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Frequently Asked Questions

Listed below are some of the most frequently asked questions our team receives about R&D tax credits

When is the first year industrial hemp and hemp-derived CBD businesses can take advantage of the federal R&D tax credit?

Due to the passing of the 2018 Farm Bill, the first year hemp/CBD companies can take advantage of the R&D tax credit is the 2019 tax year.

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Can any hemp/CBD business take advantage of the federal R&D tax credit?

No. Currently, the hemp/CBD must be derived from the industrial hemp plant for businesses to take advantage of the federal R&D tax credit. Hemp/CBD products sourced from the cannabis sativa plant are not eligible.

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Why are industrial hemp/CBD businesses now able to claim these R&D tax credits?

Industrial hemp and hemp-derived products and businesses are no longer considered controlled substances.

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Can a cannabis business (THC, plant-touching) take advantage of the federal R&D tax credit?

No. Because cannabis and cannabis-derived products are still considered controlled substances, companies working in this area of the industry cannot claim federal R&D tax credits.

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Why can’t cannabis businesses take advantage of the federal R&D tax credit?

Cannabis and cannabis-related businesses are still considered a controlled substance, and therefore illegal under federal laws. Thus, IRC Section 280E applies to these businesses.

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Can a California plant-touching cannabis business take advantage of the California R&D tax credit?

Yes. However, whether your company is eligible depends on the type of registered business (e.g. C-corp versus LLC).

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Where can I learn more about state-by-state cannabis business rules and regulations?

There are many online resources with information on state-specific regulations for cannabis (plant-touching) businesses, but some are more trustworthy than others. For a reliable overview of state-by-state rules and regulations, see here.

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Can cannabis ancillary businesses (non-plant-touching) take advantage of the federal and state R&D tax credits?

Yes. If the ancillary business is not involved in controlling or trafficking a controlled substance (cannabis, etc.), then the business is not Section 280E limited. It can deduct its expenses and claim federal and state R&D tax credits.

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Which cannabis ancillary businesses (non-plant-touching), or sub-industries, are able to claim federal R&D tax credits under the new law?

There are several hemp/CBD-centric activities and cannabis ancillary industries—ranging from genetics companies to developers of sustainable packaging—that can now claim R&D tax credits. For a comprehensive list of sub-industries and products that potentially qualify, see here.

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What types of activities qualify for the R&D tax credit in hemp/CBD industries?

Many activities are considered research and development. If your company is working to create something new, or improving on an existing product or process, you most likely qualify.

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