Episode 46

Tax Exceptions & Credits for Cannabis Businesses

From startup cannabusinesses to multi-state operators, finances and investing in the business’s growth are universal concerns. However, many cannabis operators aren’t aware of or don’t understand the financial opportunities that can help them level-up their operation without such a heavy monetary lift.

On this episode, we’ll talk to tax experts, solar experts, and energy efficiency experts about federal tax credits, tax exemptions, capital asset off-sets, and outside-the-box possibilities that can help your operation do more with less.


Mark Waller, Sam Milton, Betsy Moran, Justin Miller, Adam Kulbach, Paula Collins


Adam Kulbach  00:09

Hello and welcome to the higher enlightenment podcast brought to you by higher yields cannabis consulting your seed to sale Business Solutions team. My name is Adam part of the creative team here at higher yields and today’s episode number 46 deals with tax exemptions and credits for cannabis businesses. Our special guests include Betsy moram of Mormon Waller, Mark Waller of Mormon Waller, Justin Miller of Highlife solar, Sam Milton of climate Resources Group and Paula Collins tax attorney. From startup Canada businesses to multi state operators, finances and investing in a business’s growth are universal concerns. However, many cannabis operators aren’t aware of or don’t understand the financial opportunities that can help them level up their operation without such a heavy monetary lift. On today’s episode, we’ll talk to tax experts, solar experts and energy efficiency experts about federal tax credits, tax exemptions, capital asset offsets, and outside of the box possibilities that can help your operation do more with less. So let’s get on with the show. Okay, well, let’s get started. Let’s have you guys introduce yourselves. Just give us all background and tell us what you do, who you work for and what’s going on. Anyway, let’s start with you, Justin.


Justin Miller  01:38

Hi, everyone. I’m Justin Miller. I’m the owner and CEO of Highlife solar. We’re a renewable energy company that specifically caters to cannabis cultivators. A big part of what we do outside of you know, offsetting people’s electric usage is actually getting them tax credit eligible for those renewable energy tax credits. So I’m excited to discuss further with you guys.


Adam Kulbach  02:01

Right, well, thanks for being here. How about you, Betsy?


Betsy Moran  02:05

Yeah, hi, I’m Betsy Mora, with Mormon wall are CPAs. I’m a co founder and managing partner and we are a full service CPA firm specializes in the cannabis space. So we provide clients with services from bookkeeping to controller to fractional CFO to tax planning and preparation.


Adam Kulbach  02:27

Okay, thank you. How about you mark?


Mark Waller  02:31

Everybody, Mark Waller, Marvin Waller CPAs dime, the other half of the partnership of Mormon Waller alongside Betsy. And like she said, we work virtual CFO, and specifically in the cannabis industry, and have a wonderful tax partner, Paula Collins, who is really our resident tax experts, and I’ll let her talk about herself, but nice to be here. Thanks for having us.


Paula Collins  03:00

Okay, Paula. Hi, I’m Paula Collins. And I am a tax attorney specializing in the cannabis industry. And very proud to say that I am the exclusive tax partner of Mormon Waller, super jazzed for what’s going on in Minnesota. Currently, I’m based in New York, and I work in New York, New Jersey, and soon in Minnesota, but tax is all over the country. So I literally have tax clients all over the country.


Adam Kulbach  03:31

I will thanks for being a board. How about you, Sam, thanks for being on again.


Sam Milton  03:35

No worries. Pleasure. Thanks for having me. I appreciate it. Yeah, so my name is Sam Milton, I own and operate climate resources group. And we are a consultancy that works with growers and other businesses, to help them be smarter energy users and consumers. And, you know, for the purpose of increasing their their profits and reducing their overall environmental footprint. So for us, it’s a real win win win win folks use energy efficient technology, and especially when they get incentives from utilities and the state and feds to be adopting more clean tech energy. So for their facility, so yeah, so I’m here and you love getting my clients. Free money to do good stuff.


Adam Kulbach  04:13

Can you break it up a little there? Let’s get on a first question. This one’s directed to Justin but anybody else can pipe in after him. One of the things that you specialize in are PPAs and solar. Can you explain what a PPA is and how that works?


Justin Miller  04:31

Yeah, absolutely. So a lot of cultivators don’t necessarily have the capital to purchase a solar system outright. And so for cultivators that have any sort of land accessible or that they own, what we’ll do is we’ll lease the land that’s next to the cultivation. We’ll find an investor to purchase the solar array and they’ll own the solar array and then we’ll sell the energy that that solar array produces to the cultivator. really our goal with the PPAs For that cultivation to spend very little out of pocket to significantly lower their overhead costs and utilities. So we’ve had a lot of success with this. Again, it’s great for cultivators who don’t have the capital or necessarily the tax appetite to want to purchase a solar system.


Adam Kulbach  05:18

So who would be a good fit for a PPF


Justin Miller  05:22

cultivators of land, any cultivator that has, you know, the if their electric bill is a major pain point, and they’ve got some space next to their cultivation and PPAs a great fit for them.


Adam Kulbach  05:33

Okay, on average, how much could a cultivation save or in other terms, how long until cultivation sees a return on investment on PPA.


Justin Miller  05:44

As far as return on investment cultivation, we’ll see savings month one that it’s turned on. Really, for them, it’s it if you look at it from an ROI standpoint, if they’re purchasing the system, depending on where they’re located, the cost of utilities in the state that they’re in, we see anywhere from five to seven years for an ROI, someone’s purchasing the solar system. But for a PPA, the beautiful thing is once that system is turned on, they’re just making payments or the energy they’re getting from the solar array rather than to their utility company. So they’ll see savings month one with a PPA.


Adam Kulbach  06:24

Sam, you specialize in energy efficiency, what sort of capital asset offsets are available to cannabis businesses that want to upgrade to more energy efficient equipment?


Sam Milton  06:36

Yeah, I think that it’s a great question. So utilities across the country generally like to see any technology that can reduce energy consumption, for that customer. So for the cannabis space, via the big things are LEDs, the lighting lights, of course, and in a trek engine minifying systems. So the typical lighting system that folks use are 1000 Watt hybrid sodium fixtures, super energy intensive and put out a lot of heat. And utilities know that if a customer upgrades too much coming in lower light intensity fixtures, sex offender water, so that’s driven by LED drivers that that actually can actually put out as much light as 1000 Watt fixture, but for a fraction of the energy consumption. And for that, they can often spent, you know, give up 50% off, you know, the value of that fixture, you know, to talk to the consumer. So you can see the customer, you know, can buy a million dollars worth of equipment and get, you know, a half billion dollar, you know, check in the mail just for doing that. And that’s an average to, you know, some utilities will pay up 75% of the cost, and maybe even 100%, which is pretty crazy thinking about it. But yeah, these intent these programs exist, for the purpose of getting customers to reduce energy consumption, which is kind of, it’s funny, if you think about it, right, because utility is the business of selling energy. But these programs are the least set up, you know, by the state agencies. And you know, even the utilities are incentivized themselves to actually reduce the amount of power that they need to generate, because that costs money too. So these great programs, and anybody can take advantage of them, really, if they have a utility. If a utility, you know, has a program and most of the country do. So it’s always worth to ask and see if these are available for them.


Paula Collins  08:22

Right. So if they want to expand on that, yeah, I’ll jump in I, you know, I wear two hats, that is that tax professional and that of an attorney. And an attorney will always say, Well, it depends. And a tax professional will say the devil is in the details. And so what I want to caution people about and any listener, whether it’s for cultivation, or whether it’s just for regular consumer use, the refundable. The renewable credits for energy are not refundable credits. And I say that because I will often have a taxpayer approached me and say, Oh, well, you know, I made X amount of dollars, but I put these fantastic solar units in place, and so I’m waiting for my big cheque. And the credit is only up to certain certain levels of income. And so it’s not as if, you know, if you were operating very close to your bottom line, if you didn’t generate enough income, then you will not be getting that check. Now, you can have that check or that that credit extend into the future. But if you’re really really close to your bottom line, you’re not going to you know, you’re not going to make money off of this and other words, it will it will cut your tax bill but it is not something to look for. It’s not like an ATM.


Sam Milton  09:58

Yeah, I think an important distinction I’m here to, you know, immediately have this conversation. But there’s the federal and state tax apparatus, which a lot of the clean energy investments can can, you know, can get credit on. There’s also the utility programs, which literally, we’re just gonna write a check for a customer that makes an investment. And I don’t know, technology that’s eligible for the program. So lots of different ways that folks can get money. And I primarily from my work, deal with utilities, and the interface with them and customers, my grower clients to help them navigate that process, which I think exists, you know, independent from the tax structure. But you know, you guys are the tax and tax experts. So you would know that, that better than I would but but yeah, lies folks, they get until they get a checking utility for purchasing, you know, lights, and H fac. And it’s pretty with pretty well established program, it’s fairly exciting.


Paula Collins  10:55

The other thing I’d like to throw in is, you know, we’re taxed at so many different levels. And so we want to look at what are the tax credits that are available to you at the federal level, but also at the state level, and in many cases at the county, and in the case of New York City at the city level? So don’t just stop at the federal level, really explore how can you maximize your credits once you make this investment? Okay,


Adam Kulbach  11:23

this question is for Betsy, as our tax expert, how do the possibilities that Justin and Sam outlined affected businesses tax liabilities?


Betsy Moran  11:35

So I’ll actually diverge Paul over that. Mark. And I really specialize more in the day to day accounting. And Paula helps us with the tax details. So I think she touched on that a little bit. How credit can be applied to your tax liability to reduce it. But Paul, would you want to add anything more to that?


Paula Collins  11:57

Just to zero when that it affects the tax liability. But again, it’s not something to tap into. It’s not like a rebate. It is not a refundable credit. So I just want to emphasize that, and I’m emphasizing it actually, I have a really good friend who put solar panels on her home. And she’s not a very high income producer. But she literally thought she was going to get a check back for $30,000. No, it doesn’t work that way. It’s not a refundable credit. So I just really want to emphasize that, especially for, you know, a startup business that has tremendous expenses in that first year, this is a great program to get into, it’s good for the earth. It’s good for the longevity of the company. And you know, you’re finding a way to eventually make it so that your costs for your electricity are really being paid to you in a way am I correct? So what a beautiful thing, what I want to make sure of is that you’re not jumping into this thinking, well, I’ll sign on the dotted line, and I’ll get a big check at the end of the year, even if I’m in my first year, and I’ve had all these expenses, and therefore my profit is at a very low level.


Justin Miller  13:16

Oh, no, no, no, I apologize. Go ahead. Oh, yeah,


Mark Waller  13:19

no, you’re good. I would just add, add to that thinking from kind of that controller CFO level, where I think this can be advantageous is kind of on a holistic view of a business’s monthly expenses. And so that’s where if you can get, you know, solar into your company, and it saves you some money with the utilities. Those are things that I don’t see cannabis businesses doing at all really is thinking about thinking about those things and thinking about the kind of the fixed costs that a business has, that are just as valid and maybe a quicker way to save some money than than anything else. Really, it’s just to be looking at really be mindful of what are my fixed costs? What am I paying for energy? Is there something with this program that I can use that can reduce my long term energy expenses by X percent, like those are the kinds of things that I think are going to be really valuable? And maybe, you know, like Paula said, not going to be a magic bullet not going to be like a check that comes back to you and 50 with 50k, which I would also caution businesses who are hoping for credits to come back to say, well, you kinda have to look at your whole tax liability as a whole and that that might even if you get a check, it might just be you know, reducing your total taxable liability. So I wouldn’t think of it as a magic bullet so to speak, but it is an important piece of kind of managing the day to day business.


Betsy Moran  14:54

Yeah, just running to that. I just add one more thing to that from From organizing perspective, we’re always trying to find ways to help our clients be more sustainable, not just strictly from like an environmental standpoint, but as a business, how can you how can you be sustainable as a business, this is a type of industry where a lot of businesses come and go. So if you can present them with ways to conserve money over time, that helps them, you know, drop that to their bottom line, stay around longer, that’s a huge value add that, that we can bring to our clients.


Paula Collins  15:32

And just add on to that it’s a huge value add on. And it’s also it can, I could see it as part of the company’s branding, you know, the company presenting itself as a sustainable, you know, engaging in sustainable practices. And, you know, for those who are in startup mode, who might be looking at, you know, I always encourage people to look at exit strategies, even from day one, even if you are in love with your business and think this is my baby. By having this equipment in place and these solar systems in place, you certainly are positioning yourself for an exit strategy that’s very favorable to a future buyer. Now, those tax credits would arguably not be there for the buyer. But definitely the sustainable energy practices, the savings on costs for utilities, as well as just again, that branding and that that, you know, the Earth is, this is all we’ve got, we’ve got to take care of it.


Justin Miller  16:37

I couldn’t agree more with everything you guys have said. And something that often comes up with clients who are in year two or three is talking about future proofing their businesses. And so whether they’re looking at a PPA or purchasing the system, and and honestly, Paul, like you nailed it, if people don’t have the tax liability, pretty rarely will I ever recommend someone purchase it, there’s really, there’s really no point for them to do that. But the kind of crazy thing is that, that bottom line that we’re talking about from their energy costs, just this past year, Colorado utility bills went up 9%. And so for a lot of cultivators, I mean, besides labor, and sometimes it’s even more their utility bills, their largest overhead expense. So regardless of what industry you’re in, if your biggest expense goes up 9% year over year, it’s really hard to do anything sustainable. And so really the conversation we have is yes, it’s about the environment of the planet, but it’s future proofing your bottom line by now you have something that’s consistent that you can depend on. And you’re not at the mercy essentially of rate increases from the utility company.


Adam Kulbach  17:46

Absolutely. Okay, so what’s the difference between the tax credit and then the tax exemption,


Sam Milton  17:53

we just want energy consumer makes so much sense for a cultivation operation. Not only does it reduce the operating costs, As Justin mentioned, is really important. As you all mentioned, just because right, energy rates are generally going up, naturally, in the Northeast, where a 9% increase in power would be welcome for a lot of operators. So there’s definitely that piece. And you are reducing your environmental footprint to generally when you reduce your energy consumption. And given the focus that a lot of growers are having these days, on being more sustainable, maybe kind of having a lower overall cutting carbon footprint, which a lot of cities and states are requiring folks now to think about. That is doubly important. And not to mention also, you know, insurance costs can also go down. If an operator is choosing to use energy efficient women like LEDs, I know insurance premiums can actually be higher for those operators who use the 1000 Watt HPs fixtures, because they are a fire hazard. So there’s multiple reasons to certainly to think about your your energy, energy consumption. It’s not all just function of widgets, too. You know, folks can do energy audits, a lot of times paid for by utilities themselves, or they’ll do a cost share. And those will come up with some really interesting compelling, you know, operational adjustments that we can make, that can result to reduce our energy, energy consumption. And so it’s not it’s not just the bells and whistles, the books in purchase, but also how you operate the technology that you have.


Betsy Moran  19:22

What’s really interesting about perspective on the insurance costs as well. How that ties into it


Mark Waller  19:28

Yeah, yeah, that I mean, that’s to me that’s that’s gets back to just kind of thinking about your business holistically is that all the pieces connect to each other in some way. So I think a mistake businesses make some time as is thinking about their different functions in silos, when in reality they need to be thinking about their business holistically. So if there’s if there is a program like this that other areas of your business can Take advantage of it’s it’s definitely something you want to be proactive in pursuing.


Adam Kulbach  20:06

Okay, well, thank you. So what’s the difference between the tax credit and the tax exemption?


Paula Collins  20:12

So should I jump in anybody? Um, well, basically a tax credit is going to come after we figured out your entire tax bill. But whereas a tax exemption is going to say that certain amounts of your income are not going to be computed for tax purposes. So, if you if your company made a million dollars, but somehow you had an exemption on $30,000 of that income, then your your income would be, or your tax bill would be computed on that 1 million minus 30,000. Whereas the tax credit would come after we had already computed the $1 million, figured out what that tax bill is, and then offered a credit afterwards. Okay.


Adam Kulbach  21:05

Where should people get started in learning more about this? And how do they go about getting the most benefits they can from these tax credits and exemptions? Well,


Paula Collins  21:17

I like Mark’s word. And Mark and Betsy, take the idea of looking holistically at the enterprise, and determining what are the strengths? What are the weaknesses? What’s an opportunity? And what is a threat? And as I say, you know, the threat as a tax person, you know, we’re very negative people really. So I’m gonna say, Oh, well, do you really need to spend that money? Or do you really think you’re gonna get that money back, but here’s this wonderful opportunity to do a lot of good, and to make your business, really, so much more sound and on so many different levels. And so I really want to encourage people to look holistically, talk to the energy people, but then also talk to your accountant, talk to your attorney, talk to your operations people and see well, what are we cutting corners on our energy usage? Because we’re worried about cost? And is this a way that we could really kind of, you know, take a deep breath and think, okay, we can we can use our energy that we really, really need for this cultivation venture. Okay.


Adam Kulbach  22:29

Well, I’m just about out of questions. So does anybody have anything you want to add or replug or talk about?


Mark Waller  22:36

I’ll just, I’ll just add that it’s a really good time to be thinking about taxes. If you haven’t already, which I know pretty much everybody is thinking about taxes in March and April, but it’s never too late to get things right. And things are off off track. So certainly, feel free to reach out to Betsy or Paula or I talked more about that. All right. Well, thank


Adam Kulbach  23:03

you very much for being on the podcast today. Appreciate it.


Justin Miller  23:07

Yeah. Thank you, Adam.


Betsy Moran  23:09

Thanks for asking us.


Mark Waller  23:11

Thanks for having me.


Justin Miller  23:12

And it was nice to have you guys since Yeah.


Adam Kulbach  23:20

Well, thank you for listening, everybody. For more information about our podcasts, or to add suggestions. Or if you want to be a guest on our show, check out the description below. Or please call us at 844 High yield, that’s 8448 Chai y I E L D. And also check out our website at higher yields consulting.com. There you’ll find all sorts of great information and all of our previous podcast episodes. We hope that you’ll join us for our next podcast coming up very soon. So until then, thank you very much, and have a great day.