Authored By: Kenneth Ford, Esq. LLM
Kenneth Ford is a tax lawyer who is passionate about the cannabis industry. He is licensed to practice law in Texas, Florida, and recently passed the Colorado bar. Mr Ford moved from Florida to Washington to work for the state’s Department of Revenue as a Tax Policy Specialist to gain keen insight into the taxation of marijuana in a recreational state. Mr. Ford has prior experience as general counsel for businesses, nonprofits, and a charter school. He is a former D-1 athlete who is also passionate about sports. His hope is to positively impact the cannabis industry for good of the economy and for the benefit of US citizens.
Governor Jay Inslee signed a bill recently that will make Washington the first state to have an organic cannabis certification system. Organic certification has been a hot topic for several states in recent years for better control and regulation. The Washington Agriculture department will administer the voluntary program certifying certain cannabis products as “organic.” This is an attempt to clean-up the market and provide cannabis grown pesticide-free. However, cannabis growers are not obligated to participate in the organic certification program. Currently in Washington, cannabis companies are able to label their product as “organic,” despite the use of chemicals when growing the product. The bill also approves allowing people to “gift” or share marijuana, opening home grows, and legalizing industrial hemp.
The irony behind the new law is that according to Washington state, marijuana is not considered an “agricultural product.”1 In fact, the last sentence under the Revised Code of Washington (RCW) 82.04.213(1) states, “‘[a]gricultural product’ does not include marijuana, useable marijuana, or marijuana-infused products, or animals defined as pet animals under RCW 16.70.020.” Since cannabis is not considered an “agricultural product,” the growers of such are not considered “farmers.” RCW 82.04.213(2)(a) defines “farmer” as:
any person engaged in the business of growing, raising, or producing, upon the person’s own lands or upon the lands in which the person has a present right of possession, any agricultural product to be sold, and the growing, raising, or producing honey bee products for sale, or providing bee pollination services, by an eligible apiarist (emphasis added).
This is significant because of the preferential tax treatment farmers get in Washington. For example, wholesale farmers are exempted from the state’s business and occupation tax (B&O tax) imposed on the privilege of doing business in the state. Whereas, wholesale growers of cannabis are subject to the B&O tax at rate of 0.484 percent on gross receipts.2 Also, “agricultural products” are exempted from property taxes pursuant to RCW 84.36.470. Moreover, there is a sales/use tax exemption for replacement parts on farm machinery and equipment that marijuana growers do not qualify for. These are potential tax savings that cannabis growers miss out on because they are not farmers.
The amount of money cannabis growers have to pay annually for B&O tax, property tax, and replacement parts could instead help sustain the success and operation of the business. Easily, these tax dollars could pay for utilities or the difference between operating in a loss for that business year.
RCW 82.04.625 allows for B&O tax exemption for performing custom farming, farm management services, and contract labor services for a “farmer.”1 Farm management services are acts such as choosing applying fertilizers or marketing crops. Allowing for tax exemption for custom farming or contract labor services in the cannabis industry would promote specialization amongst the growers, in turn making a better-quality cannabis product. This tax exemption allows companies to share workers who are experienced with a certain crop or farm process. Favorable tax treatment like this not only cuts down on costs, but also efficiency in operations. It’s unfair that the wine industry in Washington gets to benefit from the custom farming tax exemption, but not the cannabis industry.
There needs to be a growing concern about the policies and legislative intent behind cannabis laws in Washington state. The recent law of organic cannabis certification is quoted as “consumer driven” by the bill’s sponsor, Senator Ann Rivers. But, simple definitions of “agricultural product” or “farmer” are negatively affecting the industry more than whether weed is organic. These definitions stunt the growth of the cannabis industry, the growers who cannot benefit from consolidating and sharing workers/equipment.
The consumer’s outcry for organic cannabis is an outcry for a quality product with higher standards. And with higher standards comes higher prices, as we all know from previous purchases of any product that says “organic” on the packaging. But Washington is asking the cannabis industry to raise its standards when it’s not willing to lower the costs to growers. And how can any product be considered organic when it’s not grown by a farmer