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For those not familiar with 280E, it is a federal statute that disqualifies all expenses beyond cost of goods sold for businesses involved in trafficking of Schedule I or II substances that was created in the 1980s.
The federal government was paid $120 million in taxes from Trulieve, while its shareholders ended up with a net income of $17.4 million.
GTI CFO Anthony Georgiadis called the federal government the company’s “largest financial partner” as he detailed its $128 million of cash taxes paid in 2021 on its recent conference call.
The high federal taxes reduce the amount of capital available for expansion projects, which leads to the need to sell additional shares of stock or to borrow.
EBITDA seems to be among the most popular metrics, but it’s important to remember that this excludes taxes as well as interest, which can be quite large given the higher rates that cannabis operators pay.
280E will remain in place, without new federal laws, as long as cannabis remains a DEA Schedule 1 or Schedule 2 drug.
We find it hard to imagine the federal government implementing an excise tax without also passing broader legislation that would make cannabis regulation an issue for the states.
As the industry continues to scale up, the taxation has become an increasing burden, depressing net income and reducing the ability of these companies to invest in capital projects or ultimately to repurchase stock or pay dividends.
IM Cannabis has been working towards integrating its four recently closed pharmacy acquisitions and is currently generating revenue in all three countries as it focuses on profitability and further increasing market share of its premium brand Wagner & Highland in 2022.
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