Weed Industry Sees Potential in ‘Opportunity Zone’ Breaks
March 13, 2019, 4:45 AM
Company poised to launch cannabis project in Los Angeles opportunity zone
Tax professionals worried about federal illegality, “sin businesses”
The question has bubbled up at various trade conferences in recent weeks, and the IRS doesn’t yet have an answer: Can investors use the 2017 tax overhaul’s “opportunity zone” incentives to fund a cannabis upstart?
The issue may boil down to a more biblical query—namely, whether something federally illegal can be considered a “sin.”
The 2017 law allowed investors who place capital gains in opportunity funds to defer capital gains taxes, and even reduce those liabilities if they hold their investments for more than five years under tax code Section 1400Z-2. If investors park money in the projects for a decade, they can completely avoid capital gains tax on gains from the sale of those investments.
One of the two opportunity zone sections of the tax code references a list of certain types of businesses, including liquor stores and tanning salons, that aren’t eligible investments. Marijuana dispensaries and other cannabis-related businesses aren’t on that list, leaving their status up in the air.
The question of their eligibility isn’t an entirely hypothetical one. Tax professionals who cater to the industry say some clients have shown interest in leveraging the program for state-legal weed enterprises, and a cannabis business incubator is already preparing to launch its own opportunity zone project in Los Angeles.
The IRS didn’t respond to requests for comment on the issue. The agency is still working on regulations governing the opportunity zones program: a second set of proposed rules were submitted to the White House Office of Management and Budget for review on March 12.
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