by Jonathan Bench, attorney at Harris Bricken
We work with international cannabis companies that operate in the United States and we regularly respond to inquiries from others who wish to enter the US market. Some are already selling in the US market through an intermediary such as a broker or sales agent. In the United States, there are four main ways to enter the market to do business, all of which have different advantages and disadvantages.
US Immigration Issues for International Cannabis Companies
First, I must point out the issue of US immigration to non-US citizens who are in any way involved or considering becoming involved with a US cannabis (marijuana) business. This includes international cannabis companies involving non-US citizens, whether only involved in their home country or in the United States. This includes owners and employees of international cannabis companies that do not have operations in the United States. This also includes cannabis consultants.
My colleague Akshat Divatia wrote a warning blog post discuss how involvement in a cannabis business could cause strangers to have significant issues with USCIS (U.S. Citizenship and Immigration Services) and USCBP (US Customs and Border Protection). He wrote:
“Even a foreign national who has never used marijuana could be declared inadmissible under the INA [Immigration and Nationality Act] on the basis of his involvement in a legal cannabis [marijuana] business, either as “an accomplice, accomplice, aide, conspirator, or conspirator with others” or an “illicit trafficker” of a controlled substance. »
In short, if you are a non-US citizen and believe you wish to become involved in any way with a legal marijuana business in the United States and are planning to enter the United States, you should consult a immigration lawyer. before you come to the USA
If, after considering the immigration implications for non-US citizens, you decide you want your international cannabis company to enter the US market, here are the main ways to do so:
International cannabis companies can sell products or services from abroad
If your company is not ready to enter the US market with an established presence, but wants to test the market’s appetite for its products, you can sell from abroad through a broker, agent, distributor, website or online marketplace. None of these activities should require you to set up a business entity in the United States, although you still need to manage many other aspects of doing business in the United States.
These other issues include the logistics of getting your product through US customs to your customers, receiving payments, paying certain US taxes, and paying your intermediaries. You also need to make sure you have strong contracts to protect your business interests and that you both follow US cannabis laws and regulations, which vary wildly from state to state.
This method of doing business in the United States presents the least market risk for international cannabis companies.
International cannabis companies can register a branch in the United States
If you intend to have some presence in the United States but are not ready to set up a US entity, you can start by registering your existing foreign company in a US state. Most US states give you this option, usually referred to as “establishing a branch”. In US legal terms, you will qualify your foreign corporation to do business in one or more US states.
The initial registration fee for the foreign qualification varies from state to state (usually less than $500), and all states require you to appoint a registered agent in their state and pay an annual fee (usually less than $400) to remain in good standing. In addition to this annual fee, you will need to submit additional company information, which varies from state to state. Some states, like Delaware and Wyoming, only require minimal information, such as the name and address of your registered agent. Other states, such as Washington and Utah, require the disclosure of at least some of a company’s owners, directors, and officers, whom Washington calls “directing persons.”
It is rare for a US state to require the disclosure of a company’s underlying owners. Maintaining general anonymity is often important for first-time market entrants. The IRS (Internal Revenue Service) collects this information when it issues your business a US TIN (tax identification number), but does not routinely share owner information with US states or any other third parties. If you don’t need a US bank account and don’t need to register with a state tax authority, you generally won’t need to obtain a TIN.
International Cannabis Company Type: Form a U.S. Flow-Through Entity (LLC)
If you have determined that you need or want to establish a US corporation rather than only qualifying your international cannabis company to do business in the US, then you need to decide what type of tax nexus you want to have with the US. . In other words, how much do you want to expose foreign owners of your US business to IRS scrutiny?
With few exceptions, you can decide how your foreign corporation is taxed at the US federal level. If you form a US corporation and check the box on the IRS form to be taxed as a flow-through entity, the foreign parent corporation(s) will be responsible for all tax liabilities arising from the US corporation. These forms include a wholly owned subsidiary for a single owner or a partnership for an entity owned by a partnership (two or more owners) or LLC (limited liability company)).
As noted above, when registering your international cannabis company in the United States, if you are forming a US company, you still need to decide which US state(s) to register in. You will choose a single US state as your primary registration location and then qualify. your US company to do business in other US states as needed based on your business model.
International Cannabis Company Type: Form a US Entity Taxed as a C Corporation
International cannabis corporations that do not wish to expose their owners to US tax liability will want to form a US entity (partnership, corporation, or LLC) and choose to have it taxed as a C corporation, even though the US entity will be subject to dual taxation.
Most of the non-US companies we work with would rather face the double taxation of a C corporation (first on corporate profits, second on shareholder dividends) than expose their owners to scrutiny scrutiny from the IRS. This is especially true in the cannabis industry where the IRS is more likely to audit even law-abiding hemp companies that are not involved in marijuana, which remains illegal as a controlled substance under the US federal law.
We expect significant changes in how US and non-US cannabis companies are treated by the federal government, although these conversations and rallying cries always seem to emerge strongest during election years and then recede without developments. significant. Either way, we will work to inform international cannabis companies so you can enter the US market on your own terms.
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