EXCLUSIVE: How Cannabis Companies Can Pay 'Zero Taxes' — The Industry's Best Kept Secret

The cannabis industry, grappling with stringent tax regulations, particularly Section 280E, may find solace in an unconventional strategy: Employee Stock Ownership Plans (ESOPs). In a revealing interview on Cannabis Insider, Darren Gleeman, managing partner at MBO Ventures, sheds light on how ESOPs could be the linchpin for financial and operational rejuvenation within the cannabis sector.

Tax Complexities With ESOPs

At the core of the discussion is the ingenious application of ESOPs to circumvent the financial strain imposed by Section 280E. “When you own a company that’s owned 100% by your employees in this ESOP structure, the government says, we’re going to allow you to pay zero taxes,” explains Gleeman. This approach nullifies the federal and state tax obligations. It renders the restrictions 280E irrelevant, offering a beacon of hope for cannabis businesses ensnared by tax complexities.

Empowering Employees, Bolstering Businesses

Beyond tax advantages, ESOPs promise a more inclusive and motivated workplace. “Once that ESOP goes through, they are now literally employee-owners,” Gleeman points out, highlighting the dual benefit of enhancing employee loyalty while fostering a culture of ownership and accountability. This model not only incentivizes employees to contribute to the company’s success but also aligns their interests with the business’s long-term goals, creating a symbiotic relationship between employee welfare and company performance.

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Overcoming Adoption Barriers

Despite the apparent advantages, the uptake of ESOPs in the cannabis industry remains modest. Gleeman attributes this to a “lack of awareness and misconceptions about their complexity and applicability.” Education and clear communication about the benefits and workings of ESOPs could be vital to overcoming these hurdles, encouraging more cannabis companies to consider this transformative approach.

The conversation with Gleeman brings to the fore the untapped potential of ESOPs in mitigating tax challenges and fostering a more engaged and equitable workplace in the cannabis industry. As businesses navigate the evolving regulatory and economic landscape, ESOPs are a viable strategy for sustainable growth and competitive advantage.

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Photo: Benzinga