

Marijuana-plant-300x200In the July 9, 2015 Olive¹ decision, the Federal 9th Circuit Court of Appeals upheld a Tax Court decision that a medical marijuana dispensary was precluded from deducting any amount of ordinary and necessary business expenses associated with the operation of the business because the Vapor Room (the “business”) is a “trade or business…consist[ing] of trafficking in controlled substances…prohibited by Federal law.” I.R.C. § 280E. Deductions were limited to the “costs of goods sold.”

The Vapor Room sold only medical marijuana. It provided many other services but didn’t charge for them. The appellate court distinguished Olive¹ from the 2007 CHAMP² decision where the Tax Court determined that the taxpayer was engaged in two income generating businesses including the sale of medical marijuana and extensive counseling and caregiving services. In CHAMP², the ordinary and necessary business expenses related to the counseling and caregiving services were deductible. See I.R.C. § 162(a).

Participants in the marijuana industry should review the facts of the Olive¹ and CHAMP2 decisions carefully, and consult with their tax attorneys and accountants on the most tax efficient way to structure their marijuana businesses.

If the marijuana business owner also obtains revenue from the sale of non-marijuana goods and services then the ordinary and necessary business expenses related to the non-marijuana activity should be deductible.

Finally, on Aug. 10, 2015, the U.S. Tax Court published the Beck³ decision which, in line with the Olive¹ decision, held that a marijuana business that only sold marijuana products, could not deduct any of the ordinary and necessary business expenses related to the marijuana business. Deductions were limited to “cost of goods sold” I.R.C. § 280E. The Beck3 decision discussed the CHAMP2 decision and upheld its holding that a business may have two or more businesses and that the ordinary and necessary business expenses relating to the non-marijuana businesses were deductible.

¹ Martin Olive v. C.I.R. 139 T.C. 19

²Californians Helping to Alleviate Medical Problems, Inc. – CIR (CHAMP), 128 T.C. 173 (2007)

³Beck-v-C.I.R., T.C. Memo 2015-149 (08/10/2015)

We’d like to thank everyone who attended our seminar, “Moving Forward Under Measure 91,” last Friday, in Portland! It was a great event, and we were even featured as part of a KGW-TV news segment.

As promised, we’ve included links to presentations by GSB attorneys, the Oregon Liquor Control Commission, League of Oregon Cities and Association of Oregon Counties. Beginning next week we will begin our blog series addressing questions that we may not have been able to get to during the Q & A. Make sure to keep checking back here, or subscribe to our blog for updates!

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  • Andy Aley, Garvey Schubert Barer
  • Claire Hawkins, Garvey Schubert Barer
  • Jared Van Kirk, Garvey Schubert Barer
  • Hal Snow, Garvey Schubert Barer


  • Sean O’Day, General Counsel, League of Oregon Cities
  • Rob Bovett, Legal Counsel, Association of Oregon Counties
  • William Kabeiseman, Garvey Schubert Barer


  • Tom Towslee, Acting Communication Director, Marijuana Programs, Oregon Liquor Control Commission

If you would like to be sent event follow-up materials, please send a request to (2)

This article was original published in Marijuana Venture magazine in June, 2014

Last month, in the first half of this two-part series on strategic planning, we reviewed the important fact that the growth, processing, distribution, retail sale and use of marijuana, while legal under state law, remains illegal as a controlled substance under federal law. The Aug. 29, 2013 Cole memo is guidance from the federal government which provides that the federal government will not enforce the marijuana laws in Washington so long as the state does an adequate job of preventing the marijuana industry from being abused in the state of Washington.

The Cole memo is guidance which could be amended or withdrawn at any time either in whole or part. The impact would lead to criminal prosecution and severe economic hardship.

So what do we recommend for the I-502 business participant?

As mentioned at the end of the last month’s article, we recommend that the I-502 business person utilize a strategic asset ownership plan of limited liability companies (LLCs) and trusts to isolate the risk inherent with the I-502 business from the other assets of the business participant.

Structuring with LLCs: The I-502 business should be owned by an LLC (Washington state law appears to require that the business be owned by an LLC formed under Washington law. See WAC 314.55.020(7)). If the I-502 business person has several I-502 related businesses each business should be operated within its own LLC. The reason for this is to isolate the liabilities associated with each I-502 business within its own separate LLC. We further recommend that the I-502 business person have a second LLC hold the ownership in the I-502 business entity (the operating entity).

The ownership LLC provides a second layer of protection by having both the ownership and operation of the I-502 business in LLCs.

Under Washington law, assuming the investors of the LLC properly operate the LLC and treat it as a separate, independent legal entity, the liabilities associated with the operation of the I-502 business should remain within the LLC and not “bleed” over into the other assets of the I-502 business person. (In the event the federal government reversed the prosecuting of violators of the Controlled Substance Act as it relates to Washington residents, there is no assurance this structure would protect the I-502 business person from criminal liability if found personally liable for violating the federal Controlled Substance Act.)

To read more, visit Marijuana Venture magazine online

This article was original published in Marijuana Venture magazine in May, 2014

This is the first installment of a two-part article which talks with you about issues to consider when structuring the ownership once operation of your I-502 related business has begun.

A very important issue with regard to any business, but now particularly with an I-502 business, is the isolation of the potential liability associated with the operation of an I-502 business or I-502 related business from the other assets of the business owner. This strategic planning issue is of particular concern to participants in the I-502 industry so long as the application of federal law to the business remains uncertain.

Where we are: The passage of I-502 made the sale of recreational marijuana legal under Washington State law and resulted in the creation of major new business opportunities within the state.

The problem with this new business is that the direct or indirect growing, possession, sale and distribution of marijuana remains a violation of the federal Controlled Substance Act. So what is legal under Washington law remains illegal under federal law.

To read more, visit Marijuana Venture magazine online

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About Us

Foster Garvey’s Cannabis practice group comprises a premier legal counsel team who provides a full range of legal services such as regulatory compliance, marijuana licensing, business finance, contracts, labor and employment, health care, real estate, intellectual property, litigation and dispute resolution, technology and tax. Our team possesses deep and diverse industry experience and has counseled clients across virtually all industry sectors. We understand the inherent challenges that licensed marijuana and ancillary businesses in Washington state, Oregon and Alaska are burdened with in this highly regulated industry as they deal with onerous state and local regulations as well as uncertainty resulting from federal law.

We are committed to helping our clients achieve their business goals while navigating the intricacies in this rapidly changing area of law. We prize innovation and entrepreneurship, and closely monitoring industry trends. 

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