“ESOP as a business structure can give hope to new businesses as they look to grow the Minnesota cannabis sector.”
With new uncertainty around the federal legality of hemp products nationally and a rocky rollout of Minnesota’s cannabis market locally, we need to consider new policy solutions to help new Minnesota cannabis businesses achieve success for owners and employees.
Thankfully, there is a bipartisan path forward by allowing employee stock ownership plans (ESOPs) for cannabis businesses. Legislation allowing ESOPs has already been introduced (HF3330/SF3520) by members of both parties in both the House and the Senate.
ESOPs are uniquely suited to address the problems in Minnesota’s cannabis market. They create crucial tax benefits the industry desperately needs.
Due to IRS tax code 280E and federal prohibition, cannabis businesses cannot deduct business expenses like other businesses. As a result, they face debilitating effective tax rates that can exceed 70 percent. This creates a daunting environment for these new startup businesses, which currently have to pay leases and payroll, and they can’t even deduct payroll as a business expense.
ESOPs eliminate this issue. A 100 percent employee-owned company does not
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