12 Buffalo Business Autumn 2021
cannabis tax, municipalities
may tack on a small excise tax.
Meanwhile, Californians are
taxed anywhere from 23% -38%,
including a statewide cannabis
excise tax, sales tax and local
taxes.
At the federal level, explains
Martha Salzman, clinical assis-
tant professor of accounting
and law, Section 280E of the
Internal Revenue Code dictates
that companies "trafficking in
controlled substances" cannot
deduct operating expenses for tax purposes.
"That makes doing business in this industry differ-
ent than most every other kind of business," Salzman says.
"While they can reduce their gross receipts by the cost of
goods sold—inventory for a dispensary, or raw materials
and production expenses for a farm—for federal income tax
purposes, they cannot deduct advertising, selling and other
business expenses. The impact of that could be substantial."
High hopes
Cannabis retail sales will begin in New York in 2022, and
businesses are gearing up to get a slice of what's projected to
be a $4.2 billion market by 2027, according to MPG Consulting.
Thomas Hughes, BS '10, senior associate and co-leader of the
cannabis practice at Lippes Mathias, says there may be up
to 1,000 retail licenses in the state, and he's already helping
clients prepare for the application process.
"The startup costs can be significant, but at the end of
the day, there's a huge untapped market here," he says. "We've
seen it in other states; if you have the right business plan,
there is money to be made in retail, cultivation, processing
and distribution. I expect there are going to be a lot of canna-
bis-related millionaires in Buffalo."
Many investors are certainly optimistic, Fotak says.
"Over most periods, 'sin' stocks tend to outperform the
market," he says. "The simple fact that some investors, for
moral reasons or internal constraints, will not invest in these
businesses means the price of a 'sin' asset tends to be under-
valued and produce abnormally high returns.
Salzman
Hughes
