MJBizMag October 2020 - 69

Consumers line up to purchase cannabis at Chicagoʼs Dispensary 33 on Jan. 1, 2020, the first day of legal adult-use sales in Illinois. Courtesy Photo
W
ould-be entrepreneurs might
be eyeballing the marijuana
industry in markets poised
to launch based on results of the
November election.
But what entry points provide the
best return on investment? Could it be
retail, with lines of customers that stretch
around the block in new markets? What
about cultivation or edibles manufacturing,
with products that become " musthaves "
for marijuana connoisseurs?
Maybe distribution, or even an ancillary
company that provides packaging,
security or some other type of service?
ANCILLARY THE EASIEST
The simplest answer for anyone looking
to make as much money as possible in
the state-legal U.S. marijuana markets
is to forget about launching a planttouching
business and start some type
of ancillary company, several industry
experts agreed.
The main reason for that is Section
280E of the federal tax code, which
disallows standard business deductions
for anyone who traffics in a controlled
substance, such as state-licensed
marijuana companies. That single
provision regularly costs marijuana
businesses millions of dollars.
" Why do you think I'm starting
an ancillary business? That's why I'm
getting out of the (plant-touching)
game, " said Karl Keich, who ran a retail
marijuana shop in Seattle for years
before selling to a larger conglomerate
in 2018. " I was under audit for six years
by the IRS. I'm sick of these guys. I'm
starting a software company. "
The lack of a tax burden for ancillary
businesses easily inflates their profit
margins far beyond what most marijuana
retailers, growers and manufacturers
enjoy, said Andrew Livingston, director
of economics and research at Denverbased
law firm Vicente Sederberg.
Arguably, Livingston said, those who
make the most profit these days are
consultants who traffic only in their own
know-how, since there's no overhead
for producing advice. Consultants often
are able to parlay their expertise into an
ownership percentage of plant-touching
companies.
" Sometimes, the people who make the
best ROI aren't even the people who are
selling the picks and shovels, " Livingston
said. " It's the people who sell advice
October 2020 | mjbizdaily.com 69

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MJBizMag October 2020

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