James B. Mann, Seasoned Attorney in Tax Law – Interview Series

When it comes to cannabis companies paying taxes, the laws can often be both tricky and extremely expensive. Due to cannabis’ status as a Controlled Substance on the federal level, IRS Tax Code 280E ends up prohibiting many regular tax deductions that non-cannabis businesses can declare, among several other widespread issues. So even though the federal government views cannabis businesses essentially as illegal drug manufacturers, those same businesses are taxed almost endlessly by that same government. For a better understanding of the many taxation-related issues that cannabis businesses face, mycannabis.com had the pleasure of speaking with James B. Mann, a tax attorney with decades of vast experience in the subject of taxation law.

So, what subjects did you initially study at Cornell University, and what student organizations were you involved with? How did those organizations prepare you for both an MBA program at Columbia and the extremely prestigious Harvard Law School? 

I attended Cornell on a scholarship that required me to live in the Telluride House, a scholarship house on campus, so I was involved with that. Most of my housemates went on to get PhDs and become professors, but I wasn’t interested in academia so I went to law school. I was a government major, but if I had to do it over again I would have majored in ornithology (Cornell has a great department) because I continue to be passionate about birds but not government.

What topics/concepts regarding finance and accounting did your MBA program at Columbia mostly consist of? Which subjects became the most relevant and useful throughout your career?

I took lots of accounting courses on how to read financial statements and advanced topics like foreign currency accounting. Since tax law takes place in the framework of general financial accounting, all those courses were useful.

What fields of law did you focus on while attending Harvard Law School? While attending such a renowned law school, did you ever envision you’d become an expert in cannabis tax laws and a law firm dedicated to this specific section of tax law?

I focused on tax law at law school but I also took general business-y type classes on securities law and corporate law. Working in cannabis never really crossed my mind.

Your career path from being employed by the Department of Justice to running a cannabis-focused tax law firm is quite special. What were your regular duties while working with such a powerful government department, and what legal and professional skills became most useful while running The Office of Legislation and Policy?

I supervised the lawyers in charge of arguing appeals in federal circuit courts (and argued some cases there myself as well). I was the Department of Justice liaison for tax matters to Congress, and testified in front of Congress. Learning to appreciate the perspective of the Department of Justice and the IRS was incredibly helpful. Trying to do the right thing as a Department of Justice lawyer is the best legal job anyone could have.

How are the cases and matters handled by the Tax Division of the Department of Justice different from other divisions affiliated with the DOJ? Prior to any legalization efforts, did the Tax Division have to deal with any illegal cannabis-related cases or large precedent-changing cases such as Edmondson v. Commissioner (1981)?

During my time there, most drug-related tax cases were initiated by the IRS Criminal Investigation Division—at that time, Miami Vice was a big hit, and they all dressed like they were on the show. It was the height of the War on Drugs and now seems like ancient history.

What did your duties with Societe Generale consist of? And what relevant tax issues did Societe Generale and similar companies deal with regarding investing in renewable energy? How exactly is renewable energy “tax intensive”?

As a Managing Director, I was the North American Head of the Tax and Debt Advisory Group and helped to arrange complex financial transactions that arbitraged the differences in tax laws among different countries. Renewable energy in the United States is not economically feasible without government subsidies, including tax credits, so it was important to match projects with investors who could take advantage of the favorable tax treatment.

What inspired you to start your own law firm after decades of working for some obviously very high-profile clients, and why did you decide to specialize in the tax laws surrounding cannabis businesses? 

I was hired to be the head of the tax department at a law firm that had cannabis clients, and it became clear to me that there were not so many top-notch tax advisers in the industry. For example, none of the Wall Street law firms that I used as a banker would have anything to do with cannabis. I saw a need in the market and filled it. Being isolated during COVID it dawned on me how little support my law firm gave me while taking much of my billing revenue. I also realized how little I missed my commute by subway from Brooklyn to Midtown Manhattan. Going out on my own was easy.

From a legal and taxation standpoint, how detrimental is Tax Code 280E? How far-reaching are the ripple effects for cannabis businesses caused by this specific tax code?

Section 280E is a disaster for the industry, and if nothing changes, I expect many of the big cannabis companies to go broke in the not-too-distant future. The companies will have to go into uncertain and costly state court receiverships because the federal bankruptcy courts won’t take cannabis cases. The blanket denial of deductions results in companies being taxed on income they didn’t make, which is clearly unjust.

Legislatively, what would need to happen in order for licensed and compliant cannabis businesses not to be so heavily impacted by Tax Code 280E? Would a rescheduling on the federal level need to occur, or would a piece of federal legislation, such as the SAFE Banking Act, need to be passed and signed into law? 

Section 280E needs to be repealed so the cannabis industry can be taxed just like other industries. Rescheduling would be a disaster since no cannabis companies have a business model of only selling cannabis prescribed by physicians, so they would still be operating illegally, and the DEA could no longer look the other way. Rescheduling may also require additional restrictions on cannabis companies to comply with treaty obligations. The advocates of rescheduling do not seem to me to have thought this through, but that’s OK since rescheduling isn’t going to happen any time soon. SAFE Banking will be helpful at the margins but won’t address the fundamental economic issues.

Once cannabis businesses are no longer as heavily impacted by the many stipulations of Tax Code 280E, how would you predict that those businesses will finally be able to prosper and evolve?       

Since cannabis is ultimately a consumer packaged goods industry, I assume it will be like the beer industry, with dominant market share by a few big companies and a number of little craft brands that cater to niche markets.

Thank you for joining us, James! For more information on Mr. Mann and his law practice, please visit its website.