Massachusetts cannabis businesses face licensing, taxation, local approval and continuing compliance requirements. Starting, operating or acquiring a business requires separate review of state, local and federal legal risks; state authorization does not establish compliance with federal law.

However, while marijuana is legal in Massachusetts, it is still heavily regulated and is still a Schedule I controlled substance under federal law. Among various other implications, this means that cannabis and marijuana businesses in Massachusetts face a number of challenging tax-related issues. 

State and Federal tax law compliance is a necessary part of doing business in any industry. For cannabis and marijuana businesses in particular, avoiding scrutiny from the Massachusetts Department of Revenue (DOR) and the Internal Revenue Service (IRS) is of critical importance. Not only could tax law violations lead to interest and financial penalties, but it could also lead to regulatory action (including license revocation), and it could potentially trigger a broader state or federal law enforcement investigation as well.

Advising cannabis industry clients on:

• business formation and operations

• medical and recreational licensing and regulatory compliance

• municipal approvals of host community agreements

• local siting, zoning and permitting requirements

• debt and equity financing and joint ventures

• real estate acquisitions, sales and leasing

• environmental issues affecting developers, landlords and tenants

• employment issues, including executive employment contracts, drafting employee handbooks and training on workplace policies and procedures

• tax matters

• intellectual property protection

• information privacy and data security planning

Disclaimer

Possessing, using, distributing or selling marijuana or marijuana-based products is illegal under federal law, even where a state law decriminalizes or legalizes such activities. Compliance with state law does not assure compliance with federal law. Any information on our website or in any client alerts does not and is not intended to provide any assistance in violating federal law.

Coordinating related legal issues

Contracts, premises and licensing arrangements should be reviewed together in a regulated business. Cannabis-industry compliance may need coordinated analysis with corporate governance and transaction documents. Consult the Massachusetts Cannabis Control Commission for state procedures and resources, without treating a state license as a determination of every other legal issue.

Identify the contracting entity and the authority of the person signing before evaluating a business commitment. Corporate governance and contract planning should be supported by checks of registration and authorization records. For a new venture, the IRS guidance on starting a business also helps organize tax preparation and recordkeeping without confusing the responsibilities of owners and the entity.

Read payment terms, notice provisions and dispute-resolution clauses in the context of the transaction. Contract review identifies the commitments the parties made; a breach-of-contract dispute also requires matching those commitments to performance records. If a court case is contemplated, review the applicable civil procedures before allowing one isolated clause to drive the entire strategy.

The contract price does not capture every financial consequence of a transaction. Income, payment and reporting questions should be considered alongside the transaction structure and allocation of responsibilities. The IRS business-startup resources help identify records requiring further review, while the appropriate treatment depends on the entity, transaction and relevant tax year.

When parties, assets or payments are located in different countries, identify where each relevant event occurred. Cross-border documentation and enforcement may need to be coordinated with foreign-income and tax-residency questions. The IRS international taxpayer resources provide a starting point for the U.S. tax issues, without establishing what another country’s law requires.

Personnel issues can affect both business operations and individual rights. Pay, working-time and separation records should be considered alongside the employer’s policies and management arrangements. For federal wage questions, consult the Department of Labor’s FLSA guidance and separately review state requirements. A job title or the label chosen by the parties is not a substitute for examining the facts.

Separate ownership and financing from the right to occupy a property. Real estate transaction documents may need to be reviewed together with leases, rent histories and repair records. The Massachusetts landlord and tenant resources are relevant to residential issues, while commercial arrangements require their own analysis of the governing contract and law.

In a cross-border business arrangement, corporate decisions and personal immigration eligibility require separate review. Corporate structure and employment documents may support the factual record, but do not replace an employment-based eligibility assessment. Use the USCIS employment-based guidance to check whether the category fits the position, experience and business records.

When payment becomes difficult, distinguish secured obligations, unsecured debt and disputed amounts. Debt-relief and bankruptcy options need to be assessed alongside pending claims and judgments. The federal courts’ Bankruptcy Basics explains the procedural framework, but does not by itself determine whether a particular debt can be discharged or an asset retained.

Long-term planning for an owner should address access to records and authority after death or incapacity. Estate administration and asset authority need to be coordinated with ownership and governance documents. The Massachusetts wills and estates resources help frame the review, while beneficiary designations, jointly held property and business interests should each be examined separately.