Regarding Kirsten Curry’s article on May 28, in which she said owners of cannabis providers can adopt qualified retirement plans under Internal Revenue Code (IRC) §401(a); this is indeed true, but the article is somewhat superficial.
As usual, the devil is in the details.
Under IRC §280E, no deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any state in which such trade or business is conducted.
So long as marijuana remains a Class 1 controlled substance, one cannot take a deduction for a plan sponsored by such a business.
A cannabis provider can indeed sponsor a plan, fund an employer contribution for the employees, allow the employees to make deferrals, etc.
Yet you trip over §280E (and possible RICO racketeering charges) if the owners themselves defer, receive contributions, or take deductions.
Custodian complications
Cannabis plan sponsors should also be aware that national custodians like Schwab, TD Ameritrade and others are unlikely to accept assets of a plan they sponsor. I have seen many vendors get around this problem by simply not telling the custodian what the plan sponsor does for a living.
Good policy?
If you are going to recommend a qualified retirement plan to a cannabis provider, from an ethical standpoint, you are obligated to fully disclose all the potential hurdles and special rules. Anything less is a fiduciary breach (if you are a fiduciary) and/or a violation of many codes of conduct maintained by ASPPA, NIPA, FINRA and similar organizations (if you are not a fiduciary).
Unfortunately, vendors just see all the money (cash) being generated by cannabis providers and just want to make the sale. Buyer beware.
R.L. “Dick” Billings, CPC, CEBS, RF, ERPA is Director of Marketing with Arizona-based Fiduciary Wise.