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The IRS is NOT Going to Play Ball with Cannabis Companies on 280E Tax Refund Checks

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The Internal Revenue Service (IRS) will persist in pursuing tax payments from marijuana businesses that have taken deductions in anticipation of a potential federal rescheduling, according to a federal agency attorney. If such a reform is implemented, the attorney notes that the IRS could potentially be authorized to seize assets from cannabis companies that fail to meet their tax obligations.

IRS Clarifies Continued Enforcement of 280E Despite Potential Marijuana Rescheduling

IRS Senior Counsel Luke Ortner addressed the possible effects of the Biden administration’s proposal to reschedule marijuana from Schedule I to Schedule III of the Controlled Substances Act (CSA) during a fireside chat at the American Institute of Certified Public Accountants (AICPA) cannabis conference in Denver last month.

 

Although this change in policy would let state-licensed cannabis firms claim federal tax deductions that were previously forbidden by IRS code 280E, several significant corporations have already made such claims, even though the rulemaking process is still in progress.

 

For instance, in January, multi-state operator Trulieve disclosed it had received $113 million in 280E refunds it had applied for. Similarly, TerrAscend and Ascend Wellness have announced expectations for 280E refunds.

 

However, the IRS later clarified that the 280E policy remains in effect until a final rule is issued. Ortner reaffirmed this position during last month’s conference, stating that even if rescheduling is implemented, the IRS will “continue to enforce 280E for years prior” to the reform, according to a summary of his remarks by the CPA firm Holland & Hart.

 

“The IRS’s policy is not to overlook past violations just because the rules have changed moving forward,” the firm paraphrased Ortner during the closed-door session.

 

An IRS spokesperson confirmed on Monday that the agency consulted with Ortner, who verified the accuracy of Holland & Hart’s summary of his comments.

 

 Legal Challenges to 280E Persist as IRS Reaffirms Strict Interpretation.

Companies and industry stakeholders have put forth various legal arguments to support their 280E tax deduction claims, including asserting that the policy should not apply to businesses whose marijuana operations are entirely intrastate.

 

IRS Senior Counsel Luke Ortner acknowledged that ongoing court cases may ultimately shape how the IRS handles these matters in the future. However, for the time being, the agency’s stance remains unchanged, and it will seek to reclaim any payouts granted in violation of 280E.

 

“As of now—unless courts decide otherwise—the IRS interprets section 471(c) narrowly and will maintain its position that it does not provide a loophole to bypass 280E,” Ortner said, according to a summary from the CPA firm Holland & Hart.

 

The summary also noted that Ortner reassured accountants they would not face penalties for assisting state-licensed cannabis businesses with their tax filings.

 

Currently, with marijuana classified as a Schedule I federally prohibited substance, the IRS has largely deferred to the Drug Enforcement Administration (DEA) for enforcement and has not aggressively pursued cannabis businesses, regardless of their tax compliance. Ortner noted that this approach could change if marijuana is rescheduled.

 

According to the summary, the IRS “could seize and sell a cannabis business’s assets—including marijuana inventory—to satisfy unpaid tax liabilities” if rescheduling occurs.

 

While the IRS has previously seized and auctioned off “vice products” from alcohol and tobacco companies that violated federal tax laws, these products are not classified under the Controlled Substances Act (CSA). Since marijuana would remain federally controlled even if moved to Schedule III, Holland & Hart partner Rachel Gillette suggested it’s unlikely the IRS would seize cannabis products under the new classification.

 

“Schedule III still classifies marijuana as a controlled substance, just in a different category of the CSA. The IRS might have to wait for full descheduling to seize marijuana assets if ‘illegality’ is the issue,” Gillette said. “However, the IRS could become more comfortable seizing and selling lights, grow equipment, and similar assets under Schedule III. Cannabis products themselves might still be a challenge.”

 

The rescheduling decision is not final yet. President Joe Biden recently acknowledged this while highlighting the administration’s role in initiating the review that led to the Schedule III recommendation. The DEA is set to hold an administrative hearing in December to gather further input before potentially moving forward with the rulemaking process.

 

State-Level Relief and Congressional Action Offer Hope for Cannabis Industry Amid IRS Enforcement

Meanwhile, a number of states have put policies into place to offer marijuana companies impacted by the IRS 280E legislation state-level tax relief.

 

Furthermore, a measure that would change the IRS law and enable state-legal marijuana firms to ultimately claim federal tax deductions that are accessible to other sectors was proposed by Representative Earl Blumenauer (D-OR) in April.

 

The Internal Revenue Service (IRS) “has offered little tax guidance regarding the application of Section 280E,” according to a 2021 study from the Congressional Research Service (CRS).

 

In a 2020 update, the IRS clarified that 280E does not “prevent a marijuana industry participant from reducing its gross receipts by the properly calculated cost of goods sold to determine gross income,” even if cannabis firms are not permitted to deduct conventional business expenses.

 

This modification seems to address a 2020 report from the internal watchdog of the Treasury Department, which blasted the IRS for not giving marijuana business taxpayers enough advice on complying with federal tax laws. The IRS was asked to “develop and publicize specific guidance for the marijuana industry” by the inspector general for tax administration. 

 

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Should You Freeze Your Weed Down to -320°F to Kill Mold and Save a Ton of Money?

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At VIST Labs, innovative cryogenic pasteurization technology addresses one of the industry’s most pressing issues: microbial contamination. With more than 100 patents and three decades of experience in food, pharmaceutical, and cannabis packaging, Jim Sanfilippo is revolutionizing cannabis safety.

 

In a market valued at $35 billion, Sanfilippo’s breakthroughs are essential for cannabis brands aiming to uphold product quality while managing intricate regulatory hurdles.

 

From Nuts to Frozen Nuggs: A Journey of Packaging Innovation

 

Jim Sanfilippo’s expertise in packaging didn’t begin with cannabis. His roots trace back to his family’s food business, where his innovations revolutionized how perishable goods were preserved. Sanfilippo’s pioneering work in oxygen-free packaging started with something as simple as nuts. Recognizing that oxygen was a key factor in the degradation of food, he developed advanced packaging methods that extended shelf life and maintained product freshness. These early breakthroughs in food safety laid the foundation for future innovations in both the food and pharmaceutical sectors.

 

Sanfilippo’s packaging methods were created to preserve the integrity of delicate goods by removing oxygen from the surrounding air and preventing contamination and spoiling. This strategy proved to be so effective that it attracted the interest of significant figures in the packaging sector. After selling two of his company’s divisions to packaging behemoth Sonoco in 2017, Sanfilippo made the decision to concentrate his skills on a brand-new, quickly expanding market: cannabis.

 

“Cannabis is a $35 billion industry in the U.S., but it faces significant challenges with microbial contamination,” Sanfilippo says. Sanfilippo recognized an opportunity to apply similar concepts to cannabis, keeping the plant’s potency, flavor, and safety while solving the industry’s essential issue of contamination. His packaging solutions have previously prolonged the shelf life of other goods. His transition from food to cannabis was more than simply a financial decision; it was a logical step for a seasoned entrepreneur trying to address complicated issues in a field ripe for disruption.

 

Sanfilippo’s packaging methods were created to preserve the integrity of delicate goods by removing oxygen from the surrounding air and preventing contamination and spoiling. This strategy proved to be so effective that it attracted the interest of significant figures in the packaging sector. After selling two of his company’s divisions to packaging behemoth Sonoco in 2017, Sanfilippo made the decision to concentrate his skills on a brand-new, quickly expanding market: cannabis.

 

Today, Sanfilippo’s innovations in cannabis packaging mirror the same meticulous approach he took in his family’s food business, ensuring that every product remains as potent and pure as the day it was harvested.

 

Cryogenic Pasteurization: The Cannabis Industry’s Hidden Solution

 

VIST Labs’ invention centers on cryogenic pasteurization, a procedure that sterilizes cannabis while retaining its natural components using medical-grade cryogenic vapor. “Cannabis is often contaminated with yeast, mold, and harmful pathogens like Aspergillus,” adds Jim Sanfilippo.

 

He explains that traditional sterilizing procedures, like as gamma radiation or ozone, might harm cannabinoids and terpenes, resulting in lower-quality goods.

 

How it works…

 

VIST’s method lowers oxygen levels to prevent oxidation and stop microbial growth without compromising product integrity. The process starts by loading 4-5 pounds of cannabis into a product cassette, which is then placed inside the pasteurization machine, a refrigerator-sized unit.

 

The VIST chamber is then activated, using cryogenic vapor formed by vaporizing liquid nitrogen at -320°F and combining it with a medical-grade atmosphere.

 

In just 90 to 150 seconds, the chamber fills with vapor, reducing oxygen levels to as low as 95%, effectively eliminating harmful microbes like Aspergillus, E. coli, and Salmonella.

 

Once sterilized, the product is rapidly cooled with liquid nitrogen, preventing oxidation. Finally, a HEPA filtration system purifies the air, removing any residual contaminants and ensuring the cannabis is packaged in aseptic, low-oxygen conditions for maximum purity and stability.

 

A Modular Solution for the Cannabis Industry

 

VIST Labs’ cryogenic pasteurization machines are built with modularity in mind, providing flexibility for both mid-sized cultivators and large-scale operations. “We can operate in cassette mode at 25 pounds per hour, or scale up to our high-output setup, handling up to 40 pounds per hour,” said Jim Sanfilippo in an interview.

 

But VIST Labs’ system is more than just a sterilization machine—it’s a comprehensive packaging solution. After sterilization, the cannabis is transferred into a bulk device that packs it into bags of various sizes, ranging from one to ten pounds, or into smaller pouches for quantities like an eighth-ounce. “Our system includes a cooler, pouch bagger, and other components that work together to maintain a near-zero oxygen environment,” Sanfilippo explained.

 

This scalability makes VIST’s technology suitable for a wide range of cannabis businesses, whether they’re aiming to meet strict medical market standards or preserve medical-grade crops for export.

 

The aseptic packaging system adheres to European Pharmacopoeia standards, ensuring compliance in both domestic and international markets.

 

VIST’s forward-thinking technology also prepares cannabis companies for potential federal legalization. As federal oversight looms, Sanfilippo emphasizes that more stringent regulations, particularly around truth-in-labeling, will make compliance technologies like theirs vital for long-term success.

 

“With our system, we offer protection for the crop year and complete microbial control for up to a year,” said Sanfilippo, noting that VIST expects to package nearly 150 million pounds of outdoor-grown cannabis in 2023 alone.

 

Beyond decontamination, VIST’s system addresses a critical issue in the cannabis industry: the degradation of THC potency over time. Fluctuating oxygen levels in packaging often result in mislabeled products, leading to recalls and regulatory consequences.

 

“Within 45 to 50 days, THC levels can degrade by 10% or more, making label claims inaccurate,” said Sanfilippo. VIST’s modified atmosphere packaging (MAP) ensures product stability for up to a year, helping brands stay compliant and maintain product safety.

 

Bottom Line

 

VIST Labs, led by packaging innovator Jim Sanfilippo, is transforming cannabis safety and preservation with its cryogenic pasteurization technology. By freezing cannabis at -320°F, this groundbreaking process effectively eliminates microbial contamination without compromising the plant’s integrity. Offering scalable, modular solutions for cultivators of all sizes, VIST Labs ensures compliance with stringent industry standards, both in the U.S. and internationally. As the cannabis market expands and federal regulations tighten, VIST’s forward-thinking technology positions brands for long-term success by maintaining product quality, extending shelf life, and safeguarding potency—crucial elements in a $35 billion industry.

 

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Why is Volkswagen Interested in Hemp? Auto Manufacturers Turn Their Attention to Industrial Hemp

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The history of human use and consumption of hemp is long and colorful.


As early as 2800 BCE, ancient Chinese were already using hemp to manufacture textiles, durable fabrics, and fibers which were used for fishing nets, ropes, and clothing. It was also used for European sailcloth, paper, food, medicine, and so much more. Unfortunately, along with modern economies and the advancement of technology, we began using hemp far less.


However, politics is one of the biggest reasons why. The Marijuana Tax Act of 1937 and the Controlled Substances Act of 1970, specifically, as well as the War on Drugs, promoted negative associations with marijuana. Even its non-psychoactive cousin, hemp, was affected.

That said, we’re seeing a rise again in the popularity of hemp. People are now rediscovering an underrated material that was once highly prized for its durability – plus, it’s so much more environmentally-friendly compared to cotton and other synthetic fabrics like nylon. We’re now seeing incredible modern uses of hemp such as hempcrete, hemp plastic, biofuel, nanomaterials, insulation, and even batteries.

 

Now, even the legendary German car brand, Volkswagen, is seeing the value of using hemp.

 

Partnership With Revoltech GmbH

 

Volkswagen announced in a press release that they had just engaged into a partnership with Revoltech GmbH, a German start-up that manufactures sustainable and high-quality textiles that is entirely created with hemp residue. Since the products are made from by-products, it’s easy on the environment and can even be recycled again after it’s reached the end of its life cycle.


This fabric will be going into Volkswagen vehicles as a replacement for faux leather. Compared to faux leather, hemp byproducts contain a high cellulose level which makes it stronger while retaining a light weight. However, Volkswagen isn’t the first car brand to do so: Back in 1941, Henry Ford famously built a vehicle entirely out of plastic derived from hemp, as well as other plant material. The vehicle, Model T, was comprised of bioplastic made from hemp, wheat, flax, and even spruce pulp. As a result, this innovative vehicle was even lighter than fiberglass yet was 10 times stronger than steel!

 

Thanks to the new partnership between Volkswagen and Revoltech GmbH, we can look forward to revolutionary materials instead of faux leather in future vehicle models. They are working on all-natural material known as LOVR™ (leather-free, oil-free, vegan and residue-based) which will serve as a surface material created specifically for use in automobiles.

 

The hemp will be sourced from hemp fields around the region, and it’s entirely composable and recyclable too.

“In our search for new materials, we are very open to new ideas from many different industries. At Technical Development, we place a strong focus on innovative, creative and sustainable solutions for holistic, resource-saving vehicle development,” said Kai Grünitz, Volkswagen Brand Board Member for Technical Development.

 

We won’t be seeing the LOVR™ fabrics in Volkswagen’s cars until 2028. Until then, the companies will be working tirelessly on developing this incredible material.

 

Other Uses Of Hemp For Vehicles

 

More vehicle companies than ever are seeking out sustainable options for businesses and operations – and the automobile industry is one of them. Volkswagen isn’t one of the first, as you’ll read on later below.

 

In addition, both big and small companies are seeing the potential of hemp replacing plastic and other unsustainable materials previously used in operations. While Henry Ford had a vision that his bioplastic car would end up being much lighter, safer, and more affordable than other vehicles, World War II forced vehicle production to shut down abruptly. Unfortunately, Ford’s dreams of developing sustainable cars from bioplastics were never achieved but his dream is potentially being revisited in different iterations today.

Hemp-Reinforced Polypropylene

 

Aside from using hemp in place of faux leather, hemp fibers can also be used as a replacement for talc in car plastics. It’s used in a number of car parts such as drink holders, bumpers, panels, door trims, and much more. Heartland Industries has successfully produced hemp-reinforced polypropylene using plastic compounds that make it simpler for car companies to integrate it with existing products.

 

It’s good to note that hemp weighs approximately 80% lighter compared to calcium carbonate, glass fiber, and talc. As a result, using hemp-reinforced polypropylene can weigh as much as 60% less!

 

 

Luxury Brands Already Use Hemp

 

Many of the biggest luxury names in the car industry have already adopted hemp-based materials in their vehicles. Back in 2013, BMW began using hemp in their revolutionary electric car, the BMW i3. Hemp was designed into the car’s interior panels, which saved the car 350 kilograms.

 

Meanwhile, recently, Porsche unveiled their 718 Cayman GT4 Clubsport, a sustainable race car with an impressive array of hemp-based features. They used hemp instead of traditional carbon fibers for their car doors, which is considered a bold move for Porsche or the industry as a whole. It’s good to note that hemp is also famous for its insulating properties, which contributes to overall comfort when riding in vehicles. Passengers can expect quieter, smoother rides without energy-consuming cooling or heating systems that most cars today are reliant on.

 

Conclusion

 

When it comes to the potential of hemp for the automobile industry, we’re only in the beginning. We can expect to see a large number of revolutionary developments in the near future, using hemp and hemp-based composites not just in automobile manufacture but even in fuel. There are many exciting developments for hemp in this field!

 

MORE ON HEMP CARS AND CAR PARTS, READ ON…

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The Wild West of Weed – California Bans All Hemp-Derived THC Products and Cheech and Chong Sue!

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On September 23, 2024, California Governor Gavin Newsom’s emergency ban on hemp-derived THC products officially came into effect, marking a significant shift in the state’s approach to cannabis regulation. This decision has stirred a whirlwind of reactions from various stakeholders, including industry leaders, investors, medical patients, and advocates for cannabis reform.



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