With the number of states that have recently approved initiatives for legalized recreational use of marijuana, and the laws passed in other states permitting the medical/medicinal use of marijuana, producers and retailers of marijuana are quickly growing. Accounting professionals and CPAs serving marijuana businesses are tasked with navigating the often ambiguous and sometimes contrarian state and federal legal information that affect this, albeit growing, niche.

In light of the ease of forming a corporation or limited liability company (“LLC”) in Colorado, most cannabis entrepreneurs elect to conduct their business via a corporation or LLC. Another option is to form a partnership. In practice relatively few cannabis businesses or organized as partnerships due to the potential for enhanced liability of a general partner.

Additional considerations for clients, who are encouraged to work closely with attorneys and accountants when incorporating, include the importance of following corporate formalities, organizational document drafting (and potential pitfalls), raising capital, avoidance of undisclosed ownership interests, consequences of violations, IRS Code Section 280E and income tax deductions, etc.

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