AndreTaxCo, PLLC

Kentucky Cannabis & Hemp Industries 

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IRC § 280E Analysis / R&D Tax Credit Eligibility

• Does Section 280E Apply to state individual income tax?

  • N/A

• Does Section 280E apply to state corporate income tax?

  • N/A

• Are State R&D Tax Credits Potentially Eligible for "Plant Touching" (e.g. producers, cultivators, manufacturers, retailers) Cannabis Companies?

  • No, subject to 280E restrictions. 

• Are State R&D Tax Credits Potentially Eligible for Industrial Hemp Companies & "Non-Plant Touching" Separate Trade or Businesses (e.g. testing laboratories)?

  • Yes​, subject to further 280E analysis regarding company activities, structure, and applicable state laws.

• See Kentucky R&D Credit Summary​

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State Law Background

(1) Hemp State Law Authority & Background​ 

• Ky. Rev. Stat. Ann. § 260.850 to 260.869 (2016)

  • Creates an industrial hemp research program and a commercial licensing program to allow hemp cultivation for any legal purpose.

  • The commercial growers’ license shall only be allowed subject to the legalization of hemp under federal law.

  • Growers are required to use certified seeds and may import or resell certified seeds.

  • Mandates the University of Kentucky Agricultural Experiment Station oversee a five-year hemp research program.

  • Creates the Industrial Hemp Commission, attached to the Agricultural Experiment Station, to oversee, among other things, the licensing, testing and implementation of regulations and rules related to hemp.

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(2) Medical Marijuana State Law Authority & Background - Limited Access Marijuana Product Laws (low THC/high CBD- cannabidiol)

• Statutory Language (year) - SB 124 (2014) Clara Madeline Gilliam Act Exempt cannabidiol from the definition of marijuana and allows it to be administerd by a public university or school of medicine in Kentucky for clinical trial or expanded access program approved by the FDA.

  • Patient Registry or ID cards - No

  • Allows Dispensaries - Universities in Kentucky with medical schools that are able to get a research trial. Doesn't allow for in-state production of CBD product.

  • Specifies Conditions - Intractable seizure disorders

  • Recognizes Patients from other states - No

  • State Allows for Retail Sales/Adult Use - No, only "cannabidiol".

• Are sales of medical marijuana subject to sales tax?

  • N/A.

• Is medical marijuana subject to an excise tax?

  • N/A.

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(3) Recreational Marijuana State Law Authority & Background​​​ - N/A​​

• Are sales of recreational marijuana subject to sales tax?

  • N/A.

• Is recreational marijuana subject to an excise tax?

  • N/A.

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(4) Does the State impose a Stamp Tax or Controlled Substances Tax?

• Yes. The Kentucky Marijuana and Controlled Substances Tax imposes a tax on producing, cultivating, manufacturing, importing, transporting, distributing, acquiring, purchasing, storing, selling, using or otherwise possessing in violation of KRS C. 218A, more than 5 marijuana plants with foliation, 42.5 grams of marijuana which has been detached from the plant on which it grew, 7 grams of any controlled substance, or 50 or more dosage units of any controlled substance, which is not sold by weight. See Ky. Rev. Stat. Ann. Sec. 138.870.

• The tax rate is $1,000 per plant, whether growing or detached from the soil, on each marijuana plant with foliation; and $3.50 on each gram, or portion thereof, of marijuana which has been detached from the plant on which it grew.

• Tax stamps, labels or other tax indicia required to be affixed to marijuana must be purchased from the Department of Revenue. See Ky. Rev. Stat. Ann. Sec. 138.874.